[G.R. No. 136448. November 3, 1999.
]
LIM TONG LIM, Petitioner, v. PHILIPPINE FISHING GEAR INDUSTRIES, INC, Respondent.
DECISION
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that they have
not contributed any capital of their own to a "common fund." Their contribution may be in the form of
credit or industry, not necessarily cash or fixed assets. Being partners, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that contract.chanroblesvirtuallawlibrary:red
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 41477, 1 which disposed as
follows:jgc:chanrobles.com.ph
"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:jgc:chanrobles.com.ph
"WHEREFORE, the Court rules:chanrob1es virtual 1aw library
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20,
1990;chanrobles virtual lawlibrary
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:chanrob1es virtual 1aw library
i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;
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);chanroblesvirtuallawlibrary
e. Cost of suit.
"With respect to the joint liability of defendants for the principal obligation or for the unpaid price of
nets and floats in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount of
P600,045.00, this Court noted that these items were attached to guarantee any judgment that may be
rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of this case, it was ordered sold at public auction for not
less than P900,000.00 for which the plaintiff was the sole and winning bidder. The proceeds of the sale
paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced the attached
property as a guaranty for any judgment that plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as
the highest bidder in the public auction sale. It has also been noted that ownership of the nets [was]
retained by the plaintiff until full payment [was] made as stipulated in the invoices; hence, in effect,
the plaintiff attached its own properties. It [was] for this reason also that this Court earlier ordered the
attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor of defendants.
"From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled
to in this case will have to be satisfied from the amount of P900,000.00 as this amount replaced the
attached nets and floats. Considering, however, that the total judgment obligation as computed above
would amount to only P840,216.92, it would be inequitable, unfair and unjust to award the excess to
the defendants who are not entitled to damages and who did not put up a single centavo to raise the
amount of P900,000.00 aside from the fact that they are not the owners of the nets and floats. For
this reason, the defendants are hereby relieved from any and all liabilities arising from the monetary
judgment obligation enumerated above and for plaintiff to retain possession and 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." 3chanroblesvirtuallawlibrary
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 respondent filed a
collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary
attachment. The suit was brought against the three in their capacities as general partners, on the
allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as shown by a
Certification 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.chanrobles
law library : red
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over to respondent some of the nets which were
in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to
cross-examine witnesses and to present evidence on his 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:chanroblesvirtualawlibrary
"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. 12
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 such for the fishing nets and floats purchased by and for the
use of the partnership. The appellate court ruled:jgc:chanrobles.com.ph
"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 . . . . Obviously, 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)." 13chanroblesvirtual|awlibrary
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:jgc:chanrobles.com.ph
"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."cralaw virtua1aw library
In determining whether petitioner may be held liable for the fishing nets and floats purchased from
respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be
deemed to have entered into a partnership.chanroblesvirtuallawlibrary
This Court’s Ruling
The Petition is devoid of merit.
First and Second Issues:chanrob1es virtual 1aw library
Existence of a Partnership and Petitioner’s Liability
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims
any direct participation in the purchase of the nets, alleging that the negotiations were conducted by
Chua and 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:jgc:chanrobles.com.ph
"ARTICLE 1767. By the contract of partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves." chanrobles lawlibrary : rednad
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.chanroblesvirtual|awlibrary
(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.chanroblesvirtual|awlibrary
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and operations thereof would be
divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only questions
of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any
cogent proof that the present 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.chanrobles law
library
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.chanrobles.com.ph : virtual law library
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.
Section 21 of the Corporation Code of the Philippines provides:jgc:chanrobles.com.ph
"SECTION 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." chanrobles.com:cralaw:red
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. "The reason behind this doctrine is obvious — an
unincorporated association has no personality and would be incompetent to act and appropriate for
itself the power and attributes of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its representatives or
agents do so without authority and at their own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a principal is himself regarded as the
principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges and
obligations and 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.chanrobles virtual lawlibrary
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. 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:
19chanrobles.com.ph : virtual law library
"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."cralaw virtua1aw library
Third Issue:chanrob1es virtual 1aw library
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.chanrobles virtual lawlibrary
SO ORDERED.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
THIRD DIVISION
[G.R. No. 134559. December 9, 1999]
ANTONITHIRD DIVISION
[G.R. No. 134559. December 9, 1999]
ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, Petitioners, v. 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 1Second Division of
the Court of Appeals2 (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 respondents 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 Councils 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 courts 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 Courts 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 courts 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:
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 and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on the property.
Respondents 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 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. 13They 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 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 [petitioners]
participation therein. x x x There was therefore a consideration for the sale, the [petitioners] acting in
the expectation that, should the venture come into fruition, they [would] get sixty percent of the net
profits.
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the subdivision project, petitioners
maintain that he should be made to pay damages equivalent to 60 percent of the value of the
property, which was their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners 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.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
A TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA BARING, Petitioners, v. 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 Decision1Second Division of
the Court of Appeals2 (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 respondents 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 Councils 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 courts 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 Courts 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 courts 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:
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 and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on the property.
Respondents 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 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.13They 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 142214 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 [petitioners]
participation therein. x x x There was therefore a consideration for the sale, the [petitioners] acting in
the expectation that, should the venture come into fruition, they [would] get sixty percent of the net
profits.
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the subdivision project, petitioners
maintain that he should be made to pay damages equivalent to 60 percent of the value of the
property, which was their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners 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.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes, JJ., concur.
G.R. No. 159333 July 31, 2006
ARSENIO T. MENDIOLA, petitioner,
vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, PACIFIC FOREST RESOURCES, PHILS.,
INC. and/or CELLMARK AB, respondents.
DECISION
PUNO, J.:
On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January 30, 2003 and July
30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the ruling3 of the National Labor Relations
Commission (NLRC), which in turn set aside the July 30, 2001 Decision4 of the labor arbiter. The labor
arbiter declared illegal the dismissal of petitioner from employment and awarded separation pay,
moral and exemplary damages, and attorney's fees.
The facts are as follows:
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and existing
under the laws of California, USA. It is a subsidiary of Cellulose Marketing International, a corporation
duly organized under the laws of Sweden, with principal office in Gothenburg, Sweden.
Private respondent Pacfor entered into a "Side Agreement on Representative Office known as Pacific
Forest Resources (Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective May 1, 1995,
"assuming that Pacfor-Phils. is already approved by the Securities and Exchange Commission [SEC] on
the said date."6 The Side Agreement outlines the business relationship of the parties with regard to
the Philippine operations of Pacfor. Private respondent will establish a Pacfor representative office in
the Philippines, to be known as Pacfor Phils, and petitioner ATM will be its President. Petitioner's base
salary and the overhead expenditures of the company shall be borne by the representative office and
funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-usa.
