Full text : BusOrg I Cases 2018

ART.1767 Buenaventura Remotigue, and his brothers

FEDERICO G.R. Doroteo and Tomas Jarantilla.[6]
JARANTILLA, JR., No. 154486
Petitioner, In 1948, the Jarantilla heirs
Present: extrajudicially partitioned amongst themselves
the real properties of their deceased
- versus - CORONA, C. parents.[7] With the exception of the real
J., property adjudicated to Pacita Jarantilla, the
Chairperson, heirs also agreed to allot the produce of the said
ANTONIETA LEONARDO real properties for the years 1947-1949 for the
JARANTILLA, -DE studies of Rafael and Antonieta Jarantilla.[8]
BUENAVENTURA CASTRO,
REMOTIGUE,SUBSTITUT PERALTA,* In the same year, the spouses Rosita
ED BY CYNTHIA ABAD,** and Jarantilla and Vivencio Deocampo entered into
REMOTIGUE, DOROTEO PEREZ, JJ. an agreement with the spouses Buenaventura
JARANTILLA and TOMAS Remotigue and Conchita Jarantilla to provide
JARANTILLA, Promulgated: mutual assistance to each other by way of
Respondents. financial support to any commercial and
December 1, agricultural activity on a joint business
2010 arrangement. This business relationship proved
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - to be successful as they were able to establish a
- - - - - - - - - - - - - - - - - -x manufacturing and trading business, acquire real
properties, and construct buildings, among other
things.[9] This partnership ended in 1973 when
DECISION the parties, in an Agreement,[10] voluntarily
agreed to completely dissolve their joint
business relationship/arrangement.[11]
LEONARDO-DE CASTRO, J.:
On April 29, 1957, the spouses
This petition for review Buenaventura and Conchita Remotigue
[1] executed a document wherein they
on certiorari seeks to modify the
Decision[2] of the Court of Appeals dated July acknowledged that while registered only in
30, 2002 in CA-G.R. CV No. 40887, which set Buenaventura Remotigues name, they were not
aside the Decision[3] dated December 18, 1992 the only owners of the capital of the businesses
of the Regional Trial Court (RTC) of Quezon Manila Athletic Supply (712 Raon Street,
City, Branch 98 in Civil Case No. Q-50464. Manila), Remotigue Trading (Calle Real, Iloilo
City) and Remotigue Trading (Cotabato
The pertinent facts are as follows: City). In this same Acknowledgement of
Participating Capital, they stated the
The spouses Andres Jarantilla and Felisa participating capital of their co-owners as of the
Jaleco were survived by eight children: year 1952, with Antonieta Jarantillas stated as
Federico, Delfin, Benjamin, Conchita, Rosita, eight thousand pesos (P8,000.00) and Federico
Pacita, Rafael and Antonieta.[4] Petitioner Jarantilla, Jr.s as five thousand pesos
Federico Jarantilla, Jr. is the grandchild of the (P5,000.00).[12]
late Jarantilla spouses by their son Federico
Jarantilla, Sr. and his wife Leda The present case stems from the
[5]
Jamili. Petitioner also has two other brothers: amended complaint[13] dated April 22, 1987
Doroteo and Tomas Jarantilla. filed by Antonieta Jarantilla against
Buenaventura Remotigue, Cynthia Remotigue,
Petitioner was one of the defendants in Federico Jarantilla, Jr., Doroteo Jarantilla and
the complaint before the RTC while Antonieta Tomas Jarantilla, for the accounting of the
Jarantilla, his aunt, was the plaintiff therein. His assets and income of the co-ownership, for its
co-respondents before he joined his aunt partition and the delivery of her share
Antonieta in her complaint, were his late aunt corresponding to eight percent (8%), and for
Conchita Jarantillas husband Buenaventura damages. Antonieta claimed that in 1946, she
Remotigue, who died during the pendency of had entered into an agreement with Conchita
the case, his cousin Cynthia Remotigue, the and Buenaventura Remotigue, Rafael Jarantilla,
adopted daughter of Conchita Jarantilla and and Rosita and Vivencio Deocampo to engage
in business. Antonieta alleged that the initial

1
 Full text : BusOrg I Cases 2018

contribution of property and money came from plaintiff and to defendant

the heirs inheritance, and her subsequent annual Federico Jarantilla, Jr. of their
investment of seven thousand five hundred rightful share of the assets and
pesos (P7,500.00) as additional capital came properties in the co-
[18]
from the proceeds of her farm. Antonieta also ownership.
alleged that from 1946-1969, she had helped in
the management of the business they co-owned
without receiving any salary. Her salary was The RTC, in an Order[19] dated March
supposedly rolled back into the business as 25, 1992, approved the Joint Motion to Approve
additional investments in her behalf. Antonieta Compromise Agreement[20] and on December
further claimed co-ownership of certain 18, 1992, decided in favor of Antonieta, to wit:
properties[14] (the subject real properties) in the
name of the defendants since the only way the WHEREFORE, premises
defendants could have purchased these above-considered, the Court
properties were through the partnership as they renders judgment in favor of the
had no other source of income. plaintiff Antonieta Jarantilla and
against defendants Cynthia
The respondents, including petitioner Remotigue, Doroteo Jarantilla
herein, in their Answer,[15] denied having and Tomas Jarantilla ordering the
formed a partnership with Antonieta in latter:
1946. They claimed that she was in no position
to do so as she was still in school at that time. In 1. to deliver to the
fact, the proceeds of the lands they partitioned plaintiff her 8% share
were devoted to her studies. They also averred or its equivalent
that while she may have helped in the amount on the real
businesses that her older sister Conchita had properties covered by
formed with Buenaventura Remotigue, she was TCT Nos. 35655,
paid her due salary. They did not deny the 338398, 338399 &
existence and validity of the Acknowledgement 335395, all of the
of Participating Capital and in fact used this as Registry of Deeds of
evidence to support their claim that Antonietas Quezon City; TCT
8% share was limited to the businesses Nos. (18303)23341,
enumerated therein.With regard to Antonietas 142882 &
claim in their other corporations and businesses, 490007(4615), all of
the respondents said these should also be limited the Registry of Deeds
to the number of her shares as specified in the of Rizal; and TCT
respective articles of incorporation. The No. T-6309 of the
respondents denied using the partnerships Registry of Deeds of
income to purchase the subject real properties Cotabato based on
and said that the certificates of title should be their present market
binding on her.[16] value;

During the course of the trial at the 2. to deliver to the

RTC, petitioner Federico Jarantilla, Jr., who was plaintiff her 8% share
one of the original defendants, entered into a or its equivalent
compromise agreement[17] with Antonieta amount on the
Jarantilla wherein he supported Antonietas Remotigue Agro-
claims and asserted that he too was entitled to Industrial
six percent (6%) of the supposed partnership in Corporation, Manila
the same manner as Antonieta was. He prayed Athletic Supply, Inc.,
for a favorable judgment in this wise: MAS Rubber
Products, Inc. and
Defendant Federico Buendia Recapping
Jarantilla, Jr., hereby joins in Corporation based on
plaintiffs prayer for an the shares of stocks
accounting from the other present book value;
defendants, and the partition of
the properties of the co- 3. to account for the
ownership and the delivery to the assets and income of

2
 Full text : BusOrg I Cases 2018

the co-ownership and (2) after accounting,

deliver to plaintiff her defendant Federico
rightful share thereof Jarantilla, Jr. be given
equivalent to 8%; his share of 6% of the
assets and profits of
4. to pay plaintiff, the above-mentioned
jointly and severally, enterprises; and,
the sum holding that
of P50,000.00 as
moral damages; (3) plaintiff Antonieta
Jarantilla is a
5. to pay, jointly and stockholder in the
severally, the sum following
of P50,000.00 as corporations to the
attorneys fees; and extent stated in their
Articles of
6. to pay, jointly and Incorporation:
severally, the costs of
the suit.[21] (a) Rural Bank of
Barotac Nuevo, Inc.;

Both the petitioner and the respondents (b) MAS Rubber

appealed this decision to the Court of Products, Inc.;
Appeals. The petitioner claimed that the RTC
erred in not rendering a complete judgment and (c) Manila Athletic
ordering the partition of the co-ownership and Supply, Inc.; and
giving to [him] six per centum (6%) of the
properties.[22] (d) B. Remotigue
Agro-Industrial
While the Court of Appeals agreed to Development Corp.
some of the RTCs factual findings, it also
established that Antonieta Jarantilla (4) No costs.[23]
was not part of the partnership formed in 1946,
and that her 8% share was limited to the
businesses enumerated in the Acknowledgement The respondents, on August 20, 2002,
of Participating Capital. On July 30, 2002, the filed a Motion for Partial Reconsideration but
Court of Appeals rendered the herein challenged the Court of Appeals denied this in a
decision setting aside the RTCs decision, as Resolution[24] dated March 21, 2003.
follows:
Antonieta Jarantilla filed before this
WHEREFORE, the decision of Court her own petition for review
the trial court, dated 18 on certiorari[25] dated September 16, 2002,
December 1992 is SET ASIDE assailing the Court of Appeals decision on
and a new one is hereby entered similar grounds and similar assignments of
ordering that: errors as this present case[26] but it was
dismissed on November 20, 2002 for failure to
(1) after accounting, file the appeal within the reglementary period of
plaintiff Antonieta fifteen (15) days in accordance with Section 2,
Jarantilla be given her Rule 45 of the Rules of Court.[27]
share of 8% in the
assets and profits of Petitioner filed before us this petition for
Manila Athletic review on the sole ground that:
Supply, Remotigue
Trading in Iloilo City THE HONORABLE COURT
and Remotigue OF APPEALS SERIOUSLY
Trading in Cotabato ERRED IN NOT RULING
City; THAT PETITIONER
FEDERICO JARANTILLA,
JR. IS ENTITLED TO A SIX

3

PER CENTUM (6%) SHARE
OF THE OWNERSHIP OF
THE REAL PROPERTIES
ACQUIRED BY THE OTHER
DEFENDANTS USING
COMMON FUNDS FROM
THE BUSINESSES WHERE
HE HAD OWNED SUCH
SHARE.[28]
Petitioner asserts that he was in a
partnership with the Remotigue spouses, the
Deocampo spouses, Rosita Jarantilla, Rafael
Jarantilla, Antonieta Jarantilla and Quintin
Vismanos, as evidenced by the
Acknowledgement of Participating Capital the
Remotigue spouses executed in 1957. He
contends that from this partnership, several
other corporations and businesses were
established and several real properties were
acquired. In this petition, he is essentially asking
for his 6% share in the subject real
properties. He is relying on the
Acknowledgement of Participating Capital, on
his own testimony, and Antonieta Jarantillas
testimony to support this contention.
The core issue is whether or not the
partnership subject of the Acknowledgement of
Participating Capital funded the subject real
properties. In other words, what is the
petitioners right over these real properties?
It is a settled rule that in a petition for
review on certiorari under Rule 45 of the Rules
of Civil Procedure, only questions of law may
be raised by the parties and passed upon by this
Court.[29]
A question of law arises
when there is doubt as to what
the law is on a certain state of
facts, while there is a question of
fact when the doubt arises as to
the truth or falsity of the alleged
facts. For a question to be one of
law, the same must not involve
an examination of the probative
value of the evidence presented
by the litigants or any of
them. The resolution of the issue
must rest solely on what the law
provides on the given set of
circumstances. Once it is clear
that the issue invites a review of
the evidence presented, the
question posed is one of fact.
Thus, the test of whether a
4
Full text : BusOrg I Cases 2018
question is one of law or of fact
is not the appellation given to
such question by the party raising
the same; rather, it is whether the
appellate court can determine the
issue raised without reviewing or
evaluating the evidence, in which
case, it is a question of law;
otherwise it is a question of
fact.[30]
Since the Court of Appeals did not fully
adopt the factual findings of the RTC, this
Court, in resolving the questions of law that are
now in issue, shall look into the facts only in so
far as the two courts a quo differed in their
appreciation thereof.
The RTC found that an unregistered
partnership existed since 1946 which was
affirmed in the 1957 document, the
Acknowledgement of Participating Capital. The
RTC used this as its basis for giving Antonieta
Jarantilla an 8% share in the three businesses
listed therein and in the other businesses and
real properties of the respondents as they had
supposedly acquired these through funds from
the partnership.[31]
The Court of Appeals, on the other hand,
agreed with the RTC as to Antonietas 8% share
in the business enumerated in the
Acknowledgement of Participating Capital, but
not as to her share in the other corporations and
real properties. The Court of Appeals ruled that
Antonietas claim of 8% is based on the
Acknowledgement of Participating Capital, a
duly notarized document which was specific as
to the subject of its coverage. Hence, there was
no reason to pattern her share in the other
corporations from her share in the partnerships
businesses. The Court of Appeals also said that
her claim in the respondents real properties was
more precarious as these were all covered by
certificates of title which served as the best
evidence as to all the matters contained
therein.[32] Since petitioners claim was
essentially the same as Antonietas, the Court of
Appeals also ruled that petitioner be given his
6% share in the same businesses listed in the
Acknowledgement of Participating Capital.
Factual findings of the trial court, when
confirmed by the Court of Appeals, are final and
conclusive except in the following cases: (1)
when the inference made is manifestly
mistaken, absurd or impossible; (2) when there
is a grave abuse of discretion; (3) when the

finding is grounded entirely on speculations,
surmises or conjectures; (4) when the judgment
of the Court of Appeals is based on
misapprehension of facts; (5) when the findings
of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond
the issues of the case and the same is contrary to
the admissions of both appellant and appellee;
(7) when the findings of the Court of Appeals
are contrary to those of the trial court; (8) when
the findings of fact are conclusions without
citation of specific evidence on which they are
based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by
the parties and which, if properly considered,
would justify a different conclusion; and (10)
when the findings of fact of the Court of
Appeals are premised on the absence of
evidence and are contradicted by the evidence
on record.[33]
In this case, we find no error in the
ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla
characterize their relationship with the
respondents as a co-ownership, but in the same
breath, assert that a verbal partnership was
formed in 1946 and was affirmed in the 1957
Acknowledgement of Participating Capital.
There is a co-ownership when an
undivided thing or right belongs to different
persons.[34] It is a partnership when two or more
persons bind themselves to contribute money,
property, or industry to a common fund, with
the intention of dividing the profits among
themselves.[35] The Court, in Pascual v. The
Commissioner of Internal Revenue,[36] quoted
the concurring opinion of Mr. Justice Angelo
Bautista in Evangelista v. The Collector of
Internal Revenue[37] to further elucidate on the
distinctions between a co-ownership and a
partnership, to wit:
I wish however to make
the following
observation: Article 1769 of the
new Civil Code lays down the
rule for determining when a
transaction should be deemed a
partnership or a co-
ownership. Said article
paragraphs 2 and 3, provides;
(2) Co-ownership or co-
possession does not itself
establish a partnership, whether
such co-owners or co-possessors
5
Full text : BusOrg I Cases 2018
do or do not share any profits
made by the use of the property;
(3) The sharing of gross
returns does not of itself establish
a partnership, whether or not the
persons sharing them have a joint
or common right or interest in
any property from which the
returns are derived;
From the above it
appears that the fact that those
who agree to form a co-
ownership share or do not share
any profits made by the use of the
property held in common does
not convert their venture into a
partnership. Or the sharing of
the gross returns does not of
itself establish a partnership
whether or not the persons
sharing therein have a joint or
common right or interest in the
property. This only means that,
aside from the circumstance of
profit, the presence of other
elements constituting partnership
is necessary, such as the clear
intent to form a partnership, the
existence of a juridical
personality different from that of
the individual partners, and the
freedom to transfer or assign any
interest in the property by one
with the consent of the others.
It is evident that an
isolated transaction whereby two
or more persons contribute funds
to buy certain real estate for
profit in the absence of other
circumstances showing a
contrary intention cannot be
considered a partnership.
Persons who contribute
property or funds for a common
enterprise and agree to share the
gross returns of that enterprise in
proportion to their contribution,
but who severally retain the title
to their respective contribution,
are not thereby rendered partners.
They have no common stock or
capital, and no community of
interest as principal proprietors in
the business itself which the
proceeds derived.

A joint purchase of land,
by two, does not constitute a co-
partnership in respect thereto; nor
does an agreement to share the
profits and losses on the sale of
land create a partnership; the
parties are only tenants in
common.
Where plaintiff, his
brother, and another agreed to
become owners of a single tract
of realty, holding as tenants in
common, and to divide the
profits of disposing of it, the
brother and the other not being
entitled to share in plaintiffs
commission, no partnership
existed as between the three
parties, whatever their relation
may have been as to third parties.
In order to constitute a
partnership inter sese there must
be: (a) An intent to form the
same; (b) generally participating
in both profits and losses; (c) and
such a community of interest, as
far as third persons are
concerned as enables each party
to make contract, manage the
business, and dispose of the
whole property. x x x.
The common ownership
of property does not itself create
a partnership between the
owners, though they may use it
for the purpose of making gains;
and they may, without becoming
partners, agree among
themselves as to the
management, and use of such
property and the application of
the proceeds
therefrom.[38] (Citations omitted.)
Under Article 1767 of the Civil Code,
there are two essential elements in a contract of
partnership: (a) an agreement to contribute
money, property or industry to a common fund;
and (b) intent to divide the profits among the
contracting parties. The first element is
undoubtedly present in the case at bar, for,
admittedly, all the parties in this case have
agreed to, and did, contribute money and
property to a common fund. Hence, the issue
narrows down to their intent in acting as they
6
Full text : BusOrg I Cases 2018
did.[39] It is not denied that all the parties in this
case have agreed to contribute capital to a
common fund to be able to later on share its
profits. They have admitted this fact, agreed to
its veracity, and even submitted one common
documentary evidence to prove such partnership
- the Acknowledgement of Participating Capital.
As this case revolves around the legal
effects of the Acknowledgement of Participating
Capital, it would be instructive to examine the
pertinent portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE
PRESENTS:
That we, the spouses
Buenaventura Remotigue and
Conchita Jarantilla de
Remotigue, both of legal age,
Filipinos and residents of Loyola
Heights, Quezon City, P.I.
hereby state:
That the Manila Athletic Supply
at 712 Raon, Manila, the
Remotigue Trading of Calle
Real, Iloilo City and the
Remotigue Trading, Cotabato
Branch, Cotabato, P.I., all
dealing in athletic goods and
equipments, and general
merchandise are recorded in their
respective books with
Buenaventura Remotigue as the
registered owner and are being
operated by them as such:
That they are not the only
owners of the capital of the three
establishments and their
participation in the capital of the
three establishments together
with the other co-owners as of
the year 1952 are stated as
follows:
1. Buenaventura
Remotigue
(TWENTY-
FIVE P25,000.00
THOUSAND)
2. Conchita Jarantilla de
Remotigue
(TWENTY-FIVE
 Full text : BusOrg I Cases 2018

THOUSAND) 25,000 agreement. If only the share of

.00 each partner in the profits has
3. Vicencio Deocampo been agreed upon, the share of
(FIFTEEN each in the losses shall be in the
THOUSAND) 15,000 same proportion.
.00
4. Rosita J. Deocampo In the absence of
(FIFTEEN stipulation, the share of each
THOUSAND).... 15,0 partner in the profits and
00.00 losses shall be in proportion to
5. Antonieta Jarantilla what he may have
(EIGHT contributed, but the industrial
THOUSAND).. 8,000 partner shall not be liable for the
.00 losses. As for the profits, the
6. Rafael Jarantilla (SIX industrial partner shall receive
THOUSAND).. such share as may be just and
... 6,000.00 equitable under the
7. Federico Jarantilla, Jr. circumstances. If besides his
(FIVE services he has contributed
THOUSAND).. 5,000 capital, he shall also receive a
.00 share in the profits in proportion
8. Quintin Vismanos to his capital. (Emphases
(TWO supplied.)
THOUSAND)... 2,00
0.00
It is clear from the foregoing that a
That aside from the persons partner is entitled only to his share as agreed
mentioned in the next preceding upon, or in the absence of any such stipulations,
paragraph, no other person has then to his share in proportion to his
any interest in the above- contribution to the partnership. The petitioner
mentioned three establishments. himself claims his share to be 6%, as stated in
the Acknowledgement of Participating
IN WITNESS WHEREOF, they Capital. However, petitioner fails to realize that
sign this instrument in the City of this document specifically enumerated the
Manila, P.I., this 29th day of businesses covered by the partnership: Manila
April, 1957. Athletic Supply, Remotigue Trading in Iloilo
City and Remotigue Trading in Cotabato
City. Since there was a clear agreement that the
[Sgd.] capital the partners contributed went to the three
BUENAVENTURA businesses, then there is no reason to deviate
REMOTIGUE from such agreement and go beyond the
stipulations in the document. Therefore, the
[Sgd.] Court of Appeals did not err in limiting
CONCHITA JARANTILLA DE petitioners share to the assets of the
[40]
REMOTIGUE businesses enumerated in the
Acknowledgement of Participating Capital.

The Acknowledgement of Participating Capital In Villareal v. Ramirez,[41] the Court held

is a duly notarized document voluntarily
executed by Conchita Jarantilla-Remotigue and
Buenaventura Remotigue in 1957.Petitioner
does not dispute its contents and is actually
relying on it to prove his participation in the
partnership. Article 1797 of the Civil Code
provides:
Art. 1797. The losses
and profits shall be distributed
in conformity with the
that since a partnership is a separate juridical
entity, the shares to be paid out to the partners is
necessarily limited only to its total resources, to
wit:
Since it is the partnership, as
a separate and distinct entity, that
must refund the shares of the
partners, the amount to be refunded
is necessarily limited to its total
resources. In other words, it can only

7

pay out what it has in its coffers,
which consists of all its
assets. However, before the partners
can be paid their shares, the creditors
of the partnership must first be
compensated. After all the creditors
have been paid, whatever is left of
the partnership assets becomes
available for the payment of the
partners shares.[42]
There is no evidence that the subject real
properties were assets of the partnership referred
to in the Acknowledgement of Participating
Capital.
The petitioner further asserts that he is
entitled to respondents properties based on the
concept of trust. He claims that since the subject
real properties were purchased using funds of
the partnership, wherein he has a 6% share, then
law and equity mandates that he should be
considered as a co-owner of those properties in
such proportion.[43] In Pigao v.
Rabanillo,[44] this Court explained the concept
of trusts, to wit:
Express trusts are created by the
intention of the trustor or of the
parties, while implied trusts
come into being by operation of
law, either through implication of
an intention to create a trust as a
matter of law or through the
imposition of the trust
irrespective of, and even contrary
to, any such intention. In turn,
implied trusts are either resulting
or constructive trusts. Resulting
trusts are based on the equitable
doctrine that valuable
consideration and not legal title
determines the equitable title or
interest and are presumed always
to have been contemplated by the
parties. They arise from the
nature or circumstances of the
consideration involved in a
transaction whereby one person
thereby becomes invested with
legal title but is obligated in
equity to hold his legal title for
the benefit of another.[45]
On proving the existence of a trust, this
Court held that:
8
Full text : BusOrg I Cases 2018
Respondent has presented
only bare assertions that a trust
was created. Noting the need to
prove the existence of a trust, this
Court has held thus:
As a rule, the burden of
proving the existence of a trust
is on the party asserting its
existence, and such proof must
be clear and satisfactorily show
the existence of the trust and its
elements. While implied trusts
may be proved by oral
evidence, the evidence must be
trustworthy and received by the
courts with extreme caution,
and should not be made to rest
on loose, equivocal or
indefinite declarations.
Trustworthy evidence is
required because oral evidence
can easily be fabricated. [46]
The petitioner has failed to prove that
there exists a trust over the subject real
properties. Aside from his bare allegations, he
has failed to show that the respondents used the
partnerships money to purchase the said
properties. Even
assuming arguendo that some partnership
income was used to acquire these properties, the
petitioner should have successfully shown that
these funds came from his share in the
partnership profits. After all, by his own
admission, and as stated in the
Acknowledgement of Participating Capital, he
owned a mere 6% equity in the partnership.
In essence, the petitioner is claiming his
6% share in the subject real properties, by
relying on his own self-serving testimony and
the equally biased testimony of Antonieta
Jarantilla. Petitioner has not presented evidence,
other than these unsubstantiated testimonies, to
prove that the respondents did not have the
means to fund their other businesses and real
properties without the partnerships income. On
the other hand, the respondents have not only,
by testimonial evidence, proven their case
against the petitioner, but have also presented
sufficient documentary evidence to substantiate
their claims, allegations and
defenses. They presented preponderant proof on
how they acquired and funded such properties in
addition to tax receipts and tax
declarations.[47] It has been held that while tax
declarations and realty tax receipts do not

conclusively prove ownership, they may
constitute strong evidence of ownership when
accompanied by possession for a period
sufficient for prescription.[48] Moreover, it is a
rule in this jurisdiction that testimonial evidence
cannot prevail over documentary
evidence.[49] This Court had on several
occasions, expressed our disapproval on using
mere self-serving testimonies to support ones
claim. In Ocampo v. Ocampo,[50] a case on
partition of a co-ownership, we held that:
Petitioners assert that their
claim of co-ownership of the property
was sufficiently proved by their
witnesses -- Luisa Ocampo-Llorin and
Melita Ocampo. We disagree. Their
testimonies cannot prevail over the
array of documents presented by
Belen. A claim of ownership cannot be
based simply on the testimonies of
witnesses; much less on those of
interested parties, self-serving as they
are.[51]
It is true that a certificate of title is
merely an evidence of ownership or title over
the particular property described
therein. Registration in the Torrens system does
not create or vest title as registration is not a
mode of acquiring ownership; hence, this cannot
deprive an aggrieved party of a remedy in
law.[52] However, petitioner asserts ownership
over portions of the subject real properties on
the strength of his own admissions and on the
testimony of Antonieta Jarantilla. As held by
this Court in Republic of the Philippines v.
Orfinada, Sr.[53]:
Indeed, a Torrens title is generally
conclusive evidence of ownership
of the land referred to therein, and
a strong presumption exists that a
Torrens title was regularly issued
and valid. A Torrens title is
incontrovertible against
any informacion possessoria, of
other title existing prior to the
issuance thereof not annotated on
the Torrens title. Moreover,
persons dealing with property
covered by a Torrens certificate 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 partition of a co-ownership, to
permit petitioners claim on these properties is to
9
Full text : BusOrg I Cases 2018
allow a collateral, indirect attack on respondents
admitted titles. In the words of the Court of
Appeals, such evidence cannot overpower the
conclusiveness of these certificates of title, more
so since plaintiffs [petitioners] claims amount to
a collateral attack, which is prohibited under
Section 48 of Presidential Decree No. 1529, the
Property Registration Decree.[55]
SEC. 48. Certificate not subject
to collateral attack. A certificate
of title shall not be subject to
collateral attack. It cannot be
altered, modified, or cancelled
except in a direct proceeding in
accordance with law.
This Court has deemed an action or
proceeding to be an attack on a title when its
objective is to nullify the title, thereby
challenging the judgment pursuant to which the
title was decreed.[56] In Aguilar v. Alfaro,[57] this
Court further distinguished between a direct and
an indirect or collateral attack, as follows:
A collateral attack
transpires when, in another
action to obtain a different relief
and as an incident to the present
action, an attack is made against
the judgment granting the title.
This manner of attack is to be
distinguished from a direct attack
against a judgment granting the
title, through an action whose
main objective is to annul, set
aside, or enjoin the enforcement
of such judgment if not yet
implemented, or to seek recovery
if the property titled under the
judgment had been disposed of. x
x x.
Petitioners only piece of documentary
evidence is the Acknowledgement of
Participating Capital, which as discussed above,
failed to prove that the real properties he is
claiming co-ownership of were acquired out of
the proceeds of the businesses covered by such
document. Therefore, petitioners theory has no
factual or legal leg to stand on.
WHEREFORE, the Petition is
hereby DENIED and the Decision of the Court
of Appeals in CA-G.R. CV No. 40887, dated
July 30, 2002 is AFFIRMED.
SO ORDERED.

[G.R. No. 142293. February 27, 2003]
VICENTE SY, TRINIDAD PAULINO, 6BS
TRUCKING CORPORATION, and
SBT[1] TRUCKING
CORPORATION, petitioners, vs.
HON. COURT OF APPEALS and
JAIME SAHOT, respondents.
DECISION
QUISUMBING, J.:
This petition for review seeks the reversal
of the decision[2] of the Court of Appeals dated
February 29, 2000, in CA-G.R. SP No. 52671,
affirming with modification the decision[3] of
the National Labor Relations Commission
promulgated on June 20, 1996 in NLRC NCR
CA No. 010526-96. Petitioners also pray for the
reinstatement of the decision[4] of the Labor
Arbiter in NLRC NCR Case No. 00-09-06717-
94.
Culled from the records are the following
facts of this case:
Sometime in 1958, private respondent
Jaime Sahot[5] started working as a truck helper
for petitioners family-owned trucking business
named Vicente Sy Trucking. In 1965, he
became a truck driver of the same family
business, renamed T. Paulino Trucking Service,
later 6Bs Trucking Corporation in 1985, and
thereafter known as SBT Trucking Corporation
since 1994.Throughout all these changes in
names and for 36 years, private respondent
continuously served the trucking business of
petitioners.
In April 1994, Sahot was already 59 years
old. He had been incurring absences as he was
suffering from various ailments. Particularly
causing him pain was his left thigh, which
greatly affected the performance of his task as a
driver. He inquired about his medical and
retirement benefits with the Social Security
System (SSS) on April 25, 1994, but discovered
that his premium payments had not been
remitted by his employer.
Sahot had filed a week-long leave
sometime in May 1994. On May 27th, he was
medically examined and treated for EOR,
presleyopia, hypertensive retinopathy G II
(Annexes G-5 and G-3, pp. 48, 104,
respectively),[6] HPM, UTI, Osteoarthritis
[7]
(Annex G-4, p. 105), and heart enlargement
(Annex G, p. 107).[8] On said grounds, Belen
Paulino of the SBT Trucking Service
management told him to file a formal request for
extension of his leave. At the end of his week-
long absence, Sahot applied for extension of his
leave for the whole month of June, 1994. It was
at this time when petitioners allegedly
threatened to terminate his employment should
he refuse to go back to work.
10
Full text : BusOrg I Cases 2018
At this point, Sahot found himself in a
dilemma. He was facing dismissal if he refused
to work, But he could not retire on pension
because petitioners never paid his correct SSS
premiums. The fact remained he could no longer
work as his left thigh hurt abominably.
Petitioners ended his dilemma. They carried out
their threat and dismissed him from work,
effective June 30, 1994. He ended up sick,
jobless and penniless.
On September 13, 1994, Sahot filed with
the NLRC NCR Arbitration Branch, a complaint
for illegal dismissal, docketed as NLRC NCR
Case No. 00-09-06717-94. He prayed for the
recovery of separation pay and attorneys fees
against Vicente Sy and Trinidad Paulino-Sy,
Belen Paulino, Vicente Sy Trucking, T. Paulino
Trucking Service, 6Bs Trucking and SBT
Trucking, herein petitioners.
For their part, petitioners admitted they had
a trucking business in the 1950s but denied
employing helpers and drivers. They contend
that private respondent was not illegally
dismissed as a driver because he was in fact
petitioners industrial partner. They add that it
was not until the year 1994, when SBT
Trucking Corporation was established, and only
then did respondent Sahot become an employee
of the company, with a monthly salary that
reached P4,160.00 at the time of his separation.
Petitioners further claimed that sometime
prior to June 1, 1994, Sahot went on leave and
was not able to report for work for almost seven
days. On June 1, 1994, Sahot asked permission
to extend his leave of absence until June 30,
1994. It appeared that from the expiration of his
leave, private respondent never reported back to
work nor did he file an extension of his
leave. Instead, he filed the complaint for illegal
dismissal against the trucking company and its
owners.
Petitioners add that due to Sahots refusal to
work after the expiration of his authorized leave
of absence, he should be deemed to have
voluntarily resigned from his work. They
contended that Sahot had all the time to extend
his leave or at least inform petitioners of his
health condition. Lastly, they cited NLRC Case
No. RE-4997-76, entitled Manuelito Jimenez et
al. vs. T. Paulino Trucking Service, as a defense
in view of the alleged similarity in the factual
milieu and issues of said case to that of Sahots,
hence they are in pari material and Sahots
complaint ought also to be dismissed.
The NLRC NCR Arbitration Branch,
through Labor Arbiter Ariel Cadiente Santos,
ruled that there was no illegal dismissal in
Sahots case. Private respondent had failed to
report to work. Moreover, said the Labor

Arbiter, petitioners and private respondent were
industrial partners before January 1994. The
Labor Arbiter concluded by ordering petitioners
to pay financial assistance of P15,000 to Sahot
for having served the company as a regular
employee since January 1994 only.
On appeal, the National Labor Relations
Commission modified the judgment of the
Labor Arbiter. It declared that private
respondent was an employee, not an industrial
partner, since the start. Private respondent Sahot
did not abandon his job but his employment was
terminated on account of his illness, pursuant to
Article 284[9] of the Labor Code. Accordingly,
the NLRC ordered petitioners to pay private
respondent separation pay in the amount of
P60,320.00, at the rate of P2,080.00 per year for
29 years of service.
Petitioners assailed the decision of the
NLRC before the Court of Appeals. In its
decision dated February 29, 2000, the appellate
court affirmed with modification the judgment
of the NLRC. It held that private respondent
was indeed an employee of petitioners since
1958. It also increased the amount of separation
pay awarded to private respondent to P74,880,
computed at the rate of P2,080 per year for 36
years of service from 1958 to 1994. It decreed:
WHEREFORE, the assailed decision is hereby
AFFIRMED with MODIFICATION. SB
Trucking Corporation is hereby directed to pay
complainant Jaime Sahot the sum of
SEVENTY-FOUR THOUSAND EIGHT
HUNDRED EIGHTY (P74,880.00) PESOS as
and for his separation pay.[10]
Hence, the instant petition anchored on the
following contentions:
I considered an industrial partner. Hence we rule
RESPONDENT COURT OF APPEALS IN
PROMULGATING THE QUESTION[ED]
DECISION AFFIRMING WITH
MODIFICATION THE DECISION OF
NATIONAL LABOR RELATIONS
COMMISSION DECIDED NOT IN ACCORD
WITH LAW AND PUT AT NAUGHT
ARTICLE 402 OF THE CIVIL CODE.[11]
II
RESPONDENT COURT OF APPEALS
VIOLATED SUPREME COURT RULING
THAT THE NATIONAL LABOR
RELATIONS COMMISSION IS BOUND BY
THE FACTUAL FINDINGS OF THE LABOR
ARBITER AS THE LATTER WAS IN A
BETTER POSITION TO OBSERVE THE
DEMEANOR AND DEPORTMENT OF THE
WITNESSES IN THE CASE OF
ASSOCIATION OF INDEPENDENT UNIONS
IN THE PHILIPPINES VERSUS NATIONAL
CAPITAL REGION (305 SCRA 233).[12]
11
Full text : BusOrg I Cases 2018
III
PRIVATE RESPONDENT WAS NOT
DISMISS[ED] BY RESPONDENT SBT
TRUCKING CORPORATION.[13]
Three issues are to be resolved: (1) Whether
or not an employer-employee relationship
existed between petitioners and respondent
Sahot; (2) Whether or not there was valid
dismissal; and (3) Whether or not respondent
Sahot is entitled to separation pay.
Crucial to the resolution of this case is the
determination of the first issue. Before a case
for illegal dismissal can prosper, an employer-
employee relationship must first be
established.[14]
Petitioners invoke the decision of the Labor
Arbiter Ariel Cadiente Santos which found that
respondent Sahot was not an employee but was
in fact, petitioners industrial partner.[15] It is
contended that it was the Labor Arbiter who
heard the case and had the opportunity to
observe the demeanor and deportment of the
parties. The same conclusion, aver petitioners, is
supported by substantial evidence.[16] Moreover,
it is argued that the findings of fact of the Labor
Arbiter was wrongly overturned by the NLRC
when the latter made the following
pronouncement:
We agree with complainant that there was error
committed by the Labor Arbiter when he
concluded that complainant was an industrial
partner prior to 1994. A computation of the age
of complainant shows that he was only twenty-
three (23) years when he started working with
respondent as truck helper. How can we
entertain in our mind that a twenty-three (23)
year old man, working as a truck helper, be
that complainant was only an employee, not a
partner of respondents from the time
complainant started working for respondent.[17]
Because the Court of Appeals also found
that an employer-employee relationship existed,
petitioners aver that the appellate courts
decision gives an imprimatur to the illegal
finding and conclusion of the NLRC.
Private respondent, for his part, denies that
he was ever an industrial partner of petitioners.
There was no written agreement, no proof that
he received a share in petitioners profits, nor
was there anything to show he had any
participation with respect to the running of the
business.[18]
The elements to determine the existence of
an employment relationship are: (a) the
selection and engagement of the employee; (b)
the payment of wages; (c) the power of
dismissal; and (d) the employers power to
control the employees conduct. The most

important element is the employers control of
the employees conduct, not only as to the result
of the work to be done, but also as to the means
and methods to accomplish it.[19]
As found by the appellate court, petitioners
owned and operated a trucking business since
the 1950s and by their own allegations, they
determined private respondents wages and rest
day.[20] Records of the case show that private
respondent actually engaged in work as an
employee. During the entire course of his
employment he did not have the freedom to
determine where he would go, what he would
do, and how he would do it. He merely followed
instructions of petitioners and was content to do
so, as long as he was paid his wages. Indeed,
said the CA, private respondent had worked as a
truck helper and driver of petitioners not for his
own pleasure but under the latters control.
Article 1767[21] of the Civil Code states that
in a contract of partnership two or more persons
bind themselves to contribute money, property
or industry to a common fund, with the intention
of dividing the profits among
[22]
themselves. Not one of these circumstances is
present in this case. No written agreement exists
to prove the partnership between the parties.
Private respondent did not contribute money,
property or industry for the purpose of engaging
in the supposed business. There is no proof that
he was receiving a share in the profits as a
matter of course, during the period when the
trucking business was under operation. Neither
is there any proof that he had actively
participated in the management, administration
and adoption of policies of the business. Thus,
the NLRC and the CA did not err in reversing
the finding of the Labor Arbiter that private
respondent was an industrial partner from 1958
to 1994.
On this point, we affirm the findings of the
appellate court and the NLRC. Private
respondent Jaime Sahot was not an industrial
partner but an employee of petitioners from
1958 to 1994. The existence of an employer-
employee relationship is ultimately a question of
fact[23] and the findings thereon by the NLRC,
as affirmed by the Court of Appeals, deserve not
only respect but finality when supported by
substantial evidence. Substantial evidence is
such amount of relevant evidence which a
reasonable mind might accept as adequate to
justify a conclusion.[24]
Time and again this Court has said that if
doubt exists between the evidence presented by
the employer and the employee, the scales of
justice must be tilted in favor of the
latter.[25]Here, we entertain no doubt. Private
respondent since the beginning was an
12
Full text : BusOrg I Cases 2018
employee of, not an industrial partner in, the
trucking business.
Coming now to the second issue, was
private respondent validly dismissed by
petitioners?
Petitioners contend that it was private
respondent who refused to go back to work. The
decision of the Labor Arbiter pointed out that
during the conciliation proceedings, petitioners
requested respondent Sahot to report back for
work. However, in the same proceedings, Sahot
stated that he was no longer fit to continue
working, and instead he demanded separation
pay. Petitioners then retorted that if Sahot did
not like to work as a driver anymore, then he
could be given a job that was less strenuous,
such as working as a checker. However, Sahot
declined that suggestion. Based on the foregoing
recitals, petitioners assert that it is clear that
Sahot was not dismissed but it was of his own
volition that he did not report for work anymore.
In his decision, the Labor Arbiter concluded
that:
While it may be true that respondents insisted
that complainant continue working with
respondents despite his alleged illness, there is
no direct evidence that will prove that
complainants illness prevents or incapacitates
him from performing the function of a driver.
The fact remains that complainant suddenly
stopped working due to boredom or otherwise
when he refused to work as a checker which
certainly is a much less strenuous job than a
driver.[26]
But dealing the Labor Arbiter a reversal on
this score the NLRC, concurred in by the Court
of Appeals, held that:
While it was very obvious that complainant did
not have any intention to report back to work
due to his illness which incapacitated him to
perform his job, such intention cannot be
construed to be an abandonment. Instead, the
same should have been considered as one of
those falling under the just causes of terminating
an employment. The insistence of respondent in
making complainant work did not change the
scenario.
It is worthy to note that respondent is engaged
in the trucking business where physical strength
is of utmost requirement (sic). Complainant
started working with respondent as truck helper
at age twenty-three (23), then as truck driver
since 1965. Complainant was already fifty-nine
(59) when the complaint was filed and suffering
from various illness triggered by his work and
age.
x x x[27]
In termination cases, the burden is upon the
employer to show by substantial evidence that

the termination was for lawful cause and validly
made.[28] Article 277(b) of the Labor Code puts
the burden of proving that the dismissal of an
employee was for a valid or authorized cause on
the employer, without distinction whether the
employer admits or does not admit the
dismissal.[29] For an employees dismissal to be
valid, (a) the dismissal must be for a valid cause
and (b) the employee must be afforded due
process.[30]
Article 284 of the Labor Code authorizes an
employer to terminate an employee on the
ground of disease, viz:
Art. 284. Disease as a ground for termination-
An employer may terminate the services of an
employee who has been found to be suffering
from any disease and whose continued
employment is prohibited by law or prejudicial
to his health as well as the health of his co-
employees: xxx
However, in order to validly terminate
employment on this ground, Book VI, Rule I,
Section 8 of the Omnibus Implementing Rules
of the Labor Code requires:
Sec. 8. Disease as a ground for dismissal-
Where the employee suffers from a disease and
his continued employment is prohibited by law
or prejudicial to his health or to the health of his
co-employees, the employer shall not terminate
his employment unless there is a certification by
competent public health authority that the
disease is of such nature or at such a stage that
it cannot be cured within a period of six (6)
months even with proper medical treatment. If
the disease or ailment can be cured within the
period, the employer shall not terminate the
employee but shall ask the employee to take a
leave. The employer shall reinstate such
employee to his former position immediately
upon the restoration of his normal
health. (Italics supplied).
As this Court stated in Triple Eight
integrated Services, Inc. vs. NLRC,[31] the
requirement for a medical certificate under
Article 284 of the Labor Code cannot be
dispensed with; otherwise, it would sanction the
unilateral and arbitrary determination by the
employer of the gravity or extent of the
employees illness and thus defeat the public
policy in the protection of labor.
In the case at bar, the employer clearly did
not comply with the medical certificate
requirement before Sahots dismissal was
effected. In the same case of Sevillana vs. I.T.
(International) Corp., we ruled:
Since the burden of proving the validity of the
dismissal of the employee rests on the employer,
the latter should likewise bear the burden of
showing that the requisites for a valid dismissal
13
Full text : BusOrg I Cases 2018
due to a disease have been complied with. In the
absence of the required certification by a
competent public health authority, this Court
has ruled against the validity of the employees
dismissal. It is therefore incumbent upon the
private respondents to prove by the quantum of
evidence required by law that petitioner was not
dismissed, or if dismissed, that the dismissal
was not illegal; otherwise, the dismissal would
be unjustified. This Court will not sanction a
dismissal premised on mere conjectures and
suspicions, the evidence must be substantial and
not arbitrary and must be founded on clearly
established facts sufficient to warrant his
separation from work.[32]
In addition, we must likewise determine if
the procedural aspect of due process had been
complied with by the employer.
From the records, it clearly appears that
procedural due process was not observed in the
separation of private respondent by the
management of the trucking company. The
employer is required to furnish an employee
with two written notices before the latter is
dismissed: (1) the notice to apprise the
employee of the particular acts or omissions for
which his dismissal is sought, which is the
equivalent of a charge; and (2) the notice
informing the employee of his dismissal, to be
issued after the employee has been given
reasonable opportunity to answer and to be
heard on his defense.[33] These, the petitioners
failed to do, even only for record purposes.
What management did was to threaten the
employee with dismissal, then actually
implement the threat when the occasion
presented itself because of private respondents
painful left thigh.
All told, both the substantive and
procedural aspects of due process were violated.
Clearly, therefore, Sahots dismissal is tainted
with invalidity.
On the last issue, as held by the Court of
Appeals, respondent Jaime Sahot is entitled to
separation pay. The law is clear on the matter.
An employee who is terminated because of
disease is entitled to separation pay equivalent
to at least one month salary or to one-half month
salary for every year of service, whichever is
greater xxx.[34] Following the formula set in Art.
284 of the Labor Code, his separation pay was
computed by the appellate court at P2,080 times
36 years (1958 to 1994) or P74,880. We agree
with the computation, after noting that his last
monthly salary was P4,160.00 so that one-half
thereof is P2,080.00. Finding no reversible error
nor grave abuse of discretion on the part of
appellate court, we are constrained to sustain its
decision. To avoid further delay in the payment
 Full text : BusOrg I Cases 2018

due the separated worker, whose claim was filed

way back in 1994, this decision is immediately
executory. Otherwise, six percent (6%) interest
per annum should be charged thereon, for any
delay, pursuant to provisions of the Civil Code.
WHEREFORE, the petition is DENIED
and the decision of the Court of Appeals dated
February 29, 2000 is AFFIRMED. Petitioners
must pay private respondent Jaime Sahot his
separation pay for 36 years of service at the rate
of one-half monthly pay for every year of
service, amounting to P74,880.00, with interest
of six per centum (6%) per annum from finality
of this decision until fully paid.
Costs against petitioners.
SO ORDERED.

