1
FIRST DIVISION
[G.R. No. L-9996. October 15, 1957.]
EUFEMIA EVANGELISTA, MANUELA EVANGELISTA and FRANCISCA
EVANGELISTA, petitioners, vs. THE COLLECTOR OF INTERNAL REVENUE
and THE COURT OF TAX APPEALS,respondents.
Santiago F. Alidio and Angel S. Dakila, Jr. for petitioner.
Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo
Umali and Solicitor Felicisimo R. Rosete for the respondents.
SYLLABUS
1. TAXATION; TAX ON CORPORATIONS INCLUDES ORGANIZATION
WHICH ARE NOT NECESSARY PARTNERSHIP. — "Corporations" strictly
speaking are distinct and different from "partnership". When our Internal
Revenue Code includes "partnership" among the entities subject to the tax on
"corporations", it must be allude to organization which are not
necessarily "partnership" in the technical sense of the term.
2. ID.; DULY REGISTERED GENERAL PARTNERSHIP ARE EXEMPTED
FROM THE TAX UPON CORPORATIONS. — Section 24 of the Internal
Revenue Code exempts from the tax imposed upon corporations "duly
registered general partnership", which constitute precisely one of the most
typical form of partnership in this jurisdiction.
3. ID.; CORPORATION INCLUDES PARTNERSHIP NO MATTER HOW
ORGANIZED. — As defined in section 84 (b) of the Internal Revenue Code "the
term corporation includes partnership, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need
not be undertaken in any of the standards form, or conformity with the usual
requirements of the law on partnerships, in order that one could be deemed
constituted for the purposes of the tax on corporations.
4. ID.; CORPORATIONS INCLUDES "JOINT ACCOUNT" AND
ASSOCIATIONS WITHOUT LEGAL PERSONALITY. — Pursuant to Section 84
(b) of the Internal Revenue Code, the term "corporations" includes, among the
others, "joint accounts (cuenta en participacion)" and "associations", none of
which has a legal personality of its own independent of that of its members. For
purposes of the tax on corporations, our National Internal Revenue
Code includes these partnership. — with the exception only of duly registered
general partnership. — within the purview of the term "corporations." Held: That
the petitioners in the case at bar, who are engaged in real estate transactions
for monetary gain and divide the same among themselves, constitute a
partnership, so far as the said Code is concerned, and are subject to the
income tax for the corporation.
5. ID.; CORPORATION; PARTNERSHIP WITHOUT LEGAL PERSONALITY
SUBJECT TO RESIDENCE TAX ON CORPORATION. — The pertinent part of
the provision of Section 2 of Commonwealth Act No. 465which says: "The term
corporation as used in this Act includes joint-stock company, partnership, joint
account (cuentas en participacion), association or insurance company, no
matter how created or organized." is analogous to that of Section 24 and 84 (b)
of our Internal Revenue Code which was approved the day immediately after
the approval of saidCommonwealth Act No. 565. Apparently, the terms
"corporation" and "Partnership" are used both statutes with substantially the
same meaning, Held: That the petitioners are subject to the residence tax
corporations.
DECISION
CONCEPCION, J p:
This is a petition, filed by Eufemia Evangelista, Manuela Evangelista and
Francisca Evangelista, for review of a decision of the Court of Tax Appeals, the
dispositive part of which reads:
"FOR ALL THE FOREGOING, we hold that the petitioners are liable for the
income tax, real estate dealer's tax and the residence tax for the years 1945 to
1949, inclusive, in accordance with the respondent's assessment for the same
in the total amount of P6,878.34, which is hereby affirmed and the petition for
review filed by petitioners is hereby dismissed with costs against petitioners."
It appears from the stipulation submitted by the parties:
"1. That the petitioners borrowed from their father the sum of P59,140.00 which
amount together with their personal monies was used by them for the purpose
of buying real properties;
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"2. That on February 2, 1943 they bought from Mrs. Josefina Florentino a lot dealer's fixed tax and corporation residence tax for the years 1945-1949,
with an area of 3,713.40 sq. m. including improvements thereon for the sum of computed, according to the assessments made by said officer, as follows:
P100,000.00; this property has an assessed value of P57,517.00 as of 1948;
INCOME TAXES
"3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of
land with an aggregate area of 3,718.40 sq. m. including improvements thereon 1945...........................................................P614.84
for P18,000.00; this property has an assessed value of P8,255.00 as of 1948;
1946...........................................................1,144.71
"4. That on April 23, 1944 they purchased from the Insular Investments, Inc., a
lot of 4,358 sq. m. including improvements thereon for P108,825.00. This 1947..............................................................910.34
property has an assessed value of P4,983.00 as of 1943;
1948...........................................................1,912.30
"5. That on April 28, 1944 they bought from Mrs. Valentin Afable a lot of 8,371
sq. m. including improvements thereon for P237,234.14. This property has an 1949...........................................................1,575.90
assessed value of P59,140.00 as of 1948;
 _______________
"6. That in a document dated August 16, 1945, they appointed their brother
Simeon Evangelista to 'manage their properties with full power to lease; to
Total including surcharge and compromise P6,157.09
collect and receive rents; to issue receipts therefor; in default of such payment,
to bring suits against the defaulting tenant; to sign all letters, contracts, etc., for
and in their behalf, and to endorse and deposit all notes and checks for them; REAL ESTATE DEALER'S FIXED TAX

"7. That after having bought the above-mentioned real properties, the 1946.................................................................P37.50
petitioners had the same rented or leased to various tenants;
1947.................................................................150.00
"8. That from the month of March, 1945 up to and including December, 1945,
the total amount collected as rents on their real properties was P9,599.00 while 1948.................................................................150.00
the expenses amounted to P3,650.00 thereby leaving them a net rental income
of P5,948.33; 1949.................................................................150.00

"9. That in 1946, they realized a gross rental income in the sum of P24,786.30,  ____________
out of which amount was deducted the sum of P16,288.27 for expenses thereby
leaving them a net rental income of P7,498.13; Total including penalty P527.50

"10. That in 1948 they realized a gross rental income of P17,453.00 out of the RESIDENCE TAXES OF CORPORATION
which amount was deducted the sum of P4,837.65 as expenses, thereby
leaving them a net rental income of P12,615.35." 1945................................................................P38.75

It further appears that on September 24, 1954, respondent Collector of Internal 1946..................................................................38.75
Revenue demanded the payment of income tax on corporations, real estate

1947..................................................................38.75
1948..................................................................38.75
1949..................................................................38.75
 ______________
Total including surchage P193.75
TOTAL TAXES DUE P6,878.34
Said letter of demand and the corresponding assessments were delivered to
petitioners on December 3, 1954, whereupon they instituted the present case in
the Court of Tax Appeals, with a prayer that "the decision of the respondent
contained in his letter of demand dated September 24, 1954" be reversed, and
that they be absolved from the payment of the taxes in question, with costs
against the respondent.
After appropriate proceedings, the Court of Tax Appeals rendered the above-
mentioned decision for the respondent, and, a petition for reconsideration and
new trial having been subsequently denied, the case is now before Us for
review at the instance of the petitioners.
The issue in this case is whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act No. 466,
otherwise known as the National Internal Revenue Code, as well as to the
residence tax for corporations and the real estate dealers' fixed tax. With
respect to the tax on corporations, the issue hinges on the meaning of the terms
"corporation" and "partnership", as used in sections 24 and 84 of said Code, the
pertinent parts of which read:
"SEC. 24. Rate of tax on corporations. — There shall be levied, assessed,
collected, and paid annually upon the total net income received in the preceding
taxable year from all sources by every corporation organized in, or existing
under the laws of the Philippines, no matter how created or organized but not
including duly registered general co-partnerships (compañias colectivas), a tax
upon such income equal to the sum of the following: . . . ."
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"Sec. 84(b). The term 'corporation' includes partnerships, no matter how created
or organized, joint-stock companies, joint accounts (cuentas en participacion),
associations or insurance companies, but does not include duly registered
general copartnerships (compañias colectivas)."
Article 1767 of the Civil Code of the Philippines provides:
"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."
Pursuant to this article, the essential elements of a partnership are two, namely:
(a) an agreement to contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting parties. The first
element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to, and did, contribute money and property to a common fund.
Hence, the issue narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances surrounding the case, we are
fully satisfied that their purpose was to engage in real estate transactions for
monetary gain and then divide the same among themselves, because:
 
1. Said common fund was not something they found already in existence. It was
not a property inherited by them pro indiviso. They created it purposely. What is
more they jointly borrowed a substantial portion thereof in order to establish
said common fund.
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April
3, 1944, they purchased 21 lots for P18,000.000. This was soon followed, on
April 23, 1944, by the acquisition of another real estate for P108,825.00. Five
(5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number
of lots (24) acquired and transactions undertaken, as well as the brief
interregnum between each, particularly the last three purchases, is strongly
indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of
the property acquired by petitioners in February, 1943. In other words, one
cannot but perceive a character of habituality peculiar to businesstransactions
engaged in for purposes of gain.

3. The aforesaid lots were not devoted to residential purposes, or to other
personal uses, of petitioners herein. The properties were leased separately to
several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for
petitioners do not even suggest that there has been any change in the utilization
thereof.
4. Since August, 1945, the properties have been under the management of one
person, namely, Simeon Evangelista, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business enterprise
operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be
exact, over fifteen (15) years, since the first property was acquired, and over
twelve (12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their
purpose in creating the set up already adverted to, or on the causes for its
continued existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary
to constitute a partnership, the collective effect of these circumstances is such
as to leave no room for doubt on the existence of said intent in petitioners
herein. Only one or two of the aforementioned circumstances were present in
the cases cited by petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in
consequence of the acts performed by them, a legal entity, with a personality
independent of that of its members, did not come into existence, and some of
the characteristics of partnerships are lacking in the case at bar. This pretense
was correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which,
strictly speaking, are distinct and different from "partnerships". When our
Internal Revenue Code includes "partnerships" among the entities subject to the
tax on "corporations", said Code must allude, therefore, to organizations which
are not necessarily"partnerships", in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax "duly
4
registered general partnerships", which constitute precisely one of the most
typical forms of partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes partnerships, no matter how
created or organized." This qualifying expression clearly indicates that a joint
venture need not be undertaken in any of the standard forms, or in conformity
with the usual requirements of the law on partnerships, in order that one could
be deemed constituted for purposes of the tax on corporations. Again, pursuant
to said section 84(b), the term "corporation" includes, among other, "joint
accounts, (cuentas en participacion)" and "associations",none of which has a
legal personality of its own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a condition essential to
the existence of the partnerships therein referred to. In fact, as above stated,
"duly registered general copartner ships" — which are possessed of the
aforementioned personality — have been expressly excluded by law (sections
24 and 84 [b]) from the connotation of the term "corporation." It may not be
amiss to add that petitioners' allegation to the effect that their liability in
connection with the leasing of the lots above referred to, under the management
of one person — even if true, on which we express no opinion tends to increase
the similarity between the nature of their venture and that of corporations, and
is, therefore, an additional argument in favor of the imposition of said tax on
corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed
differently from "partnerships". By specific provision of said laws, such
"corporations" include "associations, joint-stock companies and insurance
companies." However, the term "association" is not used in the aforementioned
laws
". . . in any narrow or technical sense. It includes any organization, created for
the transaction of designated affairs, or the attainment of some object, which,
like a corporation, continues notwithstanding that its members or participants
change, and the affairs of which, like corporate affairs, are conducted by a
single individual, a committee, a board, or some other group, acting in a
representative capacity. It is immaterial whether such organization is created by
an agreement, a declaration of trust, a statute, or otherwise. It includes a
voluntary association, a joint-stock corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust, and 'investment' trust (whether of
the fixed or the management type), an interinsurance exchange operating
through an attorney in fact, a partnership association, and any other type of
organization (by whatever name known) which is not, within the meaning of the
 5

Code, a trust or an estate, or a partnership." (7A Merten's Law of Federal
Income Taxation, p. 788; italics ours.)
Similarly, the American Law.
". . . provides its own concept of a partnership. Under the term 'partnership' it
includes not only a partnership as known at common law but, as well, a
syndicate, group, pool, joint venture, or other unincorporated organization which
carries on any business, financial operation, or venture, and which is not, within
the meaning of the Code, a trust, estate, or a corporation. . . .." (7A Merten's
Law of Federal Income Taxation, p. 789; italics ours.)
"The term 'partnership' includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business,
financial operation, or venture is carried on, . . .." (8 Merten's Law of Federal
Income Taxation, p. 562 Note 63; italics ours.)
1939), it is apparent that the terms "corporation" and "partnership" are used in
both statutes with substantially the same meaning. Consequently, petitioners
are subject, also, to the residence tax for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the
properties above mentioned for a period of over twelve years, and that the
yearly gross rentals of said properties from 1945 to 1948 ranged from P9,599 to
P17,453. Thus, they are subject to the tax provided in section 193 (q) of
our National Internal Revenue Code, for "real estate dealers," inasmuch as,
pursuant to section 194(s) thereof:
"'Real estate dealer' includes any person engaged in the business of buying,
selling, exchanging, leasing, or renting property or his own account as
principal and holding himself out as a full or part- time dealer in real estate or as
an owner of rental property or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more a year. . . .." (Italics ours.)