On July 14, 1995, the SEC granted the application of private respondent Pacfor for a license to transact
business in the Philippines under the name of Pacfor or Pacfor Phils.7 In its application, private
respondent Pacfor proposed to establish its representative office in the Philippines with the purpose
of monitoring and coordinating the market activities for paper products. It also designated petitioner
as its resident agent in the Philippines, authorized to accept summons and processes in all legal
proceedings, and all notices affecting the corporation.8
In March 1997, the Side Agreement was amended through a "Revised Operating and Profit Sharing
Agreement for the Representative Office Known as Pacific Forest Resources (Philippines),"9 where the
salary of petitioner was increased to $78,000 per annum. Both agreements show that the operational
expenses will be borne by the representative office and funded by all parties "as equal partners,"
while the profits and commissions will be shared among them.
In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation of his
50% equity of Pacfor Phils.10 Private respondent Pacfor, through William Gleason, its President,
replied that petitioner is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-USA's
representative office and not an entity separate and distinct from Pacfor-USA. "It's simply a
'theoretical company' with the purpose of dividing the income 50-50."11 Petitioner presumably knew
of this arrangement from the start, having been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch office" in the Philippines to save on taxes.12
Petitioner claimed that he was all along made to believe that he was in a joint venture with them. He
alleged he would have been better off remaining as an independent agent or representative of Pacfor-
USA as ATM Marketing Corp.13 Had he known that no joint venture existed, he would not have
allowed Pacfor to take the profitable business of his own company, ATM Marketing Corp.14 Petitioner
raised other issues, such as the rentals of office furniture, salary of the employees, company car, as
well as commissions allegedly due him. The issues were not resolved, hence, in October 2000,
petitioner wrote Pacfor-USA demanding payment of unpaid commissions and office furniture and
equipment rentals, amounting to more than one million dollars.15
On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn over to
it all papers, documents, files, records, and other materials in his or ATM Marketing Corporation's
possession that belong to Pacfor or Pacfor Phils.16 On December 18, 2000, private respondent Pacfor
also required petitioner to remit more than three hundred thousand-peso Christmas giveaway fund
for clients of Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its offers of settlement and
ordered petitioner to transfer title and turn over to it possession of the service car.18
Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not to
deal with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated November 21, 2000,
private respondent Pacfor stated:
Until further notice, please course all inquiries and communications for Pacific Forest Resources
(Philippines) to:
Pacific Forest Resources
200 Tamal Plaza, Suite 200
Corte Madera, CA, USA 94925
(415) 927 1700 phone
(415) 381 4358 fax
Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the offices of ATM
Marketing Corporation at Room 504, Concorde Building, Legaspi Village, Makati City, Philippines.19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December 2000,
private respondent directed said client "to please communicate directly with us on any further
questions associated with these payments or any future business. Do not communicate with [Pacfor]
and/or [ATM]."20
Petitioner construed these directives as a severance of the "unregistered partnership" between him
and Pacfor, and the termination of his employment as resident manager of Pacfor Phils.21 In a
memorandum to the employees of Pacfor Phils., dated January 29, 2001, he stated:
I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all records to them
effective December 19, 2000. The company records were turned over only on January 26, 2001. This
means our jobs with Pacific Forest were terminated effective December 19, 2000. I am concerned
about your welfare. I would like to help you by offering you to work with ATM Marketing Corporation.
Please let me know if you are interested.22
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own Pacfor Phils.
Thus, it follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and
equipment and the service car. He also reiterated his demand for unpaid commissions, and proposed
to offset these with the remaining Christmas giveaway fund in his possession.23 Furthermore, he did
not renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises of Pacfor
Phils., wherein he was the signatory to the lease agreement.24
On February 2, 2001, private respondent Pacfor placed petitioner on preventive suspension and
ordered him to show cause why no disciplinary action should be taken against him. Private respondent
Pacfor charged petitioner with willful disobedience and serious misconduct for his refusal to turn over
the service car and the Christmas giveaway fund which he applied to his alleged unpaid commissions.
Private respondent also alleged loss of confidence and gross neglect of duty on the part of petitioner
for allegedly allowing another corporation owned by petitioner's relatives, High End Products, Inc.
(HEPI), to use the same telephone and facsimile numbers of Pacfor, to possibly steal and divert the
sales and business of private respondent for HEPI's principal, International Forest Products, a
competitor of private respondent.25
Petitioner denied the charges. He reiterated that he considered the import of Pacfor President William
Gleason's letters as a "cessation of his position and of the existence of Pacfor Phils." He likewise
informed private respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.' office
premises,26 and demanded payment of his separation pay.27 On February 15, 2001, petitioner filed
his complaint for illegal dismissal, recovery of separation pay, and payment of attorney's fees with the
NLRC.28
In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a memorandum
dated March 5, 2001, private respondent directed petitioner to explain why he should not be
disciplined for serious misconduct and conflict of interest. Private respondent charged petitioner anew
with serious misconduct for the latter's alleged act of fraud and misrepresentation in authorizing the
release of an additional peso salary for himself, besides the dollar salary agreed upon by the parties.
Private respondent also accused petitioner of disloyalty and representation of conflicting interests for
having continued using the Pacfor Phils.' office for operations of HEPI. In addition, petitioner allegedly
solicited business for HEPI from a competitor company of private respondent Pacfor.29
Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal. By
directing petitioner to turn over all office records and materials, regardless of whether he may have
retained copies, private respondent Pacfor virtually deprived petitioner of his job by the gradual
diminution of his authority as resident manager. Petitioner's position as resident manager whose duty,
among others, was to maintain the security of its business transactions and communications was
rendered meaningless. The dispositive portion of the decision of the Labor Arbiter reads:
WHEREFORE, premises considered, judgment is hereby rendered ordering herein respondents
Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to compensate complainant
Arsenio T. Mendiola separation pay equivalent to at least one month for every year of service,
whichever is higher (sic), as reinstatement is no longer feasible by reason of the strained relations of
the parties equivalent to five (5) months in the amount of $32,000.00 plus the sum of P250,000.00;
pay complainant the sum of P500,000.00 as moral and exemplary damages and ten percent (10%) of
the amounts awarded as and for attorney's fees.
All other claims are dismissed for lack of basis.
SO ORDERED.30
Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20, 2001, the
NLRC set aside the July 30, 2001 decision of the labor arbiter, for lack of jurisdiction and lack of
merit.31 It held there was no employer-employee relationship between the parties. Based on the two
agreements between the parties, it concluded that petitioner is not an employee of private
respondent Pacfor, but a full co-owner (50/50 equity).
The NLRC denied petitioner's Motion for Reconsideration.32
Petitioner was not successful on his appeal to the Court of Appeals. The appellate court upheld the
ruling of the NLRC.
Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was denied.