14

G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her
husband, ANGELO TORRES; and
EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL
TORRES, respondents.
PANGANIBAN, J.:
Courts may not extricate parties from the
necessary consequences of their acts. That the
terms of a contract turn out to be financially
disadvantageous to them will not relieve them
of their obligations therein. The lack of an
inventory of real property will not ipso
facto release the contracting partners from their
respective obligations to each other arising from
acts executed in accordance with their
agreement.
The Case
The Petition for Review on Certiorari before us
assails the March 5, 1998 Decision 1 of the
Court of Appeals 2 (CA) in CA-GR CV No.
42378 and its June 25, 1998 Resolution denying
reconsideration. The assailed Decision affirmed
the ruling of the Regional Trial Court (RTC) of
Cebu City in Civil Case No. R-21208, which
disposed as follows:
WHEREFORE, for all the
foregoing considerations, the
Court, finding for the defendant
and against the plaintiffs, orders
the dismissal of the plaintiffs
complaint. The counterclaims of
the defendant are likewise
ordered dismissed. No
pronouncement as to costs. 3
The Facts
Sisters Antonia Torres and Emeteria Baring,
herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for
the development of a parcel of land into a
subdivision. Pursuant to the contract, they
executed a Deed of Sale covering the said parcel
of land in favor of respondent, who then had it
registered in his name. By mortgaging the
property, respondent obtained from Equitable
Bank a loan of P40,000 which, under the Joint
Venture Agreement, was to be used for the
development of the subdivision. 4 All three of
them also agreed to share the proceeds from the
sale of the subdivided lots.
The project did not push through, and the land
was subsequently foreclosed by the bank.
According to petitioners, the project failed
because of "respondent's lack of funds or means
and skills." They add that respondent used the
loan not for the development of the subdivision,
15
Full text : BusOrg I Cases 2018
but in furtherance of his own company,
Universal Umbrella Company.
On the other hand, respondent alleged that he
used the loan to implement the Agreement. With
the said amount, he was able to effect the survey
and the subdivision of the lots. He secured the
Lapu Lapu City Council's approval of the
subdivision project which he advertised in a
local newspaper. He also caused the
construction of roads, curbs and gutters.
Likewise, he entered into a contract with an
engineering firm for the building of sixty low-
cost housing units and actually even set up a
model house on one of the subdivision lots. He
did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project
failed, however, because petitioners and their
relatives had separately caused the annotations
of adverse claims on the title to the land, which
eventually scared away prospective buyers.
Despite his requests, petitioners refused to cause
the clearing of the claims, thereby forcing him
to give up on the project. 5
Subsequently, petitioners filed a criminal case
for estafa against respondent and his wife, who
were however acquitted. Thereafter, they filed
the present civil case which, upon respondent's
motion, was later dismissed by the trial court in
an Order dated September 6, 1982. On appeal,
however, the appellate court remanded the case
for further proceedings. Thereafter, the RTC
issued its assailed Decision, which, as earlier
stated, was affirmed by the CA.
Hence, this Petition. 6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals
held that petitioners and respondent had formed
a partnership for the development of the
subdivision. Thus, they must bear the loss
suffered by the partnership in the same
proportion as their share in the profits stipulated
in the contract. Disagreeing with the trial court's
pronouncement that losses as well as profits in a
joint venture should be distributed equally, 7 the
CA invoked Article 1797 of the Civil Code
which provides:
Art. 1797 — The losses and
profits shall be distributed in
conformity with the agreement.
If only the share of each partner
in the profits has been agreed
upon, the share of each in the
losses shall be in the same
proportion.
The CA elucidated further:
In the absence of stipulation, the
share of each partner in the
profits and losses shall be in
proportion to what he may have
 Full text : BusOrg I Cases
contributed, but the industrial
partner shall not be liable for the
losses. As for the profits, the
industrial partner shall receive
such share as may be just and
equitable under the
circumstances. If besides his
services he has contributed
capital, he shall also receive a
share in the profits in proportion
to his capital.
The Issue
Petitioners impute to the Court of Appeals the
following error:
. . . [The] Court of Appeals erred
in concluding that the transaction
. . . between the petitioners and
respondent was that of a joint
venture/partnership, ignoring
outright the provision of Article
1769, and other related
provisions of the Civil Code of
the Philippines. 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership
with respondent. They contend that the Joint
Venture Agreement and the earlier Deed of
Sale, both of which were the bases of the
appellate court's finding of a partnership, were
void.
In the same breath, however, they assert that
under those very same contracts, respondent is
liable for his failure to implement the project.
Because the agreement entitled them to receive
60 percent of the proceeds from the sale of the
subdivision lots, they pray that respondent pay
them damages equivalent to 60 percent of the
value of the property. 9
The pertinent portions of the Joint Venture
Agreement read as follows:
KNOW ALL MEN BY THESE
PRESENTS:
This AGREEMENT, is made and
entered into at Cebu City,
Philippines, this 5th day of
March, 1969, by and between
MR. MANUEL R. TORRES, . . .
the FIRST PARTY, likewise,
MRS. ANTONIA B. TORRES,
and MISS EMETERIA
BARING, . . . the SECOND
PARTY:
WITNESSETH:
That, whereas, the SECOND
PARTY, voluntarily offered the
FIRST PARTY, this property
16
2018
located at Lapu-Lapu City, Island
of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a
total area of 17,009 square
meters, to be sub-divided by the
FIRST PARTY;
Whereas, the FIRST PARTY had
given the SECOND PARTY, the
sum of: TWENTY THOUSAND
(P20,000.00) Pesos, Philippine
Currency upon the execution of
this contract for the property
entrusted by the SECOND
PARTY, for sub-division
projects and development
purposes;
NOW THEREFORE, for and in
consideration of the above
covenants and promises herein
contained the respective parties
hereto do hereby stipulate and
agree as follows:
ONE: That the SECOND
PARTY signed an absolute Deed
of Sale . . . dated March 5, 1969,
in the amount of TWENTY
FIVE THOUSAND FIVE
HUNDRED THIRTEEN &
FIFTY CTVS. (P25,513.50)
Philippine Currency, for 1,700
square meters at ONE [PESO] &
FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST
PARTY, but the SECOND
PARTY did not actually receive
the payment.
SECOND: That the SECOND
PARTY, had received from the
FIRST PARTY, the necessary
amount of TWENTY
THOUSAND (P20,000.00)
pesos, Philippine currency, for
their personal obligations and
this particular amount will serve
as an advance payment from the
FIRST PARTY for the property
mentioned to be sub-divided and
to be deducted from the sales.
THIRD: That the FIRST
PARTY, will not collect from the
SECOND PARTY, the interest
and the principal amount
involving the amount of
TWENTY THOUSAND
(P20,000.00) Pesos, Philippine
Currency, until the sub-division
project is terminated and ready
for sale to any interested parties,
and the amount of TWENTY

THOUSAND (P20,000.00)
pesos, Philippine currency, will
be deducted accordingly.
FOURTH: That all general
expense[s] and all cost[s]
involved in the sub-division
project should be paid by the
FIRST PARTY, exclusively and
all the expenses will not be
deducted from the sales after the
development of the sub-division
project.
FIFTH: That the sales of the sub-
divided lots will be divided into
SIXTY PERCENTUM 60% for
the SECOND PARTY and
FORTY PERCENTUM 40% for
the FIRST PARTY, and
additional profits or whatever
income deriving from the sales
will be divided equally according
to the . . . percentage [agreed
upon] by both parties.
SIXTH: That the intended sub-
division project of the property
involved will start the work and
all improvements upon the
adjacent lots will be negotiated in
both parties['] favor and all sales
shall [be] decided by both
parties.
SEVENTH: That the SECOND
PARTIES, should be given an
option to get back the property
mentioned provided the amount
of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine
Currency, borrowed by the
SECOND PARTY, will be paid
in full to the FIRST PARTY,
including all necessary
improvements spent by the
FIRST PARTY, and-the FIRST
PARTY will be given a grace
period to turnover the property
mentioned above.
That this AGREEMENT shall be
binding and obligatory to the
parties who executed same freely
and voluntarily for the uses and
purposes therein stated. 10
A reading of the terms embodied in the
Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil
Code, which provides:
Art. 1767. By the contract of
partnership two or more persons
bind themselves to contribute
money, property, or industry to a
17
Full text : BusOrg I Cases 2018
common fund, with the intention
of dividing the profits among
themselves.
Under the above-quoted Agreement, petitioners
would contribute property to the partnership in
the form of land which was to be developed into
a subdivision; while respondent would give, in
addition to his industry, the amount needed for
general expenses and other costs. Furthermore,
the income from the said project would be
divided according to the stipulated percentage.
Clearly, the contract manifested the intention of
the parties to form a partnership. 11
It should be stressed that the parties
implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its
use in the name of the respondent. On the other
hand, respondent caused the subject land to be
mortgaged, the proceeds of which were used for
the survey and the subdivision of the land. As
noted earlier, he developed the roads, the curbs
and the gutters of the subdivision and entered
into a contract to construct low-cost housing
units on the property.
Respondent's actions clearly belie petitioners'
contention that he made no contribution to the
partnership. Under Article 1767 of the Civil
Code, a partner may contribute not only money
or property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts
bind the parties not only to what has been
expressly stipulated, but also to all necessary
consequences thereof, as follows:
Art. 1315. Contracts are
perfected by mere consent, and
from that moment the parties are
bound not only to the fulfillment
of what has been expressly
stipulated but also to all the
consequences which, according
to their nature, may be in keeping
with good faith, usage and law.
It is undisputed that petitioners are educated and
are thus presumed to have understood the terms
of the contract they voluntarily signed. If it was
not in consonance with their expectations, they
should have objected to it and insisted on the
provisions they wanted.
Courts are not authorized to extricate parties
from the necessary consequences of their acts,
and the fact that the contractual stipulations may
turn out to be financially disadvantageous will
not relieve parties thereto of their obligations.
They cannot now disavow the relationship
formed from such agreement due to their
supposed misunderstanding of its terms.
Alleged Nullity of the

Partnership Agreement
Petitioners argue that the Joint Venture
Agreement is void under Article 1773 of the
Civil Code, which provides:
Art. 1773. A contract of
partnership is void, whenever
immovable property
contributed thereto, if an
inventory of said property is not
made, signed by the parties, and
attached to the public instrument.
They contend that since the parties did not
make, sign or attach to the public instrument an
inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended
primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under
the aforecited provision which is a complement
of Article 1771, 12 "The execution of a public
instrument would be useless if there is no
inventory of the property contributed, because
without its designation and description, they
cannot be subject to inscription in the Registry
of Property, and their contribution cannot
prejudice third persons. This will result in fraud
to those who contract with the partnership in the
belief [in] the efficacy of the guaranty in which
the immovables may consist. Thus, the contract
is declared void by the law when no such
inventory is made." The case at bar does not
involve third parties who may be prejudiced.
Second, petitioners themselves invoke the
allegedly void contract as basis for their claim
that respondent should pay them 60 percent of
the value of the property. 13 They cannot in one
breath deny the contract and in another
recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such
practice.
In short, the alleged nullity of the partnership
will not prevent courts from considering the
Joint Venture Agreement an ordinary contract
from which the parties' rights and obligations to
each other may be inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture
Agreement is void under Article 1422 14 of the
Civil Code, because it is the direct result of an
earlier illegal contract, which was for the sale of
the land without valid consideration.
This argument is puerile. The Joint Venture
Agreement clearly states that the consideration
for the sale was the expectation of profits from
the subdivision project. Its first stipulation states
that petitioners did not actually receive payment
Full text : BusOrg I Cases 2018
for the parcel of land sold to respondent.
Consideration, more properly denominated
as cause, can take different forms, such as the
prestation or promise of a thing or service by
another. 15
In this case, the cause of the contract of sale
is consisted not in the stated peso value of the
land, but in the expectation of profits from the
subdivision project, for which the land was
intended to be used. As explained by the trial
court, "the land was in effect given to the
partnership as [petitioner's] participation therein.
. . . There was therefore a consideration for the
sale, the [petitioners] acting in the expectation
that, should the venture come into fruition, they
[would] get sixty percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible
for the failure of the subdivision project,
petitioners maintain that he should be made to
pay damages equivalent to 60 percent of the
value of the property, which was their share in
the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of
Appeals held that petitioners' acts were not the
cause of the failure of the project. 16 But it also
ruled that neither was respondent responsible
therefor. 17 In imputing the blame solely to him,
petitioners failed to give any reason why we
should disregard the factual findings of the
appellate court relieving him of fault. Verily,
factual issues cannot be resolved in a petition
for review under Rule 45, as in this case.
Petitioners have not alleged, not to say shown,
that their Petition constitutes one of the
exceptions to this doctrine. 18Accordingly, we
find no reversible error in the CA's ruling that
petitioners are not entitled to damages.
WHEREFORE, the Perition is hereby DENIED
and the challenged Decision AFFIRMED. Costs
against petitioners.
SO ORDERED
18

G.R. No. 136448 November 3, 1999
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR
INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among
parties who agree to borrow money to pursue a
business and to divide the profits or losses that
may arise therefrom, even if it is shown that
they have not contributed any capital of their
own to a "common fund." Their contribution
may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partner,
they are all liable for debts incurred by or on
behalf of the partnership. The liability for a
contract entered into on behalf of an
unincorporated association or ostensible
corporation may lie in a person who may not
have directly transacted on its behalf, but reaped
benefits from that contract.
The Case
In the Petition for Review on Certiorari before
us, Lim Tong Lim assails the November 26,
1998 Decision of the Court of Appeals in CA-
GR CV
1
41477, which disposed as follows:
WHEREFORE, [there being] no reversible
error in the appealed decision, the same is
hereby affirmed. 2
The decretal portion of the Quezon City
Regional Trial Court (RTC) ruling, which was
affirmed by the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of
preliminary attachment issued by this Court
on September 20, 1990;
2. That defendants are jointly liable to
plaintiff for the following amounts, subject
to the modifications as hereinafter made by
reason of the special and unique facts and
circumstances and the proceedings that
transpired during the trial of this case;
a. P532,045.00 representing [the]
unpaid purchase price of the fishing
nets covered by the Agreement plus
P68,000.00 representing the unpaid
price of the floats not covered by said
Agreement;
b. 12% interest per annum counted
from date of plaintiff's invoices and
computed on their respective amounts
as follows:
i. Accrued interest of P73,221.00 on
Invoice No. 14407 for P385,377.80
dated February 9, 1990;
ii. Accrued interest for P27,904.02
on Invoice No. 14413 for
19
Full text : BusOrg I Cases 2018
P146,868.00 dated February 13,
1990;
iii. Accrued interest of P12,920.00
on Invoice No. 14426 for P68,000.00
dated February 19, 1990;
c. P50,000.00 as and for attorney's
fees, plus P8,500.00 representing
P500.00 per appearance in court;
d. P65,000.00 representing
P5,000.00 monthly rental for storage
charges on the nets counted from
September 20, 1990 (date of
attachment) to September 12, 1991
(date of auction sale);
e. Cost of suit.
With respect to the joint liability of
defendants for the principal
obligation or for the unpaid price of
nets and floats in the amount of
P532,045.00 and P68,000.00,
respectively, or for the total amount
P600,045.00, this Court noted that
these items were attached to
guarantee any judgment that may be
rendered in favor of the plaintiff but,
upon agreement of the parties, and,
to avoid further deterioration of the
nets during the pendency of this
case, it was ordered sold at public
auction for not less than P900,000.00
for which the plaintiff was the sole
and winning bidder. The proceeds of
the sale paid for by plaintiff was
deposited in court. In effect, the
amount of P900,000.00 replaced the
attached property as a guaranty for
any judgment that plaintiff may be
able to secure in this case with the
ownership and possession of the nets
and floats awarded and delivered by
the sheriff to plaintiff as the highest
bidder in the public auction sale. It
has also been noted that ownership
of the nets [was] retained by the
plaintiff until full payment [was]
made as stipulated in the invoices;
hence, in effect, the plaintiff attached
its own properties. It [was] for this
reason also that this Court earlier
ordered the attachment bond filed by
plaintiff to guaranty damages to
defendants to be cancelled and for
the P900,000.00 cash bidded and
paid for by plaintiff to serve as its
bond in favor of defendants.
From the foregoing, it would appear
therefore that whatever judgment the
plaintiff may be entitled to in this

case will have to be satisfied from
the amount of P900,000.00 as this
amount replaced the attached nets
and floats. Considering, however,
that the total judgment obligation as
computed above would amount to
only P840,216.92, it would be
inequitable, unfair and unjust to
award the excess to the defendants
who are not entitled to damages and
who did not put up a single centavo
to raise the amount of P900,000.00
aside from the fact that they are not
the owners of the nets and floats. For
this reason, the defendants are
hereby relieved from any and all
liabilities arising from the monetary
judgment obligation enumerated
above and for plaintiff to retain
possession and ownership of the nets
and floats and for the reimbursement
of the P900,000.00 deposited by it
with the Clerk of Court.
SO ORDERED. 3
The Facts
On behalf of "Ocean Quest Fishing
Corporation," Antonio Chua and Peter Yao
entered into a Contract dated February 7, 1990,
for the purchase of fishing nets of various sizes
from the Philippine Fishing Gear Industries, Inc.
(herein respondent). They claimed that they
were engaged in a business venture with
Petitioner Lim Tong Lim, who however was not
a signatory to the agreement. The total price of
the nets amounted to P532,045. Four hundred
pieces of floats worth P68,000 were also sold to
the Corporation. 4
The buyers, however, failed to pay for the
fishing nets and the floats; hence, private
respondents filed a collection suit against Chua,
Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit
was brought against the three in their capacities
as general partners, on the allegation that
"Ocean Quest Fishing Corporation" was a
nonexistent corporation as shown by a
Certification from the Securities and Exchange
Commission. 5 On September 20, 1990, the
lower court issued a Writ of Preliminary
Attachment, which the sheriff enforced by
attaching the fishing nets on board F/B Lourdes
which was then docked at the Fisheries Port,
Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed
a Manifestation admitting his liability and
requesting a reasonable time within which to
pay. He also turned over to respondent some of
the nets which were in his possession. Peter Yao
20
Full text : BusOrg I Cases 2018
filed an Answer, after which he was deemed to
have waived his right to cross-examine
witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent
hearings. Lim Tong Lim, on the other hand,
filed an Answer with Counterclaim and
Crossclaim and moved for the lifting of the Writ
of Attachment. 6 The trial court maintained the
Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public
auction. Philippine Fishing Gear Industries won
the bidding and deposited with the said court the
sales proceeds of P900,000. 7
On November 18, 1992, the trial court rendered
its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as
general partners, were jointly liable to pay
respondent. 8
The trial court ruled that a partnership among
Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2)
on a Compromise Agreement executed by the
three 9 in Civil Case No. 1492-MN which Chua
and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of
nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of
ownership of fishing boats; (d) an injunction
and (e) damages. 10 The Compromise
Agreement provided:
a) That the parties plaintiffs & Lim
Tong Lim agree to have the four (4)
vessels sold in the amount of
P5,750,000.00 including the fishing
net. This P5,750,000.00 shall be
applied as full payment for
P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the
fishing net will be sold at a higher
price than P5,750,000.00 whatever will
be the excess will be divided into 3:
1/3 Lim Tong Lim; 1/3 Antonio Chua;
1/3 Peter Yao;
c) If the proceeds of the sale the
vessels will be less than P5,750,000.00
whatever the deficiency shall be
shouldered and paid to JL Holding
Corporation by 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao. 11
The trial court noted that the Compromise
Agreement was silent as to the nature of their
obligations, but that joint liability could be
presumed from the equal distribution of the
profit and loss. 21
Lim appealed to the Court of Appeals (CA)
which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals

In affirming the trial court, the CA held that
petitioner was a partner of Chua and Yao in a
fishing business and may thus be held liable as a
such for the fishing nets and floats purchased by
and for the use of the partnership. The appellate
court ruled:
The evidence establishes that all the
defendants including herein appellant
Lim Tong Lim undertook a partnership
for a specific undertaking, that is for
commercial fishing . . . . Oviously, the
ultimate undertaking of the defendants
was to divide the profits among
themselves which is what a partnership
essentially is . . . . By a contract of
partnership, two or more persons bind
themselves to contribute money,
property or industry to a common fund
with the intention of dividing the profits
among themselves (Article 1767, New
Civil Code). 13
Hence, petitioner brought this recourse before
this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this
Court to reverse the assailed Decision on the
following grounds:
I THE COURT OF APPEALS ERRED
IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT
CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE
CASE, THAT A PARTNERSHIP
AGREEMENT EXISTED AMONG
THEM.
II SINCE IT WAS ONLY CHUA WHO
REPRESENTED THAT HE WAS
ACTING FOR OCEAN QUEST
FISHING CORPORATION WHEN HE
BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT
OF APPEALS WAS UNJUSTIFIED IN
IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.
III THE TRIAL COURT
IMPROPERLY ORDERED THE
SEIZURE AND ATTACHMENT OF
PETITIONER LIM'S GOODS.
In determining whether petitioner may be held
liable for the fishing nets and floats from
respondent, the Court must resolve this key
issue: whether by their acts, Lim, Chua and Yao
could be deemed to have entered into a
partnership.
This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
Existence of a Partnership
and Petitioner's Liability
21
Full text : BusOrg I Cases 2018
In arguing that he should not be held liable for
the equipment purchased from respondent,
petitioner controverts the CA finding that a
partnership existed between him, Peter Yao and
Antonio Chua. He asserts that the CA based its
finding on the Compromise Agreement alone.
Furthermore, he disclaims any direct
participation in the purchase of the nets, alleging
that the negotiations were conducted by Chua
and Yao only, and that he has not even met the
representatives of the respondent company.
Petitioner further argues that he was a lessor,
not a partner, of Chua and Yao, for the
"Contract of Lease " dated February 1, 1990,
showed that he had merely leased to the two the
main asset of the purported partnership — the
fishing boat F/B Lourdes. The lease was for six
months, with a monthly rental of P37,500 plus
25 percent of the gross catch of the boat.
We are not persuaded by the arguments of
petitioner. The facts as found by the two lower
courts clearly showed that there existed a
partnership among Chua, Yao and him, pursuant
to Article 1767 of the Civil Code which
provides:
Art. 1767 — By the contract of
partnership, two or more persons
bind themselves to contribute
money, property, or industry to a
common fund, with the intention
of dividing the profits among
themselves.
Specifically, both lower courts ruled that a
partnership among the three existed based on
the following factual findings: 15
(1) That Petitioner Lim Tong Lim
requested Peter Yao who was engaged in
commercial fishing to join him, while
Antonio Chua was already Yao's partner;
(2) That after convening for a few times,
Lim, Chua, and Yao verbally agreed to
acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of
P3.35 million;
(3) That they borrowed P3.25 million from
Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.
(4) That they bought the boats from CMF
Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in
favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by
Jesus Lim;
(5) That Lim, Chua and Yao agreed that
the refurbishing, re-equipping, repairing,
dry docking and other expenses for the
boats would be shouldered by Chua and
Yao;

(6) That because of the "unavailability of
funds," Jesus Lim again extended a loan to
the partnership in the amount of P1 million
secured by a check, because of which, Yao
and Chua entrusted the ownership papers
of two other boats, Chua's FB Lady Anne
Mel and Yao's FB Tracy to Lim Tong Lim.
(7) That in pursuance of the business
agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported
business name.
(8) That subsequently, Civil Case No.
1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao
against Lim Tong Lim for (a) declaration
of nullity of commercial documents; (b)
reformation of contracts; (c) declaration of
ownership of fishing boats; (4) injunction;
and (e) damages.
(9) That the case was amicably settled
through a Compromise Agreement
executed between the parties-litigants the
terms of which are already enumerated
above.
From the factual findings of both lower courts,
it is clear that Chua, Yao and Lim had decided
to engage in a fishing business, which they
started by buying boats worth P3.35 million,
financed by a loan secured from Jesus Lim who
was petitioner's brother. In their Compromise
Agreement, they subsequently revealed their
intention to pay the loan with the proceeds of
the sale of the boats, and to divide equally
among them the excess or loss. These boats, the
purchase and the repair of which were financed
with borrowed money, fell under the term
"common fund" under Article 1767. The
contribution to such fund need not be cash or
fixed assets; it could be an intangible like credit
or industry. That the parties agreed that any loss
or profit from the sale and operation of the boats
would be divided equally among them also
shows that they had indeed formed a
partnership.
Moreover, it is clear that the partnership
extended not only to the purchase of the boat,
but also to that of the nets and the floats. The
fishing nets and the floats, both essential to
fishing, were obviously acquired in furtherance
of their business. It would have been
inconceivable for Lim to involve himself so
much in buying the boat but not in the
acquisition of the aforesaid equipment, without
which the business could not have proceeded.
Given the preceding facts, it is clear that there
was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business.
22
Full text : BusOrg I Cases 2018
They purchased the boats, which constituted the
main assets of the partnership, and they agreed
that the proceeds from the sales and operations
thereof would be divided among them.
We stress that under Rule 45, a petition for
review like the present case should involve only
questions of law. Thus, the foregoing factual
findings of the RTC and the CA are binding on
this Court, absent any cogent proof that the
present action is embraced by one of the
exceptions to the rule. 16 In assailing the factual
findings of the two lower courts, petitioner
effectively goes beyond the bounds of a petition
for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole
basis for assuming the existence of a partnership
was the Compromise Agreement. He also
claims that the settlement was entered into only
to end the dispute among them, but not to
adjudicate their preexisting rights and
obligations. His arguments are baseless. The
Agreement was but an embodiment of the
relationship extant among the parties prior to its
execution.
A proper adjudication of claimants' rights
mandates that courts must review and
thoroughly appraise all relevant facts. Both
lower courts have done so and have found,
correctly, a preexisting partnership among the
parties. In implying that the lower courts have
decided on the basis of one piece of document
alone, petitioner fails to appreciate that the CA
and the RTC delved into the history of the
document and explored all the possible
consequential combinations in harmony with
law, logic and fairness. Verily, the two lower
courts' factual findings mentioned above
nullified petitioner's argument that the existence
of a partnership was based only on the
Compromise Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument
that he was merely the lessor of the boats to
Chua and Yao, not a partner in the fishing
venture. His argument allegedly finds support in
the Contract of Lease and the registration papers
showing that he was the owner of the boats,
including F/B Lourdes where the nets were
found.
His allegation defies logic. In effect, he would
like this Court to believe that he consented to
the sale of his own boats to pay a debt of Chua
and Yao, with the excess of the proceeds to be
divided among the three of them. No lessor
would do what petitioner did. Indeed, his

consent to the sale proved that there was a
preexisting partnership among all three.
Verily, as found by the lower courts, petitioner
entered into a business agreement with Chua
and Yao, in which debts were undertaken in
order to finance the acquisition and the
upgrading of the vessels which would be used in
their fishing business. The sale of the boats, as
well as the division among the three of the
balance remaining after the payment of their
loans, proves beyond cavil that F/B Lourdes,
though registered in his name, was not his own
property but an asset of the partnership. It is not
uncommon to register the properties acquired
from a loan in the name of the person the lender
trusts, who in this case is the petitioner himself.
After all, he is the brother of the creditor, Jesus
Lim.
We stress that it is unreasonable — indeed, it is
absurd — for petitioner to sell his property to
pay a debt he did not incur, if the relationship
among the three of them was merely that of
lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of
corporation by estoppel, liability can be imputed
only to Chua and Yao, and not to him. Again,
we disagree.
Sec. 21 of the Corporation Code of the
Philippines provides:
Sec. 21. Corporation by estoppel.
— All persons who assume to act
as a corporation knowing it to be
without authority to do so shall
be liable as general partners for
all debts, liabilities and damages
incurred or arising as a result
thereof: Provided however, That
when any such ostensible
corporation is sued on any
transaction entered by it as a
corporation or on any tort
committed by it as such, it shall
not be allowed to use as a
defense its lack of corporate
personality.
One who assumes an obligation
to an ostensible corporation as
such, cannot resist performance
thereof on the ground that there
was in fact no corporation.
Thus, even if the ostensible corporate entity is
proven to be legally nonexistent, a party may be
estopped from denying its corporate existence.
"The reason behind this doctrine is obvious —
an unincorporated association has no personality
and would be incompetent to act and
appropriate for itself the power and attributes of
a corporation as provided by law; it cannot
23
Full text : BusOrg I Cases 2018
create agents or confer authority on another to
act in its behalf; thus, those who act or purport
to act as its representatives or agents do so
without authority and at their own risk. And as it
is an elementary principle of law that a person
who acts as an agent without authority or
without a principal is himself regarded as the
principal, possessed of all the right and subject
to all the liabilities of a principal, a person
acting or purporting to act on behalf of a
corporation which has no valid existence
assumes such privileges and obligations and
becomes personally liable for contracts entered
into or for other acts performed as such agent. 17
The doctrine of corporation by estoppel may
apply to the alleged corporation and to a third
party. In the first instance, an unincorporated
association, which represented itself to be a
corporation, will be estopped from denying its
corporate capacity in a suit against it by a third
person who relied in good faith on such
representation. It cannot allege lack of
personality to be sued to evade its responsibility
for a contract it entered into and by virtue of
which it received advantages and benefits.
On the other hand, a third party who, knowing
an association to be unincorporated, nonetheless
treated it as a corporation and received benefits
from it, may be barred from denying its
corporate existence in a suit brought against the
alleged corporation. In such case, all those who
benefited from the transaction made by the
ostensible corporation, despite knowledge of its
legal defects, may be held liable for contracts
they impliedly assented to or took advantage of.
There is no dispute that the respondent,
Philippine Fishing Gear Industries, is entitled to
be paid for the nets it sold. The only question
here is whether petitioner should be held
jointly 18 liable with Chua and Yao. Petitioner
contests such liability, insisting that only those
who dealt in the name of the ostensible
corporation should be held liable. Since his
name does not appear on any of the contracts
and since he never directly transacted with the
respondent corporation, ergo, he cannot be held
liable.
Unquestionably, petitioner benefited from the
use of the nets found inside F/B Lourdes, the
boat which has earlier been proven to be an
asset of the partnership. He in fact questions the
attachment of the nets, because the Writ has
effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the
CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally
formed for unknown reasons, this fact alone
does not preclude the liabilities of the three as
contracting parties in representation of it.
 Full text : BusOrg I Cases 2018

Clearly, under the law on estoppel, those acting

on behalf of a corporation and those benefited
by it, knowing it to be without valid existence,
are held liable as general partners.
Technically, it is true that petitioner did not
directly act on behalf of the corporation.
However, having reaped the benefits of the
contract entered into by persons with whom he
previously had an existing relationship, he is
deemed to be part of said association and is
covered by the scope of the doctrine of
corporation by estoppel. We reiterate the ruling
of the Court in Alonso v. Villamor: 19
A litigation is not a game of
technicalities in which one, more
deeply schooled and skilled in
the subtle art of movement and
position, entraps and destroys the
other. It is, rather, a contest in
which each contending party
fully and fairly lays before the
court the facts in issue and then,
brushing aside as wholly trivial
and indecisive all imperfections
of form and technicalities of
procedure, asks that justice be
done upon the merits. Lawsuits,
unlike duels, are not to be won
by a rapier's thrust. Technicality,
when it deserts its proper office
as an aid to justice and becomes
its great hindrance and chief
enemy, deserves scant
consideration from courts. There
should be no vested rights in
technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of
Attachment was improperly issued against the
nets. We agree with the Court of Appeals that
this issue is now moot and academic. As
previously discussed, F/B Lourdes was an asset
of the partnership and that it was placed in the
name of petitioner, only to assure payment of
the debt he and his partners owed. The nets and
the floats were specifically manufactured and
tailor-made according to their own design, and
were bought and used in the fishing venture they
agreed upon. Hence, the issuance of the Writ to
assure the payment of the price stipulated in the
invoices is proper. Besides, by specific
agreement, ownership of the nets remained with
Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE, the Petition is DENIED and the
assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.

24
 Full text : BusOrg I Cases 2018

[G.R. No. 112675. January 25, 1999] INC.; SUMMA INSURANCE

AFISCO INSURANCE CORPORATION; CORPORATION; TABACALERA
CCC INSURANCE INSURANCE CO., INC.all assessed as
CORPORATION; CHARTER POOL OF
INSURANCE CO., INC.; CIBELES MACHINERY INSURERS, petitioner
INSURANCE CORPORATION; s, vs. COURT OF APPEALS, COURT
COMMONWEALTH INSURANCE OF TAX APPEALS and
COMPANY; CONSOLIDATED COMMISSIONER OF INTERNAL
INSURANCE CO., INC.; REVENUE, respondents.
DEVELOPMENT INSURANCE & DECISION
SURETY CORPORATION; PANGANIBAN, J.:
DOMESTIC INSURANCE Pursuant to reinsurance treaties, a number
COMPANY OF THE PHILIPPINES; of local insurance firms formed themselves into
EASTERN ASSURANCE a pool in order to facilitate the handling of
COMPANY & SURETY CORP.; business contracted with a nonresident foreign
EMPIRE INSURANCE COMPANY; reinsurance company.May the clearing house or
EQUITABLE INSURANCE insurance pool so formed be deemed a
CORPORATION; FEDERAL partnership or an association that is taxable as a
INSURANCE CORPORATION INC.; corporation under the National Internal Revenue
FGU INSURANCE CORPORATION; Code (NIRC)? Should the pools remittances to
FIDELITY & SURETY COMPANY the member companies and to the said foreign
OF THE PHILS., INC.; FILIPINO firm be taxable as dividends? Under the facts of
MERCHANTS INSURANCE CO., this case, has the governments right to assess
INC.; GOVERNMENT SERVICE and collect said tax prescribed?
INSURANCE SYSTEM; MALAYAN The Case

INSURANCE CO., INC.; MALAYAN These are the main questions raised in the
ZURICH INSURANCE CO., INC.; Petition for Review on Certiorari before us,
MERCANTILE INSURANCE CO., assailing the October 11, 1993 Decision[1] of the
INC.; METROPOLITAN Court of Appeals[2]in CA-GR SP 29502, which
INSURANCE COMPANY; METRO- dismissed petitioners appeal of the October 19,
TAISHO INSURANCE 1992 Decision[3] of the Court of Tax
CORPORATION; NEW ZEALAND Appeals[4] (CTA) which had previously
INSURANCE CO., LTD.; PAN- sustained petitioners liability for deficiency
MALAYAN INSURANCE income tax, interest and withholding tax. The
CORPORATION; PARAMOUNT Court of Appeals ruled:
INSURANCE CORPORATION; WHEREFORE, the petition is DISMISSED,
PEOPLES TRANS-EAST ASIA with costs against petitioners.[5]
INSURANCE CORPORATION; The petition also challenges the November
PERLA COMPANIA DE SEGUROS, 15, 1993 Court of Appeals (CA)
INC.; PHILIPPINE BRITISH Resolution[6] denying reconsideration.
ASSURANCE CO., INC.; The Facts

PHILIPPINE FIRST INSURANCE The antecedent facts,[7] as found by the

CO., INC.; PIONEER INSURANCE Court of Appeals, are as follows:
& SURETY CORP.; PIONEER The petitioners are 41 non-life insurance
INTERCONTINENTAL corporations, organized and existing under the
INSURANCE CORPORATION; laws of the Philippines. Upon issuance by them
PROVIDENT INSURANCE of Erection, Machinery Breakdown, Boiler
COMPANY OF THE PHILIPPINES; Explosion and ContractorsAll Risk insurance
PYRAMID INSURANCE CO., INC.; policies, the petitioners on August 1, 1965
RELIANCE SURETY & entered into a Quota Share Reinsurance Treaty
INSURANCE COMPANY; RIZAL and a Surplus Reinsurance Treaty with the
SURETY & INSURANCE Munchener Ruckversicherungs-Gesselschaft
COMPANY; SANPIRO INSURANCE (hereafter called Munich), a non-resident
CORPORATION; SEABOARD- foreign insurance corporation. The reinsurance
EASTERN INSURANCE CO., treaties required petitioners to form a
INC.; SOLID GUARANTY, INC.; [p]ool. Accordingly, a pool composed of the
SOUTH SEA SURETY & petitioners was formed on the same day.
INSURANCE CO., INC.; STATE On April 14, 1976, the pool of machinery
BONDING & INSURANCE CO., insurers submitted a financial statement and

25
 Full text : BusOrg I Cases 2018

filed an Information Return of Organization
Exempt from Income Tax for the year ending in
1975, on the basis of which it was assessed by
the Commissioner of Internal Revenue
deficiency corporate taxes in the amount
because the taxpayer cannot be located at the
address given in the information return
filed. Hence, this Petition for Review before
us.[9]
The Issues

of P1,843,273.60, and withholding taxes in the
amount of P1,768,799.39 and P89,438.68 on
dividends paid to Munich and to the petitioners,
respectively. These assessments were protested
by the petitioners through its auditors Sycip,
Gorres, Velayo and Co.
On January 27, 1986, the Commissioner of
Internal Revenue denied the protest and ordered
the petitioners, assessed as Pool of Machinery
Insurers, to pay deficiency income tax, interest,
and with[h]oldingtax, itemized as follows:
Net income per information
return P3,737,370.00
===========
Income tax due thereon P1,298,080.00
Add: 14% Int. fr. 4/15/76
to 4/15/79 545,193.60
Before this Court, petitioners raise the
following issues:
1.Whether or not the Clearing House, acting as a
mere agent and performing strictly
administrative functions, and which did not
insure or assume any risk in its own name, was
a partnership or association subject to tax as a
corporation;
2.Whether or not the remittances to petitioners
and MUNICHRE of their respective shares of
reinsurance premiums, pertaining to their
individual and separate contracts of reinsurance,
were dividends subject to tax; and
3.Whether or not the respondent Commissioners
right to assess the Clearing House had already
prescribed.[10]
The Courts Ruling

TOTAL AMOUNT DUE The petition is devoid of merit. We sustain

& P1,843,273.60 the ruling of the Court of Appeals that the pool
COLLECTIBLE =========== is taxable as a corporation, and that the
Dividend paid to Munich governments right to assess and collect the taxes
Reinsurance Company P3,728,412.00 had not prescribed.
=========== First Issue:

35% withholding tax at Pool Taxable as a Corporation

source due thereon P1,304,944.20 Petitioners contend that the Court of

Add: 25% surcharge 326,236.05 Appeals erred in finding that the pool or
14% interest from clearing house was an informal partnership,
1/25/76 to 1/25/79 137,019.14 which was taxable as a corporation under the
Compromise penalty- NIRC. They point out that the reinsurance
non-filing of return 300.00 policies were written by them individually and
late payment 300.00 separately, and that their liability was limited to
TOTAL AMOUNT DUE the extent of their allocated share in the original
& P1,768,799.39 risks thus reinsured.[11] Hence, the pool did not
COLLECTIBLE =========== act or earn income as a reinsurer.[12] Its role was
Dividend paid to Pool Members P 655,636.00 limited to its principal function of allocating and
=========== distributing the risk(s) arising from the original
10% withholding tax at insurance among the signatories to the treaty or
source due thereon P 65,563.60 the members of the pool based on their ability to
Add: 25% surcharge 16,390.90 absorb the risk(s) ceded[;] as well as the
14% interest from performance of incidental functions, such as
1/25/76 to 1/25/79 6,884.18 records, maintenance, collection and custody of
Compromise penalty- funds, etc.[13]
non-filing of return 300.00 Petitioners belie the existence of a
late payment 300.00 partnership in this case, because (1) they, the
TOTAL AMOUNT DUE reinsurers, did not share the same risk or
& P 89,438.68 solidary liability;[14] (2) there was no common
COLLECTIBLE ===========[8] fund;[15] (3) the executive board of the pool did
The CA ruled in the main that the pool of not exercise control and management of its
machinery insurers was a partnership taxable as funds, unlike the board of directors of a
a corporation, and that the latters collection of corporation;[16] and (4) the pool or clearing
premiums on behalf of its members, the ceding house was not and could not possibly have
companies, was taxable income. It added that engaged in the business of reinsurance from
prescription did not bar the Bureau of Internal which it could have derived income for itself.[17]
Revenue (BIR) from collecting the taxes due,

26

The Court is not persuaded. The opinion or
ruling of the Commission of Internal Revenue,
the agency tasked with the enforcement
of tax laws, is accorded much weight and even
finality, when there is no showing that it is
patently wrong,[18] particularly in this case
where the findings and conclusions of the
internal revenue commissioner were
subsequently affirmed by the CTA, a
specialized body created for the exclusive
purpose of reviewing tax cases, and the Court of
Appeals.[19] Indeed,
[I]t has been the long standing policy and
practice of this Court to respect the conclusions
of quasi-judicial agencies, such as the Court of
Tax Appeals which, by the nature of its
functions, is dedicated exclusively to the study
and consideration of tax problems and has
necessarily developed an expertise on the
subject, unless there has been an abuse or
improvident exercise of its authority.[20]
This Court rules that the Court of Appeals,
in affirming the CTA which had previously
sustained the internal revenue commissioner,
committed no reversible error. Section 24 of the
NIRC, as worded in the year ending 1975,
provides:
SEC. 24. Rate of tax on corporations. -- (a) Tax
on domestic corporations. -- A tax is hereby
imposed upon the taxable net income received
during each taxable year from all sources by
every corporation organized in, or existing
under the laws of the Philippines, no matter how
created or
organized, but not including duly registered gen
eral co-partnership (compaias colectivas),
general professional partnerships, private
educational institutions, and building and loan
associations xxx.
Ineludibly, the Philippine legislature
included in the concept of corporations those
entities that resembled them such as
unregistered partnerships and
associations. Parenthetically, the NLRCs
inclusion of such entities in the tax on
corporations was made even clearer by the Tax
Reform Act of 1997,[21] which amended the Tax
Code. Pertinent provisions of the new law read
as follows:
SEC. 27. Rates of Income Tax on Domestic
Corporations. --
(A) In General. -- Except as otherwise provided
in this Code, an income tax of thirty-five
percent (35%) is hereby imposed upon the
taxable income derived during each taxable year
from all sources within and without the
Philippines by every corporation, as defined in
Section 22 (B) of this Code, and taxable under
this Title as a corporation xxx.
27
Full text : BusOrg I Cases 2018
SEC. 22. -- Definition. -- When used in this
Title:
xxx xxx xxx
(B) The term corporation shall
include partnerships, no matter how
created or organized, joint-stock
companies, joint accounts (cuentas en
participacion), associations, or
insurance companies, but does not
include general professional
partnerships [or] a joint venture or
consortium formed for the purpose of
undertaking construction projects or
engaging in petroleum, coal,
geothermal and other energy
operations pursuant to an operating or
consortium agreement under a service
contract without the
Government. General professional
partnerships are partnerships formed
by persons for the sole purpose of
exercising their common profession,
no part of the income of which is
derived from engaging in any trade or
business.
xxx xxx xxx."
Thus, the Court in Evangelista v. Collector
of Internal Revenue[22] held that Section 24
covered these unregistered partnerships and
even associations or joint accounts, which had
no legal personalities apart from their individual
members.[23] The Court of Appeals astutely
applied Evangelista:[24]
xxx Accordingly, a pool of individual real
property owners dealing in real estate business
was considered a corporation for purposes of the
tax in sec. 24 of the Tax Code in Evangelista v.
Collector of Internal Revenue, supra. The
Supreme Court said:
The term partnership includes a syndicate,
group, pool, joint venture or other
unincorporated organization, through or by
means of which any business, financial
operation, or venture is carried on. * * * (8
Mertens Law of Federal Income Taxation,
p. 562 Note 63)
Article 1767 of the Civil Code recognizes
the creation of a contract of partnership when
two or more persons bind themselves to
contribute money, property, or industry to a
common fund, with the intention of dividing the
profits among themselves.[25] Its requisites
are: (1) mutual contribution to a common stock,
and (2) a joint interest in the profits.[26] In other
words, a partnership is formed when persons
contract to devote to a common purpose either
money, property, or labor with the intention of
dividing the profits between
[27]
themselves. Meanwhile, an association

implies associates who enter into a joint
enterprise x x x for the transaction of
business.[28]
In the case before us, the ceding companies
entered into a Pool Agreement[29] or an
association[30] that would handle all the
insurance businesses covered under their quota-
share reinsurance treaty[31]and surplus
[32]
reinsurance treaty with Munich. The
following unmistakably indicates a partnership
or an association covered by Section 24 of the
NIRC:
(1) The pool has a common fund,
consisting of money and other
valuables that are deposited in the
name and credit of the pool.[33] This
common fund pays for the
administration and operation
[34]
expenses of the pool.
(2) The pool functions through an
executive board, which resembles
the board of directors of a
corporation, composed of one
representative for each of the ceding
companies.[35]
(3) True, the pool itself is not a
reinsurer and does not issue any
insurance policy; however, its work
is indispensable, beneficial and
economically useful to the business
of the ceding companies and
Munich, because without it they
would not have received their
premiums. The ceding companies
share in the business ceded to the
pool and in the expenses according
to a Rules of Distribution annexed
to the Pool Agreement.[36] Profit
motive or business is, therefore, the
primordial reason for the pools
formation. As aptly found by the
CTA:
xxx The fact that the pool does not
retain any profit or income does not
obliterate an antecedent fact, that of
the pool being used in the transaction
of business for profit. It is apparent,
and petitioners admit, that their
association or coaction was
indispensable [to] the transaction of
the business. x x x If together they
have conducted business, profit must
have been the object as, indeed, profit
was earned. Though the profit was
apportioned among the members, this
is only a matter of consequence, as it
implies that profit actually resulted.[37]
The petitioners reliance on Pascual v.
Commissioner[38] is misplaced, because the facts
28
Full text : BusOrg I Cases 2018
obtaining therein are not on all fours with the
present case. In Pascual, there was no
unregistered partnership, but merely a co-
ownership which took up only two isolated
transactions.[39] The Court of Appeals did not err
in applying Evangelista, which involved a
partnership that engaged in a series of
transactions spanning more than ten years, as in
the case before us.
Second Issue:
Pools Remittances Are Taxable
Petitioners further contend that the
remittances of the pool to the ceding companies
and Munich are not dividends subject to
tax. They insist that taxing such remittances
contravene Sections 24 (b) (I) and 263 of the
1977 NIRC and would be tantamount to an
illegal double taxation, as it would result in
taxing the same premium income twice in the
hands of the same taxpayer.[40] Moreover,
petitioners argue that since Munich was not a
signatory to the Pool Agreement, the
remittances it received from the pool cannot be
deemed dividends.[41] They add that even if such
remittances were treated as dividends, they
would have been exempt under the previously
mentioned sections of the 1977 NIRC,[42] as
well as Article 7 of paragraph 1[43] and Article 5
of paragraph 5[44] of the RP-West German Tax
Treaty.[45]
Petitioners are clutching at straws. Double
taxation means taxing the same property twice
when it should be taxed only once. That is, xxx
taxing the same person twice by the same
jurisdiction for the same thing.[46] In the instant
case, the pool is a taxable entity distinct from
the individual corporate entities of the ceding
companies. The tax on its income is obviously
different from the tax on the dividends received
by the said companies. Clearly, there is no
double taxation here.
The tax exemptions claimed by petitioners
cannot be granted, since their entitlement
thereto remains unproven and unsubstantiated. It
is axiomatic in the law of taxation that taxes are
the lifeblood of the nation. Hence, exemptions
therefrom are highly disfavored in law and he
who claims tax exemption must be able to
justify his claim or right.[47] Petitioners have
failed to discharge this burden of proof. The
sections of the 1977 NIRC which they cite are
inapplicable, because these were not yet in
effect when the income was earned and when
the subject information return for the year
ending 1975 was filed.
Referring to the 1975 version of the
counterpart sections of the NIRC, the Court still
cannot justify the exemptions claimed. Section
255 provides that no tax shall xxx be paid upon
 Full text : BusOrg I Cases 2018

reinsurance by any company that has already
paid the tax xxx. This cannot be applied to the
present case because, as previously discussed,
the pool is a taxable entity distinct from the
ceding companies; therefore, the latter cannot
individually claim the income tax paid by the
former as their own.
On the other hand, Section 24 (b)
(1)[48] pertains to tax on foreign corporations;
hence, it cannot be claimed by the ceding
companies which are domestic
corporations. Nor can Munich, a foreign
corporation, be granted exemption based solely
on this provision of the Tax Code, because the
same subsection specifically taxes dividends, the
type of remittances forwarded to it by the
pool. Although not a signatory to the Pool
Agreement, Munich is patently an associate of
the ceding companies in the entity formed,
pursuant to their reinsurance treaties which
required the creation of said pool.
Under its pool arrangement with the ceding
companies, Munich shared in their income and
loss. This is manifest from a reading of Articles
3[49] and 10[50] of the Quota Share Reinsurance
Treaty and Articles 3[51] and 10[52] of the Surplus
Reinsurance Treaty. The foregoing
interpretation of Section 24 (b) (1) is in line
with the doctrine that a tax exemption must be
construed strictissimi juris, and the statutory
exemption claimed must be expressed in a
language too plain to be mistaken.[53]
Finally, the petitioners claim that Munich is
tax-exempt based on the RP-West German Tax
Treaty is likewise unpersuasive, because the
internal revenue commissioner assessed the pool
for corporate taxes on the basis of the
information return it had submitted for the year
ending 1975, a taxable year when said treaty
was not yet in effect.[54] Although petitioners
omitted in their pleadings the date of effectivity
of the treaty, the Court takes judicial notice that
it took effect only later, on December 14,
1984.[55]
Third Issue: Prescription
We cannot sustain the petitioners. The CA
and the CTA categorically found that the
prescriptive period was tolled under
then Section 333 of the NIRC,[57] because the
taxpayer cannot be located at the address given
in the information return filed and for which
reason there was delay in sending the
assessment.[58] Indeed, whether the governments
right to collect and assess the tax has prescribed
involves facts which have been ruled upon by
the lower courts. It is axiomatic that in the
absence of a clear showing of palpable error or
grave abuse of discretion, as in this case, this
Court must not overturn the factual findings of
the CA and the CTA.
Furthermore, petitioners admitted in their
Motion for Reconsideration before the Court of
Appeals that the pool changed its address, for
they stated that the pools information return
filed in 1980 indicated therein its present
address. The Court finds that this falls short of
the requirement of Section 333 of the NIRC for
the suspension of the prescriptive period. The
law clearly states that the said period will be
suspended only if the taxpayer informs the
Commissioner of Internal Revenue of any
change in the address.
WHEREFORE, the petition
is DENIED. The Resolutions of the Court of
Appeals dated October 11, 1993 and November
15, 1993 are hereby AFFIRMED. Costs against
petitioners.
SO ORDERED.