For purposes of the tax on corporations, our National Internal Revenue Code,
includes these partnerships — with the exception only of duly registered general
copartnerships — within the purview of the term "corporation." It is, therefore,
clear to our mind that petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for corporations.
Wherefore, the appealed decision of the Court of Tax Appeals is hereby
affirmed with costs against the petitioners herein. It is so ordered.
||| (Evangelista v. Collector of Internal Revenue, G.R. No. L-9996, [October 15,
1957], 102 PHIL 140-152)

As regards the residence tax for corporations, section 2 ofCommonwealth Act

No. 465 provides in part:

"Entities liable to residence tax. — Every corporation, no matter how created or

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

"The term 'corporation' as used in this Act includes joint-stock company,

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

Considering that the pertinent part of this provision is analogous to that of

sections 24 and 84(b) of our National Internal Revenue Code(Commonwealth
Act No. 466), and that the latter was approved on June 15, 1939, the day
immediately after the approval of said Commonwealth Act No. 465 (June 14,

EN BANC
[G.R. No. L-12541. August 28, 1959.]
ROSARIO U. YULO, assisted by her husband JOSE C. YULO,plaintiffs-
appellants, vs. YANG CHIAO SENG, defendant-appellee.
Punzalan, Yabut, Eusebio & Tiburcio for appellants.
Augusto Francisco and Julian T. Ocampo for appellee.
SYLLABUS
1. TRIAL; ABSENCE OF ONE PARTY PURSUANT TO AGREEMENT;
EFFECT ON JUDGMENT. — If the parties to a case agreed to postpone the
trial of the same in view of a probable amicable settlement, neither of them can
take advantage of the other's absence in the hearing by appearing therein and
adducing evidence in his favor. The judgment rendered by the Court based on
such evidence should, in the interest of justice be set aside.
2. CONTRACTS; LEASE; CIRCUMSTANCES THAT NEGATE PARTNERSHIP.
— Where one of the parties to a contract does not contribute the capital he is
supposed to contribute to a common fund; does not furnish any help or
intervention in the management of the business subject of the contract; does
not demand from the other party an accounting of the expenses and earnings of
the business; and is absolutely silent with respect to any of the acts that a
partner should have done, but, on the other hand, receives a fixed monthly sum
from the other party, there can be no other conclusion than that the contract
between the parties is one of lease and not of partnership.
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DECISION
LABRADOR, J p:
Appeal from the judgment of the Court of First Instance of Manila, Hon.
Bienvenido A. Tan, presiding, dismissing plaintiff's complaint as well as
defendant's counterclaim. The appeal is prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote
a letter to the plaintiff Mrs. Rosario U. Yulo, proposing the formation of a
partnership between them to run and operate a theatre on the premises
occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal
conditions of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a
monthly participation of P3,000, payable quarterly in advance within the first 15
days of each quarter, (2) that the partnership shall be for a period of two years
and six months, starting from July 1, 1945 to December 31, 1947, with the
condition that if the land is expropriated or rendered impracticable for the
business, or if the owner constructs a permanent building thereon, or Mrs.
Yulo's right of lease is terminated by the owner, then the partnership shall be
terminated even if the period for which the partnership was agreed to be
established has not yet expired; (3) that Mrs. Yulo is authorized personally to
conduct such business in the lobby of the building as is ordinarily carried on in
lobbies of theatres in operation, provided the said business may not obstruct the
free ingress and egrees of patrons of the theatre; (4) that after December 31,
1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but
that if the partnership agreement is terminated before the lapse of one and a
half years period under any of the causes mentioned in paragraph (2) then
Yang Chiao Seng shall have the right to remove and take away all
improvements that the partnership may place in the premises.
Pursuant to the above offer, which plaintiff evidently accepted, the parties
executed a partnership agreement establishing the "Yang & Company, Limited,"
which was to exist from July 1, 1945 to December 31, 1947. It states that it will
conduct and carry on the business of operating a theatre for the exhibition of
motion and talking pictures. The capital is fixed at P100,000, P80,000 of which
is to be furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and
profits are to be distributed among the partners in the same proportion as their
capital contribution, and the liability of Mrs. Yulo, in case of loss, shall be limited
to her capital contribution (Exh. "B").

In June, 1946, they executed a supplementary agreement, extending the
partnership for a period of three years beginning January 1, 1948 to December
31, 1950. The benefits are to be divided between them at the rate of 50-50 and
after December 31, 1950, the showhouse building shall belong exclusively to
the second party, Mrs. Yulo.
The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo
from Emilia Carrion Santa Marina and Maria Carrion Santa Marina. In the
contract of lease it was stipulated that the lease shall continue for an indefinite
period of time, but that after one year the lease may be cancelled by either party
by written notice to the other party at least 90 days before the date of
cancellation. The last contract was executed between the owners and Mrs. Yulo
on April 5, 1948. But on April 12, 1949, the attorney for the owners notified Mrs.
Yulo of the owner's desire to cancel the contract of lease on July 31, 1949. In
view of the above notice, Mrs. Yulo and her husband brought a civil action in the
Court of First Instance of Manila on July 3, 1949 to declare the lease of the
premises one for an indefinite period. On August 17, 1949, the owners on their
part brought an action in the Municipal Court of Manila against Mrs. Yulo and
her husband and Yang Chiao Seng to eject them from the premises. On
February 9, 1950, the Municipal Court of Manila rendered judgment ordering the
ejectment of Mrs. Yulo and Mr. Yang. The judgment was appealed. In the Court
of First Instance, the two cases were afterwards heard jointly, and judgment
was rendered dismissing the complaint of Mrs. Yulo and her husband, and
declaring the contract of lease of the premises terminated as of July 31, 1949,
and fixing the reasonable monthly rentals of said premises at P100. Both parties
appealed from said decision and the Court of Appeals, on April 30, 1955,
affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in
the profits of the business. Yang answered the letter saying that upon the
advice of his counsel he had to suspend the payment (of the rentals) because
of the pendency of the ejectment suit by the owners of the land against Mrs.
Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and
inasmuch as Mrs. Yulo has not paid to the lessors the rentals from August,
1949, he was retaining the rentals to make good to the landowners the rentals
due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay to her the amount agreed upon, Mrs. Yulo
instituted this action on May 26, 1954, alleging the existence of a partnership
between them, and that defendant Yang Chiao Seng has refused to pay her
7
share from December, 1949 to December, 1950; that after December 31, 1950
the partnership between Mrs. Yulo and Yang terminated, as a result of which,
plaintiff became the absolute owner of the building occupied by the Cine Astor;
that the reasonable rental that the defendant should pay therefor from January,
1951 is P5,000; that the defendant has acted maliciously and refuses to pay the
participation of the plaintiff in the profits of the business amounting to P35,000
from November, 1949 to October, 1950, and that as a result of such bad faith
and malice on the part of the defendant, Mrs. Yulo has suffered damages in the
amount of P160,000 and exemplary damages to the extent of P5,000. The
prayer includes a demand for the payment of the above sums plus the sum of
P10,000 for attorney's fees.
In answer to the complaint, defendant alleges that the real agreement between
the plaintiff and the defendant was one of lease and not of partnership; that the
partnership was adopted as a subterfuge to get around the prohibition
contained in the contract of lease between the owners and the plaintiff against
the sublease of the said property. As to the other claims, he denies the same
and alleges that the fair rental value of the land is only P1,100. By way of
counterclaim he alleges that by reason of an attachment issued against the
properties of the defendant the latter has suffered damages amounting to
P100,000.
The first hearing was had on April 19, 1955, at which time only the plaintiff
appeared. The court heard evidence of the plaintiff in the absence of the
defendant and thereafter rendered judgment ordering the defendant to pay to
the plaintiff P41,000 for her participation in the business up to December, 1950;
P5,000 as monthly rental for the use and occupation of the building from
January 1, 1951 until defendant vacates the same, and P300 for the use and
occupation of the lobby from July 1, 1945 until defendant vacates the property.
This decision, however, was set aside on a motion for reconsideration. In said
motion it is claimed that defendant failed to appear at the hearing because of
his honest belief that a joint petition for postponement filed by both parties, in
view of a possible amicable settlement, would be granted; that in view of the
decision of the Court of Appeals in two previous cases between the owners of
the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the
alleged participation in the profits of the business, etc. The court, finding the
above motion well-founded, set aside its decision and a new trial was held. After
trial the court rendered the decision making the following findings: that it is not
true that a partnership was created between the plaintiff and the defendant
because defendant has not actually contributed the sum mentioned in the

Articles of Partnership, or any other amount; that the real agreement between
the plaintiff and the defendant is not one of partnership but one of lease for the
reason that under the agreement the plaintiff did not share either in the profits or
in the losses of the business as required by Article 1769 of the Civil Code; and
that the fact that plaintiff was granted a "guaranteed participation" in the profits
also belies the supposed existence of a partnership between them. It, therefore,
denied plaintiff's claim for damages or supposed participation in the profits.
 
As to her claim for damages for the refusal of the defendant to allow the use of
the supposed lobby of the theatre, the court after ocular inspection fund that the
said lobby was a very narrow space leading to the balcony of the theatre which
could not be used for business purposes under existing ordinances of the City
of Manila because it would constitute a hazard and danger to the patrons of the
theatre. The court, therefore, dismissed the complaint; so did it dismiss the
defendant's counterclaim, on the ground that defendant failed to present
sufficient evidence to sustain the same. It is against this decision that the
appeal has been prosecuted by plaintiff to this Court.
The first assignment of error imputed to the trial court is its order setting aside
its former decision and allowing a new trial. This assignment of error is without
merit. As the parties had agreed to postpone the trial because of a probable
amicable settlement, the plaintiff could not take advantage of defendant's
absence at the time fixed for the hearing. The lower court, therefore, did not err
in setting aside its former judgment. The final result of the hearing shown by the
decision indicates that the setting aside of the previous decision was in the
interest of justice.
In the second assignment of error plaintiff-appellant claims that the lower court
erred in not striking out the evidence offered by defendant-appellee to prove
that the relation between him and the plaintiff is one of sublease and not of
partnership. The action of the lower court in admitting evidence is justified by
the express allegation in the defendant's answer that the agreement set forth in
the complaint was one of lease and not of partnership, and that the partnership
formed was adopted in view of a prohibition contained in plaintiff's lease against
a sublease of the property.
The most important issue raised in the appeal is that contained in the fourth
assignment of error, to the effect that the lower court erred in holding that the
8
written contracts, Exhs. "A", "B", and "C", between plaintiff and defendant, are
one of lease and not one of partnership. We have gone over the evidence and
we fully agree with the conclusion of the trial court that the agreement was a
sublease, not a partnership. The following are the requisites of partnership: (1)
two or more persons who bind themselves to contribute money, property, or
industry to a common fund; (2) intention on the part of the partners to divide the
profits among themselves. (Art. 1767, Civil Code.)
In the first place, plaintiff did not furnish the supposed P20,000 capital. In the
second place, she did not furnish any help or intervention in the management of
the theatre. In the third place, it does not appear that she has ever demanded
from defendant any accounting of the expenses and earnings of the business.
Were she really a partner, her first concern should have been to find out how
the business was progressing, whether the expenses were legitimate, whether
the earnings were correct, etc. She was absolutely silent with respect to any of
the acts that a partner should have done; all that she did was to receive her
share of P3,000 a month, which can not be interpreted in any manner than a
payment for the use of the premises which she had leased from the owners.
Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which shows that both parties
considered this offer as the real contract between them.
Plaintiff claims the sum of P41,000 as representing her share or participation in
the business from December, 1949. But the original letter of the defendant, Exh.
"A", expressly states that the agreement between the plaintiff and the defendant
was to end upon the termination of the right of the plaintiff to the lease. Plaintiff's
right having terminated in July, 1949 as found by the Court of Appeals, the
partnership agreement or the agreement for her to receive a participation of
P3,000 automatically ceased as of said date.
We find no error in the judgment of the court below and we affirm it in toto, with
costs against plaintiff-appellant.
Paras, C.J., Padilla, Bautista Angelo, Endencia and Barrera, JJ.,concur.
||| (Yulo v. Yang Chiao Seng, G.R. No. L-12541, [August 28, 1959], 106 PHIL
110-117)
 9

that the P15,000.00 advance rental due to them from SHELL shall augment
their "capital investment" in the operation of the gasoline station. Moreover
other evidence in the record shows that there was in fact such partnership
agreement between the parties. This is attested by the testimonies of private
respondent Remedios Estanislao and Atty. Angeles. Petitioner submitted to
private respondents periodic accounting of the business. Petitioner gave a
written authority to private respondent Remedios Estanislao, his sister, to
examine and audit the books of their "common business" (aming negosyo).
Respondent Remedios assisted in the running of the business. There is no
doubt that the parties hereto formed a partnership when they bound themselves
to contribute money to a common fund with the intention of dividing the profits
among themselves.

2. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE COURT OF

APPEALS, GENERALLY CONCLUSIVE ON APPEAL. — The findings of facts
of the respondent court are conclusive in this proceeding, and its conclusion
based on the said facts are in accordance with the applicable law.