Hence, this appeal.34
Petitioner assigns the following errors:
A. The Respondent Court of Appeals committed reversible error and abused its discretion in rendering
judgment against petitioner since jurisdiction has been acquired over the subject matter of the case as
there exists employer-employee relationship between the parties.
B. The Respondent Court of Appeals committed reversible error and abused its discretion in ruling that
jurisdiction over the subject matter cannot be waived and may be alleged even for the first time on
appeal or considered by the court motu prop[r]io.35
The first issue is whether an employer-employee relationship exists between petitioner and private
respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he formed with private respondent
Pacfor, and also an employee of the partnership. Petitioner insists that an industrial partner may at the
same time be an employee of the partnership, provided there is such an agreement, which, in this
case, is the "Side Agreement" and the "Revised Operating and Profit Sharing Agreement." The Court of
Appeals denied the appeal of petitioner, holding that "the legal basis of the complaint is not
employment but perhaps partnership, co-ownership, or independent contractorship." Hence, the
Labor Code cannot apply.
We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co-
ownership exists between the parties.
In a partnership, the members become co-owners of what is contributed to the firm capital and of all
property that may be acquired thereby and through the efforts of the members.36 The property or
stock of the partnership forms a community of goods, a common fund, in which each party has a
proprietary interest.37 In fact, the New Civil Code regards a partner as a co-owner of specific
partnership property.38 Each partner possesses a joint interest in the whole of partnership property. If
the relation does not have this feature, it is not one of partnership.39 This essential element, the
community of interest, or co-ownership of, or joint interest in partnership property is absent in the
relations between petitioner and private respondent Pacfor. Petitioner is not a part-owner of Pacfor
Phils. William Gleason, private respondent Pacfor's President established this fact when he said that
Pacfor Phils. is simply a "theoretical company" for the purpose of dividing the income 50-50. He
stressed that petitioner knew of this arrangement from the very start, having been the one to propose
to private respondent Pacfor the setting up of a representative office, and "not a branch office" in the
Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This alone does not
make a partnership.40
Besides, a corporation cannot become a member of a partnership in the absence of express
authorization by statute or charter.41 This doctrine is based on the following considerations: (1) that
the mutual agency between the partners, whereby the corporation would be bound by the acts of
persons who are not its duly appointed and authorized agents and officers, would be inconsistent with
the policy of the law that the corporation shall manage its own affairs separately and exclusively; and,
(2) that such an arrangement would improperly allow corporate property to become subject to risks
not contemplated by the stockholders when they originally invested in the corporation.42No such
authorization has been proved in the case at bar.
Be that as it may, we hold that on the basis of the evidence, an employer-employee relationship is
present in the case at bar. 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 employer's power to control the employee's conduct. The most important
element is the employer's control of the employee's conduct, not only as to the result of the work to
be done, but also as to the means and methods to accomplish it.43
In the instant case, all the foregoing elements are present. First, it was private respondent Pacfor
which selected and engaged the services of petitioner as its resident agent in the Philippines. Second,
as stipulated in their Side Agreement, private respondent Pacfor pays petitioner his salary amounting
to $65,000 per annum which was later increased to $78,000. Third, private respondent Pacfor holds
the power of dismissal, as may be gleaned through the various memoranda it issued against
petitioner, placing the latter on preventive suspension while charging him with various offenses,
including willful disobedience, serious misconduct, and gross neglect of duty, and ordering him to
show cause why no disciplinary action should be taken against him.
Lastly and most important, private respondent Pacfor has the power of control over the means and
method of petitioner in accomplishing his work.
The power of control refers merely to the existence of the power, and not to the actual exercise
thereof. The principal consideration is whether the employer has the right to control the manner of
doing the work, and it is not the actual exercise of the right by interfering with the work, but the right
to control, which constitutes the test of the existence of an employer-employee relationship.44 In the
case at bar, private respondent Pacfor, as employer, clearly possesses such right of control. Petitioner,
as private respondent Pacfor's resident agent in the Philippines, is, exactly so, only an agent of the
corporation, a representative of Pacfor, who transacts business, and accepts service on its behalf.
This right of control was exercised by private respondent Pacfor during the period of November to
December 2000, when it directed petitioner to turn over to it all records of Pacfor Phils.; when it
ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.; and,
when it withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it
the possession of the service car. It was also during this period when private respondent Pacfor sent
letters to its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR,
advising them not to deal with petitioner and/or Pacfor Phils. In its letter to DAVCOR, private
respondent Pacfor replied to the client's request for an invoice payment extension, and formulated a
revised payment program for DAVCOR. This is one unmistakable proof that private respondent Pacfor
exercises control over the petitioner.
Next, we shall determine if petitioner was constructively dismissed from employment.
The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils., and would not
quit however, private respondent Pacfor began to systematically deprive petitioner of his duties and
benefits to make him feel that his presence in the company was no longer wanted. First, private
respondent Pacfor directed petitioner to turn over to it all records of Pacfor Phils. This would certainly
make the work of petitioner very difficult, if not impossible. Second, private respondent Pacfor
ordered petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils. Then it
ordered petitioner to transfer title and turn over to it the possession of the service car. It also advised
its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, not to
deal with petitioner and/or Pacfor Phils. Lastly, private respondent Pacfor appointed a new resident
agent for Pacfor Phils.45
Although there is no reduction of the salary of petitioner, constructive dismissal is still present because
continued employment of petitioner is rendered, at the very least, unreasonable.46 There is an act of
clear discrimination, insensibility or disdain by the employer that continued employment may become
so unbearable on the part of the employee so as to foreclose any choice on his part except to resign
from such employment.47
The harassing acts of the private respondent are unjustified. They were undertaken when petitioner
sought clarification from the private respondent about his supposed 50% equity on Pacfor Phils.
Private respondent Pacfor invokes its rights as an owner. Allegedly, its issuance of the foregoing
directives against petitioner was a valid exercise of management prerogative. We remind private
respondent Pacfor that the exercise of management prerogative is not absolute. "By its very nature,
encompassing as it could be, management prerogative must be exercised in good faith and with due
regard to the rights of labor – verily, with the principles of fair play at heart and justice in mind." The
exercise of management prerogative cannot be utilized as an implement to circumvent our laws and
oppress employees.48
As resident agent of private respondent corporation, petitioner occupied a position involving trust and
confidence. In the light of the strained relations between the parties, the full restoration of an
employment relationship based on trust and confidence is no longer possible. He should be awarded
separation pay, in lieu of reinstatement.
IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30, 2003 Decision in CA-
G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the December 20, 2001 Decision of the
National Labor Relations Commission, are ANNULED and SET ASIDE. The July 30, 2001 Decision of the
Labor Arbiter is REINSTATED with the MODIFICATION that the amount of P250,000.00 representing an
alleged increase in petitioner's salary shall be deducted from the grant of separation pay for lack of
evidence.
SO ORDERED.