Petitioners also argue that the governments

right to assess and collect the subject tax had
prescribed. They claim that the subject
information return was filed by the pool on
April 14, 1976. On the basis of this return, the
BIR telephoned petitioners on November 11,
1981, to give them notice of its letter of
assessment dated March 27, 1981. Thus, the
petitioners contend that the five-year statute of
limitations then provided in the NIRC had
already lapsed, and that the internal revenue
commissioner was already barred by
prescription from making an assessment.[56]

29
 Full text : BusOrg I Cases 2018

G.R. No. 148187 April 16, 2008 5. Whenever the MANAGERS

PHILEX MINING shall deem it necessary and
CORPORATION, convenient in connection with
the MANAGEMENT of the
COMMISSIONER OF STO. NINO MINE, they may
INTERNAL REVENUE, Respondent. transfer their own funds or
x -------------------------------------------------------- property to the Sto. Nino
-------------------------------- x PROJECT, in accordance with
the following arrangements:
DECISION
(a) The properties shall be
YNARES-SANTIAGO, J.: appraised and, together with the
cash, shall be carried by the Sto.
Nino PROJECT as a special fund
This is a petition for review on certiorari of the to be known as the MANAGERS
June 30, 2000 Decision[1] of the Court of account.
Appeals in CA-G.R. SP No. 49385, which
affirmed the Decision[2] of the Court of Tax (b) The total of the MANAGERS
Appeals in C.T.A. Case No. 5200. Also assailed account shall not exceed
is the April 3, 2001 Resolution[3] denying the P11,000,000.00, except with
motion for reconsideration. prior approval of the
PRINCIPAL; provided, however,
The facts of the case are as follows: that if the compensation of the
MANAGERS as herein provided
On April 16, 1971, petitioner Philex cannot be paid in cash from the
Mining Corporation (Philex Mining), entered Sto. Nino PROJECT, the amount
into an agreement[4] with Baguio Gold Mining not so paid in cash shall be added
Company (Baguio Gold) for the former to to the MANAGERS account.
manage and operate the latters mining claim,
known as the Sto. Nino mine, located in Atok (c) The cash and property shall
and Tublay, Benguet Province. The parties not thereafter be withdrawn from
agreement was denominated as Power of the Sto. Nino PROJECT until
Attorney and provided for the following terms: termination of this Agency.

4. Within three (3) years from (d) The MANAGERS account

date thereof, the PRINCIPAL shall not accrue interest. Since it
(Baguio Gold) shall make is the desire of the PRINCIPAL
available to the MANAGERS to extend to the MANAGERS
(Philex Mining) up to ELEVEN the benefit of subsequent
MILLION PESOS appreciation of property, upon a
(P11,000,000.00), in such projected termination of this
amounts as from time to time Agency, the ratio which the
may be required by the MANAGERS account has to the
MANAGERS within the said 3- owners account will be
year period, for use in the determined, and the
MANAGEMENT of the STO. corresponding proportion of the
NINO MINE. The said ELEVEN entire assets of the STO. NINO
MILLION PESOS MINE, excluding the claims,
(P11,000,000.00) shall be shall be transferred to the
deemed, for internal audit MANAGERS, except that such
purposes, as the owners account transferred assets shall not
in the Sto. Nino PROJECT. Any include mine development,
part of any income of the roads, buildings, and similar
PRINCIPAL from the STO. property which will be valueless,
NINO MINE, which is left with or of slight value, to the
the Sto. Nino PROJECT, shall be MANAGERS.
added to such owners account. The MANAGERS can, on the
other hand, require at their option
that property originally

30

transferred by them to the Sto.
Nino PROJECT be re-transferred
to them. Until such assets are
transferred to the MANAGERS,
this Agency shall remain
subsisting.
xxxx
12. The compensation of the
MANAGER shall be fifty per
cent (50%) of the net profit of the
Sto. Nino PROJECT before
income tax. It is understood that
the MANAGERS shall pay
income tax on their
compensation, while the
PRINCIPAL shall pay income
tax on the net profit of the Sto.
Nino PROJECT after deduction
therefrom of the MANAGERS
compensation.
xxxx
16. The PRINCIPAL has current
pecuniary obligation in favor of
the MANAGERS and, in the
future, may incur other
obligations in favor of the
MANAGERS. This Power of
Attorney has been executed as
security for the payment and
satisfaction of all such
obligations of the PRINCIPAL in
favor of the MANAGERS and as
a means to fulfill the same.
Therefore, this Agency shall be
irrevocable while any obligation
of the PRINCIPAL in favor of
the MANAGERS is outstanding,
inclusive of the MANAGERS
account. After all obligations of
the PRINCIPAL in favor of the
MANAGERS have been paid
and satisfied in full, this Agency
shall be revocable by the
PRINCIPAL upon 36-month
notice to the MANAGERS.
17. Notwithstanding any
agreement or understanding
between the PRINCIPAL and the
MANAGERS to the contrary, the
MANAGERS may withdraw
from this Agency by giving 6-
month notice to the PRINCIPAL.
The MANAGERS shall not in
any manner be held liable to the
31
Full text : BusOrg I Cases 2018
PRINCIPAL by reason alone of
such withdrawal. Paragraph 5(d)
hereof shall be operative in case
of the MANAGERS withdrawal.
x x x x[5]
In the course of managing and operating the
project, Philex Mining made advances of cash
and property in accordance with paragraph 5 of
the agreement. However, the mine suffered
continuing losses over the years which resulted
to petitioners withdrawal as manager of the
mine on January 28, 1982 and in the eventual
cessation of mine operations on February 20,
1982.[6]
Thereafter, on September 27, 1982, the parties
executed a Compromise with Dation in
Payment[7] wherein Baguio Gold admitted an
indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in
three segments by first assigning Baguio Golds
tangible assets to petitioner, transferring to the
latter Baguio Golds equitable title in its
Philodrill assets and finally settling the
remaining liability through properties that
Baguio Gold may acquire in the future.
On December 31, 1982, the parties executed an
Amendment to Compromise with Dation in
Payment[8] where the parties determined that
Baguio Golds indebtedness to petitioner actually
amounted to P259,137,245.00, which sum
included liabilities of Baguio Gold to other
creditors that petitioner had assumed as
guarantor. These liabilities pertained to long-
term loans amounting to US$11,000,000.00
contracted by Baguio Gold from the Bank of
America NT & SA and Citibank N.A. This time,
Baguio Gold undertook to pay petitioner in two
segments by first assigning its tangible assets
for P127,838,051.00 and then transferring its
equitable title in its Philodrill assets for
P16,302,426.00. The parties then ascertained
that Baguio Gold had a remaining outstanding
indebtedness to petitioner in the amount of
P114,996,768.00.
Subsequently, petitioner wrote off in its 1982
books of account the remaining outstanding
indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that
were set up in 1981 and P2,860,768.00 to the
1982 operations.
In its 1982 annual income tax return, petitioner
deducted from its gross income the amount of
P112,136,000.00 as loss on settlement of
 Full text : BusOrg I Cases 2018

receivables from Baguio Gold against reserves assessment in question, viz:

and allowances.[9] However, the Bureau of FAS-1-82-88-003067 for
Internal Revenue (BIR) disallowed the amount deficiency income tax in the
as deduction for bad debt and assessed amount of P62,811,161.39 is
petitioner a deficiency income tax of hereby AFFIRMED.
P62,811,161.39.
ACCORDINGLY,
Petitioner protested before the BIR arguing that petitioner Philex Mining
the deduction must be allowed since all Corporation is hereby
requisites for a bad debt deduction were ORDERED to PAY respondent
satisfied, to wit: (a) there was a valid and Commissioner of Internal
existing debt; (b) the debt was ascertained to be Revenue the amount of
worthless; and (c) it was charged off within the P62,811,161.39, plus, 20%
taxable year when it was determined to be delinquency interest due
worthless. computed from February 10,
1995, which is the date after the
Petitioner emphasized that the debt arose out of 20-day grace period given by the
a valid management contract it entered into with respondent within which
Baguio Gold. The bad debt deduction petitioner has to pay the
represented advances made by petitioner which, deficiency amount x x x up to
pursuant to the management contract, formed actual date of payment.
part of Baguio Golds pecuniary obligations to
petitioner. It also included payments made by SO ORDERED.[11]
petitioner as guarantor of Baguio Golds long-
term loans which legally entitled petitioner to be The CTA rejected petitioners assertion
subrogated to the rights of the original creditor. that the advances it made for the Sto. Nino mine
were in the nature of a loan. It instead
Petitioner also asserted that due to characterized the advances as petitioners
Baguio Golds irreversible losses, it became investment in a partnership with Baguio Gold
evident that it would not be able to recover the for the development and exploitation of the Sto.
advances and payments it had made in behalf of Nino mine. The CTA held that the Power of
Baguio Gold. For a debt to be considered Attorney executed by petitioner and Baguio
worthless, petitioner claimed that it was neither Gold was actually a partnership
required to institute a judicial action for agreement. Since the advanced amount partook
collection against the debtor nor to sell or of the nature of an investment, it could not be
dispose of collateral assets in satisfaction of the deducted as a bad debt from petitioners gross
debt. It is enough that a taxpayer exerted income.
diligent efforts to enforce collection and
exhausted all reasonable means to collect. The CTA likewise held that the amount
paid by petitioner for the long-term loan
On October 28, 1994, the BIR denied obligations of Baguio Gold could not be
petitioners protest for lack of legal and factual allowed as a bad debt deduction. At the time the
basis. It held that the alleged debt was not payments were made, Baguio Gold was not in
ascertained to be worthless since Baguio Gold default since its loans were not yet due and
remained existing and had not filed a petition demandable. What petitioner did was to pre-pay
for bankruptcy; and that the deduction did not the loans as evidenced by the notice sent by
consist of a valid and subsisting debt Bank of America showing that it was merely
considering that, under the management demanding payment of the installment and
contract, petitioner was to be paid fifty percent interests due. Moreover, Citibank imposed and
(50%) of the projects net profit.[10] collected a pre-termination penalty for the pre-
payment.
Petitioner appealed before the Court of
Tax Appeals (CTA) which rendered judgment, The Court of Appeals affirmed the
as follows: decision of the CTA.[12] Hence, upon denial of
its motion for reconsideration,[13] petitioner took
WHEREFORE, in view this recourse under Rule 45 of the Rules of
of the foregoing, the instant Court, alleging that:
Petition for Review is hereby
DENIED for lack of merit. The

32

I.
The Court of Appeals erred in
construing that the advances
made by Philex in the
management of the Sto. Nino
Mine pursuant to the Power of
Attorney partook of the nature of
an investment rather than a loan.
II.
The Court of Appeals erred in
ruling that the 50%-50% sharing
in the net profits of the Sto. Nino
Mine indicates that Philex is a
partner of Baguio Gold in the
development of the Sto. Nino
Mine notwithstanding the clear
absence of any intent on the part
of Philex and Baguio Gold to
form a partnership.
III.
The Court of Appeals erred in
relying only on the Power of
Attorney and in completely
disregarding the Compromise
Agreement and the Amended
Compromise Agreement when it
construed the nature of the
advances made by Philex.
IV.
The Court of Appeals erred in
refusing to delve upon the issue
of the propriety of the bad debts
write-off.[14]
Petitioner insists that in determining the
nature of its business relationship with Baguio
Gold, we should not only rely on the Power of
Attorney, but also on the subsequent
Compromise with Dation in Payment and
Amended Compromise with Dation in Payment
that the parties executed in 1982. These
documents, allegedly evinced the parties intent
to treat the advances and payments as a loan and
establish a creditor-debtor relationship between
them.
The petition lacks merit.
The lower courts correctly held that the
Power of Attorney is the instrument that is
material in determining the true nature of the
business relationship between petitioner and
Baguio Gold. Before resort may be had to the
two compromise agreements, the parties
33
Full text : BusOrg I Cases 2018
contractual intent must first be discovered from
the expressed language of the primary contract
under which the parties business relations were
founded. It should be noted that the compromise
agreements were mere collateral documents
executed by the parties pursuant to the
termination of their business relationship
created under the Power of Attorney. On the
other hand, it is the latter which established the
juridical relation of the parties and defined the
parameters of their dealings with one another.
The execution of the two compromise
agreements can hardly be considered as a
subsequent or contemporaneous act that is
reflective of the parties true intent. The
compromise agreements were executed eleven
years after the Power of Attorney and merely
laid out a plan or procedure by which petitioner
could recover the advances and payments it
made under the Power of Attorney. The parties
entered into the compromise agreements as a
consequence of the dissolution of their business
relationship. It did not define that relationship or
indicate its real character.
An examination of the Power of
Attorney reveals that a partnership or joint
venture was indeed intended by the
parties. Under a contract of partnership, two or
more persons bind themselves to contribute
money, property, or industry to a common fund,
with the intention of dividing the profits among
themselves.[15] While a corporation, like
petitioner, cannot generally enter into a contract
of partnership unless authorized by law or its
charter, it has been held that it may enter into a
joint venture which is akin to a particular
partnership:
The legal concept of a
joint venture is of common law
origin. It has no precise legal
definition, but it has been
generally understood to mean an
organization formed for some
temporary purpose. x x x It is in
fact hardly distinguishable from
the partnership, since their
elements are similar community
of interest in the business,
sharing of profits and losses, and
a mutual right of control. x x x
The main distinction cited by
most opinions in common law
jurisdictions is that the
partnership contemplates a
general business with some
degree of continuity, while the

joint venture is formed for the
execution of a single transaction,
and is thus of a temporary nature.
x x x This observation is not
entirely accurate in this
jurisdiction, since under the Civil
Code, a partnership may be
particular or universal, and a
particular partnership may have
for its object a specific
undertaking. x x x It would seem
therefore that under Philippine
law, a joint venture is a form of
partnership and should be
governed by the law of
partnerships. The Supreme Court
has however recognized a
distinction between these two
business forms, and has held that
although a corporation cannot
enter into a partnership contract,
it may however engage in a joint
venture with others. x x x
(Citations omitted) [16]
Perusal of the agreement denominated as
the Power of Attorney indicates that the parties
had intended to create a partnership and
establish a common fund for the purpose. They
also had a joint interest in the profits of the
business as shown by a 50-50 sharing in the
income of the mine.
Under the Power of Attorney, petitioner
and Baguio Gold undertook to contribute
money, property and industry to the common
fund known as the Sto. Nio mine.[17] In this
regard, we note that there is a substantive
equivalence in the respective contributions of
the parties to the development and operation of
the mine. Pursuant to paragraphs 4 and 5 of the
agreement, petitioner and Baguio Gold were to
contribute equally to the joint venture assets
under their respective accounts. Baguio Gold
would contribute P11Munder its owners
account plus any of its income that is left in the
project, in addition to its actual mining
claim. Meanwhile, petitioners contribution
would consist of its expertise in the
management and operation of mines, as well as
the managers account which is comprised
of P11M in funds and property and
petitioners compensation as manager that
cannot be paid in cash.
However, petitioner asserts that it could
not have entered into a partnership agreement
with Baguio Gold because it did not bind itself
to contribute money or property to the project;
34
Full text : BusOrg I Cases 2018
that under paragraph 5 of the agreement, it was
only optional for petitioner to transfer funds or
property to the Sto. Nio project (w)henever the
MANAGERS shall deem it necessary and
convenient in connection with the
MANAGEMENT of the STO. NIO MINE.[18]
The wording of the parties agreement as
to petitioners contribution to the common fund
does not detract from the fact that petitioner
transferred its funds and property to the project
as specified in paragraph 5, thus rendering
effective the other stipulations of the contract,
particularly paragraph 5(c) which prohibits
petitioner from withdrawing the advances until
termination of the parties business relations. As
can be seen, petitioner became bound by its
contributions once the transfers were made. The
contributions acquired an obligatory nature as
soon as petitioner had chosen to exercise its
option under paragraph 5.
There is no merit to petitioners claim
that the prohibition in paragraph 5(c) against
withdrawal of advances should not be taken as
an indication that it had entered into a
partnership with Baguio Gold; that the
stipulation only showed that what the parties
entered into was actually a contract of agency
coupled with an interest which is not revocable
at will and not a partnership.
In an agency coupled with interest, it is
the agency that cannot be revoked or
withdrawn by the principal due to an interest of
a third party that depends upon it, or the mutual
interest of both principal and agent.[19] In this
case, the non-revocation or non-withdrawal
under paragraph 5(c) applies to
the advances made by petitioner who is
supposedly the agent and not the principal
under the contract. Thus, it cannot be inferred
from the stipulation that the parties relation
under the agreement is one of agency coupled
with an interest and not a partnership.
Neither can paragraph 16 of the
agreement be taken as an indication that the
relationship of the parties was one of agency
and not a partnership. Although the said
provision states that this Agency shall be
irrevocable while any obligation of the
PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS
account, it does not necessarily follow that the
parties entered into an agency contract coupled
with an interest that cannot be withdrawn by
Baguio Gold.

It should be stressed that the main object
of the Power of Attorney was not to confer a
power in favor of petitioner to contract
with third persons on behalf of Baguio Gold but
to create a business relationship between
petitioner and Baguio Gold, in which the former
was to manage and operate the latters mine
through the parties mutual contribution of
material resources and industry. The essence of
an agency, even one that is coupled with
interest, is the agents ability to represent
his principal and bring about business relations
between the latter and third persons.[20] Where
representation for and in behalf of the principal
is merely incidental or necessary for the proper
discharge of ones paramount undertaking under
a contract, the latter may not necessarily be a
contract of agency, but some other agreement
depending on the ultimate undertaking of the
parties.[21]
In this case, the totality of the
circumstances and the stipulations in the parties
agreement indubitably lead to the conclusion
that a partnership was formed between
petitioner and Baguio Gold.
First, it does not appear that Baguio
Gold was unconditionally obligated to return the
advances made by petitioner under the
agreement. Paragraph 5 (d) thereof provides that
upon termination of the parties business
relations, the ratio which the MANAGERS
account has to the owners account will be
determined, and the corresponding proportion of
the entire assets of the STO. NINO MINE,
excluding the claims shall be transferred to
petitioner.[22] As pointed out by the Court of Tax
Appeals, petitioner was merely entitled to a
proportionate return of the mines assets upon
dissolution of the parties business
relations. There was nothing in the agreement
that would require Baguio Gold to make
payments of the advances to petitioner as would
be recognized as an item of obligation or
accounts payable for Baguio Gold.
Thus, the tax court correctly concluded
that the agreement provided for a distribution of
assets of the Sto. Nio mine upon termination, a
provision that is more consistent with a
partnership than a creditor-debtor relationship. It
should be pointed out that in a contract of loan,
a person who receives a loan or money or any
fungible thing acquires ownership thereof and
is bound to pay the creditor an equal amount of
the same kind and quality.[23] In this case,
however, there was no stipulation for Baguio
Gold to actually repay petitioner the cash and
35
Full text : BusOrg I Cases 2018
property that it had advanced, but only the
return of an amount pegged at a ratio which the
managers account had to the owners account.
In this connection, we find no
contractual basis for the execution of the two
compromise agreements in which Baguio Gold
recognized a debt in favor of petitioner, which
supposedly arose from the termination of their
business relations over the Sto. Nino mine. The
Power of Attorney clearly provides that
petitioner would only be entitled to the return of
a proportionate share of the mine assets to be
computed at a ratio that the managers account
had to the owners account. Except to provide a
basis for claiming the advances as a bad debt
deduction, there is no reason for Baguio Gold to
hold itself liable to petitioner under the
compromise agreements, for any amount over
and above the proportion agreed upon in the
Power of Attorney.
Next, the tax court correctly observed
that it was unlikely for a business corporation to
lend hundreds of millions of pesos to another
corporation with neither security, or collateral,
nor a specific deed evidencing the terms and
conditions of such loans. The parties also did
not provide a specific maturity date for the
advances to become due and demandable, and
the manner of payment was unclear. All these
point to the inevitable conclusion that the
advances were not loans but capital
contributions to a partnership.
The strongest indication that petitioner
was a partner in the Sto Nio mine is the fact that
it would receive 50% of the net profits as
compensation under paragraph 12 of the
agreement. The entirety of the parties
contractual stipulations simply leads to no other
conclusion than that petitioners compensation is
actually its share in the income of the joint
venture.
Article 1769 (4) of the Civil Code
explicitly provides that the receipt by a person
of a share in the profits of a business is prima
facie evidence that he is a partner in the
business. Petitioner asserts, however, that no
such inference can be drawn against it since its
share in the profits of the Sto Nio project was in
the nature of compensation or wages of an
employee, under the exception provided in
Article 1769 (4) (b).[24]
On this score, the tax court correctly
noted that petitioner was not an employee of
Baguio Gold who will be paid wages pursuant
 Full text : BusOrg I Cases 2018

to an employer-employee relationship. To begin No. 49385 dated June 30, 2000, which affirmed
with, petitioner was the manager of the project the decision of the Court of Tax Appeals in
and had put substantial sums into the venture in C.T.A. Case No. 5200
order to ensure its viability and profitability. By is AFFIRMED. Petitioner Philex Mining
pegging its compensation to profits, petitioner Corporation is ORDERED to PAY the
also stood not to be remunerated in case the deficiency tax on its 1982 income in the amount
mine had no income. It is hard to believe that of P62,811,161.31, with 20% delinquency
petitioner would take the risk of not being paid interest computed from February 10, 1995,
at all for its services, if it were truly just an which is the due date given for the payment of
ordinary employee. the deficiency income tax, up to the actual date
of payment.
Consequently, we find that petitioners
compensation under paragraph 12 of the SO ORDERED.
agreement actually constitutes its share in the
net profits of the partnership. Indeed, petitioner
would not be entitled to an equal share in the
income of the mine if it were just an employee
of Baguio Gold.[25] It is not surprising that
petitioner was to receive a 50% share in the net
profits, considering that the Power of Attorney
also provided for an almost equal contribution
of the parties to the St. Nino mine. The
compensation agreed upon only serves to
reinforce the notion that the parties relations
were indeed of partners and not employer-
employee.

All told, the lower courts did not err in

treating petitioners advances as investments in a
partnership known as the Sto. Nino mine. The
advances were not debts of Baguio Gold to
petitioner inasmuch as the latter was under no
unconditional obligation to return the same to
the former under the Power of Attorney. As for
the amounts that petitioner paid as guarantor to
Baguio Golds creditors, we find no reason to
depart from the tax courts factual finding that
Baguio Golds debts were not yet due and
demandable at the time that petitioner paid the
same. Verily, petitioner pre-paid Baguio Golds
outstanding loans to its bank creditors and this
conclusion is supported by the evidence on
record.[26]

In sum, petitioner cannot claim the

advances as a bad debt deduction from its gross
income. Deductions for income tax purposes
partake of the nature of tax exemptions and are
strictly construed against the taxpayer, who
must prove by convincing evidence that he is
entitled to the deduction claimed.[27] In this case,
petitioner failed to substantiate its assertion that
the advances were subsisting debts of Baguio
Gold that could be deducted from its gross
income. Consequently, it could not claim the
advances as a valid bad debt deduction.

WHEREFORE, the petition is DENIED. The

decision of the Court of Appeals in CA-G.R. SP

36

ART.1768
G.R. No. 127347 November 25, 1999
ALFREDO N. AGUILA, JR., petitioner,
vs.
HONORABLE COURT OF APPEALS and
FELICIDAD S. VDA. DE
ABROGAR, respondents.
MENDOZA, J.:
This is a petition for review on certiorari of the
decision 1 of the Court of Appeals, dated
November 29, 1990, which reversed the
decision of the Regional Trial Court, Branch
273, Marikina, Metro Manila, dated April 11,
1995. The trial court dismissed the petition for
declaration of nullity of a deed of sale filed by
private respondent Felicidad S. Vda. de Abrogar
against petitioner Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila &
Sons, Co., a partnership engaged in lending
activities. Private respondent and her late
husband, Ruben M. Abrogar, were the
registered owners of a house and lot, covered by
Transfer Certificate of Title No. 195101, in
Marikina, Metro Manila. On April 18, 1991,
private respondent, with the consent of her late
husband, and A.C. Aguila & Sons, Co.,
represented by petitioner, entered into a
Memorandum of Agreement, which provided:
(1) That the SECOND PARTY
[A.C. Aguila & Sons, Co.] shall
buy the above-described property
from the FIRST PARTY
[Felicidad S. Vda. de Abrogar],
and pursuant to this agreement, a
Deed of Absolute Sale shall be
executed by the FIRST PARTY
conveying the property to the
SECOND PARTY for and in
consideration of the sum of Two
Hundred Thousand Pesos
(P200,000.00), Philippine
Currency;
(2) The FIRST PARTY is hereby
given by the SECOND PARTY
the option to repurchase the said
property within a period of
ninety (90) days from the
execution of this memorandum
of agreement effective April 18,
1991, for the amount of TWO
HUNDRED THIRTY
THOUSAND PESOS
(P230,000.00);
(3) In the event that the FIRST
PARTY fail to exercise her
option to repurchase the said
37
Full text : BusOrg I Cases 2018
property within a period of
ninety (90) days, the FIRST
PARTY is obliged to deliver
peacefully the possession of the
property to the SECOND
PARTY within fifteen (15) days
after the expiration of the said 90
day grace period;
(4) During the said grace period,
the FIRST PARTY obliges
herself not to file any lis
pendens or whatever claims on
the property nor shall be cause
the annotation of say claim at the
back of the title to the said
property;
(5) With the execution of the
deed of absolute sale, the FIRST
PARTY warrants her ownership
of the property and shall defend
the rights of the SECOND
PARTY against any party whom
may have any interests over the
property;
(6) All expenses for
documentation and other
incidental expenses shall be for
the account of the FIRST
PARTY;
(7) Should the FIRST PARTY
fail to deliver peaceful
possession of the property to the
SECOND PARTY after the
expiration of the 15-day grace
period given in paragraph 3
above, the FIRST PARTY shall
pay an amount equivalent to Five
Percent of the principal amount
of TWO HUNDRED PESOS
(P200.00) or P10,000.00 per
month of delay as and for rentals
and liquidated damages;
(8) Should the FIRST PARTY
fail to exercise her option to
repurchase the property within
ninety (90) days period above-
mentioned, this memorandum of
agreement shall be deemed
cancelled and the Deed of
Absolute Sale, executed by the
parties shall be the final contract
considered as entered between
the parties and the SECOND
PARTY shall proceed to transfer
ownership of the property above
described to its name free from
lines and encumbrances. 2
On the same day, April 18, 1991, the parties
likewise executed a deed of absolute
 Full text : BusOrg I Cases 2018

sale, 3 dated June 11, 1991, wherein private personally appear before Notary
respondent, with the consent of her late Public Lamberto C. Nanquil on
husband, sold the subject property to A.C. June 11, 1991 because her
Aguila & Sons, Co., represented by petitioner, husband, Ruben Abrogar, died on
for P200,000,00. In a special power of attorney May 8, 1991 or one month and 2
dated the same day, April 18, 1991, private days before the execution of the
respondent authorized petitioner to cause the Deed of Absolute Sale, while the
cancellation of TCT No. 195101 and the plaintiff was still in the Quezon
issuance of a new certificate of title in the name City Medical Center recuperating
of A.C. Aguila and Sons, Co., in the event she from wounds which she suffered
failed to redeem the subject property as at the same vehicular accident on
provided in the Memorandum of Agreement. 4 May 8, 1991, cannot be
Private respondent failed to redeem the property sustained. The Court is
within the 90-day period as provided in the convinced that the three required
Memorandum of Agreement. Hence, pursuant to documents, to wit: the
the special power of attorney mentioned above, Memorandum of Agreement, the
petitioner caused the cancellation of TCT No. Special Power of Attorney, and
195101 and the issuance of a new certificate of the Deed of Absolute Sale were
title in the name of A.C. Aguila and Sons, Co. 5 all signed by the parties on the
Private respondent then received a letter dated same date on April 18, 1991. It is
August 10, 1991 from Atty. Lamberto C. a common and accepted business
Nanquil, counsel for A.C. Aguila & Sons, Co., practice of those engaged in
demanding that she vacate the premises within money lending to prepare an
15 days after receipt of the letter and surrender undated absolute deed of sale in
its possession peacefully to A.C. Aguila & Sons, loans of money secured by real
Co. Otherwise, the latter would bring the estate for various reasons,
appropriate action in court. 6 foremost of which is the evasion
Upon the refusal of private respondent to vacate of taxes and surcharges. The
the subject premises, A.C. Aguila & Sons, Co. plaintiff never questioned
filed an ejectment case against her in the receiving the sum of P200,000.00
Metropolitan Trial Court, Branch 76, Marikina, representing her loan from the
Metro Manila. In a decision, dated April 3, defendant. Common sense
1992, the Metropolitan Trial Court ruled in dictates that an established
favor of A.C. Aguila & Sons, Co. on the ground lending and realty firm like the
that private respondent did not redeem the Aguila & Sons, Co. would not
subject property before the expiration of the 90- part with P200,000.00 to the
day period provided in the Memorandum of Abrogar spouses, who are virtual
Agreement. Private respondent appealed first to strangers to it, without the
the Regional Trial Court, Branch 163, Pasig, simultaneous accomplishment
Metro Manila, then to the Court of Appeals, and and signing of all the required
later to this Court, but she lost in all the cases. documents, more particularly the
Private respondent then filed a petition for Deed of Absolute Sale, to protect
declaration of nullity of a deed of sale with the its interest.
Regional Trial Court, Branch 273, Marikina, xxx xxx xxx
Metro Manila on December 4, 1993. She WHEREFORE, foregoing
alleged that the signature of her husband on the premises considered, the case in
deed of sale was a forgery because he was caption is hereby ORDERED
already dead when the deed was supposed to DISMISSED, with costs against
have been executed on June 11, 1991. the plaintiff.
It appears, however, that private respondent had On appeal, the Court of Appeals reversed. It
filed a criminal complaint for falsification held:
against petitioner with the Office of the The facts and evidence show that the
Prosecutor of Quezon City which was dismissed transaction between plaintiff-appellant
in a resolution, dated February 14, 1994. and defendant-appellee is indubitably an
On April 11, 1995, Branch 273 of RTC- equitable mortgage. Article 1602 of the
Marikina rendered its decision: New Civil Code finds strong application
Plaintiff's claim therefore that the in the case at bar in the light of the
Deed of Absolute Sale is a following circumstances.
forgery because they could not

38

First: The purchase price for the alleged
sale with right to repurchase is unusually
inadequate. The property is a two
hundred forty (240) sq. m. lot. On said
lot, the residential house of plaintiff-
appellant stands. The property is inside a
subdivision/village. The property is
situated in Marikina which is already
part of Metro Manila. The alleged sale
took place in 1991 when the value of the
land had considerably increased.
For this property, defendant-appellee
pays only a measly P200,000.00 or
P833.33 per square meter for both the
land and for the house.
Second: The disputed Memorandum of
Agreement specifically provides that
plaintiff-appellant is obliged to deliver
peacefully the possession of the property
to the SECOND PARTY within fifteen
(15) days after the expiration of the said
ninety (90) day grace period. Otherwise
stated, plaintiff-appellant is to retain
physical possession of the thing
allegedly sold.
In fact, plaintiff-appellant retained
possession of the property "sold" as if
they were still the absolute owners.
There was no provision for maintenance
or expenses, much less for payment of
rent.
Third: The apparent vendor, plaintiff-
appellant herein, continued to pay taxes
on the property "sold". It is well-known
that payment of taxes accompanied by
actual possession of the land covered by
the tax declaration, constitute evidence
of great weight that a person under
whose name the real taxes were declared
has a claim of right over the land.
It is well-settled that the presence of
even one of the circumstances in Article
1602 of the New Civil Code is sufficient
to declare a contract of sale with right to
repurchase an equitable mortgage.
Considering that plaintiff-appellant, as
vendor, was paid a price which is
unusually inadequate, has retained
possession of the subject property and
has continued paying the realty taxes
over the subject property, (circumstances
mentioned in par. (1) (2) and (5) of
Article 1602 of the New Civil Code), it
must be conclusively presumed that the
transaction the parties actually entered
into is an equitable mortgage, not a sale
with right to repurchase. The factors
cited are in support to the finding that
the Deed of Sale/Memorandum of
39
Full text : BusOrg I Cases 2018
Agreement with right to repurchase is in
actuality an equitable mortgage.
Moreover, it is undisputed that the deed
of sale with right of repurchase was
executed by reason of the loan extended
by defendant-appellee to plaintiff-
appellant. The amount of loan being the
same with the amount of the purchase
price.
xxx xxx xxx
Since the real intention of the party is to
secure the payment of debt, now deemed
to be repurchase price: the transaction
shall then be considered to be an
equitable mortgage.
Being a mortgage, the transaction
entered into by the parties is in the
nature of a pactum commissorium which
is clearly prohibited by Article 2088 of
the New Civil Code. Article 2088 of the
New Civil Code reads:
Art. 2088. The creditor
cannot appropriate the
things given by way of
pledge or mortgage, or
dispose of them. Any
stipulation to the contrary is
null and void.
The aforequoted provision furnishes the
two elements for pactum
commissorium to exist: (1) that there
should be a pledge or mortgage wherein
a property is pledged or mortgaged by
way of security for the payment of
principal obligation; and (2) that there
should be a stipulation for an automatic
appropriation by the creditor of the thing
pledged and mortgaged in the event of
non-payment of the principal obligation
within the stipulated period.
In this case, defendant-appellee in reality
extended a P200,000.00 loan to plaintiff-
appellant secured by a mortgage on the
property of plaintiff-appellant. The loan
was payable within ninety (90) days, the
period within which plaintiff-appellant
can repurchase the property. Plaintiff-
appellant will pay P230,000.00 and not
P200,000.00, the P30,000.00 excess is
the interest for the loan extended. Failure
of plaintiff-appellee to pay the
P230,000.00 within the ninety (90) days
period, the property shall automatically
belong to defendant-appellee by virtue
of the deed of sale executed.
Clearly, the agreement entered into by
the parties is in the nature of pactum
commissorium. Therefore, the deed of
sale should be declared void as we
 Full text : BusOrg I Cases 2018

hereby so declare to be invalid, for being separate juridical entity, is being used for
violative of law. fraudulent, unfair, or illegal purposes.
xxx xxx xxx Moreover, the title to the subject property is in
WHEREFORE, foregoing considered, the name of A.C. Aguila & Sons, Co. and the
the appealed decision is hereby Memorandum of Agreement was executed
REVERSED and SET ASIDE. The between private respondent, with the consent of
questioned Deed of Sale and the her late husband, and A.C. Aguila & Sons, Co.,
cancellation of the TCT No. 195101 represented by petitioner. Hence, it is the
issued in favor of plaintiff-appellant and partnership, not its officers or agents, which
the issuance of TCT No. 267073 issued should be impleaded in any litigation involving
in favor of defendant-appellee pursuant property registered in its name. A violation of
to the questioned Deed of Sale is hereby this rule will result in the dismissal of the
declared VOID and is hereby complaint. 11 We cannot understand why both
ANNULLED. Transfer Certificate of the Regional Trial Court and the Court of
Title No. 195101 of the Registry of Appeals sidestepped this issue when it was
Marikina is hereby ordered squarely raised before them by petitioner.
REINSTATED. The loan in the amount Our conclusion that petitioner is not the real
of P230,000.00 shall be paid within party in interest against whom this action should
ninety (90) days from the finality of this be prosecuted makes it unnecessary to discuss
decision. In case of failure to pay the the other issues raised by him in this appeal.
amount of P230,000.00 from the period WHEREFORE, the decision of the Court of
therein stated, the property shall be sold Appeals is hereby REVERSED and the
at public auction to satisfy the mortgage complaint against petitioner is DISMISSED.
debt and costs and if there is an excess, SO ORDERED.
the same is to be given to the owner.
Petitioner now contends that: (1) he is not the
real party in interest but A.C. Aguila & Co.,
against which this case should have been
brought; (2) the judgment in the ejectment case
is a bar to the filing of the complaint for
declaration of nullity of a deed of sale in this
case; and (3) the contract between A.C. Aguila
& Sons, Co. and private respondent is a pacto
de retro sale and not an equitable mortgage as
held by the appellate court.
The petition is meritorious.
Rule 3, §2 of the Rules of Court of 1964, under
which the complaint in this case was filed,
provided that "every action must be prosecuted
and defended in the name of the real party in
interest." A real party in interest is one who
would be benefited or injured by the judgment,
or who is entitled to the avails of the suit. 7 This
ruling is now embodied in Rule 3, §2 of the
1997 Revised Rules of Civil Procedure. Any
decision rendered against a person who is not a
real party in interest in the case cannot be
executed. 8 Hence, a complaint filed against
such a person should be dismissed for failure to
state a cause of action. 9
Under Art. 1768 of the Civil Code, a partnership
"has a juridical personality separate and distinct
from that of each of the partners." The partners
cannot be held liable for the obligations of the
partnership unless it is shown that the legal
fiction of a different juridical personality is
being used for fraudulent, unfair, or illegal
purposes. 10 In this case, private respondent has
not shown that A.C. Aguila & Sons, Co., as a

40

LUZVIMINDA J. VILLAREAL,
DIOGENES VILLAREAL and
CARMELITO JOSE, petitioners, vs.
DONALDO EFREN C. RAMIREZ
and Spouses CESAR G. RAMIREZ
JR. and CARMELITA C.
RAMIREZ, respondents.
A share in a partnership can be returned
only after the completion of the latters
dissolution, liquidation and winding up of the
business.
The Case
The Petition for Review on Certiorari
before us challenges the March 23, 2000
Decision[1] and the July 26, 2000
Resolution[2] of the Court of Appeals[3] (CA) in
CA-GR CV No. 41026.The assailed Decision
disposed as follows:
WHEREFORE, foregoing premises considered,
the Decision dated July 21, 1992 rendered by
the Regional Trial Court, Branch 148, Makati
City is hereby SET ASIDE and NULLIFIED
and in lieu thereof a new decision is rendered
ordering the [petitioners] jointly and severally to
pay and reimburse to [respondents] the amount
of P253,114.00. No pronouncement as to
costs.[4]
Reconsideration was denied in the
impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal,
Carmelito Jose and Jesus Jose formed a
partnership with a capital of P750,000 for the
operation of a restaurant and catering business
under the name Aquarius Food House and
Catering Services.[5] Villareal was appointed
general manager and Carmelito Jose, operations
manager.
Respondent Donaldo Efren C. Ramirez
joined as a partner in the business on September
5, 1984. His capital contribution of P250,000
was paid by his parents, Respondents Cesar and
Carmelita Ramirez.[6]
After Jesus Jose withdrew from the
partnership in January 1987, his capital
contribution of P250,000 was refunded to him in
cash by agreement of the partners.[7]
In the same month, without prior
knowledge of respondents, petitioners closed
down the restaurant, allegedly because of
increased rental. The restaurant furniture and
equipment were deposited in the respondents
house for storage.[8]
On March 1, 1987, respondent spouses
wrote petitioners, saying that they were no
longer interested in continuing their partnership
or in reopening the restaurant, and that they
41
Full text : BusOrg I Cases 2018
were accepting the latters offer to return their
capital contribution.[9]
On October 13, 1987, Carmelita Ramirez
wrote another letter informing petitioners of the
deterioration of the restaurant furniture and
equipment stored in their house. She also
reiterated the request for the return of their one-
third share in the equity of the partnership. The
repeated oral and written requests were,
however, left unheeded.[10]
Before the Regional Trial Court (RTC) of
Makati, Branch 59, respondents subsequently
filed a Complaint[11] dated November 10, 1987,
for the collection of a sum of money from
petitioners.
In their Answer, petitioners contended that
respondents had expressed a desire to withdraw
from the partnership and had called for its
dissolution under Articles 1830 and 1831 of the
Civil Code; that respondents had been paid,
upon the turnover to them of furniture and
equipment worth over P400,000; and that the
latter had no right to demand a return of their
equity because their share, together with the rest
of the capital of the partnership, had been spent
as a result of irreversible business losses.[12]
In their Reply, respondents alleged that they
did not know of any loan encumbrance on the
restaurant. According to them, if such allegation
were true, then the loans incurred by petitioners
should be regarded as purely personal and, as
such, not chargeable to the partnership. The
former further averred that they had not
received any regular report or accounting from
the latter, who had solely managed the
business. Respondents also alleged that they
expected the equipment and the furniture stored
in their house to be removed by petitioners as
soon as the latter found a better location for the
restaurant.[13]
Respondents filed an Urgent Motion for
Leave to Sell or Otherwise Dispose of
Restaurant Furniture and Equipment[14] on July
8, 1988. The furniture and the equipment stored
in their house were inventoried and appraised
at P29,000.[15] The display freezer was sold
for P5,000 and the proceeds were paid to
them.[16]
After trial, the RTC[17] ruled that the parties
had voluntarily entered into a partnership, which
could be dissolved at any time. Petitioners
clearly intended to dissolve it when they
stopped operating the restaurant. Hence, the trial
court, in its July 21, 1992 Decision, held them
liable as follows:[18]
WHEREFORE, judgment is hereby rendered in
favor of [respondents] and against the
[petitioners] ordering the [petitioners] to pay
jointly and severally the following:

(a) Actual damages in the amount
of P250,000.00
(b) Attorneys fee in the amount of P30,000.00
(c) Costs of suit.
The CA Ruling
The CA held that, although respondents had
no right to demand the return of their capital
contribution, the partnership was nonetheless
dissolved when petitioners lost interest in
continuing the restaurant business with
them. Because petitioners never gave a proper
accounting of the partnership accounts for
liquidation purposes, and because no sufficient
evidence was presented to show financial losses,
the CA computed their liability as follows:
Consequently, since what has been proven is
only the outstanding obligation of the
partnership in the amount of P240,658.00,
although contracted by the partnership before
[respondents] have joined the partnership but in
accordance with Article 1826 of the New Civil
Code, they are liable which must have to be
deducted from the remaining capitalization of
the said partnership which is in the amount
of P1,000,000.00 resulting in the amount
of P759,342.00, and in order to get the share of
[respondents], this amount of P759,342.00 must
be divided into three (3) shares or in the amount
of P253,114.00 for each share and which is the
only amount which [petitioner] will return to
[respondents] representing the contribution to
the partnership minus the outstanding debt
thereof.[19]
Hence, this Petition.[20]
Issues
In their Memorandum,[21] petitioners submit
the following issues for our consideration:
9.1. Whether the Honorable Court of Appeals
decision ordering the distribution of the capital
contribution, instead of the net capital after the
dissolution and liquidation of a partnership,
thereby treating the capital contribution like a
loan, is in accordance with law and
jurisprudence;
9.2. Whether the Honorable Court of Appeals
decision ordering the petitioners to jointly and
severally pay and reimburse the amount of
[P]253,114.00 is supported by the evidence on
record; and
9.3. Whether the Honorable Court of Appeals
was correct in making [n]o pronouncement as to
costs.[22]
On closer scrutiny, the issues are as
follows: (1) whether petitioners are liable to
respondents for the latters share in the
partnership; (2) whether the CAs computation
of P253,114 as respondents share is correct; and
(3) whether the CA was likewise correct in not
assessing costs.
42
Full text : BusOrg I Cases 2018
This Courts Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found
that a partnership had indeed existed, and that it
was dissolved on March 1, 1987. They found
that the dissolution took place when respondents
informed petitioners of the intention to
discontinue it because of the formers
dissatisfaction with, and loss of trust in, the
latters management of the partnership
affairs. These findings were amply supported by
the evidence on record. Respondents
consequently demanded from petitioners the
return of their one-third equity in the
partnership.
We hold that respondents have no right to
demand from petitioners the return of their
equity share. Except as managers of the
partnership, petitioners did not personally hold
its equity or assets. The partnership has a
juridical personality separate and distinct from
that of each of the partners.[23] Since the capital
was contributed to the partnership, not to
petitioners, it is the partnership that must refund
the equity of the retiring partners.[24]
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and
distinct entity, that must refund the shares of the
partners, the amount to be refunded is
necessarily limited to its total resources. In other
words, it can only pay out what it has in its
coffers, which consists of all its
assets. However, before the partners can be paid
their shares, the creditors of the partnership
must first be compensated.[25] After all the
creditors have been paid, whatever is left of the
partnership assets becomes available for the
payment of the partners shares.
Evidently, in the present case, the exact
amount of refund equivalent to respondents one-
third share in the partnership cannot be
determined until all the partnership assets will
have been liquidated -- in other words, sold and
converted to cash -- and all partnership
creditors, if any, paid. The CAs computation of
the amount to be refunded to respondents as
their share was thus erroneous.
First, it seems that the appellate court was
under the misapprehension that the total capital
contribution was equivalent to the gross assets
to be distributed to the partners at the time of the
dissolution of the partnership. We cannot
sustain the underlying idea that the capital
contribution at the beginning of the partnership
remains intact, unimpaired and available for
distribution or return to the partners. Such idea

is speculative, conjectural and totally without
factual or legal support.
Generally, in the pursuit of a partnership
business, its capital is either increased by profits
earned or decreased by losses sustained. It does
not remain static and unaffected by the changing
fortunes of the business. In the present case, the
financial statements presented before the trial
court showed that the business had made
meager profits.[26] However, notable therefrom
is the omission of any provision for the
depreciation[27] of the furniture and the
equipment. The amortization of the
[28]
goodwill (initially valued at P500,000) is not
reflected either.Properly taking these non-cash
items into account will show that the partnership
was actually sustaining substantial losses, which
consequently decreased the capital of the
partnership.Both the trial and the appellate
courts in fact recognized the decrease of the
partnership assets to almost nil, but the latter
failed to recognize the consequent
corresponding decrease of the capital.
Second, the CAs finding that the
partnership had an outstanding obligation in the
amount of P240,658 was not supported by
evidence. We sustain the contrary finding of the
RTC, which had rejected the contention that the
obligation belonged to the partnership for the
following reason:
x x x [E]vidence on record failed to show the
exact loan owed by the partnership to its
creditors. The balance sheet (Exh. 4) does not
reveal the total loan. The Agreement (Exh. A)
par. 6 shows an outstanding obligation
of P240,055.00 which the partnership owes to
different creditors, while the Certification issued
by Mercator Finance (Exh. 8) shows that it was
Sps. Diogenes P. Villareal and Luzviminda J.
Villareal, the former being the nominal party
defendant in the instant case, who obtained a
loan of P355,000.00 on Oct. 1983, when the
original partnership was not yet formed.
Third, the CA failed to reduce the
capitalization by P250,000, which was the
amount paid by the partnership to Jesus Jose
when he withdrew from the partnership.
Because of the above-mentioned
transactions, the partnership capital was actually
reduced. When petitioners and respondents
ventured into business together, they should
have prepared for the fact that their investment
would either grow or shrink. In the present case,
the investment of respondents substantially
dwindled. The original amount of P250,000
which they had invested could no longer be
returned to them, because one third of the
partnership properties at the time of dissolution
did not amount to that much.
43
Full text : BusOrg I Cases 2018
It is a long established doctrine that the law
does not relieve parties from the effects of
unwise, foolish or disastrous contracts they have
entered into with all the required formalities and
with full awareness of what they were
doing. Courts have no power to relieve them
from obligations they have voluntarily assumed,
simply because their contracts turn out to be
disastrous deals or unwise investments.[29]
Petitioners further argue that respondents
acted negligently by permitting the partnership
assets in their custody to deteriorate to the point
of being almost worthless. Supposedly, the latter
should have liquidated these sole tangible assets
of the partnership and considered the proceeds
as payment of their net capital. Hence,
petitioners argue that the turnover of the
remaining partnership assets to respondents was
precisely the manner of liquidating the
partnership and fully settling the latters share in
the partnership.
We disagree. The delivery of the store
furniture and equipment to private respondents
was for the purpose of storage. They were
unaware that the restaurant would no longer be
reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored
items to recover their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
SECTION 1. Costs ordinarily follow results of
suit. Unless otherwise provided in these rules,
costs shall be allowed to the prevailing party as
a matter of course, but the court shall have
power, for special reasons, to adjudge that either
party shall pay the costs of an action, or that the
same be divided, as may be equitable. No costs
shall be allowed against the Republic of the
Philippines unless otherwise provided by law.
Although, as a rule, costs are adjudged
against the losing party, courts have discretion,
for special reasons, to decree otherwise. When a
lower court is reversed, the higher court
normally does not award costs, because the
losing party relied on the lower courts judgment
which is presumed to have been issued in good
faith, even if found later on to be
erroneous.Unless shown to be patently
capricious, the award shall not be disturbed by a
reviewing tribunal.
WHEREFORE, the Petition is GRANTED,
and the assailed Decision and Resolution SET
ASIDE. This disposition is without prejudice to
proper proceedings for the accounting, the
liquidation and the distribution of the remaining
partnership assets, if any. No pronouncement as
to costs.
SO ORDERED.