DECISION

GANCAYCO, J p:
FIRST DIVISION
By this petition for certiorari the Court is asked to determine if a partnership
[G.R. No. L-49982. April 27, 1988.] exists between members of the same family arising from their joint ownership of
certain properties.
ELIGIO ESTANISLAO, JR., petitioner, vs. THE HONORABLE COURT OF
APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO Petitioner and private respondents are brothers and sisters who are co-owners
SANTIAGO, respondents. of certain lots at the corner of Annapolis and Aurora Blvd., Quezon City which
were then being leased to the Shell Company of the Philippines Limited
Agustin O. Benitez for petitioner. (SHELL). They agreed to open and operate a gas station thereat to be known
as Estanislao Shell Service Station with an initial investment of P15,000.00 to
Benjamin C. Yatco for private respondents. be taken from the advance rentals due to them from SHELL for the occupancy
of the said lots owned in common by them. A joint affidavit was executed by
SYLLABUS them on April 11, 1966 which was prepared by Atty. Democrito Angeles. 1 They
agreed to help their brother, petitioner herein, by allowing him to operate and
manage the gasoline service station of the family. They negotiated with SHELL.
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; PARTNERSHIP; FORMED
For practical purposes and in order not to run counter to the company's policy of
WHERE MEMBERS OF THE SAME FAMILY BOUND THEMSELVES TO
appointing only one dealer, it was agreed that petitioner would apply for the
CONTRIBUTE MONEY TO A COMMON FUND WITH THE INTENTION OF
dealership. Respondent Remedios helped in co-managing the business with
DIVIDING THE PROFITS AMONG THEMSELVES. — The Joint Affidavit of
petitioner from May 3, 1966 up to February 16, 1967.
April 11, 1966 (Exhibit A), clearly stipulated by the members of the same family

On May 26, 1966, the parties herein entered into an Additional Cash Pledge
Agreement with SHELL wherein it was reiterated that the P15,000.00 advance
rental shall be deposited with SHELL to cover advances of fuel to petitioner as
dealer with a proviso that said agreement "cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the
operation of the business to private respondents, but thereafter petitioner failed
to render subsequent accounting. Hence through Atty. Angeles, a demand was
made on petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to
make a profit of P87,293.79 and that by the year ending 1969, a profit of
P150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of
First Instance of Rizal against petitioner saying among others that the latter be
ordered:
"1. to execute a public document embodying all the provisions of the
partnership agreement entered into between plaintiffs and defendants provided
in Article 1771 of the New Civil Code;
"2. to render a formal accounting of the business operation covering the period
from May 6, 1966 up to December 21, 1968 and from January 1, 1969 up to the
time the order is issued and that the same be subject to proper audit;
"3. to pay the plaintiffs their lawful shares and participation in the net profits of
the business in an amount of no less than P150,000.00 with interest at the rate
of 1% per month from date of demand until full payment thereof for the entire
duration of the business; and
"4. to pay the plaintiffs the amount of P10,000.00 as attorney's fees and costs of
the suit." (pp. 13-14 Record on Appeal.)"
After trial on the merits, on October 15, 1975, Hon. Lino Anover, who was then
the temporary presiding judge of Branch IV of the trial court, rendered judgment
dismissing the complaint and counterclaim and ordering private respondents to
pay petitioner P3,000.00 attorney's fee and costs. Private respondent filed a
motion for reconsideration of the decision. On December 1, 1975, Hon. Ricardo
10
Tensuan who was the newly appointed presiding judge of the same branch, set
aside the aforesaid decision and rendered another decision in favor of said
respondents. cdll
The dispositive part thereof reads as follows:
'WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby
reconsidered and a new judgment is hereby rendered in favor of the plaintiffs
and as against the defendant:
(1) Ordering the defendant to execute a public instrument embodying all the
provisions of the partnership agreement entered into between plaintiffs and
defendant as provided for in Article 1771, Civil Code of the Philippines;
(2) Ordering the defendant to render a formal accounting of the business
operation from April 1969 up to the time this order is issued, the same to be
subject to examination and audit by the plaintiff;
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation
in the net profits of the business in the amount of P150,000.00, with interest
thereon at the rate of One (1%) Per Cent per month from date of demand until
full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P5,000.00 by way of
attorney's fees of plaintiffs' counsel; as well as the costs of suit." (pp. 161-162.
Record on Appeal)."
Petitioner then interposed an appeal to the Court of Appeals enumerating seven
(7) errors allegedly committed by the trial court. In due course, a decision was
rendered by the Court of Appeals on November 28, 1978 affirming in toto the
decision of the lower court with costs against petitioner.*
A motion for reconsideration of said decision filed by petitioner was denied on
January 30, 1979. Not satisfied therewith, the petitioner now comes to this court
by way of this petition for certiorari alleging that the respondent court erred:
"1. In interpreting the legal import of the Joint Affidavit (Exh. "A") vis-a-vis the
Additional Cash Pledge Agreement (Exhs. "B-2," "6," and "L"); and

2. In declaring that a partnership was established by and among the petitioner
and the private respondents as regards the ownership and/or operation of the
gasoline service station business."
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966
(Exhibit A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit
6) which are herein reproduced -
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
"(1) That we are the Lessors of two parcels of land fully described in Transfer
Certificates of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon
City, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES
LIMITED, a corporation duly licensed to do business in the Philippines;
"(2) That we have requested the said SHELL COMPANY OF THE
PHILIPPINES LIMITED, advanced rentals in the total amount of FIFTEEN
THOUSAND PESOS (P15,000.00) Philippine Currency, so that we can use the
said amount to augment our capital investment in the operation of that gasoline
station constructed by the said company on our two lots aforesaid by virtue of
an outstanding Lease Agreement we have entered into with the said company.
"(3) That the said SHELL COMPANY OF THE PHILIPPINES LIMITED out of its
benevolence and desire to help us in augmenting our capital investment in the
operation of the said gasoline station, has agreed to give us the said amount of
P15,000.00, which amount will partake the nature of ADVANCED RENTALS;
"(4) That we have freely and voluntarily agreed that upon receipt of the said
amount of FIFTEEN THOUSAND PESOS (P15,000,00) from the SHELL
COMPANY OF THE PHILIPPINES LIMITED, the said sum as ADVANCED
RENTALS to us be applied as monthly rentals for the said two lots under our
Lease Agreement starting on the 25th of May, 1966 until such time that the said
amount of P15,000.00 be applicable, which time to our estimate will cover at
four and one-half months from May 25, 1966 or until the 10th of October, 1966
more or less;
"(5) That we have likewise agreed among ourselves that the SHELL COMPANY
OF THE PHILIPPINES LIMITED execute an instrument for us to sign
embodying our conformity that the said amount that it will generously grant us
as requested be applied as ADVANCED RENTALS; and
11
"(6) FURTHER AFFIANTS SAYETH NOT.'
(b) The Additional Cash Pledge Agreement of May 20, 1966, Exhibit 6, is as
follows:
"WHEREAS, under the Lease Agreement dated 13th November, 1963
(identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & 111,
Series of 1963 in the Notarial Registers of Notaries Public Rosauro Marquez,
and R.D. Liwanag, respectively) executed in favour of SHELL by the herein CO-
OWNERS and another Lease Agreement dated 19th March 1964 . . . also
executed in favour of SHELL by CO-OWNERS Remedios and MARIA
ESTANISLAO for the lease of adjoining portions of two parcels of land at Aurora
Blvd./Annapolis, Quezon City, the CO-OWNERS RECEIVE a total monthly
rental of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND
29/100 (P3,382.29), Philippine Currency;
 
"WHEREAS, CO-OWNER Eligio Estanislao, Jr. is the Dealer of the Shell
Station constructed on the leased land, and as Dealer under the Cash Pledge
Agreement dated 11th May 1966, he deposited to SHELL in cash the amount of
PESOS TEN THOUSAND (P10,000), Philippine Currency, to secure his
purchases on credit of Shell petroleum products; . . . cdll
"WHEREAS, said DEALER, in his desire to be granted an increased credit limit
up to P25,000, has secured the conformity of his CO-OWNERS to waive and
assign to SHELL the total monthly rentals due to all of them to accumulate the
equivalent amount of P15,000, commencing 24th May 1966, this P15,000 shall
be treated as additional cash deposit to SHELL under the same terms and
conditions of the aforementioned Cash Pledge Agreement dated 11th May
1966.
NOW, THEREFORE, for and in consideration of the foregoing premises, and
the mutual covenants among the CO-OWNERS herein and SHELL, said parties
have agreed and hereby agree as follows:
"1. The CO-OWNERS do hereby waive in favour of DEALER the monthly
rentals due to all CO-OWNERS, collectively, under the above described two
Lease Agreements, one dated 13th November 1963 and the other dated 19th
March 1964 to enable DEALER to increase his existing cash deposit to SHELL,

from P10,000 to P25,000, for such purpose, the SHELL, CO-OWNERS and
DEALER hereby irrevocably assign to SHELL the monthly rental of P3,382.29
payable to them respectively as they fall due, monthly, commencing 24th May
1966, until such time that the monthly rentals accumulated, shall be equal to
P15,000.
"2. The above stated monthly rentals accumulated shall be treated as additional
cash deposit by DEALER to SHELL, thereby increasing his credit limit from
P10,000 to P25,000. This agreement, therefore, cancels and supersedes the
Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS.
"3. Effective upon the signing of this agreement, SHELL agrees to allow
DEALER to purchase from SHELL petroleum products, on credit, up to the
amount of P25,000.
"4. This increase in the credit limit shall also be subject to the same terms and
conditions of the above-mentioned Cash Pledge Agreement dated 11th May
1966." (Exhs. "B-2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated
by the parties that the P15,000.00 advance rental due to them from SHELL
shall augment their "capital investment" in the operation of the gasoline station,
which advance rentals shall be credited as rentals from May 25, 1966 up to four
and one-half months or until 10 October 1966, more or less covering said
P15,000.00.
In the subsequent document entitled `Additional Cash Pledge Agreement"
above reproduced (Exhibit 6), the private respondents and petitioners assigned
to SHELL the monthly rentals due them commencing the 24th of May 1966 until
such time that the monthly rentals accumulated equal P15,000.00 which private
respondents agree to be a cash deposit of petitioner in favor of SHELL to
increase his credit limit as dealer. As above-stated it provided therein that "This
agreement, therefore, cancels and supersedes the Joint Affidavit dated 11 April
1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation cancelling and
superseding that previous Joint Affidavit, whatever partnership agreement there
was in said previous agreement had thereby been abrogated. We find no merit
in this argument. Said cancelling provision was necessary for the Joint Affidavit
speaks of P15,000.00 advance rentals starting May 25, 1966 while the latter
12
agreement also refers to advance rentals of the same amount starting May 24,
1966. There is, therefore, a duplication of reference to the P15,000.00 hence
the need to provide in the subsequent document that it "cancels and
supersedes" the previous one. True it is that in the latter document, it is silent as
to the statement in the Joint Affidavit that the P15,000.00 represents the "capital
investment" of the parties in the gasoline station business and it speaks of
petitioner as the sole dealer, but this is as it should be for in the latter document
SHELL was a signatory and it would be against its policy if in the agreement it
should be stated that the business is a partnership with private respondents and
not a sole proprietorship of petitioner. LibLex
Moreover other evidence in the record shows that there was in fact such
partnership agreement between the parties. This is attested by the testimonies
of private respondent Remedios Estanislao and Atty. Angeles. Petitioner
submitted to private respondents periodic accounting of the
business. 4 Petitioner gave a written authority to private respondent Remedios
Estanislao, his sister, to examine and audit the books of their "common
business" (aming negosyo). 5 Respondent Remedios assisted in the running of
the business. There is no doubt that the parties hereto formed a partnership
when they bound themselves to contribute money to a common fund with the
intention of dividing the profits among themselves.6 The sole dealership by the
petitioner and the issuance of all government permits and licenses in the name
of petitioner was in compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this
proceeding, and its conclusion based on the said facts are in accordance with
the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs
against petitioner. This decision is immediately executory and no motion for
extension of time to file a motion for reconsideration shall be entertained.
SO ORDERED.
||| (Estanislao, Jr. v. Court of Appeals, G.R. No. L-49982, [April 27, 1988], 243
PHIL 974-982)