Sandoval-Gutierrez, Corona, Azcuna, Garcia, J.J., concur.
FIRST DIVISION
[G.R. No. 127405. October 4, 2000.]
MARJORIE TOCAO and WILLIAM T. BELO, Petitioners, v. COURT OF APPEALS and NENITA A.
ANAY, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616, 1
affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509. 2
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent
Nenita A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean
Water Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie
Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local
distribution of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay
the job of marketing the product considering her experience and established relationship with West
Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo
acted as capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and sales force
while Tocao hired and fired employees, determined commissions and/or salaries of the employees,
and assigned them to different branches. The parties agreed that Belo’s name should not appear in
any documents relating to their transactions with West Bend Company. Instead, they agreed to use
Anay’s name in securing distributorship of cookware from that company. The parties agreed further
that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2)
overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of
the sales she would make; and (4) two percent (2%) for her demonstration services. The agreement
was not reduced to writing on the strength of Belo’s assurances that he was sincere, dependable and
honest when it came to financial commitments.chanrob1es virtua1 1aw 1ibrary
Anay having secured the distributorship of cookware products from the West Bend Company and
organized the administrative staff and the sales force, the cookware business took off successfully.
They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie
Tocao’s name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his
monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited Anay
to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the
southwestern regional convention in Pismo Beach, California, U.S.A., July 25-26, 1987. Anay accepted
the invitation with the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13,
1987. A portion of the letter reads:jgc:chanrobles.com.ph
"Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20)
years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice
President Sales Marketing and a business partner of our company, will attend in response to the
invitation." (Emphasis supplied.) 3
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the
business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31,
1987, she received a plaque of appreciation from the administrative and sales people through
Marjorie Tocao 4 for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo
signed a memo 5 entitling her to a thirty seven percent (37%) commission for her personal sales "up
Dec 31/87." Belo explained to her that said commission was apart from her ten percent (10%) share in
the profits. On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter 6 addressed to
the Cubao sales office to the effect that she was no longer the vice-president of Geminesse Enterprise.
The following day, October 10, she received a note from Lina T. Cruz, marketing manager, that
Marjorie Tocao had barred her from holding office and conducting demonstrations in both Makati and
Cubao offices. 7 Anay attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to
determine her share in the net profits. When her letters were not answered, Anay consulted her
lawyer, who, in turn, wrote Belo a letter. Still, that letter was not answered.chanrob1es virtua1 1aw
1ibrary
Anay still received her five percent (5%) overriding commission up to December 1987. The following
year, 1988, she did not receive the same commission although the company netted a gross sales of P
13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with
damages 8 against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati,
Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the
following: (1) P32,000.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988;
(2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also
prayed for an audit of the finances of Geminesse Enterprise from the inception of its business
operation until she was "illegally dismissed" to determine her ten percent (10%) share in the net
profits. She further prayed that she be paid the five percent (5%) "overriding commission" on the
remaining 150 West Bend cookware sets before her "dismissal."cralaw virtua1aw library
In their answer, 9 Marjorie Tocao and Belo asserted that the "alleged agreement" with Anay that was
"neither reduced in writing, nor ratified," was "either unenforceable or void or inexistent." As far as
Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been
a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of
Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for
an agreed remuneration, and her complaint referred to either her compensation or dismissal, such
complaint should have been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account of "ill-will
and resentment" because Marjorie Tocao did not allow her to "lord it over in the Geminesse
Enterprise." Anay had acted like she owned the enterprise because of her experience and expertise.
Hence, petitioners were the ones who suffered actual damages "including unreturned and
unaccounted stocks of Geminesse Enterprise," and "serious anxiety, besmirched reputation in the
business world, and various damages not less than P500,000.00." They also alleged that, to "vindicate
their allies," they had to hire counsel for a fee of P23,000.00.chanrob1es virtua1 1aw 1ibrary
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an
employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are entitled to
damages. 10
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business.
He, however, admitted that the two had agreed that Anay would receive a three to four percent (3-
4%) share in the gross sales of the cookware. He denied contributing capital to the business or
receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao, who was new in
the business. He attended and/or presided over business meetings of the venture in his capacity as a
guarantor but he never participated in decision-making. He claimed that he wrote the memo granting
the plaintiff thirty-seven percent (37%) commission upon her dismissal from the business venture at
the request of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay.
However, she admitted that Anay was an expert in the cookware business and hence, they agreed to
grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent (5%)
on gross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment of
personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits.
Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used
in her garments business and from Peter Lo a Singaporean friend-financier who loaned her the funds
with interest. Because she treated Anay as her "co-equal," Marjorie received the same amounts of
commissions as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:jgc:chanrobles.com.ph
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:chanrob1es virtual 1aw library
1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the
years 1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent
(10%) share of plaintiff in the net profits of the cookware business;chanrob1es virtua1 1aw 1ibrary
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition when plaintiff was wrongfully excluded from the
partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which for the
period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P 100,000.00 as exemplary
damages, and
5. Ordering defendants to pay P50,000.00 as attorney’s fees and P20,000.00 as costs of suit.
SO ORDERED."cralaw virtua1aw library
The trial court held that there was indeed an "oral partnership agreement between the plaintiff and
the defendants," based on the following: (a) there was an intention to create a partnership; (b) a
common fund was established through contributions consisting of money and industry, and (c) there
was a joint interest in the profits. The testimony of Elizabeth Bantilan, Anay’s cousin and the
administrative officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal
International, Inc., buttressed the fact that a partnership existed between the parties. The letter of
Roger Muencheberg of West Bend Company stating that he awarded the distributorship to Anay and
Marjorie Tocao because he was convinced that with Marjorie’s financial contribution and Anay’s
experience, the combination of the two would be invaluable to the partnership, also supported that
conclusion. Belo’s claim that he was merely a "guarantor" has no basis since there was no written
evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of attending and/or
presiding over meetings of Geminesse Enterprise plus his issuance of a memo giving Anay 37%
commission on personal sales belied this. On the contrary, it demonstrated his involvement as a
partner in the business.chanrob1es virtua1 1aw 1ibrary
The trial court further held that the payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in business circles as an impetus to bigger
sales volume. It did not matter that the agreement was not in writing because Article 1771 of the Civil
Code provides that a partnership may be "constituted in any form." The fact that Geminesse
Enterprise was registered in Marjorie Tocao’s name is not determinative of whether or not the
business was managed and operated by a sole proprietor or a partnership. What was registered with
the Bureau of Domestic Trade was merely the business name or style of Geminesse Enterprise.

The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent
partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as
well as damages or share in the profits "realized from the appropriation of the partnership business
and goodwill." An innocent partner thus possesses "pecuniary interest in every existing contract that
was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully
expelled."cralaw virtua1aw library
Petitioners’ appeal to the Court of Appeals 11 was dismissed, but the amount of damages awarded by
the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages.