ART.1769
G.R. No. 68118, October 29, 1985
JOSE P. OBILLOS, JR. SARAH P.
OBILLOS, ROMEO P. OBILLOS AND
REMEDIOS P. OBILLOS, BROTHERS
AND SISTERS, PETITIONERS, VS.
COMMISSIONER OF INTERNAL
REVENUE AND COURT OF TAX
APPEALS, RESPONDENTS.
DECISION
AQUINO, J.:
This case is about the income tax liability of
four brothers and sisters who sold two parcels of
land which they had acquired from their father.
On March 2, 1973 Jose Obillos, Sr. completed
payment to Ortigas & Co., Ltd. on two lots with
areas of 1,124 and 963 square meters located at
Greenhills, San Juan, Rizal. The next day he
transferred his rights to his four children, the
petitioners, to enable them to build their
residences. The company sold the two lots to
petitioners for P178,708.12 on March 13 (Exh.
A and B, p. 44, Rollo). Presumably, the Torrens
titles issued to them would show that they were
co-owners of the two lots.
In 1974, or after having held the two lots for
more than a year, the petitioners resold them to
the Walled City Securities Corporation and Olga
Cruz Canda for the total sum of P313,050 (Exh.
C and D). They derived from the sale a total
profit of P134,341.88 or P33,584 for each of
them. They treated the profit as a capital gain
and paid an income tax on one-half thereof or
on P16,792.
In April, 1980, or one day before the expiration
of the five-year prescriptive period, the
Commissioner of Internal Revenue required the
four petitioners to pay corporate income tax on
the total profit of P134,336 in addition to
individual income tax on their shares thereof.
He assessed P37,018 as corporate income tax,
P18,509 as 50% fraud surcharge and P15,547.56
as 42% accumulated interest, or a total of
P71,074.56.
Not only that. He considered the share of the
profits of each petitioner in the sum of P33,584
as a "distributive dividend" taxable in full (not a
mere capital gain of which ½ is taxable) and
required them to pay deficiency income taxes
aggregating P56,707.20 including the 50%
fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for
deficiency income taxes and penalties totalling
44
Full text : BusOrg I Cases 2018
P127,781.76 on their profit of P134,336, in
addition to the tax on capital gains already paid
by them.
The Commissioner acted on the theory that the
four petitioners had formed an unregistered
partnership or joint venture within the meaning
of sections 24(a) and 84(b) of the Tax Code
(Collector of Internal Revenue vs. Batangas
Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two
Judges of the Tax Court sustained the same.
Judge Roaquin dissented. Hence, the instant
appeal.
We hold that it is error to consider the
petitioners as having formed a partnership under
article 1767 of the Civil Code simply because
they allegedly contributed P178,708.12 to buy
the two lots, resold the same and divided the
profit among themselves.
To regard the petitioners as having formed a
taxable unregistered partnership would result in
oppressive taxation and confirm the dictum that
the power to tax involves the power to destroy.
That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no
such intention. They were co-owners pure and
simple. To consider them as partners would
obliterate the distinction between a co-
ownership and a partnership. The petitioners
were not engaged in any joint venture by reason
of that isolated transaction.
Their original purpose was to divide the lots for
residential purposes. If later on they found it
not feasible to build their residences on the lots
because of the high cost of construction, then
they had no choice but to resell the same to
dissolve the co-ownership. The division of the
profit was merely incidental to the dissolution of
the co-ownership which was in the nature of
things a temporary state. It had to be terminated
sooner or later. Castan Tobeñas says:
"Como establecer el deslinde entre la
comunidad ordinaria o copropiedad y la
sociedad?
"El criterio diferencial — segun la doctrina mas
generalizada — esta: por razon del origen, en
que la sociedad presupone necesariamente la
convencion, mientras que la comunidad puede
existir y existe ordinariamente sin ella; y por
razon del fin u objeto, en que el objeto de la
sociedad es obtener lucro, mientras que el de la
indivision es solo mantener en su integridad la
 Full text : BusOrg I Cases 2018

cosa comun y favorecer su conservacion. In the instant case, what the Commissioner
should have investigated was whether the father
"Reflejo de este criterio es la sentencia de 15 de donated the two lots to the petitioners and
octubre de 1940, en la que se dice que si en whether he paid the donor's tax (See art. 1448,
nuestro Derecho positivo se ofrecen a veces Civil Code). We are not prejudging this matter.
dificultades al tratar de fijar la linea divisoria It might have already prescribed.
entre comunidad de bienes y contrato de
sociedad, la moderna orientacion de la doctrina WHEREFORE, the judgment of the Tax Court
cientifica señala como nota fundamental de is reversed and set aside. The assessments are
diferenciacion, aparte del origen o fuente de cancelled. No costs.
que surgen, no siempre uniforme, la finalidad
perseguida por los interesados: lucro comun SO ORDERED.
partible en la sociedad, y mera conservacion y
aprovechamiento en la comunidad." (Derecho
Civil Español, Vol. 2, Part 1, 10th Ed., 1971,
328-329).

Article 1769(3) of the Civil Code provides that

"the sharing of gross returns does not of itself
establish a partnership, whether or not the
persons sharing them have a joint or common
right or interest in any property from which the
returns are derived". There must be an
unmistakable intention to form a partnership or
joint venture.[*]

Such intent was present in Gatchalian vs.

Collector of Internal Revenue, 67 Phil. 666
where 15 persons contributed small amounts to
purchase a two-peso sweepstakes ticket with the
agreement that they would divide the prize. The
ticket won the third prize of P50,000. The 15
persons were held liable for income tax as an
unregistered partnership.

The instant case is distinguishable from the

cases where the parties engaged in joint
ventures for profit. Thus, in Oña vs.
Commissioner of Internal Revenue, L-19342,
May 25, 1972, 45 SCRA 74, where after an
extrajudicial settlement the coheirs used the
inheritance or the incomes derived therefrom as
a common fund to produce profits for
themselves, it was held that they were taxable as
an unregistered partnership.

It is likewise different from Reyes vs.

Commissioner of Internal Revenue, 24 SCRA
198 where father and son purchased a lot and
building, entrusted the administration of the
building to an administrator and divided equally
the net income, and from Evangelista vs.
Collector of Internal Revenue, 102 Phil. 140
where the three Evangelista sisters bought four
pieces of real property which they leased to
various tenants and derived rentals therefrom.
Clearly, the petitioners in these two cases had
formed an unregistered partnership.

45

G.R. Nos. L-24020-21, July 29, 1968
FLORENCIO REYES AND ANGEL
REYES, PETITIONERS, VS.
COMMISSIONER OF INTERNAL
REVENUE AND HON. COURT OF TAX
APPEALS, RESPONDENTS.
DECISION
FERNANDO, J.:
Petitioners in this case were assessed by
respondent Commissioner of Internal Revenue
the sum of P46,647.00 as income tax, surcharge
and compromise for the years 1951 to 1954, an
assessment subsequently reduced to P37, 528.
00. This assessment sought to be reconsidered
successfully was the subject of an appeal to
respondent Court of Tax Appeals. Thereafter,
another assessment was made against
petitioners, this time for back income taxes plus
surcharge and compromise in the total sum of
P25,973.75, covering the years 1955 and 1956.
There being a failure on their part to have such
assessments reconsidered, the matter was like-
wise taken to the respondent Court of Tax
Appeals. The two cases[1] involving as they did
identical issues and ultimately traceable to facts
similar in character were heard jointly with only
one decision being rendered.
In that joint decision of respondent Court of Tax
Appeals, the tax liability for the years 1951 to
1954 was reduced to P37,128. 00 and for the
years 1955 and 1956, to P20,619.00 as income
tax due "from the partnership formed" by
petitioners.[2] The reduction was due to the
elimination of surcharge, the failure to file the
income tax return being accepted as due to
petitioners honest belief that no such liability
was incurred as well as the compromise
penalties for such failure to file.[3] A
reconsideration of the aforesaid decision was
sought and denied by respondent Court of Tax
Appeals. Hence this petition for review.
The facts as found by respondent Court of Tax
Appeals, which being supported by substantial
evidence, must be respected[4] follow: "On
October 31, 1950, petitioners, father and son,
purchased a lot and building, known as the
Gibbs Building, situated at 671 Dasmariñas
Street, Manila, for P835, C00.00, of which they
paid the sum of P375, 000.00, leaving a balance
of P460, 000. 00, representing the mortgage
obligation of the vendors with the China
Banking Corporation, which mortgage
obligations was assumed by the vendees. The
initial payment of P375,000.00 was shared
equally by petitioners At the time of the
purchase, the building was leased to various
tenant whose rights under the lease contracts
with the original owners the purchasers,
46
Full text : BusOrg I Cases 2018
petitioners herein, agreed to respect. The
administration of the building was entrusted to
an administrator who collected the rents; kept its
books and records and rendered statements of
accounts to the owners; negotiated leases; made
necessary repairs and disbursed payments,
whenever necessary, after approval by the
owners; and performed such other functions
necessary for the conservation and preservation
of the building. Petitioners divided equally the
income derived from the building after
deducting the expenses of operation and
maintenance. The gross income from rentals of
the building amounted to about P90, 000. 00
annually."[5]
From the above facts, the respondent Court of
Tax Appeals applying the appropriate
provisions of the National Internal Revenue
Code, the first of which imposes an income tax
on corporations "organized in, or existing under
the laws of the Philippines, no matter how
created or organized but net including duly
registered general co-partnerships (compañias
colectivas), * * *, "[6] a term, which according to
the second provision cited, includes partnerships
"no matter how created or organized, * * *, "[7]
and applying the leading case of Evangelista v.
Collector of Internal Revenue,[8] sustained the
action of respondent Commissioner of Internal
Revenue but reduced the tax liability of
petitioners, as previously noted.
Petitioners maintain the view that the
Evangelista ruling does not apply; for them, the
situation is dissimilar. Consequently, they
allege that the reliance by respondent Court of
Tax Appeals was unwarranted and the decision
should be, set aside. If their interpretation of the
authoritative doctrine therein se forth commands
assent, then clearly what respondent Court of
Tax Appeals did fails to find shelter in the law.
That is the crux of the matter. A perusal of the
Evangelista decision is therefore unavoidable.
As noted in the opinion of the Court, penned by
the present Chief Justice, the issue was whether
petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth
Act No. 466, otherwise known as the National
Internal Revenue Code, * * *.[9] After referring
to another section of the National Internal
Revenue Code, which explicitly provides that
the term corporation "includes partnerships" and
then to Article 1767 of the Civil Code of the
Philippines, defining what a Contract of
partnership is, the opinion goes on to state that
"the essential elements of partnership are two,
namely (a) an agreement to contribute money,
property or industry to a common fund; and (b)
intent to divide the profits among the contract-
ing parties. The first element is undoubtedly

present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute
money and property to a common fund. Hence,
the issue narrows down to their intent in acting
as they did. Upon consideration of all the facts
and circumstances surrounding the case, we are
fully satisfied that their purpose was to engage
in real estate transactions for monetary gain and
then divide the same among themselves, * * *.
"[10]
In support of the above conclusion, reference
was made to the following circumstances,
namely, the common fund being created
purposely not something already found in
existence, the' investment of the same not
merely in one transaction but in a series of
transactions; the lots thus acquired not being
devoted to residential purposes or to other
personal uses of petitioners in that case; such
properties having been under the management
of one person with full power to lease, to collect
rents, to issue receipts, to bring suits, to sign
letters and contracts and to endorse notes and
checks; the above conditions having existed for
more than 10 years since the acquisition of the
above properties; and no testimony having been
introduced as to the purpose "in creating the set
up already adverted to, or on the causes for its
continued existence.".[11] The conclusion that
emerged had all the imprint of inevitability.
Thus: "Although, taken singly, they might not
suffice to establish the intent necessary to
constitute a partnership, the Collective effect of
these circumstances is such as to leave no room
for doubt on the existence of said intent in
petitioners herein."[12]
It may be said that there could be a
differentiation made between the circumstances
above detailed 'and those existing in the present
case. It does not suffice though to preclude the
applicability of the Evangelista decision.
Petitioners could harp on these being only one
transaction. They could stress that an affidavit
of one of them found in the Bureau of Internal
Revenue records would indicate that their
intention was to house in the building acquired
by them the respective enterprises, coupled with
a plan of effecting a division in 10 years. It is a
little surprising then that while the purchase was
made on October 31, 1950 and their brief as
petitioners filed on October 20, 1965, almost 15
years later, there was no allegation that such
division as between them was in fact made
Moreover, the facts as found and as submitted in
the brief made clear that the building in question
continued to be leased by other parties with
petitioners dividing "equally the income 4' * *
after deducting the expenses of operation and
47
Full text : BusOrg I Cases 2018
maintenance * *."[13] Differences of such slight
significance do not call for a different ruling.
It is obvious that petitioners' effort to avoid the
controlling force of the Evangelista ruling
cannot be deemed successful. Respondent
Court of Tax Appeals acted correctly. It yielded
to the command of an authoritative decision; it
recognized its binding character. There is
clearly no merit to the second error assigned by
petitioners, who would deny its applicability to
their situation.
The first alleged error committed by respondent
Court of Tax Appeals in holding that petitioners,
in acquiring the Gibbs Building, established a
partnership subject to income tax as a
corporation under the National Internal Revenue
Code is likewise untenable. In their discussion
in their brief of this alleged error, stress is laid
on their being co-owners and not partners. Such
an allegation was likewise, made in the
Evangelista case.
This is the way it was disposed of in the opinion
of the present Chief Justice: "This pretense was
correctly rejected by the Court of Tax
Appeals."[14] Then came the explanation why:
"To begin with, the tax in question is one
imposed upon 'corporations', which, strictly
speaking, are distinct and different from
'partnerships'. When our Internal Revenue Code
includes 'partnerships' among the entities subject
to the tax on 'corporations', said Code must
allude, 'therefore, to organizations which are not
necessarily 'partnerships' in the technical sense
of the term. Thus, for instance, section 24 of
said Code exempts from the aforementioned tax
'duly registered general partnerships, which
constitute precisely one of the most typical
forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said
Code, 'the term corporation includes
partnerships, no matter how created or
organized.' This qualifying expression clearly
indicates that a joint venture need not be
undertaken in any of the standard forms, or in
conformity with the usual, requirements of the
law on partnerships, in order that one could be
deemed constituted for purposes of the tax on
corporations. Again, pursuant to said' section
84(b), the term 'corporation' includes, among
other, 'joint accounts, (cuentas en paticipacion)’
and 'associations' none of which has personality
of its own, of its members. Accordingly, the
lawmaker could not have regarded that
personality as a condition essential to the
existence of the partnerships therein referred to.
In fact, as above stated, 'duly registered general
copartnerships' which are possessed of the
aforementioned personality have been expressly
excluded by law (sections 24 and 84 [b] from
 Full text : BusOrg I Cases 2018

the connotation of the term 'corporation'."[15]

The opinion went on to summarize the matter
aptly: "For purposes of the tax on corporations,
our National Internal Revenue Code, include
these partnerships - with the exception only of
duly registered general co-partnerships - within
the purview of the term 'corporation. It is,
therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said
Code is concerned, and are subject to the
income tax for corporations. "[16]
In the light of the above, it cannot be said that
the respondent Court of Tax Appeals decided
the matter incorrectly. There is no warrant for
the assertion that it failed to apply the settled
law to uncontroverted facts. Its decision cannot
be successfully assailed. Moreover, an
observation made in Alhambra Cigar &
Cigarette Manufacturing Co. v. Commissioner
of Internal Revenue,[17] is well-worth recalling.
Thus: "Nor as a matter of principle is it
advisable for this Court to set aside the
conclusion reached by an agency such as the
Court of Tax Appeals which is, by th very
nature of its function, dedicated exclusively to
the study and consideration of tax problems and
has necessarily developed an expertise on the
subject, unless, as did not happen here, there has
been an abuse or improvident exercise of its
authority."
WHEREFORE, the decision of the respondent
Court of Tax Appeals ordering petitioners "to
pay the sums of P37,128. 00 as income tax due
from the partnership formed by herein
petitioners for the years 1951 to 1954 and
P20,619.00 for the years 1955 and 1956 within
thirty days from the date this decision becomes
final, plus the corresponding surcharge and
interest in case of delinquency, " is affirmed.
With costs against petitioners.

48

G.R. No. 35840, March 31, 1933
FRANCISCO BASTIDA, PLAINTIFF AND
APPELLEE, VS. MENZI & CO., INC., J. M.
MENZI AND P. C. SCHLOBOHM,
DEFENDANTS. MENZI & CO., INC.,
APPELLANT.
DECISION
VICKERS, J.:
This is an appeal by Menzi & Co., Inc., one of
the defendants, from a decision of the Court of
First Instance of Manila. The case was tried on
the amended complaint dated May 26, 1928 and
defendants' amended answer thereto of
September 1, 1928. For the sake of clearness,
we shall incorporate herein the principal
allegations of the parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I and alleges, that the defendants had conspired to
That the defendant J. M. Menzi, together with
his wife and daughter, owns ninety-nine per cent
(99%) of the capital stock of the defendant
Menzi & Co., Inc., that the plaintiff has been
informed and therefore believes that the
defendant J. M. Menzi, his wife and daughter,
together with the defendant P. C. Schlobohm
and one Juan Seiboth, constitute the board of
directors of the defendant, Menzi& Co., Inc.;
II
That on April 27, 1922, the defendant Menzi &
Co., Inc., through its president and general
manager, J. M. Menzi, under the authority of the
board of directors, entered into a contract with
the plaintiff to engage in the business of
exploiting prepared fertilizers, as evidenced by
the contract marked Exhibit A, attached to the
original complaint as a part thereof, and
likewise made a part of the amended complaint,
as if it were here copied verbatim;
III
That in pursuance of said contract, plaintiff and
defendant Menzi & Co., Inc., began to
manufacture prepared fertilizers, the former
superintending the work of actual preparation,
and the latter, through defendants J. M. Menzi
and P. C. Schlobohm, managing the business
and opening an account entitled
"FERTILIZERS" on the books of the defendant
Menzi & Co., Inc., where all the accounts of the
partnership business were supposed to be kept;
the plaintiff had no participation in the making
of these entries, which were wholly in the
defendants' charge, under whose orders every
entry was made;
IV
That according to paragraph 7 of the contract
Exhibit A, the defendant Menzi& Co., Inc., was
obliged to render annual balance sheets to the
49
Full text : BusOrg I Cases 2018
plaintiff upon the 30th day of June of each year;
that the plaintiff had no intervention in the
preparation of these yearly balances, nor was he
permitted to have any access to the books of
account; and when the balance sheets were
shown him, he, believing in good faith that they
contained the true statement of the partnership
business, and relying upon the good faith of the
defendants, Menzi & Co., Inc., J. M. Menzi, and
P. C. Schlobohm, accepted and signed them, the
last balance sheet having been rendered in the
year 1926;
V
That by reason of the foregoing facts and
especially those set forth in the preceding
paragraph, the plaintiff was kept in ignorance of
the defendants' acts relating to the management
of the partnership funds, and the keeping of
accounts, until he was informed and so believes
conceal from him the true status of the business,
and to his damage and prejudice made false
entries in the books of account and in the yearly
balance sheets, the exact nature and amount of
which it is impossible to ascertain, even after
the examination of the books of the business,
due to the defendants' refusal to furnish all the
books and data required for the purpose, and the
constant obstacles they have placed in the way
of the examination of the books of account and
vouchers;
VI
That when the plaintiff received the information
mentioned in the preceding paragraph, he
demanded that the defendants permit him to
examine the books and vouchers of the business,
which were in their possession, in order to
ascertain the truth of the alleged false entries in
the books and balance sheets submitted for his
approval, but the defendants refused, and did
not consent to the examination until after the
original complaint was filed in this case; but up
to this time they have refused to furnish all the
books, data, and Vouchers necessary for a
complete and accurate examination of all the
partnership's accounts; and
VII
That as a result of the partial examination of the
books of account of the business, the plaintiff
has, through his accountants, discovered that the
defendants, conspiring and confederating
together, presented to the plaintiff during the
period covered by the partnership contract false
and incorrect accounts,
(a) For having included therein undue interest;
(b) For having entered, as a charge to fertilizers,
salaries and wages which should have been paid
and were in fact paid by the defendant Menzi &
Co., Inc.;

(c) For having collected from the partnership the
income tax which should have been paid for its
own account by Menzi & Co., Inc.;
(d) For having-collected, to the damage and
prejudice of the plaintiff, commissions on the
purchase of materials for the manufacture of
fertilizers;
(e) For having appropriated, to the damage and
prejudice of the plaintiff, the profits obtained
from the sale of fertilizers belonging to the
partnership and bought with its own funds; and
(f) For having appropriated to themselves all
rebates for freight insurance, taxes, etc., upon
materials for fertilizer bought abroad, no entries
of said rebates having been made on the books
to the credit of the partnership.
Upon the strength of the facts set out in this first
cause of action, the plaintiff prays the court:
1. To prohibit the defendants, each and
every one of them, from destroying and
concealing the books and papers of the
partnership constituted between the
defendant Menzi & Co., Inc., and the
plaintiff;
2. To summon each and every defendant to
appear and give a true account of all
facts relating to the partnership between
the plaintiff and the defendant Menzi &
Co., Inc., and of each and every act and
transaction connected with the business
of said partnership from the beginning to
April 27, 1927, and a true statement of
all merchandise of whatever description,
purchased for said partnership, and of all
the expenditures and sales of every kind,
together with the true amount thereof,
besides the sums received by the
partnership from every source together
with their exact nature, and a true and
complete account of the vouchers for all
sums paid by the partnership, and of the
salaries paid to its employees;
3. To declare null and void the yearly
balances submitted by the defendants to
the plaintiff from 1922 to 1926, both
inclusive;
4. To order the defendants to give a true
statement of all receipts and
disbursements of the partnership during
the period of its existence, besides
granting the plaintiff any other remedy
that the court may deem just and
equitable.
Exhibit A
"CONTRATO
que se celebra entre los Sres. Menzi y
Compañia, de Manila, como Primera Parte, y D.
50
Full text : BusOrg I Cases 2018
Francisco Bastida, tambien de Manila, como
Segunda Parte, bajo las siguientes
"CONDICIONES
"1.ª El objeto de este contrato es la explotacion
del negocio de Abonos o Fertilizantes
Preparados, para diversas aplicaciones
agricolas;
"2.ª La duracion de este contrato sera de cinco
años, a contar desde la fecha de su firma;
"3.ª La Primera Parte se compromete a facilitar
la ayuda financiera necesaria para el negocio;
"4.ª La Segunda Parte se compromete a poner su
entero tiempo y toda su experiencia a la
disposicion del negocio;
"5.ª La Segunda Parte no podra, directa o
indirectamente, dedicarse por si sola ni en
sociedad con otras personas, o de manera alguna
que no sea con la Primera Parte, al negocio de
Abonos, simples o preparados, o de materia
alguna que se aplique comunmente a la
fertilizacion de suelos y plantas, durante la
vigencia de este contrato, a menos que obtenga
autorizacion expresa de la Primera Parte para
ello;
"6.ª La Primera Parte no podra dedicarse, por si
sola ni en sociedad o combinacion con otras
personas o entidades, ni de otro modo que en
sociedad con la Segunda Parte, al negocio de
Abonos o Fertilizantes preparados, ya sean ellos
importados, ya preparados en las Islas Filipinas;
tampoco podra dedicarse a la venta o negocio de
materias o productos que tengan aplicacion
como fertilizantes, o que se usen en la
composicion de fertilizantes o abonos, si ellos
son productos de suelo de la manufactura
filipinos, pudiendo sin embargo vender o
negociar en materias fertilizantes simples
importados de los Estados Unidos o del
Extranjero;
"7.ª La Primera Parte se obliga a ceder y a hacer
efectivo a la Segunda Parte el 35 por ciento
(treinta y cinco por ciento) de las utilidades
netas del negocio de abonos, liquidables el 30
de junio de cada ano;
"8.ªa La Primera Parte facilitara a la Segunda,
mensualmente, la cantidad de P300 (trescientos
pesos), a cuenta de su parte de beneficios;
"9.ª Durante el año 1923 la Primera Parte
concedera a la Segunda permiso para que este se
ausente de Filipinas por un periodo de tiempo
que no exceda de un ano, sin menoscabo para
los derechos de la Segunda Parte con arreglo a
este contrato.
"En testimonio de Io cual firmamos el presente
en la Ciudad de Manila, I. F., a veintisiete de
abril de 1922.
"MENZI &
CO., INC.
"Por J. MENZI

(Fdo.)
"General
Manager
"Primera Parte
(Fdo.) F. BASTIDA
"Segunda
Parte
"MENZI & CO.,
INC.
"(Fdo.)MAX KAEGI
"Acting
Secretary"
Defendants denied all the allegations of the
amended complaint, except the formal
allegations as to the parties, and as a special
defense to the first cause of action alleged:
1. That the defendant corporation, Menzi &
Co., Inc., has been engaged in the
general merchandise business in the
Philippine Islands since its organization
in October, 1921, including the
importation and sale of all kinds of
goods, wares, and merchandise, and
especially simple fertilizers and fertilizer
ingredients, and as a part of that
business, it has been engaged since its
organization in the manufacture and sale
of prepared fertilizers for agricultural
purposes, and has used for that purpose
trade-marks belonging to it;
2. That on or about November, 1921, the
defendant, Menzi & Co., Inc., made and
entered into an employment agreement
with the plaintiff, who represented that
he had had much experience in the
mixing of fertilizers, to superintend the
mixing of the ingredients in the
manufacture of prepared fertilizers in its
fertilizer department and to obtain orders
for such prepared fertilizers subject to its
approval, for a compensation of 50 per
cent of the net profits which it might
derive from the sale of the fertilizers
prepared by him, and that said Francisco
Bastida worked under said agreement
until April 27, 1922, and received the
compensation agreed upon for his
services; that on the said 27th of April,
1922, the said Menzi & Co., Inc., and
the said Francisco Bastida made and
entered into the written agreement,
which is marked Exhibit A, and made a
part of the amended complaint in this
case, whereby they mutually agreed that
the employment of the said Francisco
Bastida by the said Menzi & Co., Inc., in
the capacity stated, should be for a
51
Full text : BusOrg I Cases 2018
definite period of five years from that
date and under the other terms and
conditions stated therein, but with the
understanding and agreement that the
said Francisco Bastida should receive as
compensation for his said services only
35 per cent of the net profits derived
from the sale of the fertilizers prepared
by him during the period of the contract
instead of 50 per cent of such profits, as
provided in his former agreement; that
the said Francisco Bastida was found to
be incompetent to do anything in relation
to its said fertilizer business with the
exception of overseeing the mixing of
the ingredients in the manufacture of the
same, and on or about the month of
December, 1922, the defendant, Menzi
& Co., Inc., in order to make said
business successful, was obliged to and
actually did assume the full management
and direction of said business;
3. That the accounts of the business of the
said fertilizer department of Menzi &
Co., Inc., were duly kept in the regular
books of its general business, in the
ordinary course thereof, up to June 30,
1923, and that after that time and during
the remainder of the period of said
agreement, for the purpose of
convenience in determining the amount
of compensation due to the plaintiff
under his agreement, separate books of
account for its said fertilizer business
were duly kept in the name of 'Menzi &
Co., Inc., Fertilizer', and used
exclusively for that purpose, and it was
mutually agreed between the said
Francisco Bastida and the said Menzi &
Co., Inc., that the yearly balances for the
determination of the net profits of said
business due to the said plaintiff as
compensation for his services under said
agreement would be made as of
December 31st, instead of June 30th, of
each year, during the period of said
agreement ; that the accounts of the
business of its said fertilizer department,
as recorded in its said books, and the
vouchers and records supporting the
same, for each year of said business have
been duly audited by Messrs. White,
Page & Co., certified public accountants,
of Manila, who, shortly after the close of
business at the end of each year up to
and including the year 1926, have
prepared therefrom a manufacturing and
profit and loss account and balance
sheet, showing the status of said

business and the share of the net profits
pertaining to the plaintiff as his
compensation under said agreement; that
after the said manufacturing and profit
and the loss account and balance sheet
for each year of the business of its said
fertilizer department up to and including
the year 1926, had been prepared by the
said auditors and certified by them, they
were shown to and examined by the
plaintiff, and duly accepted, and
approved by him, with full knowledge of
their contents, and as evidence of such
approval, he signed his name on each of
them, as shown on the copies of said
manufacturing and profit and loss
account and balance sheet for each year
up to and including the year 1926, which
are attached to the record of this case,
and which are hereby referred to and
made a part of this amended answer, and
in accordance therewith, the said
plaintiff has actually received the portion
of the net profits of its said business for
those years pertaining to him for his
services under said agreement; that at no
time during the course of said fertilizer
business and the liquidation thereof has
the plaintiff been in any way denied
access to the books and records'
pertaining thereto, but on the contrary,
said books and records have been subject
to his inspection and examination at any
time during business hours, and even
since the commencement of this action,
the plaintiff and his accountants, Messrs.
Haskins & Sells, of Manila, have been
going over and examining said books
and records for months and the
defendant, Menzi & Co., Inc., through
its officers, have turned over to said
plaintiff and his accountant the books
and records of said business and even
furnished them suitable accommodations
in its own office to examine the same;
4. That prior to the termination of the said
agreement, Exhibit A, the defendant,
Menzi & Co., Inc., duly notified the
plaintiff that it would not under any
conditions renew his said agreement or
continue his said employment with it
after its expiration, and after the
termination of said agreement of April
27, 1927, the said Menzi & Co., Inc.,
had the certified public accountants,
White, Page & Co., audit the accounts of
the business of its said fertilizer
department for the four months of 1927
covered by plaintiff's agreement and
52
Full text : BusOrg I Cases 2018
prepare a manufacturing and profit and
loss account and balance sheet of said
business snowing the status of said
Business at the termination of said
agreement, a copy of which was shown
to and explained to the plaintiff; that at
that time there were accounts receivable
to be collected for business covered by
said agreement of over P100,000, and
there was guano, ashes, fine tobacco and
other fertilizer ingredients on hand of
over P75,000, which had to be disposed
of by Menzi & Co., Inc., or valued by
the parties, before the net profits of said
business for the period of the agreement
could be determined; that Menzi & Co.,
Inc., offered to take the face value of
said accounts and the cost value of the
other properties for the purpose of
determining the profits of said business
for that period, and to pay to the plaintiff
at that time his proportion of such profits
on that basis, which the plaintiff refused
to accept, and being disgruntled because
the said Menzi & Co., Inc., would not
continue him in its service, the said
plaintiff commenced this action,
including therein not only Menzi & Co.,
Inc., but also its managers J. M. Menzi
and P. C. Schlobohm, wherein he
knowingly make various false and
malicious allegations against the
defendants; that since that time the said
Menzi & Co., Inc., has been collecting
the accounts receivable and disposing of
the stocks on hand, and there is still on
hand old stock of approximately
P25,000, which it has been unable to
dispose of up to this time; that as soon as
possible a final liquidation and
accounting of the net profits of the
business covered by said agreement for
the last four months thereof will be made
and the share thereof appertaining to the
plaintiff will be paid to him; that the
plaintiff has been informed from time to
time as to the status of the disposition of
such properties, and he and his auditors
have fully examined the books and
records of said business in relation
thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces
paragraphs I, II, III, IV, and V of the
first cause of action.
II. That the examination made by the
plaintiffs auditors of some of the books

of the partnership that were furnished by
the defendants disclosed the fact that
said defendants had charged to
"purchases" of the business, undue
interest, the amount of which the
plaintiff is unable to determine as he has
never had at his disposal the books and
vouchers necessary for that purpose, and
especially, owing to the fact that the
partnership constituted between the
plaintiff and the defendant Menzi & Co.,
Inc., never kept its own cash book, but
that its funds were maliciously included
in the private funds of the defendant
entity, neither was there a separate
BANK ACCOUNT of the partnership,
such account being included in the
defendant's bank account.
III. That from the examination of the
partnership books as aforesaid, the
plaintiff estimates that the partnership
between himself and the defendant
Menzi & Co., Inc., has been defrauded
by the defendants by way of interest in
an amount of approximately
P184,432.51, of which 35 per cent, or
P64,551.38, belongs to the plaintiff
exclusively.
Wherefore, the plaintiff prays the court to render
judgment ordering the defendants jointly and
severally to pay him the sum of P64,551.38, or
any amount which may finally appear to be due
and owing from the defendants to the plaintiff
upon this ground, with legal interest from the
filing of the original complaint until payment.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4,
of the special defense to the first cause
of action in this amended answer;
2. That under the contract of employment,
Exhibit A, of the amended complaint,
the defendant, Menzi & Co., Inc., only
undertook and agreed to facilitate
financial aid in carrying on the said
fertilizer business, as it had been doing
before the plaintiff was employed under
the said agreement; that the said
defendant, Menzi & Co., Inc., in the
course of the said business of its
fertilizer department, opened letters of
credit through the banks of Manila,
accepted and paid drafts drawn upon it
under said letters of credit, and obtained
loans and advances of moneys for the
purchase of materials to be used in
mixing and manufacturing its fertilizers
and in paying the expenses of said
53
Full text : BusOrg I Cases 2018
business; that such drafts and loans
naturally provided for interest at the
banking rate from the dates thereof until
paid, as is the case in all such business
enterprises, and that such payments of
interest as were actually made on such
drafts, loans and advances during the
period of the said employment
agreement constituted legitimate
expenses of said business under said
agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of
action.
II. That under the terms of the contract
Exhibit A, neither the defendants J. M.
Menzi and P. C. Schlobohm, nor the
defendant Menzi & Co., Inc., had a right
to collect for itself or themselves any
amount whatsoever by way of salary for
services rendered to the partnership
between the plaintiff and the defendant,
inasmuch as such services were
compensated with the 65% of the net
profits of the business constituting their
share.
III. That the plaintiff has, on his own
account and with his own money, paid
all the employees he has placed in the
service of the partnership, having
expended for their account, during the
period of the contract, over P88,000,
without ever having made any claim
upon the defendants for this sum because
it was included in the compensation of
35 per cent which he was to receive in
accordance with the contract Exhibit A.
IV. That the defendants J. M. Menzi and P.
C. Schlobohm, not satisfied with
collecting undue and excessive salaries
for themselves, have made the
partnership, or the fertilizer business,
pay the salaries of a number of the
employees of the defendant Menzi &
Co., Inc.
V. That under this item of undue salaries
the defendants have appropriated
P43,920 of the partnership funds, of
which 35 per cent, or P15,372 belongs
exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render
judgment ordering the defendants to pay jointly
and severally to the plaintiff the amount of
P15,372, with legal interest from the date of the

filing of the original complaint until the date of
payment.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4,
of the special defense to the first cause
of action in this amended answer;
2. That the defendant, Menzi & Co., Inc.,
through its manager, exclusively
managed and conducted its said fertilizer
business, in which the plaintiff was to
receive 35 percent of the net profits as
compensation for his services, as
hereinbefore alleged, from on or about
January 1, 1923, when its other
departments had special experienced
Europeans in charge thereof, who
received not only salaries but also a
percentage of the net profits of such
departments; that its said fertilizer
business, after its manager took charge
of it, became very successful, and owing
to the large volume of business
transacted, said business required great
deal of time and attention, and actually
consumed at least one-half of the time of
Wherefore, the plaintiff prays the court to order
the manager and certain employees of
the defendants jointly and severally to pay the
Menzi& Co., Inc., in carrying it on; that
plaintiff the sum of P3,626.60, with legal
the said Menzi & Co., Inc., furnished
interest from the date of the filing of the original
office space, stationery and other
complaint until its payment.
incidentals, for said business, and had its
Defendants alleged:
employees perform the duties of
cashiers, accountants, clerks,
messengers, etc., for the same, and for
that reason the said Menzi & Co., Inc.,
charged each year, from and after 1922,
as expenses of said business, which
pertained to the fertilizer department, as
certain amount as salaries and wages to
cover the proportional part of the
overhead expenses of Menzi & Co., Inc.;
that the same method is followed in each
of the several departments of the
business of Menzi & Co., Inc., that each
and every year from and after 1922, a
just proportion of said overhead
expenses were charged to said fertilizer
departments and entered on the books
thereof, with the knowledge and consent
of the plaintiff, and included in the
auditors' reports, which were examined,
accepted and approved by him, and he is
now estopped from saying that such
expenses were not legitimate and just
expenses of said business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
54
Full text : BusOrg I Cases 2018
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of
action.
II. That the defendant Menzi & Co., Inc.,
through the defendants J. M. Menzi and
P. C. Schlobohm, has paid, with the
funds of the partnership between the
defendant entity and the plaintiff, the
income tax due from said defendant
entity for the fertilizer business, thereby
defrauding the partnership in the amount
of P10,361.72 of which 35 per cent
belongs exclusively to the plaintiff,
amounting to P3,626.60.
III. That the plaintiff has, during the period
of the contract, paid with his own money
the income tax corresponding to his
share which consists in 35 per cent of the
profits of the fertilizer business,
expending about P5,000 without ever
having made any claim for
reimbursement against the partnership,
inasmuch as it has always been
understood among the partners that each
of them would pay his own income tax.
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4,
of the special defense to the first cause
of action in this amended answer;
2. That under the Income Tax Law Menzi
& Co., Inc., was obliged to and did make
return to the Government of the
Philippine Islands each year during the
period of the agreement, Exhibit A, of
the income of its whole business,
including its fertilizer department; that
the proportional share of such income
taxes found to be due on the business of
the fertilizer department was charged as
a proper and legitimate expense of that
department, in the same manner as was
done in the other departments of its
business; that inasmuch as the agreement
with the plaintiff was an employment
agreement, he was requested to make his
own return under the Income Tax Law
and to pay his own income taxes, instead
of having them paid at the source, as
might be done under the law, so that he
would be entitled to the personal
exemptions allowed by the law; that the
income taxes paid by the said Menzi &

Co., Inc., pertaining to the business of
the fertilizer department and charged to
that business, were duly entered on the
books of that department, and included
in the auditors' reports hereinbefore
referred to, which reports were
examined, accepted and approved by the
plaintiff, with full knowledge of their
contents, and he is now estopped from
saying that such taxes are not a
legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of
action.
II. That the plaintiff has discovered that the
defendant Menzi & Co., Inc., had been
receiving, during the period of the
contract Exhibit A, from foreign firms
selling fertilizing material, a secret
commission equivalent to 5 per cent of
the total value of the purchases of
fertilizing material made by the
partnership constituted between the
plaintiff and the defendant Menzi & Co.,
Inc., and that said 5 per cent commission
was not entered by the defendants in the
books of the business, to the credit and
benefit of the partnership constituted
between the plaintiff and the defendant,
but to the credit of the defendant Menzi
& Co., Inc., which appropriated it to
itself.
III. That the exact amount, or even the
approximate amount of the fraud thus
suffered by the plaintiff cannot be
determined, because the entries referring
to these items do not appear in the
partnership books, although the plaintiff
believes and alleges that they do appear
in the private books of the defendant
Menzi & Co., Inc., which the latter has
refused to furnish, notwithstanding the
demands made therefor by the auditors
and the lawyers of the plaintiff.
IV. That taking as basis the amount of the
purchases of some fertilizing material
made by the partnership during the first
four years of the contract Exhibit A, the
plaintiff estimates that this 5 per cent
commission collected by the defendant
Menzi & Co., Inc., to the damage and
prejudice of the plaintiff, amounts to
P127,375.77 of which 35 per cent
belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to order
the defendants to pay jointly and severally to the
55
Full text : BusOrg I Cases 2018
plaintiff the amount of P44,581.52, or the exact
amount owed upon this ground, after both
parties have adduced their evidence upon the
point.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4,
of the special defense to the first cause
of action in this amended answer;
2. That the defendant, Menzi & Co., Inc.,
did have during the period of said
agreement, Exhibit A, and has now what
is called a "Propaganda Agency
Agreement" with the Deutsches
Kalesyndikat, G. M. B., of Berlin, which
is a manufacturer of potash, by virtue of
which the said Menzi& Co., Inc., was to
receive, for its propaganda work in
advertising and bringing about sales of
its potash a commission of 5 per cent on
all orders of potash received by it from
the Philippine Islands; that during the
period of said agreement, Exhibit A,
orders were sent to said concern for
potash, through C. Andre & Co., of
Hamburg, as the agent of the said Menzi
& Co., Inc., upon which the said
Menzi& Co., Inc., received a 5 per cent
commission, amounting in all to
P2,222.32 for the propaganda work
which it did for said firm in the
Philippine Islands; that said
commissions were not in any sense
discounts on the purchase price of said
potash, and have no relation to the
fertilizer business of which the plaintiff
was to receive a share of the net profits
for his services, and consequently were
not credited to that department;
3. That in going over the books of Menzi &
Co., Inc., it has been found that there are
only two items of commissions, which
were received from the United Supply
Co., of San Francisco, in the total sum of
$66.51, which, through oversight, were
not credited on the books of the fertilizer
department of Menzi & Co., Inc., but
due allowance has now been given to
that department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V, of the first cause of
action.
II. That the defendant Menzi & Co., Inc., in
collusion with and through the
defendants J. M. Menzi and P. C.
Schlobohm and their assistants, has

tampered with the books of the business
making fictitious transfers in favor of the
defendant Menzi & Co., Inc., of
merchandise belonging to the
partnership, purchased with the latter's
money, and deposited in its warehouses,
and then sold by Menzi& Co., Inc., to
third persons, thereby appropriating to
itself the profits obtained from such
resale.
III. That it is impossible to ascertain the
amount of the fraud suffered by the
plaintiff in this respect as the real
amount obtained from such sales can
only be ascertained from an examination
of the private books of the defendant
entity, which the latter has refused to
permit notwithstanding the demand
made for the purpose by the auditors and
the lawyers of the plaintiff, and no basis
of computation can be established, even
approximately, to ascertain the extent of
the fraud sustained by the plaintiff in this
respect, by merely examining the
partnership books.
Wherefore, the plaintiff prays the court to order
the defendants J. M. Menzi and P. C.
Schlobohm, to make a sworn statement as to all
the profits received from the sale to third
persons of the fertilizers pertaining to the
partnership, and the profits they have
appropriated, ordering them jointly and
severally to pay 35 per cent of the net amount,
with legal interest from the filing of the original
complaint until the payment thereof.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4,
of the special defense to the first cause
of action in this amended answer:
2. That under the express terms of the
employment agreement, Exhibit A, the
defendant, Menzi & Co., Inc., had the
Wherefore, the plaintiff prays the court to order
right to import into the Philippine
the defendants J. M. Menzi and P. C.
Islands in the course of its fertilizer
Schlobohm, to make a sworn statement as to the
business and sell for its exclusive
total amount of such rebates, and to sentence the
account and benefit simple fertilizer
defendants to pay to the plaintiff jointly and
ingredients; that the only materials
severally 35 per cent of the net amount.
imported by it and sold during the period
Defendants alleged:
of said agreement were simple fertilizer
ingredients, which had nothing whatever
to do with the business of mixed
fertilizers, of which the plaintiff was to
receive a share of the net profits as a part
of his compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
56
Full text : BusOrg I Cases 2018
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of
action.
II. That during the existence of the contract
Exhibit A, the defendant Menzi & Co.,
Inc., for the account of the partnership
constituted between itself and the
plaintiff, and with the latter's money,
purchased from several foreign firms
various simple fertilizing material for the
use of the partnership.
III. That in the paid invoices for such
purchases there are charged, besides the
cost price of the merchandise, other
amounts for freight, insurance, duty, etc.,
some of which were not entirely thus
spent and were later credited by the
selling firms to the defendant Menzi &
Co., Inc.
IV. That said defendant Menzi& Co., Inc.,
through and in collusion with the
defendants J. M. Menzi and P. C.
Schlobohm upon receipt of the credit
notes remitted by the selling firms of
fertilizing material, for rebates upon
freight, insurance, duty, etc., charged in
the invoice but not all expended, did not
enter them upon the books to the credit
of the partnership constituted between
the defendant and the plaintiff, but
entered or had them entered to the credit
of Menzi & Co., Inc., thereby defrauding
the plaintiff of 35 per cent of the value
of such reductions.
V. That the total amount, or even the
approximate amount of this fraud cannot
be ascertained without an examination of
the private books of Menzi & Co., Inc.,
which the latter has refused to permit
notwithstanding the demand to this
effect made upon them by the auditors
and the lawyers of the plaintiff.
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4,
of the special defense to the first cause
of action in this amended answer:
2. That during the period of said
employment agreement, Exhibit A, the
defendant, Menzi & Co., Inc., received
from its agent, C. Andre& Co., of