EN BANC
[G.R. No. X92-1. July 30, 1979.]
PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME
"SYCIP, SALAZAR, FELICIANO, HERNANDEZ & CASTILLO." LUCIANO E.
SALAZAR, FLORENTINO P, FELICIANO, BENILDO G. HERNANDEZ.
GREGORIO R. CASTILLO. ALBERTO P. SAN JUAN, JUAN C. REYES, JR.,
ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN,
ETHELWOLDO E. FERNANDEZ, ANGELITO C. IMPERIO, EDUARDO R.
CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and ALICE V.
PESIGAN, petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE
OF THE FIRM NAME "OZAETA, ROMULO, DE LEON, MABANTA &
REYES." RICARDO J. ROMULO, BENJAMIN M. DE LEON, ROMAN
MABANTA, JR., JOSE MA. REYES, JESUS S. J. SAYOC, EDUARDO DE
LOS ANGELES, and JOSE F. BUENAVENTURA, petitioners.
RESOLUTION
MELENCIO-HERRERA, J p:
Two separate Petitions were filed before this Court 1) by the surviving partners
of Atty. Alexander Sycip, who died on May 5, 1975, and 2) by the surviving
partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that
they be allowed to continue using, in the names of their firms, the names of
partners who had passed away. In the Court's Resolution of September 2,
1976, both Petitions were ordered consolidated. prLL
Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from continuing its business
under a firm name which includes the name of a deceased partner; in fact,
Article 1840 of the Civil Code explicitly sanctions the practice when it provides
in the last paragraph that:
13
"The use by the person or partnership continuing the business of the
partnership name, or the name of a deceased partner as part thereof, shall not
of itself make the individual property of the deceased partner liable for any
debts contracted by such person or partnership." 1
2. In regulating other professions, such as accountancy and engineering, the
legislature has authorized the adoption of firm names without any restriction as
to the use, in such firm name, of the name of a deceased partner; 2 the
legislative authorization given to those engaged in the practice of accountancy
— a profession requiring the same degree of trust and confidence in respect of
clients as that implicit in the relationship of attorney and client — to acquire and
use a trade name, strongly indicates that there is no fundamental policy that is
offended by the continued use by a firm of professionals of a firm name which
includes the name of a deceased partner, at least where such firm name has
acquired the characteristics of a "trade name." 3
3. The Canons of Professional Ethics are not transgressed by the continued use
of the name of a deceased partner in the firm name of a law partnership
because Canon 33 of the Canons of Professional Ethics adopted by the
American Bar Association declares that:
". . . The continued use of the name of a deceased or former partner when
permissible by local custom, is not unethical, but care should be taken that no
imposition or deception is practiced through this use. . . ." 4
4. There is no possibility of imposition or deception because the deaths of their
respective deceased partners were well-publicized in all newspapers of general
circulation for several days; the stationeries now being used by them carry new
letterheads indicating the years when their respective deceased partners were
connected with the firm; petitioners will notify all leading national and
international law directories of the fact of their respective deceased partners'
deaths. 5
5. No local custom prohibits the continued use of a deceased partner's name in
a professional firm's name; 6 there is no custom or usage in the Philippines, or
at least in the Greater Manila Area, which recognizes that the name of a law
firm necessarily identifies the individual members of the firm.7

6. The continued use of a deceased partner's name in the firm name of law
partnerships has been consistently allowed by U.S. Courts and is an accepted
practice in the legal profession of most countries in the world. 8
The question involved in these Petitions first came under consideration by this
Court in 1953 when a law firm in Cebu (the Dean case) continued its practice of
including in its firm name that of a deceased partner, C.D. Johnston. The matter
was resolved with this Court advising the firm to desist from including in their
firm designation the name of C. D. Johnston, "who has long been dead."
The same issue was raised before this Court in 1958 as an incident in G. R. No.
L-11964, entitled Register of Deeds of Manila vs. China Banking Corporation.
The law firm of Perkins & Ponce Enrile moved to intervene asamicus curiae.
Before acting thereon, the Court, in a Resolution of April 15, 1957, stated that it
"would like to be informed why the name of Perkins is still being used although
Atty. E. A. Perkins is already dead." In a Manifestation dated May 21, 1957, the
law firm of Perkins and Ponce Enrile,raising substantially the same
arguments as those now being raised by petitioners, prayed that the continued
use of the firm name "Perkins & Ponce Enrile" be held proper.
On June 16, 1958, this Court resolved:
"After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile
and Associates for their continued use of the name of the deceased E. G.
Perkins, the Court found no reason to depart from the policy it adopted in June
1953 when it required Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City
to desist from including in their firm designation, the name of C. D. Johnston,
deceased. The Court believes that, in view of the personal and confidential
nature of the relations between attorney and client and the high standards
demanded in the canons of professional ethics, no practice should be allowed
which even in a remote degree could give rise to the possibility of deception.
Said attorneys are accordingly advised to drop the name "PERKINS" from their
firm name."
Petitioners herein now seek a re-examination of the policy thus far enunciated
by the Court.
The Court finds no sufficient reason to depart from the rulings thus laid down.
14
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and
"Ozaeta, Romulo, De Leon, Mabanta and Reyes" are partnerships, the use in
their partnership names of the names of deceased partners will run counter to
Article 1815 of the Civil Code which provides:
"Art. 1815. Every partnership shall operate under a firm name, which may or
may not include the name of one or more of the partners.
"Those who, not being members of the partnership include their names in the
firm name, shall be subject to the liability of a partner."
It is clearly tacit in the above provision that names in a firm name of a
partnership must either be those of living partners and, in the case of non-
partners, should be living persons who can be subjected to liability. In fact,
Article 1825 of the Civil Code prohibits a third person from including his name in
the firm name under pain of assuming the liability of a partner. The heirs of a
deceased partner in a law firm cannot be held liable as the old members to the
creditors of a firm particularly where they are non-lawyers. Thus, Canon 34 of
the Canons of Professional Ethics "prohibits all agreement for the payment to
the widow and heirs of a deceased lawyer of a percentage, either gross or net,
of the fees received from the future business of the deceased lawyer's clients,
both because the recipients of such division are not lawyers and because such
payments will not represent service or responsibility on the part of the recipient."
Accordingly, neither the widow nor the heirs can be held liable for transactions
entered into after the death of their lawyer-predecessor. There being no benefits
accruing, there can be no corresponding liability. LLpr
Prescinding the law, there could be practical objections to allowing the use by
law firms of the names of deceased partners. The public relations value of the
use of an old firm name can tend to create undue advantages and
disadvantages in the practice of the profession. An able lawyer without
connections will have to make a name for himself starting from scratch. Another
able lawyer, who can join an old firm, can initially ride on that old firm's
reputation established by deceased partners.
B. In regards to the last paragraph of Article 1840 of the Civil Code cited by
petitioners, supra, the first factor to consider is that it is within Chapter 3 of Title
IX of the Code entitled "Dissolution and Winding Up." The Article primarily deals
with the exemption from liability in cases of a dissolved partnership, of the
individual property of the deceased partner for debts contracted by the person

or partnership which continues the business using the partnership name or the
name of the deceased partner as part thereof. What the law contemplates
therein is a hold-over situation preparatory to formal reorganization.
Secondly, Article 1840 treats more of a commercial partnership with a good will
to protect rather than of a professionalpartnership, with no saleable good will
but whose reputation depends on the personal qualifications of its individual
members. Thus, it has been held that a saleable goodwill can exist only in a
commercial partnership and cannot arise in a professional partnership
consisting of lawyers. 9
"As a general rule, upon the dissolution of a commercial partnershipthe
succeeding partners or parties have the right to carry on the business under the
old name, in the absence of a stipulation forbidding it, (s)ince the name of a
commercial partnership is a partnership asset inseparable from the good will of
the firm . . .." (60 Am Jur 2d, s 204, p. 115) (Emphasis supplied)
On the other hand,
". . . a professional partnership the reputation of which depends on the
individual skill of the members, such as partnerships ofattorneys or physicians,
has no good will to be distributed us a firm asset on its dissolution, however
intrinsically valuable such skill and reputation may be, especially where there is
no provision in the partnership agreement relating to good will as an asset. . . ."
(ibid, s 203, p. 115) (Emphasis supplied).
C. A partnership for the practice of law cannot be likened to partnerships formed
by other professionals or for business. For one thing, the law on accountancy
specifically allows the use of a trade name in connection with the practice of
accountancy. 10
"A partnership for the practice of law is not a legal entity. It is a mere
relationship or association for a particular purpose. . . . It is not a partnership
formed for the purpose of carrying on trade or business or of holding
property." 11 Thus, it has been stated that "the use of a nom de plume,
assumed or trade name in law practice is improper." 12
"The usual reason given for different standards of conduct being applicable to
the practice of law from those pertaining to business is that the law is a
'profession.' . . .
15
"Dean Pound, in his recently published contribution to the Survey of the Legal
Profession, (The Lawyer from Antiquity to Modern Times, p. 5) defines a
profession as 'a group of men pursuing a learned art as a common calling in the
spirit of public service, — no less a public service because it may incidentally be
a means of livelihood.'
xxx  xxx  xxx
"Primary characteristics which distinguish the legal profession from business
are:
1. A duty of public service, of which the emolument is a by-product, and in
which one may attain the highest eminence without making much money.
2. A relation as an 'officer of court' to the administration of justice involving
thorough sincerity, integrity, and reliability.
3. A relation to clients in the highest degree fiduciary.
4. A relation to colleagues at the bar characterized by candor, fairness, and
unwillingness to resort to current business methods of advertising and
encroachment on their practice, or dealing directly with their clients." 13
"The right to practice law is not a natural or constitutional right but is in the
nature of a privilege or franchise. 14 It is limited to persons of good moral
character with special qualifications duly ascertained and certified. 15 The right
does not only presuppose in its possessor integrity, legal standing and
attainment, but also the exercise of a special privilege, highly personal and
partaking of the nature of a public trust." 16
D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the
American Bar Association 17 in support of their petitions.
It is true that Canon 33 does not consider as unethical the continued use of the
name of a deceased or former partner in the firm name of a law partnership
when such a practice is permissible by local custom but the Canon warns that
care should be taken that no imposition or deception is practiced through this
use.

It must be conceded that in the Philippines, no local custom permits or
allows the continued use of a deceased or former partner's name in the firm
names of law partnerships. Firm names, under our custom, identify the more
active and/or more senior members or partners of the law firm. A glimpse at the
history of the firms of petitioners and of other law firms in this country would
show how their firm names have evolved and changed from time to time as the
composition of the partnership changed.
"The continued use of a firm name after the death of one or more of the
partners designated by it is proper only where sustained by local custom and
not where by custom this purports to identify the active members. . . .
"There would seem to be a question, under the working of the Canon, as to the
propriety of adding the name of a new partner and at the same time retaining
that of a deceased partner who was never a partner with the new one." (H.S.
Drinker, op. cit., supra, at pp. 207-208) (Emphasis supplied)
The possibility of deception upon the public, real or consequential, where the
name of a deceased partner continues to be used cannot be ruled out. A person
in search of legal counsel might be guided by the familiar ring of a distinguished
name appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently avowed the continued
use of a deceased partner's name in the firm name of law partnerships. But that
is so because it is sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d
733) which petitioners Salazar, et al. quoted in their memorandum, the New
York Supreme Court sustained the use of the firm name Alexander & Green
even if none of the present ten partners of the firm bears either namebecause
the practice was sanctioned by custom and did not offend any statutory
provision or legislative policy and was adopted by agreement of the parties The
Court stated therein:
"The practice sought to be proscribed has the sanction of customand offends no
statutory provision or legislative policy. Canon 33 of the Canons of Professional
Ethics of both the American Bar Association and the New York State Bar
Association provides in part as follows: 'The continued use of the name of a
deceased or former partner, when permissible by local custom is not unethical,
but care should be taken that no imposition or deception is practiced through
16
this use.' There is no question as to local custom. Many firms in the city use the
names of deceased members with the approval of other attorneys, bar
associations and the courts. The Appellate Division of the First Department has
considered the matter and reached the conclusion that such practice should not
be prohibited. (Emphasis supplied)
xxx  xxx  xxx
"Neither the Partnership Law nor the Penal Law prohibits the practice in
question. The use of the firm name herein is also sustainable by reason of
agreement between the partners." 18
Not so in this jurisdiction where there is no local custom that sanctions the
practice. Custom has been defined as a rule of conduct formed by repetition of
acts, uniformly observed (practiced) as a social rule, legally binding and
obligatory. 19 Courts take no judicial notice of custom. A custom must be
proved as a fact, according to the rules of evidence. 20 A local custom as a
source of right cannot be considered by a court of justice unless such custom is
properly established by competent evidence like any other fact. 21We find such
proof of the existence of a local custom. and of the elements requisite to
constitute the same, wanting herein. Merely because something is done as a
matter of practice does not mean that Courts can rely on the same for purposes
of adjudication as a juridical custom. Juridical custom must be differentiated
from social custom. The former can supplement statutory law or be applied in
the absence of such statute. Not so with the latter.
Moreover, judicial decisions applying or interpreting the laws form part of the
legal system. 22 When the Supreme Court in the Deen and Perkins cases
issued its Resolutions directing lawyers to desist from including the names of
deceased partners in their firm designation, it laid down a legal rule against
which no custom or practice to the contrary, even if proven, can prevail. This is
not to speak of our civil law which clearly ordains that a partnership is dissolved
by the death of any partner. 23 Customs which are contrary to law, public order
or public policy shall not be countenanced. 24
The practice of law is intimately and peculiarly related to the administration of
justice and should not be considered like an ordinary "money-making trade."
". . . It is of the essence of a profession that it is practiced in a spirit of public
service. 'A trade' . . . 'aims primarily at personal gain; a profession at the