Their motion for Reconsideration was denied by the Court of Appeals for lack of merit. 12 Petitioners
Belo and Marjorie Tocao are now before this Court on a petition for review on certiorari, asserting that
there was no business partnership between them and herein private respondent Nenita A. Anay who
is, therefore, not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership
existed between them and private respondent Anay because Geminesse Enterprise "came into being"
exactly a year before the "alleged partnership" was formed, and that it was very unlikely that
petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing,
without any "memorandum whatsoever regarding the alleged partnership." ‘ 13
The issue of whether or not a partnership exists is a factual matter which are within the exclusive
domain of both the trial and appellate courts. This Court cannot set aside factual findings of such
courts absent any showing that there is no evidence to support the conclusion drawn by the court a
quo. 14 In this case, both the trial court and the Court of Appeals are one in ruling that petitioners and
private respondent established a business partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more
persons bind themselves to contribute money, property or industry to a common fund; and (2)
intention on the part of the partners to divide the profits among themselves. 15 It may be constituted
in any form; a public instrument is necessary only where immovable property or real rights are
contributed thereto.16 This implies that since a contract of partnership is consensual, an oral contract
of partnership is as good as a written one. Where no immovable property or real rights are involved,
what matters is that the parties have complied with the requisites of a partnership. The fact that there
appears to be no record in the Securities and Exchange Commission of a public instrument embodying
the partnership agreement pursuant to Article 1772 of the Civil Code 17 did not cause the nullification
of the partnership. The pertinent provision of the Civil Code on the matter states:chanrob1es virtual
1aw library
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first
paragraph.chanrob1es virtua1 1aw 1ibrary
Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the partnership and
hence, under the law, she was the industrial or managing partner. It was through her reputation with
the West Bend Company that the partnership was able to open the business of distributorship of that
company’s cookware products; it was through the same efforts that the business was propelled to
financial success. Petitioner Tocao herself admitted private respondent’s indispensable role in putting
up the business when, upon being asked if private respondent held the positions of marketing
manager and vice-president for sales, she testified thus:jgc:chanrobles.com.ph
"A: No, sir at the start she was the marketing manager because there were no one to sell yet, it’s only
me there then her and then two (2) people, so about four (4). Now, after that when she recruited
already Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of
marketing managers of which definitely Nita as superior to them would be the Vice President." ‘ 18
By the set-up of the business, third persons were made to believe that a partnership had indeed been
forged between petitioners and private respondents. Thus, the communication dated June 4, 1986 of
Missy Jagler of West Bend Company to Roger Muencheberg of the same company
states:jgc:chanrobles.com.ph
"Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge
does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda and
Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier.
They will continue to gather other key people and build up the organization. All they need is the
finance and the products to sell." 19
On the other hand, petitioner Belo’s denial that he financed the partnership rings hollow in the face of
the established fact that he presided over meetings regarding matters affecting the operation of the
business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his own
business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the
proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary
interest in the business. His claim that he was merely a guarantor is belied by that personal act of
proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of petitioner
Tocao under Article 2053 of the Civil Code, 20 he should have presented documentary evidence
therefor. While Article 2055 of the Civil Code simply provides that guaranty must be "express," Article
1403, the Statute of Frauds, requires that "a special promise to answer for the debt, default or
miscarriage of another" be in writing. 21
Petitioner Tocao, a former ramp model, 22 was also a capitalist in the partnership. She claimed that
she herself financed the business. Her and petitioner Belo’s roles as both capitalists to the partnership
with private respondent are buttressed by petitioner Tocao’s admissions that petitioner Belo was her
boyfriend and that the partnership was not their only business venture together. They also established
a firm that they called "Wiji," the combination of petitioner Belo’s first name, William, and her
nickname, Jiji. 23 The special relationship between them dovetails with petitioner Belo’s claim that he
was acting in behalf of petitioner Tocao. Significantly, in the early stage of the business operation,
petitioners requested West Bend Company to allow them to "utilize their banking and trading facilities
in Singapore" in the matter of importation and payment of the cookware products. 24 The inevitable
conclusion, therefore, was that petitioners merged their respective capital and infused the amount
into the partnership of distributing cookware with private respondent as the managing
partner.chanrob1es virtua1 1aw 1ibrary
The business venture operated under Geminesse Enterprise did not result in an employer-employee
relationship between petitioners and private Respondent. While it is true that the receipt of a
percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
business, 25 the evidence in the case at bar controverts an employer-employee relationship between
the parties. In the first place, private respondent had a voice in the management of the affairs of the
cookware distributorship, 26 including selection of people who would constitute the administrative
staff and the sales force. Secondly, petitioner Tocao’s admissions militate against an employer-
employee relationship. She admitted that, like her who owned Geminesse Enterprise, 27 private
respondent received only commissions and transportation and representation allowances 28 and not a
fixed salary. 29 Petitioner Tocao testified:jgc:chanrobles.com.ph
"Q: Of course. Now, I am showing to you certain documents already marked as Exhs.’X’ and ‘Y.’ Please
go over this. Exh.’Y’ is denominated ‘Cubao overrides’ 8-21-87 with ending August 21, 1987, will you
please go over this and tell the Honorable Court whether you ever came across this document and
know of your own knowledge the amount —
A: Yes, sir this is what I am talking about earlier. That’s the one I am telling you earlier a certain
percentage for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote:
‘Overrides Marjorie Ann Tocao P21,410.50’ this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote ‘Nita D. Anay P21,410.50’, what is this?
A: That’s her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the
same P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense
because of her expertise in the business she is vital to my business. So, as part of the incentive I offer
her the same thing.chanrob1es virtua1 1aw 1ibrary
Q: So, in short you are saying that this you have shared together, I mean having gotten from the
company P21,140.50 is your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh.’Y’ "Overrides Makati the other one is —
A: That is the same thing, sir.