Hamburg, certain credits pertaining to
the fertilizer business in the profits of
which the plaintiff was interested, by
way of refunds of German Export Taxes,
in the total sum of P1,402.54; that all of
said credits were duly noted on the
books of the fertilizer department as
received, but it has just recently been
discovered that through error an
additional sum of P216.22 was credited
to said department, which does not
pertain to said business in the profits of
which the plaintiff is interested.
EIGHTH CAUSE OF ACTION
As eighth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of
action.
II. That on or about April 21, 1927, that is,
before the expiration of the contract
Exhibit A of the complaint, the
defendant Menzi & Co., Inc., acting as
manager of the fertilizer business
constituted between said defendant and
the plaintiff, entered into a contract with
the Compañia General de Tabacos de
Filipinas for the sale to said entity of
three thousand tons of fertilizers of the
trade mark "Corona No. 1", at the rate of
P111 per ton, f. o. b. Bais, Oriental
Negros, to be delivered, as they were
delivered, according to information
received by the plaintiff, during the
months of November and December,
1927, and January, February, March, and
April, 1928.
III. That both the contract mentioned above
and the benefits derived therefrom,
which the plaintiff estimates at P90,000,
Philippine currency, belongs to the
fertilizer business constituted between
the plaintiff and the defendant, of which
35 per cent, or P31,500, belongs to said
plaintiff.
IV. That notwithstanding the expiration of
the partnership contract Exhibit A, on
April 27, 1927, the defendants have not
rendered a true accounting of the profits
obtained by the business during the last
four months thereof, as the proposed
balance submitted to the plaintiff was
incorrect with regard to the inventory of
merchandise, transportation equipment,
and the value of the trade marks, for
which reason such proposed balance did
not represent the true status of the
business of the partnership on April 30,
1927.
57
Full text : BusOrg I Cases 2018
V. That the proposed balance submitted to
the plaintiff with reference to the
partnership operations during the last
four months of its existence, was
likewise incorrect, inasmuch as it did not
include the profit realized or to be
realized from the contract entered into
with the Compañia General de Tabacos
de Filipinas, notwithstanding the fact
that this contract was negotiated during
the existence of the partnership, and
while the defendant Menzi & Co., Inc.,
was the manager thereof.
VI. That the defendant entity now contends
that the contract entered into with the
Compañia General de Tabacos de
Filipinas belongs to it exclusively, and
refuses to give the plaintiff his share
consisting in 35 per cent of the profits
produced thereby.
Wherefore, the plaintiff prays the honorable
court to order the defendants to render a true
and detailed account of the business during the
last four months of the existence of the
partnership, i. e., from January 1, 1927 to April
27, 1927, and to sentence them likewise to pay
the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4,
of the special defense to the first cause
of action in this amended answer;
2. That the said order for 3,000 tons of
mixed fertilizer, received by Menzi &
Co., Inc., from the Compañia General de
Tabacos de Filipinas on April 21, 1927,
was taken by it in the regular course of
its fertilizer business, and was to be
manufactured and delivered in
December, 1927, and up to April, 1928;
that the employment agreement of the
plaintiff expired by its own terms on
April 27, 1927, and he has not been in
any way in the service of the defendant,
Menzi & Co., Inc., since that time, and
he cannot possibly have any interest in
the fertilizers manufactured and
delivered by the said Menzi & Co., Inc.,
after the expiration of his contract for
any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of
action.
II. That during the period of the contract
Exhibit A, the partnership constituted
thereby registered in the Bureau of

Commerce and Industry the trade marks
"CORONA No. 1", "CORONA No. 2",
"ARADO", and "HOZ", the plaintiff and
the defendant having by their efforts
succeeded in making them favorably
known in the market.
III. That the plaintiff and the defendant,
laboring jointly, have succeeded in
making the fertilizing business a
prosperous concern to such an extent
that the profits obtained from the
business during the five years it has
existed, amount to approximately
P1,000,000, Philippine currency.
IV. That the value of the good-will and the
trade marks of a business of this nature
amounts to at least P1,000,000, of which
sum 35 per cent belongs to the plaintiff,
or, P350,000.
V. That at the time of the expiration of the
contract Exhibit A, the defendant entity,
notwithstanding and in spite of the
plaintiff's insistent opposition, has
assumed the charge of liquidating the
fertilizing business, without having
rendered a monthly account of the state
of the liquidation, as required by law,
thereby causing the plaintiff damages.
VI. That the damages sustained by the
plaintiff, as well as the amount of his
share in the remaining property of the
business, after its expiration, are wholly
unknown to the plaintiff, and may only
be truly and correctly ascertained by
compelling the defendants J. M. Menzi
and P. C. Schlobohm to declare under
oath and explain to the court in detail the
sums obtained from the sale of the
remaining merchandise, after the
expiration of the partnership contract.
VII. That after the contract Exhibit A had
expired, the defendant continued to use
for its own benefit the good-will and
trade marks belonging to the partnership,
as well as its transportation equipment
and other machinery, thereby indicating
its intention to retain such good-will,
trade marks, transportation equipment
and machinery, for the manufacture of
fertilizers, by virtue of which the
defendant is bound to pay the plaintiff
35 per cent of the value of said property.
VIII. That the true value of the transportation
equipment and machinery employed in
the preparation of the fertilizers amounts
to P20,000, 35 per cent of which
amounts to P7,000.
58
Full text : BusOrg I Cases 2018
IX. That the plaintiff has repeatedly
demanded that the defendant entity
render a true and detailed account of the
state of the liquidation of the partnership
business, but said defendant has ignored
such demands, so that the plaintiff does
not, at this date, know whether the
liquidation of the business has been
finished, or what the status of it is at
present.
Wherefore, the plaintiff prays the Honorable
Court:
"1. To order the defendants J. M. Menzi and P.
C. Schlobohm to render a true and detailed
account of the status of the business in
liquidation, that is, from April 28, 1927, until it
is finished, ordering all the defendants to pay
the plaintiff jointly and severally 35 per cent of
the net amount.
"2. To order the defendants to pay the plaintiff
jointly and severally the amount of P350,000,
which is 35 per cent of the value of the goodwill
and the trade marks of the fertilizer business;
"3. To order the defendants to pay the plaintiff
jointly and severally the amount of P7,000,
which is 35 per cent of the value of the
transportation equipment and machinery of the
business; and
"4. To order the defendants to pay the costs of
this trial, and further, to grant any other remedy
that this Honorable Court may deem just and
equitable."
Defendants alleged:
1. That they repeat and make a part of this
special defense paragraphs 1, 2, 3 and 4,
of the special defense to the first cause
of action in this amended answer;
2. That the goodwill, if any, of the said
fertilizer business of the defendant,
Menzi & Co., Inc., pertains exclusively
to it, and the plaintiff can have no
interest therein of any nature under his
said employment agreement; that the
trade-marks mentioned by the plaintiff in
his amended complaint, as a part of such
goodwill, belonged to and have been
used by the said Menzi & Co., Inc., in its
fertilizer business from and since its
organization, and the plaintiff can have
no rights to or interest therein under his
said employment agreement; that the
transportation equipment pertains to the
fertilizer department of Menzi& Co.,
Inc., and whenever it has been used by
the said Menzi & Co., Inc., in its own
business, due and reasonable
compensation for its use has been
allowed to said business; that the

machinery pertaining to the said
fertilizer business was destroyed by fire
in October, 1926, and the value thereof
in the sum of P20,000 was collected
from the Insurance Company, and the
plaintiff has been given credit for 35 per
cent of that amount; that the present
machinery used by Menzi & Co., Inc.,
was constructed by it, and the costs
thereof was not charged to the fertilizer
department, and the plaintiff has no right
to have it taken into consideration in
arriving at the net profits due to him
under his said employment agreement.
The dispositive part of the decision of the trial
court is as follows:
"Wherefore, let judgment be entered:
"(a) Holding that the contract entered into by
the parties, evidenced by Exhibit A, is a contract
of general regular commercial partnership,
wherein Menzi & Co., Inc., was the capitalist,
and the plaintiff, the industrial partner;
"(b) Holding that the plaintiff, by the mere fact
of having signed and approved the balance
sheets, Exhibits C to C-8, is not estopped from
questioning the statements of accounts therein
contained;
"(c) Ordering Menzi & Co., Inc., upon the
second ground of action, to pay the plaintiff the
sum of P60,385.67 with legal interest from the
date of the filing of the original complaint until
paid;
"(d) Dismissing the third cause of action;
"(e) Ordering Menzi & Co., Inc., upon the
fourth cause of action, to pay the plaintiff the
sum of P3,821.41, with legal interest from the
date of the filing of the original complaint until
paid;
"(f) Dismissing the fifth cause of action;
"(g) Dismissing the sixth cause of action;
"(h) Dismissing the seventh cause of action;
"(i) Ordering the defendant Menzi & Co., Inc.,
upon the eighth cause of action, to pay the
plaintiff the sum of P6,578.38 with legal interest
from January 1, 1929, the date of the liquidation
of the fertilizer business, until paid;
"(j) Ordering Menzi & Co., Inc., upon the ninth
cause of action to pay the plaintiff the sum of
P196,709.20 with legal interest from the date of
the filing of the original complaint until paid;
"(k) Ordering the said defendant corporation, in
view of the plaintiff's share of the profits of the
business accruing from January 1, 1927 to
December 31, 1928, to pay the plaintiff 35 per
cent of the net balance shown in Exhibits 51 and
51-A, after deducting the item of P2,410 for
income tax, and any other sum charged for
interest under the entry 'Purchases';
59
Full text : BusOrg I Cases 2018
"(l) Ordering the defendant corporation, in
connection with the final liquidation set out in
Exhibits 52 and 52-A, to pay the plaintiff the
sum of P17,463.54 with legal interest from
January 1, 1929, until fully paid;
"(m) Dismissing the case with reference to the
other defendants, J. M. Menzi and P. C.
Schlobohm; and
"(n) Menzi & Co., Inc., shall pay the costs of the
trial."
The appellant makes the following assignments
of error:
"I. The trial court erred in finding and holding
that the contract Exhibit A constitutes a regular
collective commercial copartnership between
the defendant corporation, Menzi & Co., Inc.,
and the plaintiff, Francisco Bastida, and not a
contract of employment.
"II. The trial court erred in finding and holding
that the defendant, Menzi& Co., Inc., had
wrongfully charged to the fertilizer business in
question the sum of P10,918.33 as income taxes
partners' balances, foreign drafts, local drafts,
and on other credit balances in the sum of
P172,530.49, and that 35 per cent thereof, or the
sum of P60,385.67, with legal interest thereon
from the date of filing his complaint,
corresponds to the plaintiff.
"III. The trial court erred in finding and holding
that the defendant, Menzi & Co., Inc., had
wrongfully charged to the fertilizer business in
question the sum of P10,918.33 as income taxes
for the years 1923, 1924, 1925 and 1926, and
that the plaintiff is entitled to 35 per cent
thereof, or the sum of P3,821.41, with legal
interest thereon from the date of filing his
complaint, and in disallowing the item of
P2,410 charged as income tax in the liquidation
in Exhibits 51 and 51-A for the period from
January 1 to April 27, 1927.
"IV. The trial court erred in refusing to find and
hold under the evidence in this case that the
contract, Exhibit A was during the whole period
thereof considered by the parties and performed
by them as a contract of employment in relation
to the fertilizer business of the defendant, and
that the accounts of said business were kept by
the defendant, Menzi & Co., Inc., on that theory
with the knowledge and consent of the plaintiff,
and that at the end of each year for five years a
balance sheet and profit and loss statement of
said business were prepared from the books of
account of said business on the same theory and
submitted to the plaintiff, and that each year
said balance sheet and profit and loss statement
were examined, approved and signed by said
plaintiff and he was paid the amount due him
under said contract in accordance therewith with
full knowledge of the manner in which said

business was conducted and the charges for
interest and income taxes made against the same
and that by reason of such facts, the plaintiff is
now estopped from raising any question as to
the nature of said contract or the propriety of
such charges.
"V. The trial court erred in finding and holding
that the plaintiff, Francisco Bastida, is entitled
to 35 per cent of the net profits in the sum of
P18,795.38 received by the defendant, Menzi &
Co., Inc., from its contract with the Compañia
General de Tabacos de Filipinas, or the sum of
P6,578.38, with legal interest thereon from
January 1, 1929, the date upon which the
liquidation of said business was terminated.
"VI. The trial court erred in finding and holding
that the value of the good-will of the fertilizer
business in question was P562,312, and that the
plaintiff, Francisco Bastida, was entitled to 35
per cent of such valuation, or the sum of
P196,709.20, with legal interest thereon from
the date of filing his complaint.
"VII. The trial court erred in rendering judgment
in favor of the plaintiff and against the
defendant, Menzi & Co., Inc., (a) on the second
cause of action, for the sum of P60,385.67, with
legal interest thereon from the date of filing the
complaint; (b) on the fourth cause of action, for
the sum of P3,821.41, with legal interest thereon
from the date of filing the complaint; (c) on the
eighth cause of action, for the sum of P6,578.38,
with legal interest thereon from January 1, 1929;
and (d) on the ninth cause of action, for the sum
of P196,709.20, with legal interest thereon from
the date of filing the original complaint; and (e)
for the costs of the action, and in not approving
the final liquidation of said business, Exhibits
51 and 51-A and 52 and 52-A, as true and
correct, and entering judgment against said
defendant only for the amounts admitted therein
as due the plaintiff with legal interest, with the
costs against the plaintiff.
"VIII. The trial court erred in overruling the
defendants' motion for a new trial."
It appears from the evidence that the defendant
corporation was organized in 1921 for the
purpose of importing and selling general
merchandise, including fertilizers and fertilizer
ingredients. It acquired through John Bordman
and the Menzi-Bordman Co. the good-will,
trade-marks, business, and other assets of the
old German firm of Behn, Meyer & Co., Ltd.,
including its fertilizer business with its stocks
and trade-marks. Behn, Meyer & Co., Ltd., had
owned and carried on this fertilizer business
from 1910 until that firm was taken over by the
Alien Property Custodian in 1917. Among the
trade-marks thus acquired by the appellant were
those known as the "ARADO", "HOZ", and
60
Full text : BusOrg I Cases 2018
"CORONA". They were registered in the
Bureau of Commerce and Industry in the name
of Menzi & Co. The trade-marks "ARADO" and
"HOZ" had been used by Behn, Meyer & Co.,
Ltd., in the sale of its mixed fertilizers, and the
trade-mark "CORONA" had been used in its
other business. The "HOZ" trade-mark was used
by John Bordman and the Menzi-Bordman Co.
in the continuation of the fertilizer business that
had belonged to Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided
into several different departments, each of
which was in charge of a manager, who
received a fixed salary and a percentage of the
profits. The corporation had to borrow money or
obtain credits from time to time and to pay
interest thereon. The amount paid for interest
was charged against the department concerned,
and the interest charges were taken into account
in determining the net profits of each
department. The practice of the corporation was
to debit or credit each department with interest
at the bank rate on its daily balance. The
fertilizer business of Menzi & Co., Inc., was
carried on in accordance with this practice under
the "Sundries Department" until July, 1923, and
after that as a separate department.
In November, 1921, the plaintiff, who had had
some experience in mixing and selling fertilizer,
went to see Toehl, the manager of the sundries
department of Menzi & Co., Inc., and told him
that he had a written contract with the Philippine
Sugar Centrals Agency for 1,250 tons of mixed
fertilizers, and that he could obtain other
contracts, including one from the Calamba
Sugar Estates for 450 tons, but that he did not
have the money to buy the ingredients to fill the
order and carry on the business. He offered to
assign to Menzi & Co., Inc., his contract with
the Philippine Sugar Centrals Agency and to
supervise the mixing of the fertilizer and to
obtain other orders for fifty per cent of the net
profits that Menzi & Co., Inc., might derive
therefrom. J. M. Menzi, the general manager of
Menzi & Co., accepted plaintiffs offer. Plaintiff
assigned to Menzi& Co., Inc., his contract with
the Sugar Centrals Agency, and the defendant
corporation proceeded to fill the order. Plaintiff
supervised the mixing of the fertilizer.
On January 10, 1922 the defendant corporation
at plaintiff's request gave him the following
letter, Exhibit B:
"MANILA,
10 de
enero de
1922
"Sr. FRANCISCO
BASTIDA
"Manila

"MUY SR. NUESTRO: Interin formalizamos el
contrato que, en principio, tenemos convenido
para la explotacion del negocio de abono y
fertilizantes, por la presente venimos en
confirmar su derecho de 50 por ciento de las
utilidades que se deriven del contrato obtenido
por Vd. de la Philippine Sugar Centrals (por
1250 tonel.) y del contrato con la Calamba
Sugar Estates, asi como de cuantos contratos se
cierren con compradores de abonos preparados
antes de la formalizaci6n definitiva de nuestro
contrato mutuo, lo que hacemos para garantia y
seguridad de Vd.
"MENZI
& CO.
"Por W.
(Fdo.)TOEHL"
Menzi & Co., Inc., continued to carry on its
fertilizer business under this arrangement with
the plaintiff. It ordered ingredients from the
United States and other countries, and the
interest on the drafts for the purchase of these
materials was charged to the business as a part
of the cost of the materials. The mixed
fertilizers were sold by Menzi & Co., Inc.,
between January 19 and April 1, 1922 under its
"CORONA" brand. Menzi & Co., Inc., had only
one bank account for its whole business. The
fertilizer business had no separate capital. A
fertilizer account was opened in the general
ledger, and interest at the rate charged by the
Bank of the Philippine Islands was debited or
credited to that account on the daily balances of
the fertilizer business. This was in accordance
with appellant's established practice, to which
the plaintiff assented.
On or about April 24, 1922 the net profits of the
business carried on under the oral agreement
were determined by Menzi & Co., Inc., after
deducting interest charges, proportional part of
warehouse rent and salaries and wages, and the
other expenses of said business, and the plaintiff
was paid some twenty thousand pesos in full
satisfaction of his share of the profits.
Pursuant to the aforementioned verbal
agreement, confirmed by the letter, Exhibit B,
the defendant corporation on April 27, 1922
entered into a written contract with the plaintiff,
marked Exhibit A, which is the basis of the
present action.
The fertilizer business was carried on by Menzi
& Co., Inc., after the execution of Exhibit A in
practically the same manner as it was prior
thereto. The intervention of the plaintiff was
limited to supervising the mixing of the
fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer
were registered in the Bureau of Commerce &
Industry in the name of Menzi & Co., Inc., and
61
Full text : BusOrg I Cases 2018
the fees were paid by that company. They were
not charged to the fertilizer business, in which
the plaintiff was interested. Only the fees for
registering the formulas in the Bureau of
Science were charged to the fertilizer business,
and the total amount thereof was credited to this
business in the final liquidation on April 27,
1927.
On May 3, 1924 the plaintiff made a contract
with Menzi & Co., Inc., to furnish it all the
stems and scraps of tobacco that it might need
for its fertilizer business either in the Philippine
Islands or for export to other countries. This
contract is referred to in the record as the
"Vastago Contract". Menzi & Co., Inc.,
advanced the plaintiff large sums of money for
buying and installing machinery, paying the
salaries of his employees, and other expenses in
performing his contract. White, Page& Co.,
certified public accountants, audited the books
of Menzi& Co., Inc., every month, and at the
end of each year they prepared a balance sheet
and a profit and loss statement of the fertilizer
business. These statements were delivered to the
plaintiff for examination, and after he had had
an opportunity of verifying them he approved
them without objection and returned them to
Menzi & Co., Inc.
Plaintiff collected from Menzi & Co., Inc., as
his share or 35 per cent of the net profits of the
fertilizer business the following amounts:
192 ...................................................... P1,874.7
2 ................ 3
192 ...................................................... 30,212.6
3 ................ 2
192 ...................................................... 101,081.
4 ................ 56
192 ...................................................... 35,665.0
5 ................ 3
192 ...................................................... 27,649.9
6 ................ 8
_______
__
Tot ............................................... P196,483
al .............. .92
To this amount must be added plaintiff's share
of the net profits from January 1 to April 27,
1927, amounting to P34,766.87, making a total
of P231,250.79.
Prior to the expiration of the contract, Exhibit A,
the manager of Menzi & Co., Inc., notified the
plaintiff that the contract for his services would
not be renewed.
When plaintiff's contract expired on April 27,
1927, the fertilizer department of Menzi & Co.,
Inc., had on hand materials and ingredients and
two Ford trucks of the book value of
approximately P75,000, and accounts receivable
amounting to P103,000. There were claims

outstanding and bills to pay. Before the net
profits could be finally determined, it was
necessary to dispose of the materials and
equipment, collect the outstanding accounts, and
pay the debts of the business. The accountants
for Menzi & Co., Inc., prepared a balance sheet
and a profit and loss statement for the period
from January 1 to April 27, 1927 as a basis of
settlement, but the plaintiff refused to accept it,
and filed the present action.
Menzi & Co., Inc., then proceeded to liquidate
the fertilizer business in question. In October,
1927 it proposed to the plaintiff that the old and
damaged stocks on hand having a book value of
P40,000, which the defendant corporation had
been unable to dispose of, be sold at public or
private sale, or divided between the parties. The
plaintiff refused to agree to this. The defendant
corporation then applied to the trial court for an
order for the sale of the remaining property at
public auction, but apparently the court did not
act on the petition.
The old stocks were taken over by Menzi & Co.,
Inc., and the final liquidation of the fertilizer
business was completed in December, 1928, and
a final balance sheet and a profit and loss
statement were submitted to the plaintiff during
the trial. During the liquidation the books of
Menzi & Co., Inc., for the whole period of the
contract in question were reaudited by White,
Page & Co., certain errors of bookkeeping were
discovered by them. After making the
corrections they found the balance due the
plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant,
Vernon Thompson, to examine the books and
vouchers of Menzi & Co. Thompson assumed
the plaintiff and Menzi & Co., Inc., to be
partners, and that Menzi& Co., Inc., was obliged
to furnish free of charge all the capital the
partnership should need. He naturally reached
very different conclusions from those of the
auditors of Menzi & Co., Inc.
We come now to a consideration of appellant's
assignments of error. After considering the
evidence and the arguments of counsel, we are
unanimously of the opinion that under the facts
of this case the relationship established between
Menzi & Co. and the plaintiff by the contract,
Exhibit A, was not that of partners, but that of
employer and employee, whereby the plaintiff
was to receive 35 per cent of the net profits of
the fertilizer business of Menzi & Co., Inc., in
compensation for his services of supervising the
mixing of the fertilizers. Neither the provisions
of the contract nor the conduct of the parties
prior or subsequent to its execution justified the
finding that it was a contract of copartnership.
Exhibit A, as appears from the statement of
62
Full text : BusOrg I Cases 2018
facts, was in effect a continuation of the verbal
agreement between the parties, whereby the
plaintiff worked for the defendant corporation
for one-half of the net profits derived by the
corporation from certain fertilizer contracts.
Plaintiff was paid his share of the profits from
those transactions after Menzi & Co., Inc., had
deducted the same items of expense which he
now protests. Plaintiff never made any objection
to defendant's manner of keeping the accounts
or to the charges. The business was continued in
the same manner under the written agreement,
Exhibit A, and for four years the plaintiff never
made any objection. On the contrary he
approved and signed every year the balance
sheet and the profit and loss statement. It was
only when plaintiff's contract was about to
expire and the defendant corporation had
notified him that it would not renew it that the
plaintiff began to make objections.
The trial court relied on article 116 of the Code
of Commerce, which provides that articles of
association by which two or more persons
obligate themselves to place in a common fund
any property, industry, or any of these things, in
order to obtain profit, shall be commercial, no
matter what its class may be, provided it has
been established in accordance with the
provisions of this Code; but in the case at bar
there was no common fund, that is, a fund
belonging to the parties as joint owners or
partners. The business belonged to Menzi &
Co., Inc. The plaintiff was working for Menzi &
Co., Inc. Instead of receiving a fixed salary or a
fixed salary and a small percentage of the net
profits, he was to receive 35 per cent of the net
profits as compensation for his services. Menzi
& Co., Inc., was to advance him P300 a month
on account of his participation in the profits. It
will be noted that no provision was made for
reimbursing Menzi & Co., Inc., in case there
should be no net profits at the end of the year. It
is now well settled that the old rule that sharing
profits as profits made one a partner is
overthrown. (Mechem, second edition, p. 89.)
It is nowhere stated in Exhibit A that the parties
were establishing a partnership or intended to
become partners. Great stress is laid by the trial
judge and plaintiff's attorneys on the fact that in
the sixth paragraph of Exhibit A the phrase "en
sociedad con" is used in providing that
defendant corporation shall not engage in the
business of prepared fertilizers except in
association with the plaintiff (en sociedad con).
The fact is that en sociedad con as there used
merely means en reunion con or in association
with, and does not carry the meaning of "in
partnership with".

The trial judge found that the defendant
corporation had not always regarded the
contract in question as an employment
agreement, because in its answer to the original
complaint it stated that before the expiration of
Exhibit A it notified the plaintiff that it would
not continue associated with him in said
business. The trial judge concluded that the
phrase "associated with", used by the defendant
corporation, indicated that it regarded the
contract, Exhibit A, as an agreement of
copartnership.
In the first place, the complaint and answer
having been superseded by the amended
complaint and the answer thereto, and the
answer to the original complaint not having
been presented in evidence as an exhibit, the
trial court was not authorized to take it into
account. "Where amended pleadings have been
filed, allegations in the original pleadings are
held admissible, but in such case the original
pleadings can have no effect, unless formally
offered in evidence." (Jones on Evidence, sec.
273; Lucido vs. Calupitan, 27 Phil, 148.)
In the second place, although the word
"associated" may be related etymologically to
the Spanish word "socio", meaning partner, it
does not in its common acceptation imply any
partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A,
whereby the defendant corporation obligated
itself to pay to the plaintiff 35 per cent of the net
profits of the fertilizer business, to advance to
him P300 a month on account of his share of the
profits, and to grant him permission during 1923
to absent himself from the Philippines for not
more than one year are utterly incompatible
with the claim that it was the intention of the
parties to form a copartnership. Various other
reasons for holding that the parties were not
partners are advanced in appellant's brief. We
do not deem it necessary to discuss them here.
We merely wish to add that in the Vastago
contract, Exhibit A, the plaintiff clearly
recognized Menzi & Co., Inc., as the owners of
the fertilizer business in question.
As to the various items of expense rejected by
the trial judge, they were in our opinion proper
charges and erroneously disallowed, and' this
would be true even if the parties had been
partners. Although Menzi & Co., Inc., agreed to
furnish the necessary financial aid for the
fertilizer business, it did not obligate itself to
contribute any fixed sum as capital or to defray
at its own expense the cost of securing the
necessary credit. Some of the contentions of the
plaintiff and his expert witness Thompson are so
obviously without merit as not to merit serious
consideration. For instance, they objected to the
63
Full text : BusOrg I Cases 2018
interest charges on draft for materials purchased
abroad. Their contention is that the corporation
should have furnished the money to purchase
these materials for cash,' overlooking the fact
that the interest was added to the cost price, and
that the plaintiff was not prejudiced by the
practice complained of. It was also urged, and
this seems to us the height of absurdity, that the
defendant corporation should have furnished
free of charge such financial assistance as would
have made it unnecessary to discount customers'
notes, thereby enabling the business to reap the
interest. In other words, the defendant
corporation should have enabled the fertilizer
department to do business on a credit instead of
a cash basis.
The charges now complained of, as we have
already stated, are the same as those made under
the verbal agreement, upon the termination of
which the parties made a settlement; the charges
in question were acquiesced in by the plaintiff
for years, and it is now too late for him to
contest them. The decision of this court in the
case of Kriedt vs. E. C. McCullough & Co. (37
Phil., 474), is in point. A portion of the syllabus
of that case reads as follows:
"1. CONTRACTS; INTERPRETATION;
CONTEMPORANEOUS ACTS OF
PARTIES.—Acts done by the parties to a
contract in the course of its performance are
admissible in evidence upon the question of its
meaning, as being their own contemporaneous
interpretation of its terms.
"2. ID.; ID.; ACTION OF PARTIES UNDER
PRIOR CONTRACT.—In an action upon a
contract containing a provision of doubtful
application it appeared that under a similar prior
contract the parties had, upon the termination of
said contract, adjusted their rights and made a
settlement in which the doubtful clause had
been given effect in conformity with the
interpretation placed thereon by one of the
parties. Held: That this action of the parties
under the prior contract could properly be
considered upon the question of the
interpretation of the same clause in the later
contract.
"3. ID. ; ID.; ACQUIESCENCE.—Where one
of the parties to a contract acquiesces in the
interpretation placed by the other upon a
provision of doubtful application, the party so
acquiescing is bound by such interpretation.
"4. ID. ; ID.; ILLUSTRATION. —One of the
parties to a contract, being aware at the time of
the execution thereof that the other placed a
certain interpretation upon a provision of
doubtful application, nevertheless proceeded,
without raising any question upon the point, to
perform the services which he was bound to
 Full text : BusOrg I Cases 2018

render under the contract. Upon the termination The balance due the plaintiff, as appears from
of the contract by mutual consent a question was Exhibit 52, is P21,633.20. We are satisfied by
raised as to the proper interpretation of the the evidence that said balance is correct.
doubtful provision. Held: That the party raising For the foregoing reasons, the decision appealed
such question had acquiesced in the from is modified and the defendant corporation
interpretation placed upon the contract by the is sentenced to pay the plaintiff twenty-one
other party and was bound thereby." thousand, six hundred and thirty-three pesos and
The trial court held that the plaintiff was entitled twenty centavos (P21,633.20), with legal
to P6,578.38 or 35 per cent of the net profits interest thereon from the date of the filing of the
derived by Menzi & Co., Inc., from its contract complaint or June 17, 1927, without a special
for fertilizers with the Tabacalera. This finding finding as to costs.
in our opinion is not justified by the evidence.
This contract was obtained by Menzi & Co.,
Inc., shortly before plaintiff's contract with the
defendant corporation expired. Plaintiff tried to
get the Tabacalera contract for himself. When
this contract was filled, plaintiff had ceased to
work for Menzi & Co., Inc., and he has no right
to participate in the profits derived therefrom.
Appellant's sixth assignment of error is that the
trial court erred in finding the value of the good-
will of the fertilizer business in question to be
P562,312, and that the plaintiff was entitled to
35 per cent thereof or P196,709.20. In reaching
this conclusion the trial court unfortunately
relied on the opinion of the accountant, Vernon
Thompson, who assumed, erroneously as we
have seen, that the plaintiff and Menzi & Co.,
Inc., were partners; but even if they had been
partners there would have been no good-will to
dispose of. The defendant corporation had a
fertilizer business before it entered into any
agreement with the plaintiff; plaintiff's
agreement was for a fixed period, five years,
and during that time the business was carried on
in the name of Menzi& Co., Inc., and in Menzi
& Co.'s warehouses and after the expiration of
plaintiff's contract Menzi & Co., Inc., continued
its fertilizer business, as it had a perfect right to
do. There was really nothing to which any good-
will could attach. Plaintiff maintains, however,
that the trade-marks used in the fertilizer
business during the time that he was connected
with it acquired great value, and that they have
been appropriated by the appellant to its own
use. That seems to be the only basis of the
alleged good-will, to which a fabulous valuation
was given. As we have seen, the trade-marks
were not new. They had been used by Behn,
Meyer & Co. in its business for other goods and
one of them for fertilizer. They belonged to
Menzi & Co., Inc., and were registered in its
name; only the expense of registering the
formulas in the Bureau of Science was charged
to the business in which the plaintiff was
interested. These trade-marks remained the
exclusive property of Menzi & Co., and the
plaintiff had no interest therein on the expiration
of his contract.

64

SECOND DIVISION
G.R. No. 126881, October 03, 2000
HEIRS OF TAN ENG KEE, PETITIONERS,
VS. COURT OF APPEALS AND BENGUET
LUMBER COMPANY, REPRESENTED BY
ITS PRESIDENT TAN ENG LAY,
RESPONDENTS.
DECISION
DE LEON, JR., J.:
In this petition for review on certiorari,
petitioners pray for the reversal of the
Decision[1] dated March 13, 1996 of the former
Fifth Division[2] of the Court of Appeals in CA-
G.R. CV No. 47937, the dispositive portion of
which states:
THE FOREGOING CONSIDERED, the
appealed decision is hereby set aside, and the
complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on
September 13, 1984, Matilde Abubo, the
common-law spouse of the decedent, joined by
their children Teresita, Nena, Clarita, Carlos,
Corazon and Elpidio, collectively known as
herein petitioners HEIRS OF TAN ENG KEE,
filed suit against the decedent's brother TAN
ENG LAY on February 19, 1990. The
complaint,[3] docketed as Civil Case No. 1983-R
in the Regional Trial Court of Baguio City was
for accounting, liquidation and winding up of
the alleged partnership formed after World War
II between Tan Eng Kee and Tan Eng Lay. On
March 18, 1991, the petitioners filed an
amended complaint[4] impleading private
respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay.
The amended complaint was admitted by the
trial court in its Order dated May 3, 1991.[5]
The amended complaint principally alleged that
after the second World War, Tan Eng Kee and
Tan Eng Lay, pooling their resources and
industry together, entered into a partnership
engaged in the business of selling lumber and
hardware and construction supplies. They
named their enterprise "Benguet Lumber" which
they jointly managed until Tan Eng Kee's death.
Petitioners herein averred that the business
prospered due to the hard work and thrift of the
alleged partners. However, they claimed that in
1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet
Lumber" into a corporation called "Benguet
Lumber Company." The incorporation was
purportedly a ruse to deprive Tan Eng Kee and
his heirs of their rightful participation in the
profits of the business. Petitioners prayed for
65
Full text : BusOrg I Cases 2018
accounting of the partnership assets, and the
dissolution, winding up and liquidation thereof,
and the equal division of the net assets of
Benguet Lumber.
After trial, Regional Trial Court of Baguio City,
Branch 7 rendered judgment[6] on April 12,
1995, to wit:
WHEREFORE, in view of all the foregoing,
judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint
adventure which is akin to a particular
partnership;
b) Declaring that the deceased Tan Eng Kee and
Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular
partnership called Benguet Lumber and as such
should share in the profits and/or losses of the
business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber
are the same assets turned over to Benguet
Lumber Co. Inc. and as such the heirs or legal
representatives of the deceased Tan Eng Kee
have a legal right to share in said assets;
d) Declaring that all the rights and obligations of
Tan Eng Kee as joint adventurer and/or as
partner in a particular partnership have
descended to the plaintiffs who are his legal
heirs.
e) Ordering the defendant Tan Eng Lay and/or
the President and/or General Manager of
Benguet Lumber Company Inc. to render an
accounting of all the assets of Benguet Lumber
Company, Inc. so the plaintiffs know their
proper share in the business;
f) Ordering the appointment of a receiver to
preserve and/or administer the assets of Benguet
Lumber Company, Inc. until such time that said
corporation is finally liquidated are directed to
submit the name of any person they want to be
appointed as receiver failing in which this Court
will appoint the Branch Clerk of Court or
another one who is qualified to act as such.
g) Denying the award of damages to the
plaintiffs for lack of proof except the expenses
in filing the instant case.
h) Dismissing the counter-claim of the
defendant for lack of merit.
SO ORDERED.
 Full text : BusOrg I Cases 2018

Private respondent sought relief before the EXISTENCE OF A PARTNERSHIP JUST

Court of Appeals which, on March 13, 1996, BECAUSE THERE WAS NO ARTICLES OF
rendered the assailed decision reversing the PARTNERSHIP DULY RECORDED BEFORE
judgment of the trial court. Petitioners' motion THE SECURITIES AND EXCHANGE
for reconsideration[7] was denied by the Court of COMMISSION:
Appeals in a Resolution[8] dated October 11, a. THAT THE FAMILIES OF TAN ENG
1996. KEE AND TAN ENG LAY WERE
ALL LIVING AT THE BENGUET
Hence, the present petition. LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND
As a side-bar to the proceedings, petitioners TAN ENG KEE WERE
filed Criminal Case No. 78856 against Tan Eng COMMANDING THE EMPLOYEES
Lay and Wilborn Tan for the use of allegedly OF BENGUET LUMBER;
falsified documents in a judicial proceeding. c. THAT BOTH TAN ENG KEE AND
Petitioners complained that Exhibits "4" to "4- TAN ENG LAY WERE SUPERVISING
U" offered by the defendants before the trial THE EMPLOYEES THEREIN;
court, consisting of payrolls indicating that Tan d. THAT TAN ENG KEE AND TAN ENG
Eng Kee was a mere employee of Benguet LAY WERE THE ONES
Lumber, were fake, based on the discrepancy in DETERMINING THE PRICES OF
the signatures of Tan Eng Kee. They also filed STOCKS TO BE SOLD TO THE
Criminal Cases Nos. 78857-78870 against PUBLIC; AND
Gloria, Julia, Juliano, Willie, Wilfredo, Jean, e. THAT TAN ENG LAY AND TAN
Mary and Willy, all surnamed Tan, for alleged ENG KEE WERE THE ONES
falsification of commercial documents by a MAKING ORDERS TO THE
private individual. On March 20, 1999, the SUPPLIERS (PAGE 18, DECISION).
Municipal Trial Court of Baguio City, Branch 1, IV. THE HONORABLE COURT OF
wherein the charges were filed, rendered APPEALS ERRED IN HOLDING THAT
judgment[9] dismissing the cases for THERE WAS NO PARTNERSHIP JUST
insufficiency of evidence. BECAUSE THE CHILDREN OF THE LATE
TAN ENG KEE: ELPIDIO TAN AND
In their assignment of errors, petitioners claim VERONICA CHOI, TOGETHER WITH
that: THEIR WITNESS BEATRIZ TANDOC,
I. THE HONORABLE COURT OF APPEALS ADMITTED THAT THEY DO NOT KNOW
ERRED IN HOLDING THAT THERE WAS WHEN THE ESTABLISHMENT KNOWN IN
NO PARTNERSHIP BETWEEN THE LATE BAUGIO CITY AS BENGUET LUMBER
TAN ENG KEE AND HIS BROTHER TAN WAS STARTED AS A PARTNERSHIP
ENG LAY BECAUSE: (A) THERE WAS NO (PAGE 16-17, DECISION).
FIRM ACCOUNT; (B) THERE WAS NO V. THE HONORABLE COURT OF
FIRM LETTERHEADS SUBMITTED AS APPEALS ERRED IN HOLDING THAT
EVIDENCE; (C) THERE WAS NO THERE WAS NO PARTNERSHIP BETWEEN
CERTIFICATE OF PARTNERSHIP; (D) THE LATE TAN ENG KEE AND HIS
THERE WAS NO AGREEMENT AS TO BROTHER TAN ENG LAY BECAUSE THE
PROFITS AND LOSSES; AND (E) THERE PRESENT CAPITAL OR ASSETS OF
WAS NO TIME FIXED FOR THE BENGUET LUMBER IS DEFINITELY MORE
DURATION OF THE PARTNERSHIP (PAGE THAN P3,000.00 AND AS SUCH THE
13, DECISION). EXECUTION OF A PUBLIC INSTRUMENT
II. THE HONORABLE COURT OF APPEALS CREATING A PARTNERSHIP SHOULD
ERRED IN RELYING SOLELY ON THE HAVE BEEN MADE AND NO SUCH
SELF-SERVING TESTIMONY OF PUBLIC INSTRUMENT ESTABLISHED BY
RESPONDENT TAN ENG LAY THAT THE APPELLEES (PAGE 17, DECISION).
BENGUET LUMBER WAS A SOLE As a premise, we reiterate the oft-repeated rule
PROPRIETORSHIP AND THAT TAN ENG that findings of facts of the Court of Appeals
KEE WAS ONLY AN EMPLOYEE will not be disturbed on appeal if such are
THEREOF. supported by the evidence.[10] Our jurisdiction, it
III. THE HONORABLE COURT OF must be emphasized, does not include review of
APPEALS ERRED IN HOLDING THAT THE factual issues. Thus:
FOLLOWING FACTS WHICH WERE DULY Filing of petition with Supreme Court.-A party
SUPPORTED BY EVIDENCE OF BOTH desiring to appeal by certiorari from a judgment
PARTIES DO NOT SUPPORT THE or final order or resolution of the Court of