exercise of powers beneficial to mankind.' If, as in the era of wide free
opportunity, we think of free competitive self assertion as the highest good,
lawyer and grocer and farmer may seem to be freely competing with their
fellows in their calling in order each to acquire as much of the world's good as
he may within the limits allowed him by law. But the member of a profession
does not regard himself as in competition with his professional brethren. He is
not bartering his services as is the artisan nor exchanging the products of his
skill and learning as the farmer sells wheat or corn. There should be no such
thing as a lawyers or physicians' strike. The best service of the professional
man is often rendered for no equivalent or for a trifling equivalent and it is his
pride to do what he does in a way worthy of his profession even if done with no
expectation of reward. This spirit of public service in which the profession of law
is and ought to be exercised is a prerequisite of sound administration of justice
according to law. The other two elements of a profession, namely, organization
and pursuit of a learned art have their justification in that they secure and
maintain that spirit." 25
In fine, petitioners' desire to preserve the identity of their firms in the eyes of the
public must bow to legal and ethical impediments.
ACCORDINGLY, the petitions filed herein are denied and petitioners advised to
drop the names "SYCIP" and "OZAETA" from their respective firm names.
Those names may, however, be included in the listing of individuals who have
been partners in their firms indicating the years during which they served as
such.  2. ID.; ID.; ID. — The trial court relied on article 116 of the Code of Commerce,
SO ORDERED.
17
EN BANC
[G.R. No. 35840. March 31, 1933.]
FRANCISCO BASTIDA, plaintiff-appellee, vs. MENZI & CO., INC., J. M.
MENZI and P. C. SCHLOBOHM, defendants. MENZI & CO., INC., appellant.
Romualdez Brothers and Harvey & O'Brien, for appellant.
Jose M. Casal, Alberto Barretto and Gibbs & McDonough, for appellee.
SYLLABUS
1. CONTRACT OF EMPLOYMENT; RELATIONSHIP BETWEEN EMPLOYER
AND EMPLOYEE; COPARTNERSHIP. — The relationship established between
the defendant corporation and the plaintiff by their contract was not that of
partners, but that of employer and employee, whereby the plaintiff was to
receive 35 per cent of the net profits of the fertilizer business of the defendant
corporation in compensation for his services of supervising the mixing of the
fertilizers. Neither the provisions of the contract nor the conduct of the parties
prior or subsequent to its execution justified the finding that it was a contract of
copartnership.
which provides that articles of association by which two or more persons
obligate themselves to place in a common fund any property, industry, or any of
these things, in order to obtain profit, shall be commercial, no matter what its
class may be, provided it has been established in accordance with the
provisions of that Code; but in the case at bar there was no common fund, that
is, a fund belonging to the parties as joint owners or partners. Instead of
receiving a fixed salary or a fixed salary and a small percentage of the net
profits, the plaintiff was to receive 35 per cent of the net profits as compensation
for his services. It is now well settled that the old rule that sharing profits as
profits made one a partner is overthrown. (Mechem, second edition, p. 89.)
3. ID.; ID.; ID. — It is nowhere stated in Exhibit A that the parties were
establishing a partnership or intended to become partners. Great stress is laid
by the trial judge and plaintiff's attorneys on the fact that in the sixth paragraph
of said exhibit the phrase "en sociedad con" is used in providing that defendant
corporation shall not engage in the business of prepared fertilizers except in

association with the plaintiff (en sociedad con). The fact is that en sociedad con,
as there used, merely means en reunion con or in association with, and does
not carry the meaning of "in partnership with". Although the word "associated"
may be related etymologically to the Spanish word "socio", meaning partner, it
does not in its common acceptation imply any partnership relation.
4. PLEADINGS; ADMISSIBILITY AS EVIDENCE. — "Where amended
pleadings have been filed, allegations in the original pleadings are held
admissible, but in such case the original pleadings can have no effect, unless
formally offered in evidence." (Jones on Evidence, sec. 273; Lucido vs.
Calupitan, 27 Phil., 148.)
DECISION
VICKERS, J p:
This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision
of the Court of First Instance of Manila. The case was tried on the amended
complaint dated May 26, 1928 and defendants' amended answer thereto of
September 1, 1928. For the sake of clearness, we shall incorporate herein the
principal allegations of the parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I sheet having been rendered in the year 1926;
That the defendant J. M. Menzi, together with his wife and daughter, owns
ninety-nine per cent (99%) of the capital stock of the defendant Menzi & Co.,
Inc., that the plaintiff has been informed and therefore believes that the
defendant J. M. Menzi, his wife and daughter, together with the defendant P. C.
Schlobohm and one Juan Seiboth, constitute the board of directors of the
defendant, Menzi & Co., Inc.;
II
That on April 27, 1922, the defendant Menzi & Co., Inc., through its president
and general manager, J. M. Menzi, under the authority of the board of directors,
18
entered into a contract with the plaintiff to engage in the business of exploiting
prepared fertilizers, as evidenced by the contract marked Exhibit A, attached to
the original complaint as a part thereof, and likewise made a part of the
amended complaint, as if it were here copied verbatim;
III
That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc.,
began to manufacture prepared fertilizers, the former superintending the work of
actual preparation, and the latter, through defendants J. M. Menzi and P. C.
Schlobohm, managing the business and opening an account entitled
"FERTILIZERS" on the books of the defendant Menzi & Co., Inc., where all the
accounts of the partnership business were supposed to be kept; the plaintiff had
no participation in the making of these entries, which where wholly in the
defendants' charge, under whose orders every entry was made;
IV
That according to paragraph 7 of the contract Exhibit A, the defendant Menzi &
Co., Inc., was obliged to render annual balance sheets to the plaintiff upon the
30th day of June of each year; that the plaintiff had no intervention in the
preparation of these yearly balances, nor was he permitted to have any access
to the books of account; and when the balance sheets were shown him, he,
believing in good faith that they contained the true statement of the partner ship
business, and relying upon the good faith of the defendants, Menzi & Co., Inc.,
J. M. Menzi, and P. C. Schlobohm, accepted and signed them, the last balance
V
That by reason of the foregoing facts and especially those set forth in the
preceding paragraph, the plaintiff was kept in ignorance of the defendants' acts
relating to the management of the partnership funds, and the keeping of
accounts, until he was informed and so believes and alleges, that the
defendants had conspired to conceal from him the true status of the business,
and to his damage and prejudice made false entries in the books of account
and in the yearly balance sheets, the exact nature and amount of which it is
impossible to ascertain, even after the examination of the books of the
business, due to the defendants' refusal to furnish all the books and data

required for the purpose, and the constant obstacles they have placed in the
way of the examination of the books of account and vouchers;
VI
That when the plaintiff received the information mentioned in the preceding
paragraph, he demanded that the defendants permit him to examine the books
and vouchers of the business, which were in their possession, in order to
ascertain the truth of the alleged false entries in the books and balance sheets
submitted for his approval, but the defendants refused, and did not consent to
the examination until after the original complaint was filed in this case; but up to
this time they have refused to furnish all the books, data, and vouchers
necessary for a complete and accurate examination of all the partnership's
accounts; and
VII
That as a result of the partial examination of the books of account of the
business, the plaintiff has, through his accountants, discovered that the
defendants, conspiring and confederating together, presented to the plaintiff
during the period covered by the partnership contract false and incorrect
accounts,
(a) For having included therein undue interest;
(b) For having entered, as a charge to fertilizers, salaries and wages which
should have been paid and were in fact paid by the defendant Menzi & Co.,
Inc.;
(c) For having collected from the partnership the income tax which should have
been paid for its own account by Menzi & Co., Inc.;
(d) For having collected, to the damage and prejudice of the plaintiff,
commissions on the purchase of materials for the manufacture of fertilizers;
(e) For having appropriated, to the damage and prejudice of the plaintiff, the
profits obtained from the sale of fertilizers belonging to the partnership and
bought with its own funds; and
19
(f) For having appropriated to themselves all rebates for freight insurance,
taxes, etc., upon materials for fertilizer bought abroad, no entries of said rebates
having been made on the books to the credit of the partnership.
Upon the strength of the facts set out in this first cause of action, the plaintiff
prays the court:
1. To prohibit the defendants, each and every one of them, from destroying and
concealing the books and papers of the partnership constituted between the
defendant Menzi & Co., Inc., and the plaintiff.
2. To summon each and every defendant to appear and give a true account of
all facts relating to the partnership between the plaintiff and the defendant
Menzi & Co., Inc., and of each and every act and transaction connected with the
business of said partnership from the beginning to April 27, 1927, and a true
statement of all merchandise of whatever description, purchased for said
partnership, and of all the expenditures and sales of every kind, together with
the true amount thereof, besides the sums received by the partnership from
every source together with their exact nature, and a true and complete account
of the vouchers for all sums paid by the partnership, and of the salaries paid to
its employees;
3. To declare null and void the yearly balances submitted by the defendants to
the plaintiff from 1922 to 1926, both inclusive;
4. To order the defendants to give a true statement of all receipts and
disbursements of the partnership during the period of its existence, besides
granting the plaintiff any other remedy that the court may deem just and
equitable.
EXHIBIT A
"CONTRATO
que se celebra entre los Sres. Menzi y Compañía, de Manila, como Primera
Parte, y D. Francisco Bastida, también de Manila, como Segunda Parte, bajo
las siguientes
"CONDICIONES
 20

"1.a El objeto de este contrato es la explotacion del negocio de Abonos e de un año, sin menoscabo para los derechos de la Segunda Parte con arreglo
Fertilizantes Preparados, para diversas aplicaciones agrícolas; a este contrato.

"2.a La duracion de este contrato sera de cinco años, a contar desde la fecha de "En testimonio de lo cual firmanos el presente en la Ciudad de Manila, I. F., a
su firma; veintisiete de abril de 1922.

"3.a La Primera Parte se compromete a facilitar la ayuda financiera necesaria  "MENZI & CO., INC.
para el negocio;
 "Por (Fdo.) J. MENZI

"General Manager
"4.a La Segunda Parte se compromete a poner su entero tiempo y toda su
experiencia a la disposicion del negocio; "Primera Parte

"5.a La Segunda Parte no podra, directa o indirectamente, dedicarse por sí sola "(Fdo.) F. BASTIDA
ni en sociedad con otras personas, o de manera alguna no sea con la Primera
Parte, al negocio de Abonos, simples o preparados, o de materia alguna que se  "Segunda Parte
aplique comunmente a la fertilizacion de suelos y plantas, durante la vigencia
de este contrato, a menos que obtenga autorizacion expresa de la Primera  "MENZI & CO., INC.
Parte para ello;
"(Fdo.) MAX KAEGI
"6.a La Primera Parte no podra dedicarse, por sí sola ni en sociedad o
combinacion con otras personas o entidades, ni de otro modo que en sociedad
 "Acting Secretary"
con la Segunda Parte, al negocio de Abonos o Fertilizantes preparados, ya
sean ellos importados, ya preparados en las Islas Filipinas; tampoco podra
dedicarse a la venta o negocio de materias o productos que tengan aplicacion  
como fertilizantes, o que se usen en la composicion de fertilizantes o abonos, si
ellos son productos de suelo de la manufactura filipinos, pudiendo sin embargo Defendants denied all the allegations of the amended complaint, except the
vender o negociar en materias fertilizantes simples importados de los Estados formal allegations as to the parties, and as a special defense to the first cause
Unidos o del Extranjero; of action alleged:

"7.a La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el
35 por ciento (treinta y cinco por ciento) de las utilidades netas del negocio de
abonos, liquidables el 30 de junio de cada año;
"8.a La Primera Parte facilitara a la Segunda, mensualmente, la cantidad de
P300 (trescientos pesos), a cuenta de su parte de beneficios;
"9.a Durante el año 1923 la Primera Parte concedera a la Segunda permiso
para que éste se ausente de Filipinas por un período de tiempo que no exceda
1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the
general merchandise business in the Philippine Islands since its organization in
October, 1921, including the importation and sale of all kinds of goods, wares,
and merchandise, and especially simple fertilizers and fertilizer ingredients, and
as a part of that business, it has been engaged since its organization in the
manufacture and sale of prepared fertilizers for agricultural purposes, and has
used for that purpose trade-marks belonging to it;