Q: With ending August 21, words and figure ‘Overrides Marjorie Ann Tocao P15,314.25’ the amount
there you will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she
received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir." (Emphasis supplied.) 30
If indeed petitioner Tocao was private respondent’s employer, it is difficult to believe that they shall
receive the same income in the business. In a partnership, each partner must share in the profits and
losses of the venture, except that the industrial partner shall not be liable for the losses. 31 As an
industrial partner, private respondent had the right to demand for a formal accounting of the business
and to receive her share in the net profit. 32
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a
sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on
August 19, 1987 was merely the name of that enterprise. 33 While it is true that in her undated
application for renewal of registration of that firm name, petitioner Tocao indicated that it would be
engaged in retail of "kitchenwares, cookwares, utensils, skillet," 34 she also admitted that the
enterprise was only "60% to 70% for the cookware business," while 20% to 30% of its business activity
was devoted to the sale of water sterilizer or purifier. 35 Indubitably then, the business name
Geminesse Enterprise was used only for practical reasons — it was utilized as the common name for
petitioner Tocao’s various business activities, which included the distributorship of
cookware.chanrob1es virtua1 1aw 1ibrary
Petitioners underscore the fact that the Court of Appeals did not return the "unaccounted and
unremitted stocks of Geminesse Enterprise amounting to P208,250.00." 36 Obviously a ploy to offset
the damages awarded to private respondent, that claim, more than anything else, proves the
existence of a partnership between them. In Idos v. Court of Appeals, this Court
said:jgc:chanrobles.com.ph
"The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. . . ." 37
It is not surprising then that, even after private respondent had been unceremoniously booted out of
the partnership in October 1987, she still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap
for herself and/or for petitioner Belo financial gains resulting from private respondent’s efforts to
make the business venture a success. Thus, as petitioner Tocao became adept in the business
operation, she started to assert herself to the extent that she would even shout at private respondent
in front of other people. 38 Her instruction to Lina Torda Cruz, marketing manager, not to allow private
respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her
perception that private respondent was no longer necessary in the business operation, 39 and
resulted in a falling out between the two. However, a mere falling out or misunderstanding between
partners does not convert the partnership into a sham organization. 40 The partnership exists until
dissolved under the law. Since the partnership created by petitioners and private respondent has no
fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may
be dissolved by the will of a partner. Thus:jgc:chanrobles.com.ph
". . . The right to choose with whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partner’s capability to give it, and the absence of cause for dissolution
provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution
of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership but that it can result in a liability for damages."
41chanrob1es virtua1 law library
An unjustified dissolution by a partner can subject him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the
power, although not necessarily the right to dissolve the partnership. 42
In this case, petitioner Tocao’s unilateral exclusion of private respondent from the partnership is
shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9,
1987, no longer the vice-president for sales of Geminesse Enterprise. 43 By that memo, petitioner
Tocao effected !her own withdrawal from the partnership and considered herself as having ceased to
be associated with the partnership in the carrying on of the business. Nevertheless, the partnership
was not terminated thereby; it continues until the winding up of the business. 44
The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest
in petitioners’ claim for stocks that had been entrusted to private respondent in the pursuit of the
partnership business.
The determination of the amount of damages commensurate with the factual findings upon which it is
based is primarily the task of the trial court. 45 The Court of Appeals may modify that amount only
when its factual findings are diametrically opposed to that of the lower court, 46 or the award is
palpably or scandalously and unreasonably excessive. 47 However, exemplary damages that are
awarded "by way of example or correction for the public good," 48 should be reduced to P50,000.00,
the amount correctly awarded by the Court of Appeals. Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly, attorney’s fees
that should be granted on account of the award of exemplary damages and petitioners’ evident bad
faith in refusing to satisfy private respondent’s plainly valid, just and demandable claims, 49 appear to
have been excessively granted by the trial court and should therefore be reduced to
P25,000.00.chanrob1es virtua1 1aw 1ibrary
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among
petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the
winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code.
This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution.
The appealed decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with
MODIFICATIONS, as follows —
1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership
affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine
private respondent’s ten percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding
commission for the one hundred and fifty (150) cookware sets available for disposition since the time
private respondent was wrongfully excluded from the partnership by petitioners;
3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on
the total production which, for the period covering January 8, 1988 to February 5, 1988, amounted to
P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the
amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorney’s fees in the
amount of P25,000.00.
SO ORDERED.
Davide, Jr., C.J., Puno, Kapunan and Pardo, JJ., concur.
G.R. No. 153802. March 11, 2005
HOMEOWNERS SAVINGS & LOAN BANK, Petitioner,
vs.
MIGUELA C. DAILO, Respondents.
DECISION
TINGA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court, assailing
the Decision1 of the Court of Appeals in CA-G.R. CV No. 59986 rendered on June 3, 2002, which
affirmed with modification the October 18, 1997 Decision2 of the Regional Trial Court, Branch 29, San
Pablo City, Laguna in Civil Case No. SP-4748 (97).
The following factual antecedents are undisputed.
Respondent Miguela C. Dailo and Marcelino Dailo, Jr. were married on August 8, 1967. During their
marriage, the spouses purchased a house and lot situated at Barangay San Francisco, San Pablo City
from a certain Sandra Dalida. The subject property was declared for tax assessment purposes under
Assessment of Real Property No. 94-051-2802. The Deed of Absolute Sale, however, was executed only
in favor of the late Marcelino Dailo, Jr. as vendee thereof to the exclusion of his wife.3
On December 1, 1993, Marcelino Dailo, Jr. executed a Special Power of Attorney (SPA) in favor of one
Lilibeth Gesmundo, authorizing the latter to obtain a loan from petitioner Homeowners Savings and
Loan Bank to be secured by the spouses Dailo’s house and lot in San Pablo City. Pursuant to the SPA,
Gesmundo obtained a loan in the amount of ₱300,000.00 from petitioner. As security therefor,
Gesmundo executed on the same day a Real Estate Mortgage constituted on the subject property in
favor of petitioner. The abovementioned transactions, including the execution of the SPA in favor of
Gesmundo, took place without the knowledge and consent of respondent.4
Upon maturity, the loan remained outstanding. As a result, petitioner instituted extrajudicial
foreclosure proceedings on the mortgaged property. After the extrajudicial sale thereof, a Certificate
of Sale was issued in favor of petitioner as the highest bidder. After the lapse of one year without the
property being redeemed, petitioner, through its vice-president, consolidated the ownership thereof
by executing on June 6, 1996 an Affidavit of Consolidation of Ownership and a Deed of Absolute Sale.5
In the meantime, Marcelino Dailo, Jr. died on December 20, 1995. In one of her visits to the subject
property, respondent learned that petitioner had already employed a certain Roldan Brion to clean its
premises and that her car, a Ford sedan, was razed because Brion allowed a boy to play with fire
within the premises.
Claiming that she had no knowledge of the mortgage constituted on the subject property, which was
conjugal in nature, respondent instituted with the Regional Trial Court, Branch 29, San Pablo City, Civil
Case No. SP-2222 (97) for Nullity of Real Estate Mortgage and Certificate of Sale, Affidavit of
Consolidation of Ownership, Deed of Sale, Reconveyance with Prayer for Preliminary Injunction and
Damages against petitioner. In the latter’s Answer with Counterclaim, petitioner prayed for the
dismissal of the complaint on the ground that the property in question was the exclusive property of
the late Marcelino Dailo, Jr.