66

Appeals, the Sandiganbayan, the Regional Trial
Court or other courts whenever authorized by
law, may file with the Supreme Court a verified
petition for review on certiorari. The petition
shall raise only questions of law which must be
distinctly set forth.[11] [italics supplied]
Admitted exceptions have been recognized,
though, and when present, may compel us to
analyze the evidentiary basis on which the lower
court rendered judgment. Review of factual
issues is therefore warranted:
(1) when the factual findings of the Court of
Appeals and the trial court are contradictory;
(2) when the findings are grounded entirely on
speculation, surmises, or conjectures;
(3) when the inference made by the Court of
Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in
the appreciation of facts;
(5) when the appellate court, in making its
findings, goes beyond the issues of the case, and
such findings are contrary to the admissions of
both appellant and appellee;
(6) when the judgment of the Court of Appeals
is premised on a misapprehension of facts;
(7) when the Court of Appeals fails to notice
certain relevant facts which, if properly
considered, will justify a different conclusion;
(8) when the findings of fact are themselves
conflicting;
(9) when the findings of fact are conclusions
without citation of the specific evidence on
which they are based; and
(10) when the findings of fact of the Court of
Appeals are premised on the absence of
evidence but such findings are contradicted by
the evidence on record.[12]
In reversing the trial court, the Court of Appeals
ruled, to wit:
We note that the Court a quo over extended the
issue because while the plaintiffs mentioned
only the existence of a partnership, the Court in
turn went beyond that by justifying the
existence of a joint adventure.
When mention is made of a joint adventure, it
would presuppose parity of standing between
the parties, equal proprietary interest and the
exercise by the parties equally of the conduct of
the business, thus:
xxx xxx xxx xxx
We have the admission that the father of the
plaintiffs was not a partner of the Benguet
Lumber before the war. The appellees however
argued that (Rollo, p. 104; Brief, p. 6) this is
because during the war, the entire stocks of the
pre-war Benguet Lumber were confiscated if not
67
Full text : BusOrg I Cases 2018
burned by the Japanese. After the war, because
of the absence of capital to start a lumber and
hardware business, Lay and Kee pooled the
proceeds of their individual businesses earned
from buying and selling military supplies, so
that the common fund would be enough to form
a partnership, both in the lumber and hardware
business. That Lay and Kee actually established
the Benguet Lumber in Baguio City, was even
testified to by witnesses. Because of the pooling
of resources, the post-war Benguet Lumber was
eventually established. That the father of the
plaintiffs and Lay were partners, is obvious
from the fact that: (1) they conducted the affairs
of the business during Kee's lifetime, jointly, (2)
they were the ones giving orders to the
employees, (3) they were the ones preparing
orders from the suppliers, (4) their families
stayed together at the Benguet Lumber
compound, and (5) all their children were
employed in the business in different capacities.
xxx xxx xxx xxx
It is obvious that there was no partnership
whatsoever. Except for a firm name, there was
no firm account, no firm letterheads submitted
as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time
fixed for the duration of the partnership. There
was even no attempt to submit an accounting
corresponding to the period after the war until
Kee's death in 1984. It had no business book, no
written account nor any memorandum for that
matter and no license mentioning the existence
of a partnership [citation omitted].
Also, the exhibits support the establishment of
only a proprietorship. The certification dated
March 4, 1971, Exhibit "2", mentioned co-
defendant Lay as the only registered owner of
the Benguet Lumber and Hardware. His
application for registration, effective 1954, in
fact mentioned that his business started in 1945
until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an
employee of the Benguet Lumber Company, on
the basis of his SSS coverage effective 1958,
Exhibit "3". In the Payrolls, Exhibits "4" to "4-
U", inclusive, for the years 1982 to 1983, Kee
was similarly listed only as an employee;
precisely, he was on the payroll listing. In the
Termination Notice, Exhibit "5", Lay was
mentioned also as the proprietor.
xxx xxx xxx xxx
We would like to refer to Arts. 771 and 772,
NCC, that a partner [sic] may be constituted in
any form, but when an immovable is
constituted, the execution of a public instrument

becomes necessary. This is equally true if the
capitalization exceeds P3,000.00, in which case
a public instrument is also necessary, and which
is to be recorded with the Securities and
Exchange Commission. In this case at bar, we
can easily assume that the business
establishment, which from the language of the
appellees, prospered (pars. 5 & 9, Complaint),
definitely exceeded P3,000.00, in addition to the
accumulation of real properties and to the fact
that it is now a compound. The execution of a
public instrument, on the other hand, was never
established by the appellees.
And then in 1981, the business was incorporated
and the incorporators were only Lay and the
members of his family. There is no proof either
that the capital assets of the partnership,
assuming them to be in existence, were
maliciously assigned or transferred by Lay,
supposedly to the corporation and since then
have been treated as a part of the latter's capital
assets, contrary to the allegations in pars. 6, 7
and 8 of the complaint.
These are not evidences supporting the
existence of a partnership:
1) That Kee was living in a bunk house just
across the lumber store, and then in a room in
the bunk house in Trinidad, but within the
compound of the lumber establishment, as
testified to by Tandoc; 2) that both Lay and Kee
were seated on a table and were "commanding
people" as testified to by the son, Elpidio Tan;
3) that both were supervising the laborers, as
testified to by Victoria Choi; and 4) that
Dionisio Peralta was supposedly being told by
Kee that the proceeds of the 80 pieces of the
G.I. sheets were added to the business.
Partnership presupposes the following elements
[citation omitted]: 1) a contract, either oral or
written. However, if it involves real property or
where the capital is P3,000.00 or more, the
execution of a contract is necessary; 2) the
capacity of the parties to execute the contract; 3)
money property or industry contribution; 4)
community of funds and interest, mentioning
equality of the partners or one having a
proportionate share in the benefits; and 5)
intention to divide the profits, being the true test
of the partnership. The intention to join in the
business venture for the purpose of obtaining
profits thereafter to be divided, must be
established. We cannot see these elements from
the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and
differed from the trial court which had adjudged
68
Full text : BusOrg I Cases 2018
that TAN ENG KEE and TAN ENG LAY had
allegedly entered into a joint adventure. In this
connection, we have held that whether a
partnership exists is a factual matter;
consequently, since the appeal is brought to us
under Rule 45, we cannot entertain inquiries
relative to the correctness of the assessment of
the evidence by the court a quo.[13] Inasmuch as
the Court of Appeals and the trial court had
reached conflicting conclusions, perforce we
must examine the record to determine if the
reversal was justified.
The primordial issue here is whether Tan Eng
Kee and Tan Eng Lay were partners in Benguet
Lumber. A contract of partnership is defined by
law as one where:
xxx two or more persons bind themselves to
contribute money, property, or industry to a
common fund, with the intention of dividing the
profits among themselves.
Two or more persons may also form a
partnership for the exercise of a profession.[14]
Thus, in order to constitute a partnership, it must
be established that (1) two or more persons
bound themselves to contribute money,
property, or industry to a common fund, and (2)
they intend to divide the profits among
themselves.[15] The agreement need not be
formally reduced into writing, since statute
allows the oral constitution of a partnership,
save in two instances: (1) when immovable
property or real rights are contributed,[16] and (2)
when the partnership has a capital of three
thousand pesos or more.[17] In both cases, a
public instrument is required.[18] An inventory to
be signed by the parties and attached to the
public instrument is also indispensable to the
validity of the partnership whenever immovable
property is contributed to the partnership.[19]
The trial court determined that Tan Eng Kee and
Tan Eng Lay had entered into a joint adventure,
which it said is akin to a particular
partnership.[20] A particular partnership is
distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept
similar to our joint accounts) is a sort of
informal partnership, with no firm name and
no legal personality. In a joint account, the
participating merchants can transact business
under their own name, and can be
individually liable therefor.
(b)Usually, but not necessarily a joint adventure
is limited to a SINGLE TRANSACTION,
although the business of pursuing to a
successful termination may continue for a
number of years; a partnership generally

relates to a continuing business of various
transactions of a certain kind.[21]
A joint adventure "presupposes generally a
parity of standing between the joint co-ventures
or partners, in which each party has an equal
proprietary interest in the capital or property
contributed, and where each party exercises
equal rights in the conduct of the business."[22]
Nonetheless, in Aurbach, et. al. v. Sanitary
Wares Manufacturing Corporation, et. al.,[23] we
expressed the view that a joint adventure may be
likened to a particular partnership, thus:
The legal concept of a joint adventure is of
common law origin. It has no precise legal
definition, but it has been generally understood
to mean an organization formed for some
temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is hardly distinguishable
from the partnership, since their elements are
similar-community of interest in the business,
sharing of profits and losses, and a mutual right
of control. (Blackner v. McDermott, 176 F. 2d.
498, [1949]; Carboneau v. Peterson, 95 P.2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d.
183, 288 P.2d. 12 289 P.2d. 242 [1955]). The
main distinction cited by most opinions in
common law jurisdiction is that the partnership
contemplates a general business with some
degree of continuity, while the joint adventure is
formed for the execution of a single transaction,
and is thus of a temporary nature. (Tufts v.
Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931];
Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266 Fed. 811
[1920]). This observation is not entirely
accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or
universal, and a particular partnership may have
for its object a specific undertaking. (Art. 1783,
Civil Code). It would seem therefore that under
Philippine law, a joint adventure is a form of
partnership and should thus be governed by the
law of partnerships. The Supreme Court has
however recognized a distinction between these
two business forms, and has held that although a
corporation cannot enter into a partnership
contract, it may however engage in a joint
adventure with others. (At p. 12, Tuazon v.
Bolaños, 95 Phil. 906 [1954]) (Campos and
Lopez-Campos Comments, Notes and Selected
Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have
been the contract of partnership itself, or the
articles of partnership but there is none. The
alleged partnership, though, was never formally
organized. In addition, petitioners point out that
the New Civil Code was not yet in effect when
the partnership was allegedly formed sometime
in 1945, although the contrary may well be
69
Full text : BusOrg I Cases 2018
argued that nothing prevented the parties from
complying with the provisions of the New Civil
Code when it took effect on August 30, 1950.
But all that is in the past. The net effect,
however, is that we are asked to determine
whether a partnership existed based purely on
circumstantial evidence. A review of the record
persuades us that the Court of Appeals correctly
reversed the decision of the trial court. The
evidence presented by petitioners falls short of
the quantum of proof required to establish a
partnership.
Unfortunately for petitioners, Tan Eng Kee has
passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of
the business relationship between them. In the
absence of evidence, we cannot accept as an
established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for
the purpose of establishing a partnership. The
testimonies to that effect of petitioners'
witnesses is directly controverted by Tan Eng
Lay. It should be noted that it is not with the
number of witnesses wherein preponderance
lies;[24] the quality of their testimonies is to be
considered. None of petitioners' witnesses could
suitably account for the beginnings of Benguet
Lumber Company, except perhaps for Dionisio
Peralta whose deceased wife was related to
Matilde Abubo.[25] He stated that when he met
Tan Eng Kee after the liberation, the latter asked
the former to accompany him to get 80 pieces of
G.I. sheets supposedly owned by both
brothers.[26] Tan Eng Lay, however, denied
knowledge of this meeting or of the
conversation between Peralta and his brother.[27]
Tan Eng Lay consistently testified that he had
his business and his brother had his, that it was
only later on that his said brother, Tan Eng Kee,
came to work for him. Be that as it may, co-
ownership or co-possession (specifically here,
of the G.I. sheets) is not an indicium of the
existence of a partnership.[28]
Besides, it is indeed odd, if not unnatural, that
despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked
for an accounting. The essence of a partnership
is that the partners share in the profits and
losses.[29] Each has the right to demand an
accounting as long as the partnership exists.[30]
We have allowed a scenario wherein "[i]f
excellent relations exist among the partners at
the start of the business and all the partners are
more interested in seeing the firm grow rather
than get immediate returns, a deferment of
sharing in the profits is perfectly plausible."[31]
But in the situation in the case at bar, the

deferment, if any, had gone on too long to be
plausible. A person is presumed to take ordinary
care of his concerns.[32] As we explained in
another case:
In the first place, plaintiff did not furnish the
supposed P20,000.00 capital. In the second
place, she did not furnish any help or
intervention in the management of the theatre.
In the third place, it does not appear that she
has even demanded from defendant any
accounting of the expenses and earnings of the
business. Were she really a partner, her first
concern should have been to find out how the
business was progressing, whether the expenses
were legitimate, whether the earnings were
correct, etc. She was absolutely silent with
respect to any of the acts that a partner should
have done; all that she did was to receive her
share of P3,000.00 a month, which cannot be
interpreted in any manner than a payment for
the use of the premises which she had leased
from the owners. Clearly, plaintiff had always
acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which
shows that both parties considered this offer as
the real contract between them.[33] [italics
supplied]
A demand for periodic accounting is evidence
of a partnership.[34] During his lifetime, Tan Eng
Kee appeared never to have made any such
demand for accounting from his brother, Tang
Eng Lay.
This brings us to the matter of Exhibits "4" to
"4-U" for private respondents, consisting of
payrolls purporting to show that Tan Eng Kee
was an ordinary employee of Benguet Lumber,
as it was then called. The authenticity of these
documents was questioned by petitioners, to the
extent that they filed criminal charges against
Tan Eng Lay and his wife and children. As
aforesaid, the criminal cases were dismissed for
insufficiency of evidence. Exhibits "4" to "4-U"
in fact shows that Tan Eng Kee received sums
as wages of an employee. In connection
therewith, Article 1769 of the Civil Code
provides:
In determining whether a partnership exists,
these rules shall apply:
(1) Except as provided by Article 1825, persons
who are not partners as to each other are not
partners as to third persons;
(2) Co-ownership or co-possession does not of
itself establish a partnership, whether such co-
owners or co-possessors do or do not share any
profits made by the use of the property;
70
Full text : BusOrg I Cases 2018
(3) The sharing of gross returns does not of
itself establish a partnership, whether or not the
persons sharing them have a joint or common
right or interest in any property which the
returns are derived;
(4) The receipt by a person of a share of the
profits of a business is prima facie evidence that
he is a partner in the business, but no such
inference shall be drawn if such profits were
received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a
landlord;
(b) As an annuity to a widow or
representative of a deceased partner;
(d) As interest on a loan, though the amount
of payment vary with the profits of the business;
(e) As the consideration for the sale of a
goodwill of a business or other property by
installments or otherwise.
In the light of the aforequoted legal provision,
we conclude that Tan Eng Kee was only an
employee, not a partner. Even if the payrolls as
evidence were discarded, petitioners would still
be back to square one, so to speak, since they
did not present and offer evidence that would
show that Tan Eng Kee received amounts of
money allegedly representing his share in the
profits of the enterprise. Petitioners failed to
show how much their father, Tan Eng Kee,
received, if any, as his share in the profits of
Benguet Lumber Company for any particular
period. Hence, they failed to prove that Tan Eng
Kee and Tan Eng Lay intended to divide the
profits of the business between themselves,
which is one of the essential features of a
partnership.
Nevertheless, petitioners would still want us to
infer or believe the alleged existence of a
partnership from this set of circumstances: that
Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were
supervising the employees; that both were the
ones who determined the price at which the
stocks were to be sold; and that both placed
orders to the suppliers of the Benguet Lumber
Company. They also point out that the families
of the brothers Tan Eng Kee and Tan Eng Lay
lived at the Benguet Lumber Company
compound, a privilege not extended to its
ordinary employees.
 Full text : BusOrg I Cases 2018

employees. He would have enjoyed liberties

However, private respondent counters that:
Petitioners seem to have missed the point in
asserting that the above enumerated powers and
privileges granted in favor of Tan Eng Kee,
were indicative of his being a partner in Benguet
Lumber for the following reasons:
(i) even a mere supervisor in a company, factory
or store gives orders and directions to his
subordinates. So long, therefore, that an
employee's position is higher in rank, it is not
unusual that he orders around those lower in
rank.
(ii) even a messenger or other trusted employee,
over whom confidence is reposed by the owner,
can order materials from suppliers for and in
behalf of Benguet Lumber. Furthermore, even a
partner does not necessarily have to perform this
particular task. It is, thus, not an indication that
Tan Eng Kee was a partner.
otherwise unavailable were he not kin, such as
his residence in the Benguet Lumber Company
compound. He would have moral, if not actual,
superiority over his fellow employees, thereby
entitling him to exercise powers of supervision.
It may even be that among his duties is to place
orders with suppliers. Again, the circumstances
proffered by petitioners do not provide a logical
nexus to the conclusion desired; these are not
inconsistent with the powers and duties of a
manager, even in a business organized and run
as informally as Benguet Lumber Company.
There being no partnership, it follows that there
is no dissolution, winding up or liquidation to
speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied,
and the appealed decision of the Court of
Appeals is hereby AFFIRMED in toto. No
pronouncement as to costs.

(iii) although Tan Eng Kee, together with his SO ORDERED.

family, lived in the lumber compound and this
privilege was not accorded to other employees,
the undisputed fact remains that Tan Eng Kee is
the brother of Tan Eng Lay. Naturally, close
personal relations existed between them.
Whatever privileges Tan Eng Lay gave his
brother, and which were not given the other
employees, only proves the kindness and
generosity of Tan Eng Lay towards a blood
relative.

(iv) and even if it is assumed that Tan Eng Kee

was quarrelling with Tan Eng Lay in connection
with the pricing of stocks, this does not
adequately prove the existence of a partnership
relation between them. Even highly confidential
employees and the owners of a company
sometimes argue with respect to certain matters
which, in no way indicates that they are partners
as to each other.[35]
In the instant case, we find private respondent's
arguments to be well-taken. Where
circumstances taken singly may be inadequate
to prove the intent to form a partnership,
nevertheless, the collective effect of these
circumstances may be such as to support a
finding of the existence of the parties' intent.[36]
Yet, in the case at bench, even the aforesaid
circumstances when taken together are not
persuasive indicia of a partnership. They only
tend to show that Tan Eng Kee was involved in
the operations of Benguet Lumber, but in what
capacity is unclear. We cannot discount the
likelihood that as a member of the family, he
occupied a niche above the rank-and-file

71

FIRST DIVISION
G.R. No. 127405, September 20, 2001
MARJORIE TOCAO AND WILLIAM T.
BELO, PETITIONERS, VS. COURT OF
APPEALS AND NENITA A. ANAY,
RESPONDENTS.
RESOLUTION
YNARES-SANTIAGO, J.:
The inherent powers of a Court to amend and
control its processes and orders so as to make
them conformable to law and justice includes
the right to reverse itself, especially when in its
honest opinion it has committed an error or
mistake in judgment, and that to adhere to its
decision will cause injustice to a party litigant.[1]
On November 14, 2001, petitioners Marjorie
Tocao and William T. Belo filed a Motion for
Reconsideration of our Decision dated October
4, 2000. They maintain that there was no
partnership bettween petitioner Belo, on the one
hand, and respondent Nenita A. Anay, on the
other hand; and that the latter being merely an
employee of petitioner Tocao.
After a careful review of the evidence presented,
we are convinced that, indeed, petitioner Belo
acted merely as guarantor of Geminesse
Enterprise. This was categorically affirmed by
respondent's own witness, Elizabeth Bantilan,
during her cross-examination. Furthermore,
Bantilan testified that it was Peter Lo who was
the company's financier. Thus:
Q You mentioned a while ago the name William
Belo. Now, what is the role of William Belo
with Geminesse Enterprise?
A William Belo is the friend of Marjorie Tocao
and he was the guarantor of the company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes
somebody who is Peter Lo and he acts as
guarantor for us. We can borrow money from
him.
Q You mentioned a certain Peter Lo. Who is
this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the Geminesse
Enterprise?
A He is the one fixing our orders that open the
L/C.
Q You mean Peter Lo is the financier?
A Yes, he is the financier.
Q And the defendant William Belo is merely the
guarantor of Geminesse Enterprise, am I
correct?
A Yes, sir.[2]
The foregoing was neither refuted nor
contradicted by respondent's evidence. It should
72
Full text : BusOrg I Cases 2018
be recalled that the business relationship created
between petitioner Tocao and respondent Anay
was an informal partnership, which was not
even recorded with the Securities and Exchange
Commission. As such, it was understandable
that Belo, who was after all petitioner Tocao's
good friend and confidante, would occasionally
participate in the affairs of the business,
although never in a formal or official capacity.[3]
Again, respondent's witness, Elizabeth Bantilan,
confirmed that petitioner Belo's presence in
Geminesse Enterprise's meetings was merely as
guarantor of the company and to help petitioner
Tocao.[4]
Furthermore, no evidence was presented to
show that petitioner Belo participated in the
profits of the business enterprise. Respondent
herself professed lack of knowledge that
petitioner Belo received any share in the net
income of the partnership.[5] On the other hand,
petitioner Tocao declared that petitioner Belo
was not entitled to any share in the profits of
Geminesse Enterprise.[6] With no participation
in the profits, petitioner Belo cannot be deemed
a partner since the essence of a partnership is
that the partners share in the profits and
losses.[7]
Consequently, inasmuch as petitioner Belo was
not a partner in Geminesse Enterprise,
respondent had no cause of action against him
and her complaint against him should
accordingly be dismissed.
As regards the award of damages, petitioners
argue that respondent should be deemed in bad
faith for failing to account for stocks of
Geminesse Enterprise amounting to
P208,250.00 and that, accordingly, her claim for
damages should be barred to that extent. We do
not agree. Given the circumstances surrounding
private respondent's sudden ouster from the
partnership by petitioner Tocao, her act of
withholding whatever stocks were in her
possession and control was justified, if only to
serve as security for her claims against the
partnership. However, while we do not agree
that the same renders private respondent in bad
faith and should bar her claim for damages, we
find that the said sum of P208,250.00 should be
deducted from whatever amount is finally
adjudged in her favor on the basis of the formal
account of the partnership affairs to be
submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the
Motion for Reconsideration of petitioners is
PARTIALLY GRANTED. The Regional Trial
 Full text : BusOrg I Cases 2018

Court of Makati is hereby ordered to DISMISS

the complaint, docketed as Civil Case No. 88-
509, as against petitioner William T. Belo only.
The sum of P208,250.00 shall be deducted from
whatever amount petitioner Marjorie Tocao
shall be held liable to pay respondent after the
formal accounting of the partnership affairs.

SO ORDERED.

73

G.R. No. L-12541, August 28, 1959
ROSARIO U. YULO, ASSISTED BY HER
HUSBAND JOSE C. YULO, PLAINTIFFS
AND APPELLANTS, VS. YANG CHIAO
SENG, DEFENDANT AND APPELLEE.
DECISION
LABRADOR, J.:
Appeal from the judgment of the Court of First
Instance of Manila, Hon. Bienvenido A. Tan,
presiding, dismissing plaintiff's complaint as
well as defendant's counterclaim. The appeal is
prosecuted by plaintiff.
The record discloses that on June 17, 1945,
defendant Yang Chiao Seng wrote a letter to the
plaintiff Mrs. Rosario U. Yulo, proposing the
formation of a partnership between them to run
and operate a theatre on the premises occupied
by former Cine Oro afc Plaza Sta. Cruz, Manila.
The principal conditions of the offer are (1) that
Yang Chiao Seng guarantees Mrs. Yulo a
monthly participation of P3,000, payable
quarterly in advance within the first 15 days of
each quarter, (2) that the partnership shall be for
a period of two years and six months, starting
from July 1, 1945 to December 31, 1947, with
the condition that if the land is expropriated or
rendered impracticable for the business, or if the
owner constructs a permanent building thereon,
or Mrs. Yulo's right of lease is terminated by the
owner, then the partnership shall be terminated
even if the period for which the partnership was
agreed to be established has not yet expired; (3)
that Mrs. Yulo is authorized personally to
conduct such business in the lobby of the
building as is ordinarily carried on in lobbies of
theatres in operation, provided the said business
may not obstruct the free ingress and egrees of
patrons of the theatre; (4) that after December
31, 1947, all improvements placed by the
partnership shall belong to Mrs. Yulo, but that if
the partnership agreement is terminated before
the lapse of one and a half years period under
any of the causes mentioned in paragraph (2),
then Yang Chiao Seng shall have the right to
remove and take away all improvements that the
partnership may place in the premises.
Pursuant to the above offer, which plaintiff
evidently accepted, the parties executed a
partnership agreement establishing the "Yang &
Company, Limited," which was to exist from
July 1, 1945 to December 31, 1947. It states that
it will conduct and carry on the business of
operating a theatre for the exhibition of motion
and talking pictures. The capital is fixed at
P100,000, P80,000 of which is to be furnished
by Yang Chiao Seng and P20,000, by Mrs.
Yulo. All gains and profits are to be distributed
among the partners in the same proportion as
74
Full text : BusOrg I Cases 2018
their capital contribution, and the liability of
Mrs. Yulo, in case of loss, shall be limited to her
capital contribution (Exh. "B'").
In June, 1946, they executed a supplementary
agreement, extending the partnership for a
period of three years beginning January 1, 1948
to December 31, 1950. The benefits are to be
divided between them at the rate of 50-50 and
after December 31, 1950, the showhouse
building shall belong exclusively to the second
party, Mrs. Yulo.
The land on which the theatre was constructed
was leased by plaintiff Mrs. Yulo from Emilia
Carrion Santa Marina and Maria Carrion Santa
Marina. In the contract of lease it was stipulated
that the lease shall continue for an indefinite
period of time, but that after one year the lease
may be cancelled by either party by written
notice to the other party at least 90 days before
the date of cancellation. The last contract was
executed between the owners and Mrs. Yulo on
April 5, 1948. But on April 12, 1949, the the
attorney for the owners notified Mrs. Yulo of
the owner's desire to cancel the contract of lease
on July 31, 1949. In view of the above notice,
Mrs. Yulo and her husband brought a civil
action in the Court of First Instance of Manila
on July 3, 1949 to declare the lease of the
premises one for an indefinite period. On
August 17, 1949, the owners on their part
brought an action in the Municipal Court of
Manila against Mrs. Yulo and her husband and
Yang Chiao Seng to eject them from the
premises. On February 9, 1950, the Municipal
Court of Manila rendered judgment ordering the
ejectment of Mrs. Yulo and Mr. Yang. The
judgment was appealed. In the Court, of First
Instance, the two cases were afterwards heard
jointly, and judgment was rendered dismissing
the complaint of Mrs. Yulo and her husband,
and declaring the contract of lease of the
premises terminated as of July 31, 1949, and
fixing the reasonable monthly rentals of said
premises at P100. Both parties appealed from
said decision and the Court of Appeals, on April
30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded
from Yang Chiao Seng her share in the profits
of the business. Yang answered the letter saying
that upon the advice of his counsel he had to
suspend the payment (of the rentals) because of
the pendency of the ejectment suit by the
owners of the land against Mrs. Yulo. In this
letter Yang alleges that inasmuch as he is a
sublessee and inasmuch as Mrs. Yulo has not
paid to the lessors the rentals from August,
1949, he was retaining the rentals to make good
to the landowners the rentals due from Mrs.
Yulo in arrears (Exh. "E").

In view of the refusal of Yang to pay to her the
amount agreed upon, Mrs. Yulo instituted this
action on May 26, 1954, alleging the existence
of a partnership between them, and that
defendant Yang Chiao Seng has refused to pay
her share from December, 1949 to December,
,1950; that after December 81, 1950 the
partnership between Mrs. Yulo and Yang
terminated, as a result of which, plaintiff
became the absolute owner of the building
occupied by the Cine Astor; that the reasonable
rental that the defendant should pay therefor
from January, 1951 is P5,000; that the defendant
has acted maliciously and refuses to pay the
participation of the plaintiff in the profits of the
business amounting to P35,000 from November,
1949 to October, 1950, and that as a result of
such bad faith and malice on the part of the
defendant, Mrs. Yulo has suffered damages in
the amount of P160,000 and exemplary
damages to the extent of P5,000. The prayer
includes a demand for the payment of the above
sums plus the sum of P10,000 for attorney's
fees.
In answer to the complaint, defendant alleges
that the real agreement between the plaintiff and
the defendant was one of lease and not of
partnership; that the partnership was adopted as
a subterfuge to get around the prohibition
contained in the contract of lease between the
owners and the plaintiff against the sublease of
the said property. As to the other claims, he
denies the same and alleges that the fair rental
value of the land is only P1,100. By way of
counterclaim he alleges that by reason of an
attachment issued against the properties of the
defendant the latter has suffered damages
amounting to P100,000.
The first hearing was had on April 19, 1955, at
which time only the plaintiff appeared. The
court heard evidence of the plaintiff in the
absence of the defendant and thereafter rendered
judgment ordering the defendant to pay to the
plaintiff P41,000 for her participation in the
business up to December, 1950; P5,000 as
monthly rental for the use and occupation of the
building from January 1, 1951 until defendant
vacates the same, and P300 for the use and
occupation of the lobby from July 1, 1945 until
defendant vacates the property. This decision,
however, was set aside on a motion for
reconsideration. In said motion it is claimed that
defendant failed to appear at the hearing
because of his honest belief that a joint petition
for postponement filed by both parties, in view
of a possible amicable settlement, would be
granted; that in view of the decision of the Court
of Appeals in two previous cases between the
owners of the land and the plaintiff Rosario
75
Full text : BusOrg I Cases 2018
Yulo, the plaintiff has no right to claim the
alleged participation in the profits of the
business, etc. The court, finding the above
motion well-founded, set aside its decision and a
new trial was held. After trial the court rendered
the decision making the following findings: that
it is not true that a partnership was created
between the plaintiff and the defendant because
defendant has not actually contributed the sum
mentioned in the Articles of Partnership, or any
other amount; that the real agreement between
the plaintiff and the defendant is not one of
partnership but one of lease for the reason that
under the agreement the plaintiff did not share
either in the profits or in the losses of the
business as required by Article 1769 of the Civil
Code; and that the fact that plaintiff was granted
a "guaranteed participation" in the profits also
belies the supposed existence of a partnership
between them. It, therefore, denied plaintiff's
claim for damages or supposed participation in
the profits.
As to her claim for damages for the refusal of
the defendant to allow the use of the supposed
lobby of the theatre, the court after ocular
inspection found that the said lobby was a very
narrow space leading to the balcony of the
theatre which could not be used for business
purposes under existing ordinances of the City
of Manila because it would constitute a hazard
and danger to the patrons of the theatre. The
court, therefore, dismissed the complaint; so did
it dismiss the defendant's counter-claim, on the
ground that defendant failed to present sufficient
evidence to sustain the same. It is against this
decision that the appeal has been prosecuted by
plaintiff to this Court.
The first assignment of error imputed to the trial
court is its order setting aside its former decision
and allowing a new trial. This assignment of
error is without merit. As the parties had agreed
to postpone the trial because of a probable
amicable settlement, the plaintiff could not take
advantage of defendant's absence at the time
fixed for the hearing. The lower court, therefore,
did not err in setting aside its former judgment.
The final result of the hearing shown by the
decision indicates that the setting aside of the
previous decision was in the interest of justice.
In the second assignment of error plaintiff-
appellant claims that the lower court erred in not
striking out the evidence offered by defendant-
appellee to prove that the relation between him
and the plaintiff is one of sublease and not of
partnership. The action of the lower court in
admitting evidence is justified by the express
allegation in the defendant's answer that the
agreement set forth in the complaint was one of
lease and not of partnership, and that the
 Full text : BusOrg I Cases 2018

partnership formed was adopted in view of a

prohibition contained in plaintiff's lease against
a sublease of the property.
The most important issue raised in the appeal is
that contained in the fourth assignment of error,
to the effect that the lower court erred in holding
that the written contracts, Exhs. "A", "B", and
"C, between plaintiff and defendant, are one of
lease and not one 6f partnership. We have gone
over the evidence and we fully agree with the
conclusion of the trial court that the agreement
was a sublease, not a partnership. The following
are the requisites of partnership: (1) two or more
persons who bind themselves to contribute
money, property, or industry to a common fund;
(2) intention on the part of the partners to divide
the profits among themselves. (Art. 1767, Civil
Code.)
In the first place, plaintiff did not furnish the
supposed P20,000 capital. In the second place,
she did not furnish any help or intervention in
the management of the theatre. In the third
place, it does not appear that she has ever
demanded from defendant any accounting of the
expenses and earnings of the business. Were she
really a partner, her first concern should have
been to find out how the business was
progressing, whether the expenses were
legitimate, whether the earnings were correct,
etc. She was absolutely silent with respect to
any of the acts that a partner should have done;
all that she did was to receive her share of
P3,000 a month, which can not be interpreted in
any manner than a payment for the use of the
premises which she had leased from the owners.
Clearly, plaintiff had always acted in
accordance with the original letter of defendant
of June 17,1945 (Exh. "A"), which shows that
both parties considered this offer as the real
contract between them.
Plaintiff claims the sum of P41,000 as
representing her share or participation in the
business from December, 1949. But the original
letter of the defendant, Exh. "A", expressly
states that the agreement between the plaintiff
and the defendant was to end upon the
termination of the right of the plaintiff to the
lease. Plaintiff's right having terminated in July,
1949 as found by the Court of Appeals, the
partnership agreement or the agreement for her
to receive a participation of P3,000
automatically ceased as of said date.
We find no error in the judgment of the court
below and we affirm it in toto, with costs
against plaintiff-appellant.

76
 Full text : BusOrg I Cases 2018

G.R. No. L-12541, March 30, 1960 action is between Rosario U. Yulo as plaintiff
ROSARIO U. YULO, ASSISTED BY HER and Yang Chiao Seng as defendant; the issue is
HUSBAND JOSE C. YULO, PLAINTIFFS whether or not the plaintiff is partner in the
AND APPELLANTS, VS. YANG CHIAO cinematograph business, as claimed by plaintiff,
SENG, DEFENDANT AND APPELLEE. or said plaintiff is merely a sublessee, as
claimed by the defendant. There is, therefore, no
RESOLUTION identity of parties nor identity of issue, nor
LABRADOR, J.: identity of cause of action. We call attention to
This concerns a "Petition to Reopen Case," the very citation contained in appellant's motion
dated December 14, 1959, presented by for reconsideration,, which reads as follows:
attorneys for plaintiffs-appellants, alleging that "Parties to a judgment are not bound by it, in a
the relationship between Rosario U. Yulo, subsequent controversy between each other,
plaintiff-appellant and Yang Chiao Seng, unless they were adversary parties in the
defendant-appellee, as lessor and lessee, has original action. There must have been an issue
already been definitely decided by the Court of or controversy between them. The reason for
Appeals in the case of Sta. Marina, et al., and this rule obviously is the same as that which
Rosario U. Yulo and Yang Chiao Seng, C. A. G. underlies the whole doctrine of res judicata,
R. No. 8143-R. We have gone out of our way to namely, that a person should not be bound by a
review our conclusion that no relation of judgment except to the extent that he, or
partnership existed between said parties because someone representing him, had an adequate
we had denied the motion for reconsideration of opportunity not only to litigate the matters
plaintiff-appellant questioning the conclusion of adjudicated, but to litigate them against the
this Court without explanation. party (or his predecessor in interest) who seeks
The claim of plaintiff-appellant Rosario U. Yulo to use the judgment against him." (See. 422, 1
is that the relationship between her and Freeman on Judgments, 5th ed., p. 918).
defendant-appellee Yang Chiao Seng as partners Without going further, we are fully satisfied of
had already been passed upon by the Court of the correctness of our conclusion that the
Appeals in the above-indicated decision. The relationship between plaintiff-appellant Rosario
portion of the decision of the Court of Appeals U. Yulo and Yang Chiao Seng is merely that of
is contained on page 8 of the motion for sublessor and sublessee, and not that of partners.
reconsideration in which it held that articles of The motion to reopen the case is hereby denied
partnership of Young & Co., Ltd. show that the and considering that judgment had become final
parties to this case are partners in the since October 29, 1959, order is hereby given to
construction of the Astor Theatre. It is to be remand the record to the court below.
noted, however, that the decision of the Court of
Appeals was one in which Emilia and Maria
Carrion Sta. Marina are plaintiffs and the
defendants are Rosario Yulo and Yang Chiao
Seng; the action was one to eject the defendants
from the land occupied by them; the issue was
the reasonable value for the use and occupation
of the land. The Court of Appeals said that the
plaintiffs in that case had claimed that, the
reasonable value was P3,000, while the
defendants claimed that it was only P1,000, and
the Court of Appeals held that in view of the
partnership papers P3,000 represent the share of
Rosario U. Yulo in the profits of the partnership
and not the reasonable rent of the property.
It is evident that no res judicata can be claimed
for the previous judgment of the Court of
Appeals. In the first place, the parties in that
case were Emilia and Maria Carrion Sta. Marina
and the defendants, Rosario U. Yulo and Yang
Chiao Seng; in the second place, the issue
decided by the Court of Appeals was the rental
value of the property in question; that the cause
of action was for ejectment of Rosario U. Yulo
and Yang Chiao Seng. In the case at bar, the

77

G.R. No. L-9996, October 15, 1957
EUFEMIA EVANGELISTA, MANUELA
EVANGELISTA AND FRANCISCA
EVANGELISTA, PETITIONERS, VS. THE
COLLECTOR OF INTERNAL REVENUE
AND THE COURT OP TAX APPEALS,
RESPONDENTS.
DECISION
CONCEPCION, J.:
This is a petition, filed by Eufemia Evangelista,
Manuela Evangelista and Francisca Evangelista,
for review of a decision of the Court of Tax
Appeals, the dispositive part of which reads:
"For all the foregoing, we hold that the
petitioners are liable for the income tax, real
estate dealer's tax and the residence tax for the
years 1945 to 1949, inclusive, in accordance
with the respondent's assessment for the same in
the total amount of P6,878.34, which is hereby
affirmed and the petition for review filed by
petitioners is hereby dismissed with costs
against petitioners."
It apears from the stipulation submitted by the
parties:
"1. That the petitioners borrowed from their
father the sum of P59,140.00 which amount
together with their personal monies was used
by them for the purpose of buying real
properties,
"2. That on February 2, 1943 they bought from
Mrs. Josefina Florentino a lot with an area of
3,718.40 sq, m. including: improvements
thereon for the sum of P100,000.00; this
property has an assessed value of P57,517.00 as
of 1948;
"3. That on April 3, 1944 they purchased from
Mrs. Josefa Oppus 21 parcels of land with an
aggregate area of 3,718.40 sq. m. including
improvements thereon for P18,000.00; this
property has an assessed value of P8,255.00 as
of 1948;
"4, That on April 23, 1944 they purchased from
the Insular Investments, Inc., a lot of 4,353 sq.
m. including improvements thereon for
P108,825.00. This property has an assessed
value of P4,983.00 as of 1948;
"5. That on April 28, 1944 they bought from
Mrs. Valentin Afable a lot of 8,371 sq. m.
including improvements thereon for
P237.234.14. This property has an assessed
value of P59,140.00 as of 1948;
78
Full text : BusOrg I Cases 2018
"6. That in a document dated August 16, 1945,
they appointed their brother Simeon Evangelista
to 'manage their properties with full power to
lease; to collect and receive rents; to issue
receipts therefor; in default of such payment, to
bring' suits against the defaulting tenant; to sign
all letters, contracts, etc., for and in their behalf,
and to endorse and deposit all notes and checks
for them;
"7. That after having bought the above-
mentioned real properties, the petitioners had
the same rented or leased to various tenants;
"8. That from the month of March, 1945 up to
and including December, 1945, the total amount
collected as rents on their real properties was
P9,599.00 while the- expenses amounted to
P3.650.00 thereby leaving them a net rental
income of P5,948.33;
"9. That in 1940, they realized a gross rental
income in the sum of P24,786.30, out of which
amount was deducted the sum of P16,288.27 for
expenses thereby leaving them a net rental
income of P7,498.13;
"10. That in 1948 they realized a gross rental
income of P17,453.00 out of the which amount
was deducted the sum of P4,837.65 as expenses,
thereby leaving them a net rental income of
P12,615.35."
It further appears that on September 24, 1954,
respondent Collector of Internal Revenue
demanded the payment, of income tax on
corporations, real estate dealer's fixed tax and
corporation residence tax for the years 1945-
1949, computed, according to the assessments
made by said officer, as follows:
Income Taxes
19 .......................................................
45 P614.84
19 ......................................................
46 1,144.71
19 ........................................................
47 910.34
19 .......................................................
48 1,912.30
19 .....................................................
49 _1,575.90
Total including surcharge andP6,15
compromise .... 7.09
Real Estate Dealer's Fixed Tax
 Full text : BusOrg I Cases 2018

19 ……………………………………… under the laws of the Philippines, no matter how

46 …………………. P37.50 created or organized but not including duly
19 ………….…………………………… registered general co-partnerships (compañias
47 ………………… 150.00 colectivas), a tax upon such income equal to
19 ………….…………………………… the sum of the following: * * *."
48 ………………… 150.00
19 …..………….……………………… "Sec. 84(b). The term 'corporation' includes
49 ………………… _150.00 partnerships, no matter how created or
Total includingP527. organized, joint-stock companies, joint accounts
penalty……………….. 50 (cuentas en participacion), associations or
insurance companies, but does not include duly
Residence Taxes of Corporation registered general copartnerships (compañias
19 ……………………………………… colectivas)"
45 ………………… P38.75 Article 1767 of the Civil Code of the Philippines
19 ……………………….……………… provides :
46 ……………….. 38.75
19 ……………………….……………… "By the contract of partnership two or more
47 ……………….. 38.75 persons bind themselves to contribute money,
19 ……………………….……………… property, or industry to a common fund, with
48 ……………….. 38.75 the intention of dividing1 the profits among-
19 ……………………….……………… themselves."
49 ……………….. _38.75 Pursuant to this article, the essential elements of
Total includingP193. a partnership are two, namely: (a) an agreement
surchage........................... 75 to contribute money, property or industry to a
Total Taxes Due6,878. common fund; and (b) intent to divide the
........................................ 34 profits among the contracting parties. The first
element is undoubtedly present in the case at
Said letter of demand and the corresponding bar, for, admittedly, petitioners have agreed to,
assessments were delivered to petitioners on and did, contribute money and property to a
December 8, 1954, whereupon they instituted common fund. Hence, the issue narrows down
the present case in the Court of Tax Appeals, to their intent in acting as they did. Upon
with a prayer that "the decision of the consideration of all the facts and circumstances
respondent contained in. his letter of demand surrounding the case, we are fully satisfied that
dated September 24, 1954" be reversed, and that their purpose was to engage in real estate
they be absolved from the payment of the taxes transactions for monetary gain and then divide
in question, with costs against the respondent. the same among themselves, because:
After appropriate proceedings, the Court of Tax
Appeals rendered the above-mentioned decision 1. Said common fund was not something they
for the respondent, and, a petition for found already in existence. It was not a
reconsideration and new trial having been property inherited by them pro indiviso. They
subsequently denied, the case is now before Us created it purposely. What is more they jointly
for review at the instance of the petitioners. borrowed a substantial portion thereof in order
The issue in this case is whether petitioners are to establish said common fund.
subject to the tax on corporations provided for 2. They invested the same, not merely in one
in section 24 of Commonwealth Act No. 466, transaction, but in a series of transactions. On
otherwise known as the National Internal February 2, 1943, they bought a lot for
Revenue Code, as well as to the residence tax P100,000.00. On April 3, 1944, they
for corporations and the real estate dealers' fixed purchased 21 lots for P18,000.000. This was
tax. With respect to the tax on corporations, the soon followed, on April 23, 1944, by the
issue hinges on the meaning of the terms acquisition of another real estate for
"corporation" and "partnership", as used in P108,825.00. Five (5) days later (April 28,
sections 24 and 84 of said Code, the pertinent 1944), they got a fourth lot for P237,234.14.
parts of which read: The number of lots (24) acquired and
transactions undertaken, as well as the brief
"Sec. 24. Rate of tax on corporations.—There interregnum between each, particularly the last
shall be levied, assessed, collected, and paid three purchases, is strongly indicative of a
annually upon the total net income received in pattern or common design that was not limited
the preceding taxable year from all sources by to the conservation and preservation of the
every corporation organized in, or existing aforementioned common fund or even of the

79

property acquired by petitioners in February,
1943. In other words, one cannot but perceive a
character of habituality peculiar to business
transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to
residential purposes, or to other personal uses,
of petitioners herein. The properties were leased
separately to several persons, who, from 1945 to
1948 inclusive, paid the total sum of P70,068.30
by way of rentals. Seemingly, the lots are still
being so let, for petitioners do not even suggest
that there has been any change in the utilization
thereof.
4. Since August, 1945, the properties have been
under the management of one person, namely,
Simeon Evangelista, with full power to lease, to
collect rents, to issue receipts, to bring suits, to
sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs
relative to said properties have been handled as
if the same belonged to a corporation or
business enterprise operated for profit.
5. The foregoing conditions have existed for
more than ten (10) years, or, to be exact, over
fifteen (15) years, since the first property was
acquired, and over twelve (12) years, since
Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced
any evidence, either on their purpose in
creating the set up already adverted to, or on
the causes for its continued existence. They
did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to
establish the intent necessary to constitute a
partnership, the collective effect of these
circumstances is such as to leave no room for
doubt on the existence of said intent in
petitioners herein. Only one or two of the
aforementioned circumstances were present in
the cases cited by petitioners herein, and, hence,
those cases are not in point.
Petitioners insist, however, that they are mere
co-owners, not copartners, for, in consequence
of the acts performed by them, a legal entity,
with a personality independent of that of its
members, did not come into existence, and some
of the characteristics of partnerships are lacking
in the case at bar. This pretense was correctly
rejected by the Court of Tax Appeals.
To begin with, the tax in question is one
imposed upon "corporations", which, strictly
speaking, are distinct and different from
"partnerships". When our Internal Revenue
Code includes "partnerships" among the entities
subject to the tax on "corporations", said Code
must allude, therefore, to organizations which
are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance,
80
Full text : BusOrg I Cases 2018
section 24 of said Code exempts from the
aforementioned tax "duly registered general
partnerships", which constitute precisely one of
the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section
84(6) of said Code, "the term corporation
includes partnerships, no matter how created or
organized." This qualifying expression clearly
indicates that a joint venture need not be
undertaken in any of the standard forms, or in
conformity with the usual requirements of the
law on partnerships, in order that one couid be
deemed constituted for purposes of the tax on
corporations. Again, pursuant to said section
84(6), the term "corporation" includes, among
other, "joint accounts, (cuentas en
participation)" and "associations", none of
which his a legal personality of its own,
independent of that of its members.
Accordingly, the lawmaker could not have
regarded that personality as a condition essential
to the existence of the partnerships, therein
referred to. In fact, as above stated, "duly
registered general copartnerships"—which are
possessed of the aforementioned personality—
have been expressly excluded by law (sections
24 and 84 [6]) from the connotation of the term
"corporation." It may not be amiss to add that
petitioners' allegation to the effect that their
liability in connection with the leasing of the
lots above referred to, under the management of
one person—even if true, on which we express
no opinion—tends to increase the similarity
between the nature of their venture and that of
corporations, and is, therefore, an additional
argument in favor of the imposition of said tax
on corporations.
Under the Internal Revenue Laws of the United
States, "corporations" are taxed differently from
"partnerships". By specific provision of said
laws, such "corporations" include "associations,
joint-stock companies and insurance
companies." However, the term "association" is
not used in the aforementioned laws
“* * * in any narrow or technical sense. It
includes any organization, created for the
transaction of designated affairs, or the
attainment of some object, which, like a
corporation, continues notwithstanding that its
members or participants change, and the affairs
of which, like corporate affairs, are conducted
by a single individual, a committee, a board, or
some other group, acting in a representative
capacity. It is immaterial whether such
organization is created by an agreement, a
declaration of trust, a statute, or otherwise. It
includes a voluntary association, a joint-stock
 Full text : BusOrg I Cases 2018

corporation or company, a 'business* trusts a
'Massachusetts' trust, a 'common law' trust, and
'investment' trust (whether of the fixed or the
management type), an interinsurance exchange
operating through an attorney in fact, a
partnership association, and any other type of
organization (by whatever name known) which
is not, within the meaning oi' the Code, a, trust
or an estate, or a partnership." (7A Merten's
Law of Federal Income Taxation, p. 788; italics
ours.)
Similarly, the American Law.
“* * * provides its own concept of a partnership.
Under the term 'partnership' it includes not only
a partnership as known at common law but, as
well, a syndicate, group, pool, joint venture, or
other unincorporated organization which
carries on any business, financial operation, or
venture, and which is not, within the meaning of
the Code, a trust, estate, or a corporation. * * *."
(7A Merten's Law of Federal Income Taxation,
p, 789; italics ours.)
"The term 'partnership' includes a syndicate,
group, pool, joint venture or other
unincorporated organization, through or by
means of which any business, financial
operation, or venture is carried on, * * *.” (8
Merten's Law of Federal Income Taxation, p.
562 Note 63; italics ours.)
For purposes of the tax on corporations, our
National Internal Revenue Code, includes these
partnerships—with the exception only of duly
registered general copartnerships—within the
purview of the term "corporation." It is,
therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said
Code is concerned, and are subject to the
income tax for corporations.
As regards the residence tax for corporations,
section 2 of Commonwealth Act No. 465
provides in part:
Considering that the pertinent part of this
provision is analogous to that of sections 24 and
84 (b) of our National Internal Revenue Code
(Commonwealth Act No. 466), and that the
latter was approved on June 15, 1939, the day
immediately after the approval of said
Commonwealth Act No. 465 (June 14, 1939), it
is apparent that the terms "corporation” and
"partnership" are used in both statutes with
substantially the same meaning. Consequently,
petitioners are subject, also, to the residence tax
for corporations.
Lastly, the records show that petitioners have
habitually engaged in leasing the properties
above mentioned for a period of over twelve
years, and that the yearly gross rentals of said
properties from 1945 to 1948 ranged from
P9,599 to P17,453. Thus, they are subject to the
tax provided in section 193 (q) of our National
Internal Revenue Code, for "real estate dealers,"
inasmuch as, pursuant to section 194(s) thereof:
" 'Real estate dealer' includes any person
engaged in the business of buying, selling,
exchanging, leasing, or renting property or his
own account as principal and holding himself
out as a full or part-time dealer in real estate or
as an owner of rental property or properties
rented or offered to rent for an aggregate
amount of three thousand pesos or more a
year. * * *." (Italics ours.)
Wherefore, the appealed decision of the Court
of Tax Appeals is hereby affirmed with costs
against the petitioners herein. It is so ordered.