2. That on or about November, 1921, the defendant, Menzi & Co., Inc., made
and entered into an employment agreement with the plaintiff, who represented
that he had had much experience in the mixing of fertilizers, to superintend the
mixing of the ingredients in the manufacture of prepared fertilizers in its fertilizer
department and to obtain orders for such prepared fertilizers subject to its
approval, for a compensation of 50 per cent of the net profits which it might
derive from the sale of the fertilizers prepared by him, and that said Francisco
Bastida worked under said agreement until April 27, 1922, and received the
compensation agreed upon for his services; that on the said 27th of April, 1922,
the said Menzi & Co., Inc., and the said Francisco Bastida made and entered
into the written agreement, which is marked Exhibit A, and made a part of the
amended complaint in this case, whereby they mutually agreed that the
employment of the said Francisco Bastida by the said Menzi & Co., Inc., in the
capacity stated, should be for a definite period of five years from that date and
under the other terms and conditions stated therein, but with the understanding
and agreement that the said Francisco Bastida should receive as compensation
for his said services only 35 per cent of the net profits derived from the sale of
the fertilizers prepared by him during the period of the contract instead of 50 per
cent of such profits, as provided in his former agreement; that the said
Francisco Bastida was found to be incompetent to do anything in relation to its
said fertilizer business with the exception of over-seeing the mixing of the
ingredients in the manufacture of the same, and on or about the month of
December, 1922, the defendant, Menzi & Co., Inc., in order to make said
business successful, was obliged to and actually did assume the full
management and direction of said business;
3. That the accounts of the business of the said fertilizer department of Menzi &
Co., Inc., were duly kept in the regular books of its general business, in the
ordinary course thereof, up to June 30, 1923, and that after that time and during
the remainder of the period of said agreement, for the purpose of convenience
in determining the amount of compensation due to the plaintiff under his
agreement, separate books of account for its said fertilizer business were duly
kept in the name of 'Menzi & Co., Inc., Fertilizer', and used exclusively for that
purpose, and it was mutually agreed between the said Francisco Bastida and
the said Menzi & Co., Inc., that the yearly balances for the determination of the
net profits of said business due to the said plaintiff as compensation for his
services under said agreement would be made as of December 31st, instead of
June 30th of each year, during the period of said agreement; that the accounts
of the business of its said fertilizer department, as recorded in its said books,
and the vouchers and records supporting the same, for each year of said
business have been duly audited by Messrs, Page & Co., certified public
21
accountants, of Manila, who, shortly after the close of business at the end of
each year up to and including the year 1926, have prepared therefrom a
manufacturing and profit and loss account and balance sheet, showing the
status of said business and the share of the net profits pertaining to the plaintiff
as his compensation under said agreement; that after the said manufacturing
and profit and the loss account and balance sheet for each year of the business
of its said fertilizer department up to and including the year 1926, had been
prepared by the said auditors and certified by them, they were shown to and
examined by the plaintiff, and duly accepted, and approved by him, with full
knowledge of their contents, and as evidence of such approval, he signed his
name on each of them, as shown on the copies of said manufacturing and profit
and loss account and balance sheet for each year up to and including the year
1926, which are attached to the record of this case, and which are hereby
referred to and made a part of this amended answer, and in accordance
therewith, the said plaintiff has actually received the portion of the net profits of
its said business for those years pertaining to him for his services under said
agreement; that at no time during the course of said fertilizer business and the
liquidation thereof has the plaintiff been in any way denied access to the books
and records pertaining thereto, but on the contrary, said books and records
have been subject to his inspection and examination at any time during
business hours, and even since the commencement of this action, the plaintiff
and his accountants, Messrs. Haskins & Sells, of Manila, have been going over
and examining said books and records for months and the defendant, Menzi &
Co., Inc., through its officers, have turned over to said plaintiff and his
accountant the books and records of said business and even furnished them
suitable accommodations in its own office to examine the same;
4. That prior to the termination of the said agreement, Exhibit A, the defendant,
Menzi & Co., Inc., duly notified the plaintiff that it would not under any conditions
renew his said agreement or continue his said employment with it after its
expiration, and after the termination of said agreement of April 27, 1927, the
said Menzi & Co., Inc., had the certified public accountants, White, Page & Co.,
audit the accounts of the business of its said fertilizer department for the four
months of 1927 covered by plaintiff's agreement and prepare a manufacturing
and profit and loss account and balance sheet of said business showing the
status of said business at the termination of said agreement, a copy of which
was shown to and explained to the plaintiff; that at that time there where
accounts receivable to be collected for business covered by said agreement of
over P100,000, and there was guano, ashes, fine tobacco and other fertilizer
ingredients on hand of over P75,000, which had to be disposed of by Menzi &
Co., Inc., or valued by the parties, before the net profits of said business for the

period of the agreement could be determined; that Menzi & Co., Inc., offered to
take the face value of said accounts and the cost value of the other properties
for the purpose of determining the profits of said business for that period, and to
pay to the plaintiff at that time his proportion of such profits on that basis, which
the plaintiff refused to accept, and being disgruntled because the said Menzi &
Co., Inc., would not continue him in its service, the said plaintiff commenced this
action, including therein not only Menzi & Co., Inc., but also its managers J. M.
Menzi and P. C. Schlobohm, wherein he knowingly make various false and
malicious allegations against the defendants; that since that time the said Menzi
& Co., Inc., has been collecting the accounts receivable and disposing of the
stocks on hand, and there is still on hand old stock of approximately P25,000,
which it has been unable to dispose of up to this time; that as soon as possible
a final liquidation and accounting of the net profits of the business covered by
said agreement for the last four months thereof will be made and the share
thereof appertaining to the plaintiff will be paid to him; that the plaintiff has been
informed from time to time as to the status of the disposition of such properties,
and he and his auditors have fully examined the books and records of said
business in relation thereto.
 
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first
cause of action.
II. That the examination made by the plaintiff's auditors of some of the books of
the partnership that were furnished by the defendants disclosed the fact that
said defendants had charged to "purchase" of the business, undue interest, the
amount of which the plaintiff is unable to determine as he has never had at his
disposal the books and vouchers necessary for that purpose, and especially,
owing to the fact that the partnership constituted between the plaintiff and the
defendant Menzi & Co., Inc., never kept its own cash book, but that it funds
were maliciously included in the private funds of the defendant entity, neither
was there a separate BANK ACCOUNT of the partnership, such account being
included in the defendant's bank account.
22
III. That from the examination of the partnership books as aforesaid, the plaintiff
estimates that the partnership between himself and the defendant Menzi & Co.,
Inc., has been defrauded by the defendants by way of interest in an amount of
approximately P184,432.51, of which 35 per cent, or P64,551.38, belongs to the
plaintiff exclusively.
Wherefore, the plaintiff prays the court to render judgment ordering the
defendants jointly and severally to pay him the sum of P64,551.38, or any
amount which may finally appear to be due and owing from the defendants to
the plaintiff upon this ground, with legal interest from the filing of the original
complaint until payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3
and 4, of the special defense to the first cause of action in this amended
answer;
2. That under the contract of employment, Exhibit A, of the amended complaint,
the defendant, Menzi & Co., Inc., only undertook and agreed to facilitate
financial aid in carrying on the said fertilizer business, as it had been doing
before the plaintiff was employed under the said agreement; that the said
defendant, Menzi & Co., Inc., in the course of the said business of its fertilizer
department, opened letters of credit through the banks of Manila, accepted and
paid drafts drawn upon it under said letters of credit, and obtained loans and
advances of moneys for the purchase of materials to be used in mixing and
manufacturing its fertilizers and in paying the expenses of said business; that
such drafts and loans naturally provided for interest at the banking rate from the
dates thereof until paid, as is the case in all such business enterprises, and that
such payments of interest as were actually made on such drafts, loans and
advances during the period of the said employment agreement constituted
legitimate expenses of said business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.

II. That under the terms of the contract Exhibit A, neither the defendants J. M.
Menzi and P. C. Schlobohm, nor the defendant Menzi & Co., Inc., had a right to
collect for itself or themselves any amount whatsoever by way of salary for
services rendered to the partnership between the plaintiff and the defendant,
inasmuch as such services were compensated with the 65% of the net profits of
the business constituting their share.
III. That the plaintiff has, on his own account and with his own money, paid all
the employees he has placed in the service of the partnership, having expended
for their account, during the period of the contract, over P88,000, without ever
having made any claim upon the defendants for this sum because it was
included in the compensation of 35 per cent which he was to receive in
accordance with the contract Exhibit A.
IV. That the defendants J. M. Menzi and P. C. Schlobohm, not satisfied with
collecting undue and excessive salaries for themselves, have made the
partnership, or the fertilizer business, pay the salaries of a number of the
employees of the defendant Menzi & Co., Inc.,
V. That under this item of undue salaries the defendants have appropriated
P43,920 of the partnership funds, of which 35 per cent, or P15,372 belongs
exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render judgment ordering the
defendants to pay jointly and severally to the plaintiff the amount of P15,372,
with legal interest from the date of the filing of the original complaint until the
date of payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3
and 4, of the special defense to the first cause of action in this amended
answer;
2. That the defendant, Menzi & Co., Inc., through its manager, exclusively
managed and conducted its said fertilizer business, in which the plaintiff was to
receive 35 per cent of the net profits as compensation for his services, as
hereinbefore alleged, from on or about January 1, 1923, when its other
departments had special experienced Europeans in charge thereof, who
received not only salaries but also a percentage of the net profits of such
23
departments; that its said fertilizer business, after its manager took charge of it,
became very successful, and owing to the large volume of business transacted,
said business required great deal of time and attention, and actually consumed
at least one-half of the time of the manager and certain employees of Menzi &
Co., Inc., in carrying it on; that the said Menzi & Co., Inc., furnished office
space, stationery and other incidentals, for said business, and had its
employees perform the duties of cashiers, accountants, clerks, messengers,
etc., for the same, and for that reason the said Menzi & Co., Inc., charged each
year, from and after 1922, as expenses of said business, which pertained to the
fertilizer department, as certain amount as salaries and wages to cover the
proportional part of the overhead expenses of Menzi & Co., Inc.; that the same
method is followed in each of the several departments of the business of Menzi
& Co., Inc., that each and every year from and after 1922, a just proportion of
said overhead expenses were charged to said fertilizer departments and
entered on the books thereof, with the knowledge and consent of the plaintiff,
and included in the auditors' reports, which were examined, accepted and
approved by him, and he is now estopped from saying that such expenses were
not legitimate and just expenses of said business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.
II. That the defendant Menzi & Co., Inc., through the defendants J. M. Menzi
and P. C. Schlobohm, has paid, with the funds of the partnership between the
defendant entity and the plaintiff, the income tax due from said defendant entity
for the fertilizer business, thereby defrauding the partnership in the amount of
P10,361.72 of which 35 per cent belongs exclusively to the plaintiff, amounting
to P3,626.60.
III. That the plaintiff has, during the period of the contract, paid with his own
money the income tax corresponding to his share which consists in 35 per cent
of the profits of the fertilizer business, expending about P5,000 without ever
having made any claim for reimbursement against the partnership, inasmuch as
it has always been understood among the partners that each of them would pay
his own income tax.

Wherefore, the plaintiff prays the court to order the defendants jointly and
severally to pay the plaintiff the sum of P3,626.60, with legal interest from the
date of the filing of the original complaint until its payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3
and 4, of the special defense to the first cause of action in this amended
answer;
2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did
make return to the Government of the Philippine Islands each year during the
period of the agreement, Exhibit A, of the income of its whole business,
including its fertilizer department; that the proportional share of such income
taxes found to be due on the business of the fertilizer department was charged
as a proper and legitimate expense of that department, in the same manner as
was done in the other departments of its business; that inasmuch as the
agreement with the plaintiff was an employment agreement, he was requested
to make his own return under the Income Tax Law and to pay his own income
taxes, instead of having them paid at the source, as might be done under the
law, so that he would be entitled to the personal exemptions allowed by the law;
that the income taxes paid by the said Menzi & Co., Inc., pertaining to the
business of the fertilizer department and charged to that business, were duly
entered on the books of that department, and included in the auditors' reports
hereinbefore referred to, which reports were examined, accepted and approved
by the plaintiff, with full knowledge of their contents, and he is now estopped
from saying that such taxes are not a legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.
II. That the plaintiff has discovered that the defendant Menzi & Co., Inc., had
been receiving, during the period of the contract Exhibit A, from foreign firms
selling fertilizing material, a secret commission equivalent to 5 per cent of the
total value of the purchases of fertilizing material made by the partnership
constituted between the plaintiff and the defendant Menzi & Co., Inc., and that
24
said 5 per cent commission was not entered by the defendants in the books of
the business, to the credit and benefit of the partnership constituted between
the plaintiff and the defendant, but to the credit of the defendant Menzi & Co.,
Inc., which appropriated it to itself.
III. That the exact amount, or even the approximate amount of the fraud thus
suffered by the plaintiff cannot be determined, because the entries referring to
these items do not appear in the partnership books, although the plaintiff
believes and alleges that they do appear in the private books of the defendant
Menzi & Co., Inc., which the latter has refused to furnish, notwithstanding the
demands made therefor by the auditors and the lawyers of the plaintiff.
IV. That taking as basis the amount of the purchases of some fertilizing material
made by the partnership during the first four years of the contract Exhibit A, the
plaintiff estimates that this 5 per cent commission collected by the defendant
Menzi & Co., Inc., to the damage and prejudice of the plaintiff, amounts to
P127,375.77 of which 35 per cent belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants to pay jointly and
severally to the plaintiff the amount of P44,581.52, or the exact amount owed
upon this ground, after both parties have adduced their evidence upon the
point.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3
and 4, of the special defense to the first cause of action in this amended
answer;
2. That the defendant, Menzi & Co., Inc., did have during the period of said
agreement Exhibit A, and has now what is called a "Propaganda Agency
Agreement" with the Deutsches Kalesyndikat, G. M. B., of Berlin, which is a
manufacturer of potash, by virtue of which the said Menzi & Co., Inc., was to
receive for its propaganda work in advertising and bringing about sales of its
potash a commission of 5 per cent on all orders of potash received by it from
the Philippine Islands; that during the period of said agreement, Exhibit A,
orders were sent to said concern for potash, through C. Andre & Co., of
Hamburg, as the agent of the said Menzi & Co., Inc., upon which the said Menzi