After trial on the merits, the trial court rendered a Decision on October 18, 1997. The dispositive
portion thereof reads as follows:
WHEREFORE, the plaintiff having proved by the preponderance of evidence the allegations of the
Complaint, the Court finds for the plaintiff and hereby orders:
ON THE FIRST CAUSE OF ACTION:
1. The declaration of the following documents as null and void:
(a) The Deed of Real Estate Mortgage dated December 1, 1993 executed before Notary Public Romulo
Urrea and his notarial register entered as Doc. No. 212; Page No. 44, Book No. XXI, Series of 1993.
(b) The Certificate of Sale executed by Notary Public Reynaldo Alcantara on April 20, 1995.
(c) The Affidavit of Consolidation of Ownership executed by the defendant
(c) The Affidavit of Consolidation of Ownership executed by the defendant over the residential lot
located at Brgy. San Francisco, San Pablo City, covered by ARP No. 95-091-1236 entered as Doc. No.
406; Page No. 83, Book No. III, Series of 1996 of Notary Public Octavio M. Zayas.
(d) The assessment of real property No. 95-051-1236.
2. The defendant is ordered to reconvey the property subject of this complaint to the plaintiff.
ON THE SECOND CAUSE OF ACTION
1. The defendant to pay the plaintiff the sum of ₱40,000.00 representing the value of the car which
was burned.
ON BOTH CAUSES OF ACTION
1. The defendant to pay the plaintiff the sum of ₱25,000.00 as attorney’s fees;
2. The defendant to pay plaintiff ₱25,000.00 as moral damages;
3. The defendant to pay the plaintiff the sum of ₱10,000.00 as exemplary damages;
4. To pay the cost of the suit.
The counterclaim is dismissed.
SO ORDERED.6
Upon elevation of the case to the Court of Appeals, the appellate court affirmed the trial court’s
finding that the subject property was conjugal in nature, in the absence of clear and convincing
evidence to rebut the presumption that the subject property acquired during the marriage of spouses
Dailo belongs to their conjugal partnership.7 The appellate court declared as void the mortgage on the
subject property because it was constituted without the knowledge and consent of respondent, in
accordance with Article 124 of the Family Code. Thus, it upheld the trial court’s order to reconvey the
subject property to respondent.8 With respect to the damage to respondent’s car, the appellate court
found petitioner to be liable therefor because it is responsible for the consequences of the acts or
omissions of the person it hired to accomplish the assigned task.9 All told, the appellate court affirmed
the trial court’s Decision, but deleted the award for damages and attorney’s fees for lack of basis.10
Hence, this petition, raising the following issues for this Court’s consideration:
1. WHETHER OR NOT THE MORTGAGE CONSTITUTED BY THE LATE MARCELINO DAILO, JR. ON THE
SUBJECT PROPERTY AS CO-OWNER THEREOF IS VALID AS TO HIS UNDIVIDED SHARE.
2. WHETHER OR NOT THE CONJUGAL PARTNERSHIP IS LIABLE FOR THE PAYMENT OF THE LOAN
OBTAINED BY THE LATE MARCELINO DAILO, JR. THE SAME HAVING REDOUNDED TO THE BENEFIT OF
THE FAMILY.11
First, petitioner takes issue with the legal provision applicable to the factual milieu of this case. It
contends that Article 124 of the Family Code should be construed in relation to Article 493 of the Civil
Code, which states:
ART. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another
person in its enjoyment, except when personal rights are involved. But the effect of the alienation or
the mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to
him in the division upon the termination of the co-ownership.
Article 124 of the Family Code provides in part:
ART. 124. The administration and enjoyment of the conjugal partnership property shall belong to both
spouses jointly. . . .
In the event that one spouse is incapacitated or otherwise unable to participate in the administration
of the conjugal properties, the other spouse may assume sole powers of administration. These powers
do not include the powers of disposition or encumbrance which must have the authority of the court
or the written consent of the other spouse. In the absence of such authority or consent, the
disposition or encumbrance shall be void. . . .
Petitioner argues that although Article 124 of the Family Code requires the consent of the other
spouse to the mortgage of conjugal properties, the framers of the law could not have intended to
curtail the right of a spouse from exercising full ownership over the portion of the conjugal property
pertaining to him under the concept of co-ownership.12 Thus, petitioner would have this Court
uphold the validity of the mortgage to the extent of the late Marcelino Dailo, Jr.’s share in the conjugal
partnership.
In Guiang v. Court of Appeals,13 it was held that the sale of a conjugal property requires the consent
of both the husband and wife.14 In applying Article 124 of the Family Code, this Court declared that
the absence of the consent of one renders the entire sale null and void, including the portion of the
conjugal property pertaining to the husband who contracted the sale. The same principle
in Guiang squarely applies to the instant case. As shall be discussed next, there is no legal basis to
construe Article 493 of the Civil Code as an exception to Article 124 of the Family Code.
Respondent and the late Marcelino Dailo, Jr. were married on August 8, 1967. In the absence of a
marriage settlement, the system of relative community or conjugal partnership of gains governed the
property relations between respondent and her late husband.15 With the effectivity of the Family
Code on August 3, 1988, Chapter 4 on Conjugal Partnership of Gains in the Family Code was made
applicable to conjugal partnership of gains already established before its effectivity unless vested
rights have already been acquired under the Civil Code or other laws.16
The rules on co-ownership do not even apply to the property relations of respondent and the late
Marcelino Dailo, Jr. even in a suppletory manner. The regime of conjugal partnership of gains is a
special type of partnership, where the husband and wife place in a common fund the proceeds,
products, fruits and income from their separate properties and those acquired by either or both
spouses through their efforts or by chance.17 Unlike the absolute community of property wherein the
rules on co-ownership apply in a suppletory manner,18 the conjugal partnership shall be governed by
the rules on contract of partnership in all that is not in conflict with what is expressly determined in
the chapter (on conjugal partnership of gains) or by the spouses in their marriage settlements.19 Thus,
the property relations of respondent and her late husband shall be governed, foremost, by Chapter 4
on Conjugal Partnership of Gains of the Family Code and, suppletorily, by the rules on partnership
under the Civil Code. In case of conflict, the former prevails because the Civil Code provisions on
partnership apply only when the Family Code is silent on the matter.
The basic and established fact is that during his lifetime, without the knowledge and consent of his
wife, Marcelino Dailo, Jr. constituted a real estate mortgage on the subject property, which formed
part of their conjugal partnership. By express provision of Article 124 of the Family Code, in the
absence of (court) authority or written consent of the other spouse, any disposition or encumbrance
of the conjugal property shall be void.
The aforequoted provision does not qualify with respect to the share of the spouse who makes the
disposition or encumbrance in the same manner that the rule on co-ownership under Article 493 of
the Civil Code does. Where the law does not distinguish, courts should not distinguish.20 Thus, both
the trial court and the appellate court are correct in declaring the nullity of the real estate mortgage
on the subject property for lack of respondent’s consent.