"Entities liable to residence tax.—Every

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

"The term 'corporation' as used in this Act

includes joint-stock company, partnership, joint
account (cuentas en participacion), association
or insurance company, no matter how created or
organized." (italics ours.)

81

G.R. No. L-19342, May 25, 1972
LORENZO T. OÑA, AND HEIRS OF
JULIA BUÑALES, NAMELY: RODOLFO
B. OÑA, MARIANO B. OÑA, LUZ B. OÑA,
VIRGINIA B. OÑA AND LORENZO B.
OÑA, JR., PETITIONERS, VS. THE
COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT.
DECISION
BARREDO, J.:
Petition for review of the decision of the Court
of Tax Appeals in CTA Case No. 617, similarly
entitled as above, holding that petitioners have
constituted an unregistered partnership and are,
therefore, subject to the payment of the
deficiency corporate income taxes assessed
against them by respondent Commissioner of
Internal Revenue for the years 1955 and 1956 in
the total sum of P21,891.00, plus 5% surcharge
and 1% monthly interest from December 15,
1958, subject to the provisions of Section 51 (e)
(2) of the Internal Revenue Code, as amended
by Section 8 of Republic Act No. 2343 and the
costs of the suit,[1] as well as the resolution of
said court denying petitioners' motion for
reconsideration of said decision.
The facts are stated in the decision of the Tax
Court as follows:
"Julia Buñales died on March 23, 1944, leaving
as heirs her surviving spouse, Lorenzo T. Oña
and her five children. In 1948, Civil Case No.
4519 was instituted in the Court of First
Instance of Manila for the settlement of her
estate. Later, Lorenzo T. Oña, the surviving
spouse was appointed administrator of the estate
of said deceased (Exhibit 3, pp. 34-41, BIR
rec.). On April 14, 1949, the administrator
submitted the project of partition, which was
approved by the Court on May 16, 1949 (See
Exhibit K). Because three of the heirs, namely
Luz, Virginia and Lorenzo, Jr., all surnamed
Oña, were still minors when the project of
partition was approved, Lorenzo T. Oña, their
father and administrator of the estate, filed a
petition in Civil Case No. 9637 of the Court of
First Instance of Manila for appointment as
guardian of said minors. On November 14,
1949, the Court appointed him guardian of the
persons and property of the afore-named minors
(See p. 3, BIR rec.).
"The project of partition (Exhibit K; see also pp.
77-70, BIR rec.) shows that the heirs have
undivided one-half (1/2) interest in ten parcels
of land with a total assessed value of
P87,860.00, six houses with a total assessed
value of P17,590.00 and an undetermined
amount to be collected from the War Damage
Commission. Later, they received from said
82
Full text : BusOrg I Cases 2018
Commission the amount of P50,000.00, more or
less. This amount was not divided among them
but was used in the rehabilitation of properties
owned by them in common (t.s.n. p. 46). Of the
ten parcels of land aforementioned, two were
acquired after the death of the decedent with
money borrowed from the Philippine Trust
Company in the amount of P72,173.00 (t.s.n., p.
24; Exhibit 3, pp. 34-31, BIR rec.).
"The project of partition also shows that the
estate shares equally with Lorenzo T. Oña, the
administrator thereof, in the obligation of
P94,973.00, consisting of loans contracted by
the latter with the approval of the Court (see p. 3
of Exhibit K; or see p. 74, BIR rec.).
"Although the project of partition was approved
by the Court on May 16, 1949, no attempt was
made to divide the properties therein listed.
Instead, the properties remained under the
management of Lorenzo T. Oña who used said
properties in business by leasing or selling them
and investing the income derived therefrom and
the proceeds from the sales thereof in real
properties and securities. As a result,
petitioners' properties and investments gradually
increased from P105,450.00 in 1949 to
P480,005.20 in 1956 as can be gleaned from the
following year-end balances:
"Year Investment Land Building
Account Account Account
1949 P87,860 P
17,590.00
1950 P 128,566.72 96,076.26
24,657.65
1951 51,301.31 120,349.28 110,605.11
1952 67,927.52 87,065.28 152,674.39
1953 61,258.27 84,925.68 161,463.83
1954 63,623.37 99,001.20 167,962.04
1955 100,786.00 120,249.78 169,262.52
1956 175,028.68 135,714.68 169,262.52
(See Exhibits 3 & K; t.s.n., pp. 22, 25-26, 40,
50, 102-104).
"From said investments and properties
petitioners derived such incomes as profits from
installment sales of subdivided lots, profits from
sales of stocks, dividends, rentals and interests
(see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp.
37-38). The said incomes are recorded in the
books of account kept by Lorenzo T. Oña,
where the corresponding shares of the
petitioners in the net income for the year are
also shown. Every year, petitioners returned for
income tax purposes their shares in the net
income derived from said properties and
securities and/or from transactions involving
them (Exhibit 3, supra; t.s.n., pp. 25-26).
 Full text : BusOrg I Cases 2018

However, petitioners did not actually receive years 1955 and 1956 and the 'Compromise for
their shares in the yearly income. (t.s.n., pp. 25- non-filing,' the latter item obviously referring to
26, 40, 98, 100). The income was always left in the compromise in lieu of the criminal liability
the hands of Lorenzo T. Oña who, as heretofore for failure of petitioners to file the corporate
pointed out, invested them in real properties and income tax returns for said years, (See Exh. 17,
securities. (See Exhibit 3, t.s.n., pp. 50, 102- page 86, BIR records)." (Pp. 1-3, Annex C to
104). Petition)
"On the basis of the foregoing facts, respondent Petitioners have assigned the following as
(Commissioner of Internal Revenue) decided alleged errors of the Tax Court:
that petitioners formed an unregistered "I
partnership add therefore, subject to the "THE COURT OF TAX APPEALS ERRED IN
corporate income tax, pursuant to Section 24, in HOLDING THAT THE PETITIONERS
relation to Section 84(b), of the Tax Code. FORMED AN UNREGISTERED
Accordingly, he assessed against the petitioners PARTNERSHIP;
the amounts of P8,092.00 and P13,899.00 as "II
corporate income taxes for 1955 and 1956, "THE COURT OF TAX APPEALS ERRED IN
respectively. (See Exhibit 5, amended by NOT HOLDING THAT THE PETITIONERS
Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners WERE CO-OWNERS OF THE PROPERTIES
protested against the assessment and asked for INHERITED AND (THE) PROFITS DERIVED
reconsideration of the ruling of respondent that FROM TRANSACTIONS THEREFROM
they have formed an unregistered partnership. (sic);
Finding no merit in petitioners' request, "III
respondent denied it (See Exhibit 17, p. 86, BIR "THE COURT OF TAX APPEALS ERRED IN
rec.). (See pp. 1-4, Memorandum for HOLDING THAT PETITIONERS WERE
Respondent, June 12, 1961). LIABLE FOR CORPORATE INCOME
"The original assessment was as follows: TAXES FOR 1955 AND 1956 AS AN
"1955 UNREGISTERED PARTNERSHIP;
"Net income as per "IV
investigation................................................... P "ON THE ASSUMPTION THAT THE
40,209.89 PETITIONERS CONSTITUTED AN
Income tax due UNREGISTERED PARTNERSHIP, THE
thereon............................................... 8,042.00 COURT OF TAX APPEALS ERRED IN NOT
25% HOLDING THAT THE PETITIONERS WERE
surcharge............................................................ AN UNREGISTERED PARTNERSHIP TO
2,010.50 THE EXTENT ONLY THAT THEY
Compromise for non- INVESTED THE PROFITS FROM THE
filing................................................. 50.00 PROPERTIES OWNED IN COMMON AND
Total..................................................................... THE LOANS RECEIVED USING THE
.... P10,102.50 INHERITED PROPERTIES AS
"1956 COLLATERALS;
"Net income as per "V
investigation................................................... "ON THE ASSUMPTION THAT THERE
P69,245.23 WAS AN UNREGISTERED PARTNERSHIP,
Income tax due THE COURT OF TAX APPEALS ERRED IN
thereon........................................... 13,849.00 NOT DEDUCTING THE VARIOUS
25% AMOUNTS PAID BY THE PETITIONERS AS
surcharge........................................................ INDIVIDUAL INCOME TAX ON THEIR
3,462.25 RESPECTIVE SHARES OF THE PROFITS
Compromise for non- ACCRUING FROM THE PROPERTIES
filing....................................... 50.00 OWNED IN COMMON, FROM THE
TotaL.................................................................... DEFICIENCY TAX OF THE
... P17,361.25 UNREGISTERED PARTNERSHIP."
(See Exh. 13, page 50, BIR records) In other words, petitioners pose for our
"Upon further consideration of the case, the resolution the following questions: (1) Under
25% surcharge was eliminated in line with the the facts found by the Court of Tax Appeals,
ruling of the Supreme Court in Collector vs. should petitioners be considered as co-owners of
Batangas Transportation Co., G.R. No. L-9692, the properties inherited by them from the
Jan. 6, 1958, so that the questioned assessment deceased Julia Buñales and the profits derived
refers solely to the income tax proper for the from transactions involving the same, or, must

83

they be deemed to have formed an unregistered
partnership subject to tax under Sections 24 and
84(b) of the National Internal Revenue Code?
(2) Assuming they have formed an unregistered
partnership, should this not be only in the sense
that they invested as a common fund the profits
earned by the properties owned by them in
common and the loans granted to them upon the
security of the said properties, with the result
that as far as their respective shares in the
inheritances are concerned, the total income
thereof should be considered as that of co-
owners and not of the unregistered partnership?
And (3) assuming again that they are taxable as
an unregistered partnership, should not the
various amounts already paid by them for the
same years 1955 and 1956 as individual income
taxes on their respective shares of the profits
accruing from the properties they owned in
common be deducted from the deficiency
corporate taxes, herein involved, assessed
against such unregistered partnership by the
respondent Commissioner?
Pondering on these questions, the first thing that
has struck the Court is that whereas petitioners'
predecessor in interest died way back on March
23, 1944 and the project of partition of her
estate was judicially approved as early as May
16, 1949, and presumably petitioners have been
holding their respective shares in their
inheritance since those dates admittedly under
the administration or management of the head of
the family, the widower and father Lorenzo T.
Oña, the assessment in question refers to the
later years 1955 and 1956. We believe this
point to be important because, apparently, at the
start, or in the years 1944 to 1954, the
respondent Commissioner of Internal Revenue
did treat petitioners as co-owners, not liable to
corporate tax, and it was only from 1955 that he
considered them as having formed an
unregistered partnership. At least, there is
nothing in the record indicating that an earlier
assessment had already been made. Such being
the case, and We see no reason how it could be
otherwise, it is easily understandable why
petitioners' position that they are co-owners and
not unregistered co-partners, for the purposes of
the impugned assessment, cannot be upheld.
Truth to tell, petitioners should find comfort in
the fact that they were not similarly assessed
earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually
distributing the estate of the deceased among
themselves pursuant to the project of partition
approved in 1949, "the properties remained
under the management of Lorenzo T. Oña who
used said properties in business by leasing or
selling them and investing the income derived
84
Full text : BusOrg I Cases 2018
therefrom and the proceeds from the sales
thereof in real properties and securities," as a
result of which said properties and investments
steadily increased yearly from P87,860.00 in
"land account" and P17,590.00 in "building
account" in 1949 to P175,028.68 in "investment
account," P135,714.68 in "land account" and
P169,262.52 in "building account" in 1956.
And all these became possible because,
admittedly, petitioners never actually received
any share of the income or profits from Lorenzo
T. Oña and instead, they allowed him to
continue using said shares as part of the
common fund for their ventures, even as they
paid the corresponding income taxes on the
cases of their respective shares of the profits of
their common business as reported by said
Lorenzo T. Oña.
It is thus incontrovertible that petitioners did
not, contrary to their contention, merely limit
themselves to holding the properties inherited
by them. Indeed, it is admitted that during the
material years herein involved, some of the said
properties were sold at considerable profit, and
that with said profit, petitioners engaged, thru
Lorenzo T. Oña, in the purchase and sale of
corporate securities. It is likewise admitted that
all the profits from these ventures were divided
among petitioners proportionately in accordance
with their respective shares in the inheritance.
In these circumstances, it is Our considered
view that from the moment petitioners allowed
not only the incomes from their respective
shares of the inheritance but even the inherited
properties themselves to be used by Lorenzo T.
Oña as a common fund in undertaking several
transactions or in business, with the intention of
deriving profit to be shared by them
proportionally, such act was tantamount to
actually contributing such incomes to a common
fund and, in effect, they thereby formed an
unregistered partnership within the purview of
the above-mentioned provisions of the Tax
Code.
It is but logical that in cases of inheritance, there
should be a period when the heirs can be
considered as co-owners rather than
unregistered co-partners within the
contemplation of our corporate tax laws
aforementioned. Before the partition and
distribution of the estate of the deceased, all the
income thereof does belong commonly to all the
heirs, obviously, without them becoming
thereby unregistered co-partners, but it does not
necessarily follow that such status as co-owners
continues until the inheritance is actually and
physically distributed among the heirs, for it is
easily conceivable that after knowing their
respective shares in the partition, they might

decide to continue holding said shares under the
common management of the administrator or
executor or of anyone chosen by them and
engage in business on that basis. Withal, if this
were to be allowed, it would be the easiest thing
for heirs in any inheritance to circumvent and
render meaningless Sections 24 and 84(b) of the
National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102
Phil. 140, it was stated, among the reasons for
holding the appellants therein to be unregistered
co-partners for tax purposes, that their common
fund "was not something they found already in
existence" and that "[it]was not a property
inherited by them pro indiviso," but it is
certainly far fetched to argue therefrom, as
petitioners are doing here, that ergo, in all
instances where an inheritance is not actually
divided, there can be no unregistered co-
partnership. As already indicated, for tax
purposes, the co-ownership of inherited
properties is automatically converted into an
unregistered partnership the moment the said
common properties and/or the incomes derived
therefrom are used as a common fund with
intent to produce profits for the heirs in
proportion to their respective shares in the
inheritance as determined in a project partition
either duly executed in an extrajudicial
settlement or approved by the court in the
corresponding testate or intestate proceeding.
The reason for this is simple. From the moment
of such partition, the heirs are entitled already to
their respective definite shares of the estate and
the incomes thereof, for each of them to manage
and dispose of as exclusively his own without
the intervention of the other heirs, and,
accordingly, he becomes liable individually for
all taxes in connection therewith. If after such
partition, he allows his share to be held in
common with his co-heirs under a single
management to be used with the intent of
making profit thereby in proportion to his share,
there can be no doubt that, even if no document
or instrument were executed for the purpose, for
tax purposes, at least, an unregistered
partnership is formed. This is exactly what
happened to petitioners in this case.
In this connection, petitioners' reliance on
Article 1769, paragraph (3), of the Civil Code,
providing that: "The sharing of gross returns
does not of itself establish a partnership,
whether or not the persons sharing them have a
joint or common right or interest in any property
from which the returns are derived," and, for
that matter, on any other provision of said code
on partnerships is unavailing. In Evangelista,
supra, this Court clearly differentiated the
concept of partnerships under the Civil Code
85
Full text : BusOrg I Cases 2018
from that of unregistered partnerships which are
considered as "corporations" under Sections 24
and 84(b) of the National Internal Revenue
Code. Mr. Justice Roberto Concepcion, now
Chief Justice, elucidated on this point thus:
"To begin with, the tax in question is one
imposed upon 'corporations', which, strictly
speaking, are distinct and different from
'partnerships'. When our Internal Revenue Code
includes 'partnerships' among the entities subject
to the tax on 'corporations', said Code must
allude, therefore, to organizations which are
notnecessarily 'partnerships', in the technical
sense of the term. Thus, for instance, section 24
of said Code exempts from the aforementioned
tax 'duly registered general partnerships', which
constitute precisely one of the most typical
forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said
Code, 'the term corporation includes,
partnerships, no matter how created or
organized.' This qualifying expression clearly
indicates that a joint venture need not be
undertaken in any of the standard forms, or in
conformity with the usual requirements of the
law on partnerships, in order that one could be
deemed constituted for purposes of the tax on
corporations. Again, pursuant to said section
84(b), the term 'corporation' includes, among
other, 'joint accounts, (cuentasenparticipation)'
and 'associations', none of which has a legal
personality of its own, independent of that of its
members. Accordingly, the lawmaker could not
have regarded that personality as a condition
essential to the existence of the partnerships
therein referred to. In fact, as above stated,
'duly registered general co-partnerships' which
are possessed of the aforementioned personality
have been expressly excluded by law (sections
24 and 84 [b] from the connotation of the term
'corporation.' * * *
"* * * * * *
"Similarly, the American Law
'* * * provides itsownconcept of a partnership.
Under the term 'partnership' it includes notonly a
partnership as known at common law but, as
well, a syndicate, group, pool, joint venture, or
other unincorporated organization which
carries on any business, financial operation, or
venture, and which is not, within the meaning of
the Code, a trust, estate, or a corporation. * * *.'
(7A Merten's Law of Federal Income Taxation,
p. 789; Italics supplied.)
'The term "partnership" includes a syndicate,
group, pool, joint venture or other
unincorporated organization, through or by
means of which any business, financial
operation, or venture is carried on. * * *.' (8

Merten's Law of Federal Income Taxation, p.
562 Note 63; italics ours.)
"For purposes of the tax on corporations,
ourNational Internal Revenue Code,
includesthesepartnerships — with the exception
only of duly registered general co-partnerships
— within the purview of the term 'corporation.'
It is, therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said
Code is concerned, and are subject to the
income tax for corporations."
We reiterated this view, thru Mr. Justice
Fernando, in Reyes vs. Commissioner of
Internal Revenue, G.R. Nos. L-24020-21, July
29, 1968, 24 SCRA 198, wherein the Court
ruled against a theory of co-ownership pursued
by appellants therein.
As regards the second question raised by
petitioners about the segregation, for the
purposes of the corporate taxes in question, of
their inherited properties from those acquired by
them subsequently, We consider as justified the
following ratiocination of the Tax Court in
denying their motion for reconsideration:
"In connection with the second ground, it is
alleged that, if there was an unregistered
partnership, the holding should be limited to the
business engaged in apart from the properties
inherited by petitioners. In other words, the
taxable income of the partnership should be
limited to the income derived from the
acquisition and sale of real properties and
corporate securities and should not include the
income derived from the inherited properties. It
is admitted that the inherited properties and the
income derived therefrom were used in the
business of buying and selling other real
properties and corporate securities.
Accordingly, the partnership income must
include not only the income derived from the
purchase and sale of other properties but also
the income of the inherited properties."
Besides, as already observed earlier, the income
derived from inherited properties may be
considered as individual income of the
respective heirs only so long as the inheritance
or estate is not distributed or, at least,
partitioned, but the moment their respective
known shares are used as part of the common
assets of the heirs to be used in making profits,
it is but proper that the income of such shares
should be considered as the part of the taxable
income of an unregistered partnership. This,
We hold, is the clear intent of the law.
Likewise, the third question of petitioners
appears to have been adequately resolved by the
Tax Court in the aforementioned resolution
denying petitioners' motion for reconsideration
86
Full text : BusOrg I Cases 2018
of the decision of said court. Pertinently, the
court ruled this wise:
"In support of the third ground, counsel for
petitioners allege:
'Even if we were to yield to the decision of this
Honorable Court that the herein petitioners have
formed an unregistered partnership and,
therefore, have to be taxed as such, it might be
recalled that the petitioners in their individual
income tax returns reported their shares of the
profits of the unregistered partnership. We
think it only fair and equitable that the various
amounts paid by the individual petitioners as
income tax on their respective shares of the
unregistered partnership should be deducted
from the deficiency income tax found by this
Honorable Court against the unregistered
partnership.' (page 7, Memorandum for the
Petitioner in Support of Their Motion for
Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners
that the taxable income of the partnership must
be reduced by the amounts of income tax paid
by each petitioner on his share of partnership
profits. This is not correct; rather, it should be
the other way around. The partnership profits
distributable to the partners (petitioners herein)
should be reduced by the amounts of income tax
assessed against the partnership. Consequently,
each of the petitioners in his individual capacity
overpaid his income tax for the years in
question, but the income tax due from the
partnership has been correctly assessed. Since
the individual income tax liabilities of
petitioners are not in issue in this proceeding, it
is not proper for the Court to pass upon the
same."
Petitioners insist that it was error for the Tax
Court to so rule that whatever excess they might
have paid as individual income tax cannot be
credited as part payment of the taxes herein in
question. It is argued that to sanction the view
of the Tax Court is to oblige petitioners to pay
double income tax on the same income, and,
worse, considering the time that has lapsed since
they paid their individual income taxes, they
may already be barred by prescription from
recovering their overpayments in a separate
action. We do not agree. As We see it, the case
of petitioners as regards the point under
discussion is simply that of a taxpayer who has
paid the wrong tax, assuming that the failure to
pay the corporate taxes in question was not
deliberate. Of course, such taxpayer has the
right to be reimbursed what he has erroneously
paid, but the law is very clear that the claim and
action for such reimbursement are subject to the
bar of prescription. And since the period for the
recovery of excess income taxes in the case of
 Full text : BusOrg I Cases 2018

herein petitioners has already lapsed, would not

seem right to virtually disregard prescription
merely upon the ground that the reason for the
delay is precisely because the taxpayers failed to
make the proper return and payment of the
corporate taxes legally due from them. In
principle, it is but proper not to allow any
relaxation of the tax laws in favor of persons
who are not exactly above suspicion in their
conduct vis-a-vis their tax obligation to the
State.
IN VIEW OF ALL THE FOREGOING, the
judgment of the Court of Tax Appeals appealed
from is affirmed, with costs against petitioners.

87

THIRD DIVISION
G.R. No. 172690, March 03, 2010
HEIRS OF JOSE LIM, REPRESENTED BY
ELENITO LIM, PETITIONERS, VS.
JULIET VILLA LIM, RESPONDENT.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on
Certiorari[1] under Rule 45 of the Rules of Civil
Procedure, assailing the Court of Appeals (CA)
Decision[2] dated June 29, 2005, which reversed
and set aside the decision[3] of the Regional
Trial Court (RTC) of Lucena City, dated April
12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim
(Jose), namely: Jose's widow Cresencia Palad
(Cresencia); and their children Elenito, Evelia,
Imelda, Edelyna and Edison, all surnamed Lim
(petitioners), represented by Elenito Lim
(Elenito). They filed a Complaint[4] for Partition,
Accounting and Damages against respondent
Juliet Villa Lim (respondent), widow of the late
Elfledo Lim (Elfledo), who was the eldest son
of Jose and Cresencia.
Petitioners alleged that Jose was the liaison
officer of Interwood Sawmill in Cagsiay,
Mauban, Quezon. Sometime in 1980, Jose,
together with his friends Jimmy Yu (Jimmy)
and Norberto Uy (Norberto), formed a
partnership to engage in the trucking business.
Initially, with a contribution of P50,000.00 each,
they purchased a truck to be used in the hauling
and transport of lumber of the sawmill. Jose
managed the operations of this trucking business
until his death on August 15, 1981. Thereafter,
Jose's heirs, including Elfledo, and partners
agreed to continue the business under the
management of Elfledo. The shares in the
partnership profits and income that formed part
of the estate of Jose were held in trust by
Elfledo, with petitioners' authority for Elfledo to
use, purchase or acquire properties using said
funds.
Petitioners also alleged that, at that time, Elfledo
was a fresh commerce graduate serving as his
father's driver in the trucking business. He was
never a partner or an investor in the business
and merely supervised the purchase of
additional trucks using the income from the
trucking business of the partners. By the time
the partnership ceased, it had nine trucks, which
were all registered in Elfledo's name. Petitioners
asseverated that it was also through Elfledo's
88
Full text : BusOrg I Cases 2018
management of the partnership that he was able
to purchase numerous real properties by using
the profits derived therefrom, all of which were
registered in his name and that of respondent. In
addition to the nine trucks, Elfledo also acquired
five other motor vehicles.
On May 18, 1995, Elfledo died, leaving
respondent as his sole surviving heir. Petitioners
claimed that respondent took over the
administration of the aforementioned properties,
which belonged to the estate of Jose, without
their consent and approval. Claiming that they
are co-owners of the properties, petitioners
required respondent to submit an accounting of
all income, profits and rentals received from the
estate of Elfledo, and to surrender the
administration thereof. Respondent refused;
thus, the filing of this case.
Respondent traversed petitioners' allegations
and claimed that Elfledo was himself a partner
of Norberto and Jimmy. Respondent also
claimed that per testimony of Cresencia,
sometime in 1980, Jose gave Elfledo
P50,000.00 as the latter's capital in an informal
partnership with Jimmy and Norberto. When
Elfledo and respondent got married in 1981, the
partnership only had one truck; but through the
efforts of Elfledo, the business flourished. Other
than this trucking business, Elfledo, together
with respondent, engaged in other business
ventures. Thus, they were able to buy real
properties and to put up their own car assembly
and repair business. When Norberto was
ambushed and killed on July 16, 1993, the
trucking business started to falter. When Elfledo
died on May 18, 1995 due to a heart attack,
respondent talked to Jimmy and to the heirs of
Norberto, as she could no longer run the
business. Jimmy suggested that three out of the
nine trucks be given to him as his share, while
the other three trucks be given to the heirs of
Norberto. However, Norberto's wife, Paquita
Uy, was not interested in the vehicles. Thus, she
sold the same to respondent, who paid for them
in installments.
Respondent also alleged that when Jose died in
1981, he left no known assets, and the
partnership with Jimmy and Norberto ceased
upon his demise. Respondent also stressed that
Jose left no properties that Elfledo could have
held in trust. Respondent maintained that all the
properties involved in this case were purchased
and acquired through her and her husband's joint
efforts and hard work, and without any
participation or contribution from petitioners or
from Jose. Respondent submitted that these are

conjugal partnership properties; and thus, she
had the right to refuse to render an accounting
for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004,
the RTC rendered its decision in favor of
petitioners, thus:
WHEREFORE, premises considered, judgment
is hereby rendered:
1) Ordering the partition of the above-
mentioned properties equally between the
plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an
accounting of all incomes, profits and rentals
received by her from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside
the RTC's decision, dismissing petitioners'
complaint for lack of merit. Undaunted,
petitioners filed their Motion for
[5]
Reconsideration, which the CA, however,
denied in its Resolution[6] dated May 8, 2006.
Hence, this Petition, raising the sole question,
viz.:
IN THE APPRECIATION BY THE COURT
OF THE EVIDENCE SUBMITTED BY THE
PARTIES, CAN THE TESTIMONY OF ONE
OF THE PETITIONERS BE GIVEN
GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF
THE IDENTITY OF THE OTHER
PARTNERS IN THE PARTNERSHIP?[7]
In essence, petitioners argue that according to
the testimony of Jimmy, the sole surviving
partner, Elfledo was not a partner; and that he
and Norberto entered into a partnership with
Jose. Thus, the CA erred in not giving that
testimony greater weight than that of Cresencia,
who was merely the spouse of Jose and not a
party to the partnership.[8]
Respondent counters that the issue raised by
petitioners is not proper in a petition for review
on certiorari under Rule 45 of the Rules of Civil
Procedure, as it would entail the review,
evaluation, calibration, and re-weighing of the
factual findings of the CA. Moreover,
respondent invokes the rationale of the CA
decision that, in light of the admissions of
Cresencia and Edison and the testimony of
89
Full text : BusOrg I Cases 2018
respondent, the testimony of Jimmy was
effectively refuted; accordingly, the CA's
reversal of the RTC's findings was fully
justified.[9]
We resolve first the procedural matter regarding
the propriety of the instant Petition.
Verily, the evaluation and calibration of the
evidence necessarily involves consideration of
factual issues -- an exercise that is not
appropriate for a petition for review on
certiorari under Rule 45. This rule provides that
the parties may raise only questions of law,
because the Supreme Court is not a trier of facts.
Generally, we are not duty-bound to analyze
again and weigh the evidence introduced in and
considered by the tribunals below.[10] When
supported by substantial evidence, the findings
of fact of the CA are conclusive and binding on
the parties and are not reviewable by this Court,
unless the case falls under any of the following
recognized exceptions:
(1) When the conclusion is a finding grounded
entirely on speculation, surmises and
conjectures;
(2) When the inference made is manifestly
mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a
misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its
findings, went beyond the issues of the case and
the same is contrary to the admissions of both
appellant and appellee;
(7) When the findings are contrary to those of
the trial court;
(8) When the findings of fact are conclusions
without citation of specific evidence on which
they are based;
(9) When the facts set forth in the petition as
well as in the petitioners' main and reply briefs
are not disputed by the respondents; and
(10) When the findings of fact of the Court of
Appeals are premised on the supposed absence
of evidence and contradicted by the evidence on
record.[11]
We note, however, that the findings of fact of

the RTC are contrary to those of the CA. Thus,
our review of such findings is warranted.
On the merits of the case, we find that the
instant Petition is bereft of merit.
A partnership exists when two or more persons
agree to place their money, effects, labor, and
skill in lawful commerce or business, with the
understanding that there shall be a proportionate
sharing of the profits and losses among them. A
contract of partnership is defined by the Civil
Code as one where two or more persons bind
themselves to contribute money, property, or
industry to a common fund, with the intention of
dividing the profits among themselves.[12]
Undoubtedly, the best evidence would have
been the contract of partnership or the articles of
partnership. Unfortunately, there is none in this
case, because the alleged partnership was never
formally organized. Nonetheless, we are asked
to determine who between Jose and Elfledo was
the "partner" in the trucking business.
A careful review of the records persuades us to
affirm the CA decision. The evidence presented
by petitioners falls short of the quantum of proof
required to establish that: (1) Jose was the
partner and not Elfledo; and (2) all the
properties acquired by Elfledo and respondent
form part of the estate of Jose, having been
derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony.
But that testimony is just one piece of evidence
against respondent. It must be considered and
weighed along with petitioners' other evidence
vis-à-vis respondent's contrary evidence. In civil
cases, the party having the burden of proof must
establish his case by a preponderance of
evidence. "Preponderance of evidence" is the
weight, credit, and value of the aggregate
evidence on either side and is usually
considered synonymous with the term "greater
weight of the evidence" or "greater weight of
the credible evidence." "Preponderance of
evidence" is a phrase that, in the last analysis,
means probability of the truth. It is evidence that
is more convincing to the court as worthy of
belief than that which is offered in opposition
thereto.[13] Rule 133, Section 1 of the Rules of
Court provides the guidelines in determining
preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how
determined. In civil cases, the party having
burden of proof must establish his case by a
preponderance of evidence. In determining
where the preponderance or superior weight of
90
Full text : BusOrg I Cases 2018
evidence on the issues involved lies, the court
may consider all the facts and circumstances of
the case, the witnesses' manner of testifying,
their intelligence, their means and opportunity
of knowing the facts to which they are
testifying, the nature of the facts to which they
testify, the probability or improbability of their
testimony, their interest or want of interest, and
also their personal credibility so far as the same
may legitimately appear upon the trial. The
court may also consider the number of
witnesses, though the preponderance is not
necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng
Kee v. Court of Appeals[14] is enlightening.
Therein, we cited Article 1769 of the Civil
Code, which provides:
Art. 1769. In determining whether a partnership
exists, these rules shall apply:
(1) Except as provided by Article 1825, persons
who are not partners as to each other are not
partners as to third persons;
(2) Co-ownership or co-possession does not of
itself establish a partnership, whether such co-
owners or co-possessors do or do not share any
profits made by the use of the property;
(3) The sharing of gross returns does not of
itself establish a partnership, whether or not the
persons sharing them have a joint or common
right or interest in any property from which the
returns are derived;
(4) The receipt by a person of a share of the
profits of a business is a prima facie evidence
that he is a partner in the business, but no such
inference shall be drawn if such profits were
received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a
landlord;
(c) As an annuity to a widow or representative
of a deceased partner;
(d) As interest on a loan, though the amount of
payment vary with the profits of the business;
(e) As the consideration for the sale of a
goodwill of a business or other property by
installments or otherwise.
Applying the legal provision to the facts of this
case, the following circumstances tend to prove
that Elfledo was himself the partner of Jimmy
and Norberto: 1) Cresencia testified that Jose
gave Elfledo P50,000.00, as share in the
partnership, on a date that coincided with the
payment of the initial capital in the
partnership;[15] (2) Elfledo ran the affairs of the
 Full text : BusOrg I Cases 2018

partnership, wielding absolute control, power
and authority, without any intervention or
opposition whatsoever from any of petitioners
herein;[16] (3) all of the properties, particularly
the nine trucks of the partnership, were
registered in the name of Elfledo; (4) Jimmy
testified that Elfledo did not receive wages or
salaries from the partnership, indicating that
what he actually received were shares of the
profits of the business;[17] and (5) none of the
petitioners, as heirs of Jose, the alleged partner,
demanded periodic accounting from Elfledo
during his lifetime. As repeatedly stressed in
Heirs of Tan Eng Kee,[18] a demand for periodic
accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any
evidence to show that the real and personal
properties acquired and registered in the names
of Elfledo and respondent formed part of the
estate of Jose, having been derived from Jose's
alleged partnership with Jimmy and Norberto.
They failed to refute respondent's claim that
Elfledo and respondent engaged in other
businesses. Edison even admitted that Elfledo
also sold Interwood lumber as a sideline.[19]
Petitioners could not offer any credible evidence
other than their bare assertions. Thus, we apply
the basic rule of evidence that between
documentary and oral evidence, the former
carries more weight.[20]
Jose Lim and not Elfledo who was the partner,
then upon his death the partnership should have
been dissolved and its assets liquidated. On the
contrary, these were not done but instead its
operation continued under the helm of Elfledo
and without any participation from the heirs of
Jose Lim.
Whatever properties appellant and her husband
had acquired, this was through their own
concerted efforts and hard work. Elfledo did not
limit himself to the business of their partnership
but engaged in other lines of businesses as well.
In sum, we find no cogent reason to disturb the
findings and the ruling of the CA as they are
amply supported by the law and by the evidence
on record.
WHEREFORE, the instant Petition is
DENIED. The assailed Court of Appeals
Decision dated June 29, 2005 is AFFIRMED.
Costs against petitioners.
SO ORDERED.

Finally, we agree with the judicious findings of

the CA, to wit:
The above testimonies prove that Elfledo was
not just a hired help but one of the partners in
the trucking business, active and visible in the
running of its affairs from day one until this
ceased operations upon his demise. The extent
of his control, administration and management
of the partnership and its business, the fact that
its properties were placed in his name, and that
he was not paid salary or other compensation by
the partners, are indicative of the fact that
Elfledo was a partner and a controlling one at
that. It is apparent that the other partners only
contributed in the initial capital but had no say
thereafter on how the business was ran.
Evidently it was through Elfredo's efforts and
hard work that the partnership was able to
acquire more trucks and otherwise prosper.
Even the appellant participated in the affairs of
the partnership by acting as the bookkeeper sans
salary.

It is notable too that Jose Lim died when the

partnership was barely a year old, and the
partnership and its business not only continued
but also flourished. If it were true that it was

91

ART.1773
G.R. No. L-24193, June 28, 1968
MAURICIO AGAD, PLAINTIFF-
APPELLANT VS. SEVERINO MABATO &
MABATO & AGAD COMPANY,
DEFENDANTS-APPELLEES.
DECISION
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad,
from an order of dismissal of the Court of First
Instance of Davao, we are called upon to
determine the applicability of Article 1773 of
our Civil Code to the contract of partnership on
which the complaint herein is based.
Alleging that he and defendant Severino Mabato
are - pursuant to a public instrument dated
August 29, 1952, copy of which is attached to
the complaint as Annex "A" - partners in a
fishpond business, to the capital of which Agad
contributed P1,000, with the right to receive
50% of the profits; that from 1952 up to and
including 1956, Mabato who handled the
partnership funds, had yearly rendered accounts
of the operations of the partnership; and that,
despite repeated demands, Mabato had failed
and refused to render accounts for the years
1957 to 1963, Agad prayed in his complaint
against Mabato and Mabato& Agad Company,
filed on June 9, 1964, that judgment be rendered
sentencing Mabato to pay him (Agad) the sum
of P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963, in
addition to P1,000 as attorney's fees, and
ordering the dissolution of the partnership, as
well as the winding up of its affairs by a
receiver to be appointed therefor.
In his answer, Mabato admitted the formal
allegations of the complaint and denied the
existence of said partnership, upon the ground
that the contract therefor had not been perfected,
despite the execution of Annex "A", because
Agad had allegedly failed to give his P1,000
contribution to the partnership capital. Mabato
prayed, therefore, that the complaint be
dismissed; that Annex "A" be declared void ab
initio; and that Agad be sentenced to pay actual,
moral and exemplary damages, as well as
attorney's fees.
Subsequently, Mabato filed a motion to dismiss,
upon the ground that the complaint states no
cause of action and that the lower court had no
jurisdiction over the subject matter of the case,
because it involves principally the determination
of rights over public lands. After due hearing,
the court issued the order appealed from,
granting the motion to dismiss the complaint for
failure to state a cause of action. This
conclusion was predicated upon the theory that
92
Full text : BusOrg I Cases 2018
the contract of partnership, Annex "A", is null
and void, pursuant to Art. 1773 of our Civil
Code, because an inventory of the fishpond
referred in said instrument had not been
attached thereto. A reconsideration of this order
having been denied, Agad brought the matter to
us for review by record on appeal.
Articles 1771 and 1773 of said Code provide:
"Art. 1771. A partnership may be constituted in
any form, except where immovable property or
real rights are contributed thereto, in which case
a public instrument shall be necessary.
"Art. 1773. A contract of partnership is void,
whenever immovable property is contributed
thereto, if inventory of said property is not
made, signed by the parties, and attached to the
Public instrument."
The issue before us hinges on whether or not
"immovable property or real rights" have been
contributed to the partnership under
consideration. Mabato alleged and the lower
court held that the answer should be in the
affirmative, because "it is really inconceivable
how a partnership engaged in the fishpond
business could exist without said fishpond
property (being) contributed to the partnership."
It should be noted, however, that, as stated in
Annex "A" the partnership was established "to
operate a fishpond", not to" engage in a
fishpond business". Moreover, none of the
partners contributed either a fishpond or a real
right to any fishpond. Their contributions were
limited to the sum of P1,000 each. Indeed,
Paragraph 4 of the Annex "A" provides:
"That the capital of the said partnership is Two
Thousand (P2,000.00) Pesos Philippine
Currency, of which One Thousand (P1,000.00)
pesos has been contributed by Severino Mabato
and One Thousand (P1,000.00) Pesos has been
contributed by Mauricio Agad.
x x x x x x
x x "
The operation of the fishpond mentioned in
Annex "A" was the purpose of the partnership.
Neither said fishpond nor a real right thereto
was contributed to the partnership or became
part of the capital thereof, even if a fishpond or
a real right thereto could become part of its
assets.
WHEREFORE, we find that said Article 1773
of the Civil Code is not in point and that, the
order appealed from should be, as it is hereby
set aside and the case remanded to the lower
court for further proceedings, with the costs of
this instance against defendant-appellee,
Severino Mabato.
IT IS SO ORDERED.

THIRD DIVISION
G.R. No. 134559, December 09, 1999
ANTONIA TORRES, ASSISTED BY HER
HUSBAND, ANGELO TORRES; AND
EMETERIA BARING, PETITIONERS, VS.
COURT OF APPEALS AND MANUEL
TORRES, RESPONDENTS.
DECISION
PANGANIBAN, J.:
Courts may not extricate parties from the
necessary consequences of their acts. That the
terms of a contract turn out to be financially
disadvantageous to them will not relieve them
of their obligations therein. The lack of an
inventory of real property will not ipso facto
release the contracting partners from their
respective obligations to each other arising from
acts executed in accordance with their
agreement.
The Case
The Petition for Review on Certiorari before us
assails the March 5, 1998 Decision[1] Second
Division of the Court of Appeals[2] (CA) in CA-
GR CV No. 42378 and its June 25, 1998
Resolution denying reconsideration. The
assailed Decision affirmed the ruling of the
Regional Trial Court (RTC) of Cebu City in
Civil Case No. R-21208, which disposed as
follows:
"WHEREFORE, for all the foregoing
considerations, the Court, finding for the
defendant and against the plaintiffs, orders the
dismissal of the plaintiff's complaint. The
counterclaims of the defendant are likewise
ordered dismissed. No pronouncement as to
costs."[3]
The Facts
Sisters Antonia Torres and Emeteria Baring,
herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for
the development of a parcel of land into a
subdivision. Pursuant to the contract, they
executed a Deed of Sale covering the said parcel
of land in favor of respondent, who then had it
registered in his name. By mortgaging the
property, respondent obtained from Equitable
Bank a loan of P40,000 which, under the Joint
Venture Agreement, was to be used for the
development of the subdivision.[4] All three of
them also agreed to share the proceeds from the
sale of the subdivided lots.
The project did not push through, and the land
was subsequently foreclosed by the bank.
93
Full text : BusOrg I Cases 2018
According to petitioners, the project failed
because of "respondent's lack of funds or means
and skills." They add that respondent used the
loan not for the development of the subdivision,
but in furtherance of his own company,
Universal Umbrella Company.
On the other hand, respondent alleged that he
used the loan to implement the Agreement.
With the said amount, he was able to effect the
survey and the subdivision of the lots. He
secured the Lapu Lapu City Council's approval
of the subdivision project which he advertised in
a local newspaper. He also caused the
construction of roads, curbs and gutters.
Likewise, he entered into a contract with an
engineering firm for the building of sixty low-
cost housing units and actually even set up a
model house on one of the subdivision lots. He
did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project
failed, however, because petitioners and their
relatives had separately caused the annotations
of adverse claims on the title to the land, which
eventually scared away prospective buyers.
Despite his requests, petitioners refused to cause
the clearing of the claims, thereby forcing him
to give up on the project.[5]
Subsequently, petitioners filed a criminal case
for estafa against respondent and his wife, who
were however acquitted. Thereafter, they filed
the present civil case which, upon respondent's
motion, was later dismissed by the trial court in
an Order dated September 6, 1982. On appeal,
however, the appellate court remanded the case
for further proceedings. Thereafter, the RTC
issued its assailed Decision, which, as earlier
stated, was affirmed by the CA.
Hence, this Petition.[6]
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals
held that petitioners and respondent had formed
a partnership for the development of the
subdivision. Thus, they must bear the loss
suffered by the partnership in the same
proportion as their share in the profits stipulated
in the contract. Disagreeing with the trial
court's pronouncement that losses as well as
profits in a joint venture should be distributed
equally,[7] the CA invoked Article 1797 of the
Civil Code which provides:
"Article 1797 - The losses and profits shall be
distributed in conformity with the agreement. If
only the share of each partner in the profits has

been agreed upon, the share of each in the losses
shall be in the same proportion."
The CA elucidated further:
"In the absence of stipulation, the share of each
partner in the profits and losses shall be in
proportion to what he may have contributed, but
the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner
shall receive such share as may be just and
equitable under the circumstances. If besides
his services he has contributed capital, he shall
also receive a share in the profits in proportion
to his capital."
The Issue
Petitioners impute to the Court of Appeals the
following error:
"x x x [The] Court of Appeals erred in
concluding that the transaction x x x between
the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the
provision of Article 1769, and other related
provisions of the Civil Code of the
Philippines."[8]
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership
with respondent. They contend that the Joint
Venture Agreement and the earlier Deed of
Sale, both of which were the bases of the
appellate court's finding of a partnership, were
void.
In the same breath, however, they assert that
under those very same contracts, respondent is
liable for his failure to implement the project.
Because the agreement entitled them to receive
60 percent of the proceeds from the sale of the
subdivision lots, they pray that respondent pay
them damages equivalent to 60 percent of the
value of the property.[9]
The pertinent portions of the Joint Venture
Agreement read as follows:
"KNOW ALL MEN BY THESE PRESENTS:
"This AGREEMENT, is made and entered into
at Cebu City, Philippines, this 5th day of March,
1969, by and between MR. MANUEL R.
TORRES, x x x the FIRST PARTY, likewise,
MRS. ANTONIA B. TORRES, and MISS
EMETERIA BARING, x x x the SECOND
PARTY:
W I T N E S S E T H:
94
Full text : BusOrg I Cases 2018
"That, whereas, the SECOND PARTY,
voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of
Mactan, under Lot No. 1368 covering TCT No.
T-0184 with a total area of 17,009 square
meters, to be sub-divided by the FIRST
PARTY;
"Whereas, the FIRST PARTY had given the
SECOND PARTY, the sum of: TWENTY
THOUSAND (P20,000.00) Pesos, Philippine
Currency, upon the execution of this contract for
the property entrusted by the SECOND
PARTY, for sub-division projects and
development purposes;
"NOW THEREFORE, for and in consideration
of the above covenants and promises herein
contained the respective parties hereto do
hereby stipulate and agree as follows:
"ONE: That the SECOND PARTY signed an
absolute Deed of Sale x x x dated March 5,
1969, in the amount of TWENTY FIVE
THOUSAND FIVE HUNDRED THIRTEEN &
FIFTY CTVS. (P25,513.50) Philippine
Currency, for 1,700 square meters at ONE
[PESO] & FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST PARTY, but
the SECOND PARTY did not actually receive
the payment.
"SECOND: That the SECOND PARTY, had
received from the FIRST PARTY, the necessary
amount of TWENTY THOUSAND
(P20,000.00) pesos, Philippine currency, for
their personal obligations and this particular
amount will serve as an advance payment from
the FIRST PARTY for the property mentioned
to be sub-divided and to be deducted from the
sales.
"THIRD: That the FIRST PARTY, will not
collect from the SECOND PARTY, the interest
and the principal amount involving the amount
of TWENTY THOUSAND (P20,000.00) Pesos,
Philippine Currency, until the sub-division
project is terminated and ready for sale to any
interested parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos, Philippine
currency, will be deducted accordingly.
"FOURTH: That all general expense[s] and all
cost[s] involved in the sub-division project
should be paid by the FIRST PARTY,
exclusively and all the expenses will not be
deducted from the sales after the development
of the sub-division project.