& Co., Inc., received a 5 per cent commission, amounting in all to P2,222.32 for
the propaganda work which it did for said firm in the Philippine Islands; that said
commissions were not in any sense discounts of the purchase price of said
potash, and have no relation to the fertilizer business of which the plaintiff was
to receive a share of the net profits for his services, and consequently were not
credited to that department;
3. That in going over the books of Menzi & Co., Inc., it has been found that
there are only two items of commissions, which were received from the United
Supply Co., of San Francisco, in the total sum of $66.51, which, through
oversight, were not credited on the books of the fertilizer department of Menzi &
Co., Inc., but due allowance has now been given to that department for such
item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V, of the first cause of
action.
II. That the defendant Menzi & Co., Inc., in collusion with and through the
defendants J. M. Menzi and P. C. Schlobohm and their assistants, has
tampered with the books of the business making fictitious transfers in favor of
the defendant Menzi & Co., Inc., of merchandise belonging to the partnership,
purchased with the latter's money, and deposited in its warehouses, and then
sold by Menzi & Co., Inc., to third persons, thereby appropriating to itself the
profits obtained from such resale.
III. That it is impossible to ascertain the amount of the fraud suffered by the
plaintiff in this respect as the real amount obtained from such sales can only be
ascertained from an examination of the private books of the defendant entity,
which the latter has refused to permit notwithstanding the demand made for the
purpose by the auditors and the lawyers of the plaintiff, and no basis of
computation can be established, even approximately, to ascertain the extent of
the fraud sustained by the plaintiff in this respect, by merely examining the
partnership books.
Wherefore, the plaintiff prays the court to order the defendants J. M. Menzi and
P. C. Schlobohm, to make a sworn statement as to all the profits received from
25
the sale to third persons of the fertilizers pertaining to the partnership, and the
profits they have appropriated, ordering them jointly and severally to pay 35 per
cent of the net amount, with legal interest from the filing of the original complaint
until the payment thereof.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3
and 4, of the special defense to the first cause of action in this amended
answer:
2. That under the express terms of the employment agreement, Exhibit A, the
defendant, Menzi & Co., Inc., had the right to import into the Philippine Islands
in the course of its fertilizer business and sell for its exclusive account and
benefit simple fertilizer ingredients; that the only materials imported by it and
sold during the period of said agreement were simple fertilizer ingredients,
which had nothing whatever to do with the business of mixed fertilizers, of which
the plaintiff was to receive a share of the net profits as a part of his
compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.
II. That during the existence of the contract Exhibit A, the defendant Menzi &
Co., Inc., for the account of the partnership constituted between itself and the
plaintiff, and with the latter's money, purchased from several foreign firms
various simple fertilizing material for the use of the partnership.
III. That in the paid invoices for such purchases there are charged, besides the
cost price of the merchandise, other amounts for freight, insurance, duty, etc.,
some of which were not entirely thus spent and were later credited by the
selling firms to the defendant Menzi & Co., Inc.
IV. That said defendant Menzi & Co., Inc., through and in collusion with the
defendants J. M. Menzi and P. C. Schlobohm upon receipt of the credit notes
remitted by the selling firms of fertilizing material, for rebates upon freight,

insurance, duty, etc., charged in the invoice but not all expended, did not enter
them upon the books to the credit of the partnership constituted between the
defendant and the plaintiff, but entered or had them entered to the credit of
Menzi & Co., Inc., thereby defrauding the plaintiff of 35 per cent of the value of
such reductions.
V. That the total amount, or even the approximate amount of this fraud cannot
be ascertained without an examination of the private books of Menzi & Co., Inc.,
which the latter has refused to permit notwithstanding the demand to this effect
made upon them by the auditors and the lawyers of the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants J. M. Menzi and
P. C. Schlobohm, to make a sworn statement as to the total amount of such
rebates, and to sentence the defendants to pay to the plaintiff jointly and
severally 35 per cent of the net amount.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3
and 4, of the special defense to the first cause of action in this amended
answer:
2. That during the period of said employment agreement, Exhibit A, the
defendant, Menzi & Co., Inc., received from its agent, C. Andre & Co., of
Hamburg, certain credits pertaining to the fertilizer business in the profits of
which the plaintiff was interested, by way of refunds of German Export Taxes, in
the total sum of P1,402.54; that all of said credits were duly noted on the books
of the fertilizer department as received, but it has just recently been discovered
that through error an additional sum of P216.22 was credited to said
department, which does not pertain to said business in the profits of which the
plaintiff is interested.
EIGHTH CAUSE OF ACTION
As eight cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.
26
II. That on or about April 21, 1927, that is, before the expiration of the contract
Exhibit A of the complaint, the defendant Menzi & Co., Inc., acting as manager
of the fertilizer business constituted between said defendant and the plaintiff,
entered into a contract with the Compañía General de Tabacos de Filipinas for
the sale to said entity of three thousand tons of fertilizers of the trade mark
"Corona No. 1", at the rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be
delivered, as they were delivered, according to information received by the
plaintiff, during the months of November and December, 1927, and January,
February, March, and April, 1928.
III. That both the contract mentioned above and the benefits derived therefrom,
which the plaintiff estimates at P90,000, Philippine currency, belongs to the
fertilizer business constituted between the plaintiff and the defendant, of which
35 per cent, or P31,500, belongs to said plaintiff.
IV. That notwithstanding the expiration of the partnership contract Exhibit A, on
April 27, 1927, the defendants have not rendered a true accounting of the
profits obtained by the business during the last four months thereof, as the
proposed balance submitted to the plaintiff was incorrect with regard to the
inventory of merchandise, transportation equipment, and the value of the trade
marks, for which reason such proposed balance did not represent the true
status of the business of the partnership on April 30, 1927.
V. That the proposed balance submitted to the plaintiff with reference to the
partnership operations during the last four months of its existence, was likewise
incorrect, inasmuch as it did not include the profit realized or to be realized from
the contract entered into with the Compañía General de Tabacos de Filipinas,
notwithstanding the fact that this contract was negotiated during the existence
of the partnership, and while the defendant Menzi & Co., Inc., was the manager
thereof.
VI. That the defendant entity now contends that the contract entered into with
the Compañía General de Tabacos de Filipinas belongs to it exclusively, and
refuses to give the plaintiff his share consisting in 35 per cent of the profits
produced thereby.
Wherefore, the plaintiff prays the honorable court to order the defendants to
render a true and detailed account of the business during the last four months

of the existence of the partnership, i. e., from January 1, 1927 to April 27, 1927,
and to sentence them likewise to pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3
and 4, of the special defense to the first cause of action in this amended
answer;
2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co.,
Inc., from the Compañía General de Tabacos de Filipinas on April 21, 1927,
was taken by it in the regular course of its fertilizer business, and was to be
manufactured and delivered in December, 1927, and up to April, 1928; that the
employment agreement of the plaintiff expired by its own terms on April 27,
1927, and he has not been in any way in the service of the defendant, Menzi &
Co., Inc., since that time, and he cannot possibly have any interest in the
fertilizers manufactured and delivered by the said Menzi & Co., Inc., after the
expiration of his contract for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of
action.
II. That during the period of the contract Exhibit A, the partnership constituted
thereby registered in the Bureau of Commerce and Industry the trade marks
"CORONA NO. 1", "CORONA NO. 2", "ARADO", and "HOZ", the plaintiff and
the defendant having by their efforts succeeded in making them favorably
known in the market.
III. That the plaintiff and the defendant, laboring jointly, have succeeded in
making the fertilizing business a prosperous concern to such an extent that the
profits obtained from the business during the five years it has existed, amount to
approximately P1,000,000, Philippine currency.
IV. That the value of the good-will and the trade marks of a business of this
nature amounts to at least P1,000,000, of which sum 35 per cent belongs to the
plaintiff, or, P350,000.
27
V. That at the time of the expiration of the contract Exhibit A, the defendant
entity, notwithstanding and in spite of the plaintiff's insistent opposition, has
assumed the charge of liquidating the fertilizing business, without having
rendered a monthly account of the state of the liquidation, as required by law,
thereby causing the plaintiff damages.
VI. That the damages sustained by the plaintiff, as well as the amount of his
share in the remaining property of the business, after its expiration, are wholly
unknown to the plaintiff, and may only be truly and correctly ascertained by
compelling the defendants J. M. Menzi and P. C. Schlobohm to declare under
oath and explain to the court in detail the sums obtained from the sale of the
remaining merchandise, after the expiration of the partnership contract.
VII. That after the contract Exhibit A had expired, the defendant continued to
use for its own benefit the good-will and trade marks belonging to the
partnership, as well as its transportation equipment and other machinery,
thereby indicating its intention to retain such good-will, trade marks,
transportation equipment and machinery, for the manufacture of fertilizers, by
virtue of which the defendant is bound to pay the plaintiff 35 per cent of the
value of said property.
VIII. That the true value of the transportation equipment and machinery
employed in the preparation of the fertilizers amounts to P20,000, 35 per cent of
which amounts to P7,000.
IX. That the plaintiff has repeatedly demanded that the defendant entity render
a true and detailed account of the state of the liquidation of the partnership
business, but said defendant has ignored such demands, so that the plaintiff
does not, at this date, know whether the liquidation of the business has been
finished, or what the status of it is at present.
Wherefore, the plaintiff prays the Honorable Court:
"1. To order the defendants J. M. Menzi and P. C. Schlobohm to render a true
and detailed account of the status of the business in liquidation, that is, from
April 28, 1927, until it is finished, ordering all the defendants to pay the plaintiff
jointly and severally 35 per cent of the net amount.

"2. To order the defendants to pay the plaintiff jointly and severally the amount
of P350,000, which is 35 per cent of the value of the goodwill and the trade
marks of the fertilizer business;
"3. To order the defendants to pay the plaintiff jointly and severally the amount
of P7,000, which is 35 per cent of the value of the transportation equipment and
machinery of the business; and "4. To order the defendants to pay the costs of
this trial, and further, to grant any other remedy that this Honorable Court may
deem just and equitable."
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3
and 4, of the special defense to the first cause of action in this amended
answer;
2. That the good-will, if any, of the said fertilizer business of the defendant,
Menzi & Co., Inc., pertains exclusively to it, and the plaintiff can have no interest
therein of any nature under his said employment agreement; that the trade-
marks mentioned by the plaintiff in his amended complaint, as a part of such
good-will, belonged to and have been used by the said Menzi & Co., Inc., in its
fertilizer business from and since its organization, and the plaintiff can have no
rights to or interest therein under his said employment agreement; that the
transportation equipment pertains to the fertilizer department of Menzi & Co.,
Inc., and whenever it has been used by the said Menzi & Co., Inc., in its own
business, due and reasonable compensation for its use has been allowed to
said business; that the machinery pertaining to the said fertilizer business was
destroyed by fire in October, 1926, and the value therefor in the sum of P20,000
was collected from the Insurance Company, and the plaintiff has been given
credit for 35 per cent of that amount; that the present machinery used by Menzi
& Co., Inc., was constructed by it, and the costs thereof was not charged to the
fertilizer department, and the plaintiff has no right to have it taken into
consideration in arriving at the net profits due to him under his said employment
agreement.
The dispositive part of the decision of the trial court is as follows:
"Wherefore, let judgment be entered:
28
"(a) Holding that the contract entered into by the parties, evidenced by Exhibit
A, is a contract of general regular commercial partnership, wherein Menzi &
Co., Inc., was the capitalist, and the plaintiff, the industrial partner;
"(b) Holding that the plaintiff, by the mere fact of having signed and approved
the balance sheets, Exhibits C to C-8, is not estopped from questioning the
statements of accounts therein contained;
"(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the
plaintiff the sum of P60,385.67 with legal interest from the date of the filing of
the original complaint until paid;
"(d) Dismissing the third cause of action; "(e) Ordering Menzi & Co., Inc., upon
the fourth cause of action, to pay the plaintiff the sum of P3,821.41, with legal
interest from the date of the filing of the original complaint until paid;
"(f) Dismissing the fifth cause of action;
"(g) Dismissing the sixth cause of action;
"(h) Dismissing the seventh cause of action;
"(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action,
to pay the plaintiff the sum of P6,578.38 with legal interest from January 1,
1929, the date of the liquidation of the fertilizer business, until paid;
"(j) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff
the sum of P196,709.20 with legal interest from the date of the filing of the
original complaint until paid;
"(k) Ordering the said defendant corporation, in view of the plaintiff's share of
the profits of the business accruing from January 1, 1927 to December 31,
1928, to pay the plaintiff 35 per cent of the net balance shown in Exhibits 51
and 51-A, after deducting the item of P2,410 for income tax, and any other sum
charged for interest under the entry 'Purchases';
"(l) Ordering the defendant corporation, in connection with the final liquidation
set out in Exhibits 52 and 52-A, to pay the plaintiff the sum of P17,463.54 with
legal interest from January 1, 1929, until fully paid;

"(m) Dismissing the case with reference to the other defendants, J. M. Menzi
and P. C. Schlobohm; and
"(n) Menzi & Co., Inc., shall pay the costs of the trial."
The appellant makes the following assignments of error:
"I. The trial court erred in finding and holding that the contract Exhibit A
constitutes a regular collective commercial copartnership between the
defendant corporation, Menzi & Co., Inc., and the plaintiff, Francisco Bastida,
and not a contract of employment.
"II. The trial court erred in finding and holding that the defendant, Menzi & Co.,
Inc., had wrongfully charged to the fertilizer business in question the sum of
P10,918.33 as income taxes partners' balances, foreign drafts, local drafts, and
on other credit balances in the sum of P172,530.49, and that 35 per cent
thereof, or the sum of P60,385.67, with legal interest thereon from the date of
filing his complaint, corresponds to the plaintiff.
"III. The trial court erred in finding and holding that the defendant, Menzi & Co.,
Inc., had wrongfully charged to the fertilizer business in question the sum of
P10,918.33 as income taxes for the years 1923, 1924, 1925 and 1926, and that
the plaintiff is entitled to 35 per cent thereof, or the sum of P3,821.41, with legal
interest thereon from the date of filing his complaint, and in disallowing the item
of P2,410 charged as income tax in the liquidation in Exhibits 51 and 51-A for
the period from January 1 to April 27, 1927.
 