Second, petitioner imposes the liability for the payment of the principal obligation obtained by the
late Marcelino Dailo, Jr. on the conjugal partnership to the extent that it redounded to the benefit of
the family.21
Under Article 121 of the Family Code, "[T]he conjugal partnership shall be liable for: . . . (3) Debts and
obligations contracted by either spouse without the consent of the other to the extent that the family
may have been benefited; . . . ." For the subject property to be held liable, the obligation contracted by
the late Marcelino Dailo, Jr. must have redounded to the benefit of the conjugal partnership. There
must be the requisite showing then of some advantage which clearly accrued to the welfare of the
spouses. Certainly, to make a conjugal partnership respond for a liability that should appertain to the
husband alone is to defeat and frustrate the avowed objective of the new Civil Code to show the
utmost concern for the solidarity and well-being of the family as a unit.22
The burden of proof that the debt was contracted for the benefit of the conjugal partnership of gains
lies with the creditor-party litigant claiming as such.23 Ei incumbit probatio qui dicit, non qui negat (he
who asserts, not he who denies, must prove).24 Petitioner’s sweeping conclusion that the loan
obtained by the late Marcelino Dailo, Jr. to finance the construction of housing units without a doubt
redounded to the benefit of his family, without adducing adequate proof, does not persuade this
Court. Other than petitioner’s bare allegation, there is nothing from the records of the case to compel
a finding that, indeed, the loan obtained by the late Marcelino Dailo, Jr. redounded to the benefit of
the family. Consequently, the conjugal partnership cannot be held liable for the payment of the
principal obligation.
In addition, a perusal of the records of the case reveals that during the trial, petitioner vigorously
asserted that the subject property was the exclusive property of the late Marcelino Dailo, Jr. Nowhere
in the answer filed with the trial court was it alleged that the proceeds of the loan redounded to the
benefit of the family. Even on appeal, petitioner never claimed that the family benefited from the
proceeds of the loan. When a party adopts a certain theory in the court below, he will not be
permitted to change his theory on appeal, for to permit him to do so would not only be unfair to the
other party but it would also be offensive to the basic rules of fair play, justice and due process.25 A
party may change his legal theory on appeal only when the factual bases thereof would not require
presentation of any further evidence by the adverse party in order to enable it to properly meet the
issue raised in the new theory.26
WHEREFORE, the petition is DENIED. Costs against petitioner.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.
G.R. No. 126881 October 3, 2000
HEIRS OF TAN ENG KEE, petitioners,
vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG
LAY,respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the Decision1 dated March
13, 1996 of the former Fifth Division2 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 complaint4 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 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 judgment6 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 venture 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.
Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the
assailed decision reversing the judgment of the trial court. Petitioners' motion for reconsideration7  A PUBLIC INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC
was denied by the Court of Appeals in a Resolution8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and
Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners
complained that Exhibits "4" to "4-U" offered by the defendants before the trial court, consisting of
payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on the
discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870 against
Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification
of commercial documents by a private individual. On March 20, 1999, the Municipal Trial Court of
Baguio City, Branch 1, wherein the charges were filed, rendered judgment9 dismissing the cases for
insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I (1) when the factual findings of the Court of Appeals and the trial court are contradictory;
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP
BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM
ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO
CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E)
THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF
RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN
ENG KEE WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE
DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A
PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE
SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET LUMBER
COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET
LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO BE
SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE
18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST
BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER
WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE
ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP
(PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP
BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR
ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF
INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not
be disturbed on appeal if such are supported by the evidence.10 Our jurisdiction, it must be
emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment or
final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other
courts whenever authorized by law, may file with the Supreme Court a verified petition for review on
certiorari. The petition shall raise only questions of law which must be distinctly set forth.11 
[emphasis 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:
(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
venture.
When mention is made of a joint venture, it would presuppose parity of standing between the parties,
equal proprietary interest and the exercise by the parties equally of the conduct of the business, thus:
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 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
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
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 that
TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this connection, we have
held that whether a partnership exists is a factual matter; consequently, since the appeal is brought to
us under Rule 45, we cannot entertain inquiries relative to the correctness 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:
. . . 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 venture, 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 venture "presupposes generally a parity of standing between the joint co-ventures or partners,
in which each party has an equal proprietary interest in the capital or property contributed, and where
each party exercises equal rights in the conduct of the business."22 Nonetheless, in Aurbach, et. al. v.
Sanitary Wares Manufacturing Corporation, et. al.,23 we expressed the view that a joint venture may
be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organization formed for some temporary purpose. (Gates
v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their
elements are similar — community of interest in the business, sharing of profits and losses, and a
mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95
P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main
distinction cited by most opinions in common law jurisdiction is that the partnership contemplates a
general business with some degree of continuity, while the joint venture is formed for the execution of
a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500
[1931]; Harmon v. Martin, 395 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 venture
is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court
has however recognized a distinction between these two business forms, and has held that although a
corporation cannot enter into a partnership contract, it may however engage in a joint venture with
others. (At p. 12, Tuazon v. Bolaños, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments,
Notes and Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of
partnership but there is none. The alleged partnership, though, was never formally organized. In
addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was
allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented
the parties from complying with the provisions of the New Civil Code when it took effect on August 30,
1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence. A review of the record persuades us that
the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a partnership.
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 [emphasis
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;
(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 a prima facie evidence that he is a operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that
partner in the business, but no such inference shall be drawn if such profits were received in payment: as a member of the family, he occupied a niche above the rank-and-file employees. He would have
(a) As a debt by installment or otherwise; enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber
(b) As wages of an employee or rent to a landlord; Company compound. He would have moral, if not actual, superiority over his fellow employees,
(c) As an annuity to a widow or representative of a deceased partner; thereby entitling him to exercise powers of supervision. It may even be that among his duties is to
(d) As interest on a loan, though the amount of payment vary with the profits of the business; place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical
(e) As the consideration for the sale of a goodwill of a business or other property by installments or nexus to the conclusion desired; these are not inconsistent with the powers and duties of a manager,
otherwise. even in a business organized and run as informally as Benguet Lumber Company.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak
not a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square of. Hence, the petition must fail.
one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is
received amounts of money allegedly representing his share in the profits of the enterprise. hereby AFFIRMED in toto. No pronouncement as to costs.
Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the SO ORDERED.
profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Bellosillo, Mendoza, Quisumbing and Buena, JJ ., concur.
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.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated powers and
privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in Benguet Lumber for
the following reasons:
(i) even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. So long, therefore, that an employee's position is higher in rank, it is not unusual that he
orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can
order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does
not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a
partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege
was not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of
Tan Eng Lay. Naturally, close personal relations existed between them. Whatever privileges Tan Eng Lay
gave his brother, and which were not given the other employees, only proves the kindness and
generosity of Tan Eng Lay towards a blood relative.
(iv) and even if it is assumed that Tan Eng Kee was quarreling 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