"FIFTH: That the sales of the sub-divided lots
will be divided into SIXTY PERCENTUM 60%
for the SECOND PARTY and FORTY
PERCENTUM 40% for the FIRST PARTY, and
additional profits or whatever income deriving
from the sales will be divided equally according
to the x x x percentage [agreed upon] by both
parties.
"SIXTH: That the intended sub-division project
of the property involved will start the work and
all improvements upon the adjacent lots will be
negotiated in both parties['] favor and all sales
shall [be] decided by both parties.
"SEVENTH: That the SECOND PARTIES,
should be given an option to get back the
property mentioned provided the amount of
TWENTY THOUSAND (P20,000.00) Pesos,
Philippine Currency, borrowed by the SECOND
PARTY, will be paid in full to the FIRST
PARTY, including all necessary improvements
spent by the FIRST PARTY, and the FIRST
PARTY will be given a grace period to turnover
the property mentioned above.
"That this AGREEMENT shall be binding and
obligatory to the parties who executed same
freely and voluntarily for the uses and purposes
therein stated."[10]
A reading of the terms embodied in the
Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil
Code, which provides:
"ART. 1767. By the contract of partnership two
or more persons bind themselves to contribute
money, property, or industry to a common fund,
with the intention of dividing the profits among
themselves."
Under the above-quoted Agreement, petitioners
would contribute property to the partnership in
the form of land which was to be developed into
a subdivision; while respondent would give, in
addition to his industry, the amount needed for
general expenses and other costs. Furthermore,
the income from the said project would be
divided according to the stipulated percentage.
Clearly, the contract manifested the intention of
the parties to form a partnership.[11]
It should be stressed that the parties
implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its
use in the name of the respondent. On the other
hand, respondent caused the subject land to be
mortgaged, the proceeds of which were used for
the survey and the subdivision of the land. As
noted earlier, he developed the roads, the curbs
95
Full text : BusOrg I Cases 2018
and the gutters of the subdivision and entered
into a contract to construct low-cost housing
units on the property.
Respondent's actions clearly belie petitioners'
contention that he made no contribution to the
partnership. Under Article 1767 of the Civil
Code, a partner may contribute not only money
or property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts
bind the parties not only to what has been
expressly stipulated, but also to all necessary
consequences thereof, as follows:
"ART. 1315. Contracts are perfected by mere
consent, and from that moment the parties are
bound not only to the fulfillment of what has
been expressly stipulated but also to all the
consequences which, according to their nature,
may be in keeping with good faith, usage and
law."
It is undisputed that petitioners are educated and
are thus presumed to have understood the terms
of the contract they voluntarily signed. If it was
not in consonance with their expectations, they
should have objected to it and insisted on the
provisions they wanted.
Courts are not authorized to extricate parties
from the necessary consequences of their acts,
and the fact that the contractual stipulations may
turn out to be financially disadvantageous will
not relieve parties thereto of their obligations.
They cannot now disavow the relationship
formed from such agreement due to their
supposed misunderstanding of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture
Agreement is void under Article 1773 of the
Civil Code, which provides:
"ART. 1773. A contract of partnership is void,
whenever immovable property is contributed
thereto, if an inventory of said property is not
made, signed by the parties, and attached to the
public instrument."
They contend that since the parties did not
make, sign or attach to the public instrument an
inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended
primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under
 Full text : BusOrg I Cases 2018

the aforecited provision which is a complement therein. x x x There was therefore a

of Article 1771,[12] "the execution of a public consideration for the sale, the [petitioners]
instrument would be useless if there is no acting in the expectation that, should the
inventory of the property contributed, because venture come into fruition, they [would] get
without its designation and description, they sixty percent of the net profits."
cannot be subject to inscription in the Registry
of Property, and their contribution cannot Liability of the Parties
prejudice third persons. This will result in fraud
to those who contract with the partnership in the Claiming that respondent was solely responsible
belief [in] the efficacy of the guaranty in which for the failure of the subdivision project,
the immovables may consist. Thus, the contract petitioners maintain that he should be made to
is declared void by the law when no such pay damages equivalent to 60 percent of the
inventory is made." The case at bar does not value of the property, which was their share in
involve third parties who may be prejudiced. the profits under the Joint Venture Agreement.

Second, petitioners themselves invoke the
allegedly void contract as basis for their claim
that respondent should pay them 60 percent of
the value of the property.[13] They cannot in one
breath deny the contract and in another
recognize it, depending on what momentarily
suits their purpose. Parties cannot adopt
inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such
practice.
In short, the alleged nullity of the partnership
will not prevent courts from considering the
Joint Venture Agreement an ordinary contract
from which the parties' rights and obligations to
each other may be inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
We are not persuaded. True, the Court of
Appeals held that petitioners' acts were not the
cause of the failure of the project.[16] But it also
ruled that neither was respondent responsible
therefor.[17] In imputing the blame solely to him,
petitioners failed to give any reason why we
should disregard the factual findings of the
appellate court relieving him of fault. Verily,
factual issues cannot be resolved in a petition
for review under Rule 45, as in this case.
Petitioners have not alleged, not to say shown,
that their Petition constitutes one of the
exceptions to this doctrine.[18] Accordingly, we
find no reversible error in the CA's ruling that
petitioners are not entitled to damages.
WHEREFORE, the Petition is hereby DENIED
and the challenged Decision AFFIRMED. Costs
against petitioners.

Petitioners also contend that the Joint Venture SO ORDERED.

Agreement is void under Article 1422[14] of the
Civil Code, because it is the direct result of an
earlier illegal contract, which was for the sale of
the land without valid consideration.

This argument is puerile. The Joint Venture

Agreement clearly states that the consideration
for the sale was the expectation of profits from
the subdivision project. Its first stipulation states
that petitioners did not actually receive payment
for the parcel of land sold to respondent.
Consideration, more properly denominated as
cause, can take different forms, such as the
prestation or promise of a thing or service by
another.[15]

In this case, the cause of the contract of sale

consisted not in the stated peso value of the
land, but in the expectation of profits from the
subdivision project, for which the land was
intended to be used. As explained by the trial
court, "the land was in effect given to the
partnership as [petitioner's] participation

96
 Full text : BusOrg I Cases 2018

THIRD DIVISION Enterprises, Odeon Realty Corporation

G.R. NOS. 166299-300, December 13, 2005 (operator of Odeon I and II theatres), Avenue
AURELIO K. LITONJUA, JR., Realty, Inc., owner of lands and buildings,
PETITIONER, VS. EDUARDO K. among other corporations. Yang is described in
LITONJUA, SR., ROBERT T. YANG, the complaint as petitioner's and Eduardo's
ANGLO PHILS. MARITIME, INC., partner in their Odeon Theater investment.[5]
CINEPLEX, INC., DDM GARMENTS, INC., The same complaint also contained the
EDDIE K. LITONJUA SHIPPING following material averments:
AGENCY, INC., EDDIE K. LITONJUA 3.01 On or about 22 June 1973, [Aurelio] and
SHIPPING CO., INC., LITONJUA Eduardo entered into a joint venture/partnership
SECURITIES, INC. (FORMERLY E. K. for the continuation of their family business and
LITONJUA SEC), LUNETA THEATER, common family funds ....
INC., E & L REALTY, (FORMERLY E & L
INT'L SHIPPING CORP.), FNP CO., INC., 3.01.1 This joint venture/[partnership]
HOME ENTERPRISES, INC., BEAUMONT agreement was contained in a memorandum
DEV. REALTY CO., INC., GLOED LAND addressed by Eduardo to his siblings, parents
CORP., EQUITY TRADING CO., INC., 3D and other relatives. Copy of this memorandum
CORP., "L" DEV. CORP, LCM is attached hereto and made an integral part as
THEATRICAL ENTERPRISES, INC., Annex "A" and the portion referring to
LITONJUA SHIPPING CO. INC., MACOIL [Aurelio] submarked as Annex "A-1".
INC., ODEON REALTY CORP.,
SARATOGA REALTY, INC., ACT 3.02 It was then agreed upon between [Aurelio]
THEATER INC. (FORMERLY GENERAL and Eduardo that in consideration of [Aurelio's]
THEATRICAL & FILM EXCHANGE, retaining his share in the remaining family
INC.), AVENUE REALTY, INC., AVENUE businesses (mostly, movie theaters, shipping
THEATER, INC. AND LVF PHILIPPINES, and land development) and contributing his
INC., (FORMERLY VF PHILIPPINES), industry to the continued operation of these
RESPONDENTS. businesses, [Aurelio] will be given P1 Million
or 10% equity in all these businesses and those
DECISION to be subsequently acquired by them whichever
GARCIA, J.: is greater. . . .
In this petition for review under Rule 45 of the
Rules of Court, petitioner Aurelio K. Litonjua, 4.01 ... from 22 June 1973 to about August
Jr. seeks to nullify and set aside the Decision of 2001, or [in] a span of 28 years, [Aurelio] and
the Court of Appeals (CA) dated March 31, Eduardo had accumulated in their joint
2004[1] in consolidated cases C.A. G.R. Sp. No. venture/partnership various assets including but
76987 and C.A. G.R. SP. No 78774 and its not limited to the corporate defendants and
Resolution dated December 07, 2004,[2] denying [their] respective assets.
petitioner's motion for reconsideration.
4.02 In addition . . . the joint venture/partnership
The recourse is cast against the following ... had also acquired [various other assets], but
factual backdrop: Eduardo caused to be registered in the names of
other parties....
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and xxx xxx
herein respondent Eduardo K. Litonjua, Sr. xxx
(Eduardo) are brothers. The legal dispute
between them started when, on December 4, 4.04 The substantial assets of most of the
2002, in the Regional Trial Court (RTC) at corporate defendants consist of real properties
Pasig City, Aurelio filed a suit against his .... A list of some of these real properties is
brother Eduardo and herein respondent Robert attached hereto and made an integral part as
T. Yang (Yang) and several corporations for Annex "B".
specific performance and accounting. In his xxx xxx
complaint,[3] docketed as Civil Case No. 69235 xxx
and eventually raffled to Branch 68 of the
court,[4] Aurelio alleged that, since June 1973, 5.02 Sometime in 1992, the relations between
he and Eduardo are into a joint [Aurelio] and Eduardo became sour so that
venture/partnership arrangement in the Odeon [Aurelio] requested for an accounting and
Theater business which had expanded thru liquidation of his share in the joint
investment in Cineplex, Inc., LCM Theatrical venture/partnership [but these demands for

97

complete accounting and liquidation were not
heeded].
xxx xxx
xxx
5.05 What is worse, [Aurelio] has reasonable
cause to believe that Eduardo and/or the
corporate defendants as well as Bobby [Yang],
are transferring . . . various real properties of the
corporations belonging to the joint
venture/partnership to other parties in fraud of
[Aurelio]. In consequence, [Aurelio] is therefore
causing at this time the annotation on the titles
of these real properties' a notice of lis pendens
.... (Emphasis in the original; underscoring and
words in bracket added.)
For ease of reference, Annex "A-1" of the
complaint, which petitioner asserts to have been
meant for him by his brother Eduardo,
pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio
K. Litonjua]:
You have now your own life to live after having
been married. ....
I am trying my best to mold you the way I work
so you can follow the pattern .... You will be the
only one left with the company, among us
brothers and I will ask you to stay as I want you
to run this office every time I am away. I want
you to run it the way I am trying to run it
because I will be all alone and I will depend
entirely to you (sic). My sons will not be ready
to help me yet until about maybe 15/20 years
from now. Whatever is left in the corporation, I
will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%)
equity, whichever is greater. We two will
gamble the whole thing of what I have and what
you are entitled to. .... It will be you and me
alone on this. If ever I pass away, I want you to
take care of all of this. You keep my share for
my two sons are ready take over but give them
the chance to run the company which I have
built.
xxx xxx
xxx
Because you will need a place to stay, I will
arrange to give you first ONE HUNDRED
THOUSANDS PESOS: (P100, 000.00) in cash
or asset, like Lt. Artiaga so you can live better
there. The rest I will give you in form of stocks
which you can keep. This stock I assure you is
good and saleable. I will also gladly give you
the share of Wack-Wack ...and Valley Golf ...
because you have been good. The rest will be in
98
Full text : BusOrg I Cases 2018
stocks from all the corporations which I repeat,
ten percent (10%) equity. [6]
On December 20, 2002, Eduardo and the
corporate respondents, as defendants a quo,
filed a joint ANSWER With Compulsory
Counterclaim denying under oath the material
allegations of the complaint, more particularly
that portion thereof depicting petitioner and
Eduardo as having entered into a contract of
partnership. As affirmative defenses, Eduardo,
et al., apart from raising a jurisdictional matter,
alleged that the complaint states no cause of
action, since no cause of action may be derived
from the actionable document, i.e., Annex "A-
1", being void under the terms of Article 1767
in relation to Article 1773 of the Civil Code,
infra. It is further alleged that whatever
undertaking Eduardo agreed to do, if any, under
Annex "A-1", are unenforceable under the
provisions of the Statute of Frauds.[7]
For his part, Yang - who was served with
summons long after the other defendants
submitted their answer – moved to dismiss on
the ground, inter alia, that, as to him, petitioner
has no cause of action and the complaint does
not state any.[8] Petitioner opposed this motion
to dismiss.
On January 10, 2003, Eduardo, et al., filed a
Motion to Resolve Affirmative Defenses.[9] To
this motion, petitioner interposed an Opposition
with ex-Parte Motion to Set the Case for Pre-
trial.[10]
Acting on the separate motions immediately
adverted to above, the trial court, in an Omnibus
Order dated March 5, 2003, denied the
affirmative defenses and, except for Yang, set
the case for pre-trial on April 10, 2003.[11]
In another Omnibus Order of April 2, 2003, the
same court denied the motion of Eduardo, et al.,
for reconsideration[12] and Yang's motion to
dismiss. The following then transpired insofar
as Yang is concerned:
1. On April 14, 2003, Yang filed his
ANSWER, but expressly reserved the
right to seek reconsideration of the April
2, 2003 Omnibus Order and to pursue
his failed motion to dismiss[13] to its full
resolution.
2. On April 24, 2003, he moved for
reconsideration of the Omnibus Order of
April 2, 2003, but his motion was denied
in an Order of July 4, 2003.[14]
3. On August 26, 2003, Yang went to the
Court of Appeals (CA) in a petition for
certiorari under Rule 65 of the Rules of

Court, docketed as CA-G.R. SP No.
78774,[15] to nullify the separate orders
of the trial court, the first denying his
motion to dismiss the basic complaint
and, the second, denying his motion for
reconsideration.
Earlier, Eduardo and the corporate defendants,
on the contention that grave abuse of discretion
and injudicious haste attended the issuance of
the trial court's aforementioned Omnibus Orders
dated March 5, and April 2, 2003, sought relief
from the CA via similar recourse. Their petition
for certiorari was docketed as CA G.R. SP No.
76987.
Per its resolution dated October 2, 2003,[16] the
CA's 14th Division ordered the consolidation of
CA G.R. SP No. 78774 with CA G.R. SP No.
76987.
Following the submission by the parties of their
respective Memoranda of Authorities, the
appellate court came out with the herein assailed
Decision dated March 31, 2004, finding for
Eduardo and Yang, as lead petitioners therein,
disposing as follows:
WHEREFORE, judgment is hereby rendered
granting the issuance of the writ of certiorari in
these consolidated cases annulling, reversing
and setting aside the assailed orders of the court
a quo dated March 5, 2003, April 2, 2003 and
July 4, 2003 and the complaint filed by private
respondent [now petitioner Aurelio] against all
the petitioners [now herein respondents
Eduardo, et al.] with the court a quo is hereby
dismissed.
SO ORDERED.[17] (Emphasis in the original;
words in bracket added.)
Explaining its case disposition, the appellate
court stated, inter alia, that the alleged
partnership, as evidenced by the actionable
documents, Annex "A" and "A-1" attached to
the complaint, and upon which petitioner solely
predicates his right/s allegedly violated by
Eduardo, Yang and the corporate defendants a
quo is "void or legally inexistent".
In time, petitioner moved for reconsideration
but his motion was denied by the CA in its
equally assailed Resolution of December 7,
2004.[18] . his complaint to be the contract of
Hence, petitioner's present recourse, on the
contention that the CA erred:
A. When it ruled that there was no
partnership created by the actionable
document because this was not a public
99
Full text : BusOrg I Cases 2018
instrument and immovable properties
were contributed to the partnership.
B. When it ruled that the actionable
document did not create a demandable
right in favor of petitioner.
C. When it ruled that the complaint stated
no cause of action against [respondent]
Robert Yang; and
D. When it ruled that petitioner has changed
his theory on appeal when all that
Petitioner had done was to support his
pleaded cause of action by another legal
perspective/argument.
The petition lacks merit.
Petitioner's demand, as defined in the petitory
portion of his complaint in the trial court, is for
delivery or payment to him, as Eduardo's and
Yang's partner, of his partnership/joint venture
share, after an accounting has been duly
conducted of what he deems to be
partnership/joint venture property.[19]
A partnership exists when two or more persons
agree to place their money, effects, labor, and
skill in lawful commerce or business, with the
understanding that there shall be a proportionate
sharing of the profits and losses between
them.[20] A contract of partnership is defined by
the Civil Code as one where two or more
persons bound themselves to contribute money,
property, or industry to a common fund with the
intention of dividing the profits among
themselves.[21] A joint venture, on the other
hand, is hardly distinguishable from, and may
be likened to, a partnership since their elements
are similar, i.e., community of interests in the
business and sharing of profits and losses. Being
a form of partnership, a joint venture is
generally governed by the law on partnership.[22]
The underlying issue that necessarily comes to
mind in this proceedings is whether or not
petitioner and respondent Eduardo are partners
in the theatre, shipping and realty business, as
one claims but which the other denies. And the
issue bearing on the first assigned error relates
to the question of what legal provision is
applicable under the premises, petitioner
seeking, as it were, to enforce the actionable
document - Annex "A-1" - which he depicts in
partnership/joint venture between himself and
Eduardo. Clearly, then, a look at the legal
provisions determinative of the existence, or
defining the formal requisites, of a partnership is
indicated. Foremost of these are the following
provisions of the Civil Code:

Art. 1771. A partnership may be constituted in
any form, except where immovable property or
real rights are contributed thereto, in which case
a public instrument shall be necessary.
Art. 1772. Every contract of partnership having
a capital of three thousand pesos or more, in
money or property, shall appear in a public
instrument, which must be recorded in the
Office of the Securities and Exchange
Commission.
Failure to comply with the requirement of the
preceding paragraph shall not affect the liability
of the partnership and the members thereof to
third persons.
Art. 1773. A contract of partnership is void,
whenever immovable property is contributed
thereto, if an inventory of said property is not
made, signed by the parties, and attached to the
public instrument.
Annex "A-1", on its face, contains typewritten
entries, personal in tone, but is unsigned and
undated. As an unsigned document, there can be
no quibbling that Annex "A-1" does not meet
the public instrumentation requirements exacted
under Article 1771 of the Civil Code. Moreover,
being unsigned and doubtless referring to a
partnership involving more than P3,000.00 in
money or property, Annex "A-1" cannot be
presented for notarization, let alone registered
with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 of
the Code. And inasmuch as the inventory
requirement under the succeeding Article 1773
goes into the matter of validity when immovable
property is contributed to the partnership, the
next logical point of inquiry turns on the nature
of petitioner's contribution, if any, to the
supposed partnership.
The CA, addressing the foregoing query,
correctly stated that petitioner's contribution
consisted of immovables and real rights. Wrote
that court:
A further examination of the allegations in the
complaint would show that [petitioner's]
contribution to the so-called "partnership/joint
venture" was his supposed share in the family
business that is consisting of movie theaters,
shipping and land development under paragraph
3.02 of the complaint. In other words, his
contribution as a partner in the alleged
partnership/joint venture consisted of
[23]
immovable properties and real rights. ....
Significantly enough, petitioner matter-of-factly
concurred with the appellate court's observation
that, prescinding from what he himself alleged
100
Full text : BusOrg I Cases 2018
in his basic complaint, his contribution to the
partnership consisted of his share in the Litonjua
family businesses which owned variable
immovable properties. Petitioner's assertion in
his motion for reconsideration[24] of the CA's
decision, that "what was to be contributed to the
business [of the partnership] was [petitioner's]
industry and his share in the family [theatre and
land development] business" leaves no room for
speculation as to what petitioner contributed to
the perceived partnership.
Lest it be overlooked, the contract-validating
inventory requirement under Article 1773 of the
Civil Code applies as long real property or real
rights are initially brought into the partnership.
In short, it is really of no moment which of the
partners, or, in this case, who between petitioner
and his brother Eduardo, contributed
immovables. In context, the more important
consideration is that real property was
contributed, in which case an inventory of the
contributed property duly signed by the parties
should be attached to the public instrument, else
there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the
application of Article 1773, argues that the
immovables in question were not contributed,
but were acquired after the formation of the
supposed partnership. Needless to stress, the
Court cannot accord cogency to this specious
argument. For, as earlier stated, petitioner
himself admitted contributing his share in the
supposed shipping, movie theatres and realty
development family businesses which already
owned immovables even before Annex "A-1"
was allegedly executed.
Considering thus the value and nature of
petitioner's alleged contribution to the purported
partnership, the Court, even if so disposed,
cannot plausibly extend Annex "A-1" the legal
effects that petitioner so desires and pleads to be
given. Annex "A-1", in fine, cannot support the
existence of the partnership sued upon and
sought to be enforced. The legal and factual
milieu of the case calls for this disposition. A
partnership may be constituted in any form, save
when immovable property or real rights are
contributed thereto or when the partnership has
a capital of at least P3,000.00, in which case a
public instrument shall be necessary.[25] And if
only to stress what has repeatedly been
articulated, an inventory to be signed by the
parties and attached to the public instrument is
also indispensable to the validity of the
partnership whenever immovable property is
contributed to it.

Given the foregoing perspective, what the
appellate court wrote in its assailed Decision[26]
about the probative value and legal effect of
Annex "A-1" commends itself for concurrence:
Considering that the allegations in the complaint
showed that [petitioner] contributed immovable
properties to the alleged partnership, the
"Memorandum" (Annex "A" of the complaint)
which purports to establish the said
"partnership/joint venture" is NOT a public
instrument and there was NO inventory of the
immovable property duly signed by the parties.
As such, the said "Memorandum" ... is null and
void for purposes of establishing the existence
of a valid contract of partnership. Indeed,
because of the failure to comply with the
essential formalities of a valid contract, the
purported "partnership/joint venture" is legally
inexistent and it produces no effect whatsoever.
Necessarily, a void or legally inexistent contract
cannot be the source of any contractual or legal
right. Accordingly, the allegations in the
complaint, including the actionable document
attached thereto, clearly demonstrates that
[petitioner] has NO valid contractual or legal
right which could be violated by the [individual
respondents] herein. As a consequence,
[petitioner's] complaint does NOT state a valid
cause of action because NOT all the essential
elements of a cause of action are present.
(Underscoring and words in bracket added.)
Likewise well-taken are the following
complementary excerpts from the CA's equally
assailed Resolution of December 7, 2004[27]
denying petitioner's motion for reconsideration:
Further, We conclude that despite glaring
defects in the allegations in the complaint as
well as the actionable document attached thereto
(Rollo, p. 191), the [trial] court did not
appreciate and apply the legal provisions which
were brought to its attention by herein
[respondents] in the their pleadings. In our
evaluation of [petitioner's] complaint, the latter
alleged inter alia to have contributed
immovable properties to the alleged partnership
but the actionable document is not a public
document and there was no inventory of
immovable properties signed by the parties.
Both the allegations in the complaint and the
actionable documents considered, it is crystal
clear that [petitioner] has no valid or legal right
which could be violated by [respondents].
(Words in bracket added.)
Under the second assigned error, it is
petitioner's posture that Annex "A-1", assuming
its inefficacy or nullity as a partnership
document, nevertheless created demandable
101
Full text : BusOrg I Cases 2018
rights in his favor. As petitioner succinctly puts
it in this petition:
43. Contrariwise, this actionable document,
especially its above-quoted provisions,
established an actionable contract even though it
may not be a partnership. This actionable
contract is what is known as an innominate
contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a
mortgage or whatever, but surely the contract
does create rights and obligations of the parties
and which rights and obligations may be
enforceable and demandable. Just because the
relationship created by the agreement cannot be
specifically labeled or pigeonholed into a
category of nominate contract does not mean it
is void or unenforceable.
Petitioner has thus thrusted the notion of an
innominate contract on this Court - and earlier
on the CA after he experienced a reversal of
fortune thereat - as an afterthought. The
appellate court, however, cannot really be
faulted for not yielding to petitioner's dubious
stratagem of altering his theory of joint
venture/partnership to an innominate contract.
For, at bottom, the appellate court's certiorari
jurisdiction was circumscribed by what was
alleged to have been the order/s issued by the
trial court in grave abuse of discretion. As
respondent Yang pointedly observed,[28] since
the parties' basic position had been well-defined,
that of petitioner being that the actionable
document established a partnership/joint
venture, it is on those positions that the
appellate court exercised its certiorari
jurisdiction. Petitioner's act of changing his
original theory is an impermissible practice and
constitutes, as the CA aptly declared, an
admission of the untenability of such theory in
the first place.
[Petitioner] is now humming a different tune . . .
. In a sudden twist of stance, he has now
contended that the actionable instrument may be
considered an innominate contract. xxx Verily,
this now changes [petitioner's] theory of the
case which is not only prohibited by the Rules
but also is an implied admission that the very
theory he himself ... has adopted, filed and
prosecuted before the respondent court is
erroneous.
Be that as it may . .... We hold that this new
theory contravenes [petitioner's] theory of the
actionable document being a partnership
document. If anything, it is so obvious we do
have to test the sufficiency of the cause of
action on the basis of partnership law xxx.[29]

(Emphasis in the original; Words in bracket
added).
But even assuming in gratia argumenti that
Annex "A-1" partakes of a perfected
innominate contract, petitioner's complaint
would still be dismissible as against Eduardo
and, more so, against Yang. It cannot be over-
emphasized that petitioner points to Eduardo as
the author of Annex "A-1". Withal, even on this
consideration alone, petitioner's claim against
Yang is doomed from the very start.
As it were, the only portion of Annex "A-1"
which could perhaps be remotely regarded as
vesting petitioner with a right to demand from
respondent Eduardo the observance of a
determinate conduct, reads:
xxx You will be the only one left with the
company, among us brothers and I will ask you
to stay as I want you to run this office everytime
I am away. I want you to run it the way I am
trying to run it because I will be alone and I will
depend entirely to you, My sons will not be
ready to help me yet until about maybe 15/20
years from now. Whatever is left in the
corporation, I will make sure that you get ONE
MILLION PESOS (P1,000,000.00) or ten
percent (10%) equity, whichever is greater.
(Underscoring added)
It is at once apparent that what respondent
Eduardo imposed upon himself under the above
passage, if he indeed wrote Annex "A-1", is a
promise which is not to be performed within one
year from "contract" execution on June 22,
1973. Accordingly, the agreement embodied in
Annex "A-1" is covered by the Statute of
Frauds and ergo unenforceable for non-
compliance therewith.[30] By force of the statute
of frauds, an agreement that by its terms is not
to be performed within a year from the making
thereof shall be unenforceable by action, unless
the same, or some note or memorandum thereof,
be in writing and subscribed by the party
charged. Corollarily, no action can be proved
unless the requirement exacted by the statute of
frauds is complied with.[31]
Lest it be overlooked, petitioner is the intended
beneficiary of the P1 Million or 10% equity of
the family businesses supposedly promised by
Eduardo to give in the near future. Any
suggestion that the stated amount or the equity
component of the promise was intended to go to
a common fund would be to read something not
written in Annex "A-1". Thus, even this angle
alone argues against the very idea of a
partnership, the creation of which requires two
or more contracting minds mutually agreeing to
contribute money, property or industry to a
102
Full text : BusOrg I Cases 2018
common fund with the intention of dividing the
profits between or among themselves.[32]
In sum then, the Court rules, as did the CA, that
petitioner's complaint for specific performance
anchored on an actionable document of
partnership which is legally inexistent or void
or, at best, unenforceable does not state a cause
of action as against respondent Eduardo and the
corporate defendants. And if no of action can
successfully be maintained against respondent
Eduardo because no valid partnership existed
between him and petitioner, the Court cannot
see its way clear on how the same action could
plausibly prosper against Yang. Surely, Yang
could not have become a partner in, or could not
have had any form of business relationship with,
an inexistent partnership.
As may be noted, petitioner has not, in his
complaint, provide the logical nexus that would
tie Yang to him as his partner. In fact, attendant
circumstances would indicate the contrary.
Consider:
1. Petitioner asserted in his complaint that
his so-called joint venture/partnership
with Eduardo was "for the continuation
of their family business and common
family funds which were theretofore
being mainly managed by Eduardo." [33]
But Yang denies kinship with the
Litonjua family and petitioner has not
disputed the disclaimer.
2. In some detail, petitioner mentioned
what he had contributed to the joint
venture/partnership with Eduardo and
what his share in the businesses will be.
No allegation is made whatsoever about
what Yang contributed, if any, let alone
his proportional share in the profits. But
such allegation cannot, however, be
made because, as aptly observed by the
CA, the actionable document did not
contain such provision, let alone mention
the name of Yang. How, indeed, could a
person be considered a partner when the
document purporting to establish the
partnership contract did not even
mention his name.
3. Petitioner states in par. 2.01 of the
complaint that "[he] and Eduardo are
business partners in the [respondent]
corporations," while "Bobby is his and
Eduardo's partner in their Odeon Theater
investment" (par. 2.03). This means that
the partnership between petitioner and
Eduardo came first; Yang became their
partner in their Odeon Theater
investment thereafter. Several

paragraphs later, however, petitioner
would contradict himself by alleging that
his "investment and that of Eduardo and
Yang in the Odeon theater business has
expanded through a reinvestment of
profit income and direct investments in
several corporation including but not
limited to [six] corporate respondents"
This simply means that the "Odeon
Theatre business" came before the
corporate respondents. Significantly
enough, petitioner refers to the corporate
respondents as "progeny" of the Odeon
Theatre business.[34]
Needless to stress, petitioner has not sufficiently
established in his complaint the legal vinculum
whence he sourced his right to drag Yang into
the fray. The Court of Appeals, in its assailed
decision, captured and formulated the legal
situation in the following wise:
[Respondent] Yang, ... is impleaded because, as
alleged in the complaint, he is a "partner" of
[Eduardo] and the [petitioner] in the Odeon
Theater Investment which expanded through
reinvestments of profits and direct investments
in several corporations, thus:
xxx xxx
xxx
Clearly, [petitioner's] claim against ... Yang
arose from his alleged partnership with
petitioner and the ...respondent. However, there
was NO allegation in the complaint which
directly alleged how the supposed contractual
relation was created between [petitioner] and
...Yang. More importantly, however, the
foregoing ruling of this Court that the purported
partnership between [Eduardo] is void and
legally inexistent directly affects said claim
against ...Yang. Since [petitioner] is trying to
establish his claim against ... Yang by linking
him to the legally inexistent partnership . . . such
attempt had become futile because there was
NOTHING that would contractually connect
[petitioner] and ... Yang. To establish a valid
cause of action, the complaint should have a
statement of fact upon which to connect
[respondent] Yang to the alleged partnership
between [petitioner] and respondent [Eduardo],
including their alleged investment in the Odeon
Theater. A statement of facts on those matters is
pivotal to the complaint as they would constitute
the ultimate facts necessary to establish the
elements of a cause of action against ... Yang.
[35]
Pressing its point, the CA later stated in its
resolution denying petitioner's motion for
reconsideration the following:
103
Full text : BusOrg I Cases 2018
xxx Whatever the complaint calls it, it is the
actionable document attached to the complaint
that is controlling. Suffice it to state, We have
not ignored the actionable document ... As a
matter of fact, We emphasized in our decision ...
that insofar as [Yang] is concerned, he is not
even mentioned in the said actionable
document. We are therefore puzzled how a
person not mentioned in a document purporting
to establish a partnership could be considered a
partner.[36] (Words in bracket ours).
The last issue raised by petitioner, referring to
whether or not he changed his theory of the
case, as peremptorily determined by the CA, has
been discussed at length earlier and need not
detain us long. Suffice it to say that after the CA
has ruled that the alleged partnership is
inexistent, petitioner took a different tack. Thus,
from a joint venture/partnership theory which he
adopted and consistently pursued in his
complaint, petitioner embraced the innominate
contract theory. Illustrative of this shift is
petitioner's statement in par. #8 of his motion
for reconsideration of the CA's decision
combined with what he said in par. # 43 of this
petition, as follows:
8. Whether or not the actionable document
creates a partnership, joint venture, or whatever,
is a legal matter. What is determinative for
purposes of sufficiency of the complainant's
allegations, is whether the actionable document
bears out an actionable contract ... be it a
partnership, a joint venture or whatever or some
innominate contract – It may be noted that one
kind of innominate contract is what is known as
du ut facias (I give that you may do).[37]
43. Contrariwise, this actionable document,
especially its above-quoted provisions,
established an actionable contract even though it
may not be a partnership. This actionable
contract is what is known as an innominate
contract (Civil Code, Article 1307).[38]
Springing surprises on the opposing party is
offensive to the sporting idea of fair play, justice
and due process; hence, the proscription against
a party shifting from one theory at the trial court
to a new and different theory in the appellate
court.[39] On the same rationale, an issue which
was neither averred in the complaint cannot be
raised for the first time on appeal.[40] It is not
difficult, therefore, to agree with the CA when it
made short shrift of petitioner's innominate
contract theory on the basis of the foregoing
basic reasons.
Petitioner's protestation that his act of
introducing the concept of innominate contract
was not a case of changing theories but of
 Full text : BusOrg I Cases 2018

supporting his pleaded cause of action – that of

the existence of a partnership - by another legal SO ORDERED.
perspective/argument, strikes the Court as a
strained attempt to rationalize an untenable
position. Paragraph 12 of his motion for
reconsideration of the CA's decision virtually
relegates partnership as a fall-back theory. Two
paragraphs later, in the same notion, petitioner
faults the appellate court for reading, with
myopic eyes, the actionable document solely as
establishing a partnership/joint venture. Verily,
the cited paragraphs are a study of a party
hedging on whether or not to pursue the original
cause of action or altogether abandoning the
same, thus:
12. Incidentally, assuming that the actionable
document created a partnership between
[respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this
partnership. xxx

14. All told, the Decision takes off from a false

premise that the actionable document attached
to the complaint does not establish a contractual
relationship between [petitioner] and ...
Eduardo, Sr. and Roberto T Yang simply
because his document does not create a
partnership or a joint venture. This is ... a
myopic reading of the actionable document.
Per the Court's own count, petitioner used in his
complaint the mixed words "joint
venture/partnership" nineteen (19) times and the
term "partner" four (4) times. He made
reference to the "law of joint
venture/partnership [being applicable] to the
business relationship ... between [him],
Eduardo and Bobby [Yang]" and to his "rights
in all specific properties of their joint
venture/partnership". Given this consideration,
petitioner's right of action against respondents
Eduardo and Yang doubtless pivots on the
existence of the partnership between the three of
them, as purportedly evidenced by the undated
and unsigned Annex "A-1". A void Annex "A-
1", as an actionable document of partnership,
would strip petitioner of a cause of action under
the premises. A complaint for delivery and
accounting of partnership property based on
such void or legally non-existent actionable
document is dismissible for failure to state of
action. So, in gist, said the Court of Appeals.
The Court agrees.

WHEREFORE, the instant petition is

DENIED and the impugned Decision and
Resolution of the Court of Appeals
AFFIRMED.

Cost against the petitioner.

104

ART.1782
G.R. No. L-25532, February 28, 1969
COMMISSIONER OF INTERNAL
REVENUE, PETITIONER, VS. WILLIAM
J. SUTTER AND THE COURT OF TAX
APPEALS, RESPONDENTS.
DECISION
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.", was formed on 30
September 1947 by herein respondent William
J. Suter, as the general partner, and Julia Spirig
and Gustav Carlson, as the limited partners.
The partners contributed, respectively,
P20,000.00, P18,000.00 and P2,000.00 to the
partnership. On 1 October 1947, the limited
partnership was registered with the Securities
and Exchange Commission. The firm engaged,
among other activities, in the importation,
marketing, distribution and opera-tion of
automatic phonographs, radios, television sets
and amusement machines, their parts and
accessories. It had an office and held itself out
as a limited partnership, handling and carrying
merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining
its own books of accounts and bank accounts,
and had a quota allocation with the Central
Bank.
In 1948, however, general partner Suter and
limited partner Spirig got married and,
thereafter, on 18 December 1948, limited
partner Carlson sold his share in the partnership
to Suter and his wife. The sale was duly
recorded with the Securities and Exchange
Commission on 20 December 1948.
The limited partnership had been filing its
income tax returns as a corporation, without
objection by the herein petitioner,
Commissioner of Inter-nal Revenue, until in
1959 when the latter, in an assessment,
consolidated the income of the firm and the
individual incomes of the partners-spouses Suter
and Spirig, resulting in a determination of a
deficiency income tax against res-pondent Suter
in the amount of P2,678.06 for 1954 and
P4,567.00 for 1955.
Respondent Suter protested the assessment, and
requested its cancellation and withdrawal, as not
in accordance with law, but his request was
denied. Unable to secure a reconsideration, he
appealed to the Court of Tax Appeals, which
105
Full text : BusOrg I Cases 2018
court, after trial, rendered a decision, on 11
November 1965, reversing that of the
Commissioner of Internal Revenue.
The present case is a petition for review, filed
by the Commissioner of Internal Revenue, of
the tax court's aforesaid decision. It raises these
issues:
(a) Whether or not the corporate personality of
the William J. Suter "Morcoin" Co., Ltd. should
be disregarded for income tax purposes,
considering that res-pondent William J. Suter
and his wife, Julia Spirig Suter, actually formed
a single taxable unit; and
(b) Whether or not the partnership was
dissolved after the marriage of the partners,
respondent William J. Suter and Julia Spirig
Suter, and the subsequent sale to them by the
remaining partner, Gustav Carlson, of his
participation of P2,000.00 in the partnership for
a nominal amount of P1.00.
The theory of the petitioner, Commissioner of
Internal Revenue, is that the marriage of Suter
and Spirig and their subsequent acquisition of
the interests of remaining partner Carlson in the
partnership dissolved the limited partnership,
and if they did not, the fiction of juridical'
personality of the partnership should be
dis-regarded for income tax purposes because
the spouses have exclusive ownership and
control of the business; consequently, the
income tax return of respondent Suter for the
years in question should have included his and
his wife's individual incomes and that of the
limited partnership, in accordance with Section
45 (d) of the National Internal Revenue Code,
which provides as follows:
"(d) Husband and wife. - In the case of married
persons, whether citizens, residents or non-
residents, only one consolidated return for the
taxable year shall be filed by either spouse to
cover the income of both spouses, - - - - -.”
In refutation of the foregoing, respondent Suter
maintains, as the Court of Tax appeals held, that
his marriage with limited partner Spirig and
their acquisi-tion of Carlson's interests in the
partnership in 1948 is not a ground for
dissolu-tion of the partnership, either in the
Code of Commerce or in the New Civil Code,
and that since its juridical personality had not
been affected and since, as a limited partnership,
as contradistinguished from a duly registered
general part-nership, it is taxable on its income
similarly with corporations, Suter was not

bound to include in his individual return the
income of the limited partnership.
We find the Commissioner's appeal
unmeritorious.
The thesis that the limited partnership, William
J. Suter "Morcoin" Co., Ltd., has been dissolved
by operation of law because of the marriage of
the only general partner, William J. Suter, to the
originally limited partner, Julia Spirig, one year
after the partnership was organized is rested by
the appellant upon the opinion of now Senator
Tolentino in Commentaries and Jurisprudence
on Commercial Laws of the Philippines, Vol. 1,
4th Ed., page 58, that reads as follows:
"' A husband and a wife may not enter into a
contract of general copartnership, because under
the Civil Code, which applies in the absence of
express provision in the Code of Commerce,
persons prohibited from making donations to
each other are prohibited from entering into
universal partnerships. (2 Echaverri, 196) It
follows that the marriage of partners necessarily
brings about the dissolution of a pre-existing
partnership. (1 Guy de Montella 58)’"
The petitioner-appellant has evidently failed to
observe the fact that William J. Suter "Morcoin"
Co., Ltd. was not a universal partnership, but a
particular one. As appears from Articles 1674
and 1675 of the Spanish Civil Code of 1889
(which was the law in force when the subject
firm was organized in 1947), a universal
partnership requires either that the object of the
association be all the present property of the
partners, as contributed by them to the common
fund, or else "all that the partners may acquire
by their industry or work during the exis-tence
of the partnership". William J. Suter "Morcoin"
Co., Ltd. was not such a universal partnership,
since the contributions of the partners were
fixed sums of money, P20,000.00 by William
Suter and P18,000.00 by Julia Spirig, and
neither one of them was an industrial partner. It
follows that William J. Suter "Morcoin" Co.,
Ltd. was not a partnership that spouses were
forbidden to enter by Article 1677 of the Civil
Code of 1889.
The former Chief Justice of the Spanish
Supreme Court, D. Jose Castan, in his Derecho
Civil, 7th Edition, 1952, Volume. 4, page 546,
footnote 1, says with regard to the prohibition
contained in the aforesaid Article 1677:
"Los conyuges, segun esto, no pueden celebrar
entre si el contrato de sociedad universal, Pero 8
106
Full text : BusOrg I Cases 2018
podran constituir sociedad particular? Aunque
el punto ha sido muy debetido, nos inclinamos a
la tesis permisiva de los contratos de sociedad
particular entre esposos, ya que ningun precepto
de nuestro Codigo los prohibe, y hay que ester a
la norma general segun la que toda persona es
capaz pare contratar mientras no sea declarado
incapaz por la ley. La jurisprudencia de la
Direccion de los Registros fue favorable a esta
misma tesis en su resolucion de 3 de febrero de
1936, mas parece cambiar de rumbo en la de 9
de marzo de 1943."
Nor could the subsequent marriage of the
partners operate to dissolve it, such marriage not
being one of the causes provided for that
purpose either by the Spanish Civil Code or the
Code of Commerce.
The appellant's view, that by the marriage of
both partners the company became a single
proprietorship, is equally erroneous. The capital
contributions of partners William J. Suter and
Julia Spirig were separately owned and
contri-buted by them before their marriage; and
after they were joined in wedlock, such
contributions remained their respective separate
property under the Spanish Civil Code (Article
1396):
"The following shall be the exclusive property
of each spouse:
(a) That which is brought to the marriage as his
or her own; - - - -- - - -.”
Thus, the individual interest of each consort in
William J. Suter "Morcoin" Co., Ltd. did not
become common property of both after their
marriage in 1948.
It being a basic tenet of the Spanish and
Philippine law that the partnership has a
juridical personality of its own, distinct and
separate from that of its partners (unlike
American and English law that does not
recognize such separate juridical personality),
the bypassing of the existence of the limited
partnership as a taxpayer can only be done by
ignoring or disregarding clear statutory
mandates and basic principles of our law. The
limited partnership's separate individuality
makes it impossible to equate its income with
that of the component members. True, section
24 of the Internal Revenue Code merges
registered general co partnerships (compañias
colectivas) with the personality of the individual
partners for income tax purposes. But this rule
is exceptional in its disregard of a car-dinal tenet

of our partnership laws, and can not be extended
by mere implication to limited partnerships.
The rulings cited by the petitioner (Collector of
Internal Revenue vs. Uni-versity of the Visayas,
L-13554, Resolution of 30 October 1964, and
Koppel (Phil.), Inc., vs. Yatco, 77 Phil. 504) as
authority for disregarding the fiction of legal
personality of the corporations involved therein
are not applicable to the present case. In the
cited cases, the corporations were already
subject to tax when the fiction of their corporate
personality was pierced; in the present case, to
do so would exempt, the limited partnership
from income taxation but would throw the tax
burden upon the partners-spouses in their
individual capacities. The corporations, in the
cases cited, merely served as business conduits
or alter egos of the stock-holders, a factor that
justified a disregard of their corporate
personalities for tax purposes. This is not true
in the present case. Here, the limited
partnership is not a mere business conduit of the
partner-spouses; it was organized for legitimate
business purposes; it conducted its own dealings
with its customers prior to appellee's marriage,
and had been filing its own income tax returns
as such in-dependent entity. The change in its
membership, brought about by the marriage of
the partners and their subsequent acquisition of
all interest therein, is no ground for withdrawing
the partnership from the coverage of Section 24
of the tax code, requiring it to pay income tax.
As far as the records show, the partners did not
enter into matrimony and thereafter buy the
interests of the remaining partner with the
premeditated scheme or design to use the
partnership as a business conduit to dodge the
tax laws. Regularity, not otherwise, is
presumed.
As the limited partnership under consideration is
taxable on its income, to require that income to
be included in the individual tax return of
respondent Suter is to overstretch the letter and
intent of the law. In fact, it would even conflict
with what it specifically provides in its Section
24: for the appellant Commissioner's stand
results in equal treatment, taxwise, of a general
copartnership (compañia colectiva) and a
limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the
latter on its income, but not the former, because
it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their
individual capacities for any dividend or share
of the profit derived from the duly registered
general partnership (Section 26, N. I. R. C.;
107
Full text : BusOrg I Cases 2018
Arañas, Anno. & juris. on the N.I.R.C., As
Amended, Vol. 1, pages 88-89).
But it is argued that the income of the limited
partnership is actually or cons-tructively the
income of the spouses and forms part of the
conjugal partnership of gains. This is not
wholly correct. As pointed out in Agapito vs.
Molo, 50 Phil. 779, and People's Bank vs.
Register of Deeds of Manila, 60 Phil. 167, the
fruits of the wife's parapherna become conjugal
only when no longer needed to defray the
expenses for the administration and preservation
of the paraphernal capital of the wife. Then
again, the appellant's argument erroneously
confines itself to the question of the legal
personality of the limited partnerships which is
not essential to the income taxability of the
partnership since the law taxes the income of
even joint accounts that have no personality of
their own.[1] Appellant is, likewise, mistaken in
that it assumes that the conjugal partnership of
gains is a taxable unit, which it is not. What is
taxable is the "income of both spouses" [section
45 (d)] in their individual capacities. Though
the amount of income (income of the conjugal
partnership vis-a-vis the joint income of
husband and wife) may be the same for a given
taxable year, their consequences would be
different, as their contributions in the business
part-nership are not the same.
The difference in tax rates between the income
of the limited partnership being consolidated
with, and when split from the income of the
spouses, is not a justifica-tion for requiring
consolidation; the revenue code, as it presently
stands, does not authorize it, and even bars it by
requiring the limited partnership to pay tax on
its own income.
For the foregoing reasons, the decision under
review is hereby affirmed. No costs.