"IV. The trial court erred in refusing to find and hold under the evidence in this
case that the contract, Exhibit A was during the whole period thereof considered
by the parties and performed by them as a contract of employment in relation to
the fertilizer business of the defendant, and that the accounts of said business
were kept by the defendant, Menzi & Co., Inc., on that theory with the
knowledge and consent of the plaintiff, and that at the end of each year for five
years a balance sheet and profit and loss statement of said business were
prepared from the books of account of said business on the same theory and
submitted to the plaintiff, and that each year said balance sheet and profit and
loss statement were examined, approved and signed by said plaintiff and he
was paid the amount due him under said contract in accordance therewith with
29
full knowledge of the manner in which said business was conducted and the
charges for interest and income taxes made against the same and that by
reason of such facts, the plaintiff is now estopped from raising any question as
to the nature of said contract or the propriety of such charges.
"V. The trial court erred in finding and holding that the plaintiff, Francisco
Bastida, is entitled to 35 per cent of the net profits in the sum of P18,795.38
received by the defendant, Menzi & Co., Inc., from its contract with the
Compañía General de Tabacos de Filipinas, or the sum of P6,578.38, with legal
interest thereon from January 1, 1929, the date upon which the liquidation of
said business was terminated.
"VI. The trial court erred in finding and holding that the value of the good-will of
the fertilizer business in question was P562,312, and that the plaintiff, Francisco
Bastida, was entitled to 35 per cent of such valuation, or the sum of
P196,709.20, with legal interest thereon from the date of filing his complaint.
"VII. The trial court erred in rendering judgment in favor of the plaintiff and
against the defendant, Menzi & Co., Inc., (a) on the second cause of action, for
the sum of P60,385.67, with legal interest thereon from the date of filing the
complaint; (b) on the fourth cause of action, for the sum of P3,821.41, with legal
interest thereon from the date of filing the complaint; (c) on the eighth cause of
action, for the sum of P6,578.38, with legal interest thereon from January 1,
1929; and (d) on the ninth cause of action, for the sum of P196,709.20, with
legal interest thereon from the date of filing the original complaint; and (e) for
the costs of the action, and in not approving the final liquidation of said
business, Exhibits 51 and 51-A and 52 and 52-A, as true and correct, and
entering judgment against said defendant only for the amounts admitted therein
as due the plaintiff with legal interest, with the costs against the plaintiff.
"VIII. The trial court erred in overruling the defendants' motion for a new trial."
It appears from the evidence that the defendant corporation was organized in
1921 for the purpose of importing and selling general merchandise, including
fertilizers and fertilizer ingredients. It acquired through John Bordman and the
Menzi-Bordman Co. the good-will, trade-marks, business, and other assets of
the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business
with its stocks and trade-marks. Behn, Meyer & Co., Ltd., had owned and
carried on this fertilizer business from 1910 until that firm was taken over by the
Alien Property Custodian in 1917. Among the trade-marks thus acquired by the

appellant were those known as the "ARADO", "HOZ", and "CORONA". They
were registered in the Bureau of Commerce and Industry in the name of Menzi
& Co. The trade-marks "ARADO" and "HOZ" had been used by Behn, Meyer &
Co., Ltd., in the sale of its mixed fertilizers, and the trade-mark "CORONA" had
been used in its other business. The "HOZ" trade-mark was used by John
Bordman and the Menzi-Bordman Co. in the continuation of the fertilizer
business that had belonged to Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided into several different
departments, each of which was in charge of a manager, who received a fixed
salary and a percentage of the profits. The corporation had to borrow money or
obtain credits from time to time and to pay interest thereon. The amount paid for
interest was charged against the department concerned, and the interest
charges were taken into account in determining the net profits of each
department. The practice of the corporation was to debit or credit each
department with interest at the bank rate on its daily balance. The fertilizer
business of Menzi & Co., Inc., was carried on in accordance with this practice
under the "Sundries Department" until July, 1923, and after that as a separate
department.
In November, 1921, the plaintiff, who had had some experience in mixing and
selling fertilizer, went to see Toehl, the manager of the sundries department of
Menzi & Co., Inc., and told him that he had a written contract with the Philippine
Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that he could
obtain other contracts, including one from the Calamba Sugar Estates for 450
tons, but that he did not have the money to buy the ingredients to fill the order
and carry on the business. He offered to assign to Menzi & Co., Inc., his
contract with the Philippine Sugar Centrals Agency and to supervise the mixing
of the fertilizer and to obtain other orders for fifty per cent of the net profits that
Menzi & Co., Inc., might derive therefrom. J. M. Menzi, the general manager of
Menzi & Co., accepted plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc., his
contract with the Sugar Centrals Agency, and the defendant corporation
proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer.
On January 10, 1922 the defendant corporation at plaintiff's request gave him
the following letter, Exhibit B:
 
"MANILA, 10 de enero de 1922
30
"Sr. FRANCISCO BASTIDA
 "Manila
 
"MUY SR. NUESTRO: Interim formalizamos el contrato que, en principio,
tenemos convenido para la explotacion del negocio de abono y fertilizantes, por
la presente venimos en confirmar su derecho de 50 por ciento de las utilidades
que se deriven del contrato obtenido por Vd. de la Philippine Sugar Centrals
(por 1250 tonel.) y del contrato con la Calamba Sugar Estates, así como de
cuantos contratos se cierren con compradores de abonos preparados antes de
la formalizacion definitiva de nuestro contrato mutuo, lo que hacemos para
garantía y seguridad de Vd.
 
"MENZI & CO.
"Por (Fdo.) W. TOEHL"
 
Menzi & Co., Inc., continued to carry on its fertilizer business under this
arrangement with the plaintiff. It ordered ingredients from the United States and
other countries, and the interest on the drafts for the purchase of these
materials was charged to the business as a part of the cost of the materials.
The mixed fertilizers were sold by Menzi & Co., Inc., between January 19 and
April 1, 1922 under its "CORONA" brand. Menzi & Co., Inc., had only one bank
account for its whole business. The fertilizer business had no separate capital.
A fertilizer account was opened in the general ledger, and interest at the rate
charged by the Bank of the Philippine Islands was debited or credited to that
account on the daily balances of the fertilizer business. This was in accordance
with appellant's established practice, to which the plaintiff assented.
On or about April 24, 1922 the net profits of the business carried on under the
oral agreement were determined by Menzi & Co., Inc., after deducting interest
charges, proportional part of warehouse rent and salaries and wages, and the
other expenses of said business, and the plaintiff was paid some twenty
thousand pesos in full satisfaction of his share of the profits.
 31

Pursuant to the aforementioned verbal agreement, confirmed by the letter, 1925 35,665.03

Exhibit B, the defendant corporation on April 27, 1922 entered into a written
contract with the plaintiff, marked Exhibit A, which is the basis of the present 1926 27,649.98
action.  —————

The fertilizer business was carried on by Menzi & Co., Inc., after the execution Total P196,483.92
of Exhibit A in practically the same manner as it was prior thereto. The
intervention of the plaintiff was limited to supervising the mixing of the fertilizers  
in Menzi & Co.'s, Inc., bodegas.
To this amount must be added plaintiff's share of the net profits from January 1
The trade-marks used in the sale of the fertilizer were registered in the Bureau to April 27, 1927, amounting to P34,766.87, making a total of P231,250,79.
of Commerce & Industry in the name of Menzi & Co., Inc., and the fees were
paid by that company. They were not charged to the fertilizer business, in which  
the plaintiff was interested. Only the fees for registering the formulas in the
Bureau of Science were charged to the fertilizer business, and the total amount
Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co.,
thereof was credited to this business in the final liquidation on April 27, 1927.
Inc., notified the plaintiff that the contract for his services would not be renewed.

On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it
all the stems and scraps of tobacco that it might need for its fertilizer business
either in the Philippine Islands or for export to other countries. This contract is
referred to in the record as the "Vastago Contract". Menzi & Co., Inc., advanced
the plaintiff large sums of money for buying and installing machinery, paying the
salaries of his employees, and other expenses in performing his contract.
White, Page & Co., certified public accountants, audited the books of Menzi &
Co., Inc., every month, and at the end of each year they prepared a balance
sheet and a profit and loss statement of the fertilizer business. These
statements were delivered to the plaintiff for examination, and after he had had
an opportunity of verifying them he approved them without objection and
returned them to Menzi & Co., Inc. Plaintiff collected from Menzi & Co., Inc., as
his share or 35 per cent of the net profits of the fertilizer business the following
amounts:
 
1922 P1,874.73
1923 30,212.62
1924 101,081.56
When plaintiff's contract expired on April 27, 1927, the fertilizer department of
Menzi & Co., Inc., had on hand materials and ingredients and two Ford trucks of
the book value of approximately P75,000, and accounts receivable amounting
to P103,000. There were claims outstanding and bills to pay. Before the net
profits could be finally determined, it was necessary to dispose of the materials
and equipment, collect the outstanding accounts, and pay the debts of the
business. The accountants for Menzi & Co., Inc., prepared a balance sheet and
a profit and loss statement for the period from January 1 to April 27, 1927 as a
basis of settlement, but the plaintiff refused to accept it, and filed the present
action.
Menzi & Co., Inc., then proceeded to liquidate the fertilizer business in question.
In October, 1927 it proposed to the plaintiff that the old and damaged stocks on
hand having a book value of P40,000, which the defendant corporation had
been unable to dispose of, be sold at public or private sale, or divided between
the parties. The plaintiff refused to agree to this. The defendant corporation then
applied to the trial court for an order for the sale of the remaining property at
public auction, but apparently the court did not act on the petition.
The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of
the fertilizer business was completed in December, 1928, and a final balance
sheet and a profit and loss statement were submitted to the plaintiff during the
trial. During the liquidation the books of Menzi & Co., Inc., for the whole period

of the contract in question were reaudited by White, Page & Co., certain errors
of bookkeeping were discovered by them. After making the corrections they
found the balance due the plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant, Vernon Thompson, to examine
the books and vouchers of Menzi & Co. Thompson assumed the plaintiff and
Menzi & Co., Inc., to be partners, and that Menzi & Co., Inc., was obliged to
furnish free of charge all the capital the partnership should need. He naturally
reached very different conclusions from those of the auditors of Menzi & Co.,
Inc.
We come now to a consideration of appellant's assignments of error. After
considering the evidence and the arguments of counsel, we are unanimously of
the opinion that under the facts of this case the relationship established
between Menzi & Co. and the plaintiff by the contract, Exhibit A, was not that of
partners, but that of employer and employee, whereby the plaintiff was to
receive 35 per cent of the net profits of the fertilizer business of Menzi & Co.,
Inc., in compensation for his services of supervising the mixing of the fertilizers.
Neither the provisions of the contract nor the conduct of the parties prior or
subsequent to its execution justified the finding that it was a contract of
copartnership. Exhibit A, as appears from the statement of facts, was in effect a
continuation of the verbal agreement between the parties, whereby the plaintiff
worked for the defendant corporation for one-half of the net profits derived by
the corporation from certain fertilizer contracts. Plaintiff was paid his share of
the profits from those transactions after Menzi & Co., Inc., had deducted the
same items of expense which he now protests. Plaintiff never made any
objection to defendant's manner of keeping the accounts or to the charges. The
business was continued in the same manner under the written agreement,
Exhibit A, and for four years the plaintiff never made any objection. On the
contrary he approved and signed every year the balance sheet and the profit
and loss statement. It was only when plaintiff's contract was about to expire and
the defendant corporation had notified him that it would not renew it that the
plaintiff began to make objections.
The trial court relied on article 116 of the Code of Commerce, which provides
that articles of association by which two or more persons obligate themselves to
place in a common fund any property, industry, or any of these things, in order
to obtain profit, shall be commercial, no matter what its class may be, provided
it has been established in accordance with the provisions of this Code; but in
the case at bar there was no common fund, that is, a fund belonging to the
32
parties as joint owners or partners. The business belonged to Menzi & Co., Inc.
The plaintiff was working for Menzi & Co., Inc. Instead of receiving a fixed salary
or a fixed salary and a small percentage of the net profits, he was to receive 35
per cent of the net profits as compensation for his services. Menzi & Co., Inc.,
was to advance him P300 a month on account of his participation in the profits.
It will be noted that no provision was made for reimbursing Menzi & Co., Inc., in
case there should be no net profits at the end of the year. It is now well settled
that the old rule that sharing profits as profits made one a partner is overthrown.
(Mechem, second edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were establishing a partnership
or intended to become partners. Great stress is laid by the trial judge and
plaintiff's attorneys on the fact that in the sixth paragraph of Exhibit A the phrase
"en sociedad con" is used in providing that defendant corporation shall not
engage in the business of prepared fertilizers except in association with the
plaintiff (en sociedad con). The fact is that en sociedad con as there used
merely means en reunion conor in association with, and does not carry the
meaning of "in partnership with".
The trial judge found that the defendant corporation had not always regarded
the contract in question as an employment agreement, because in its answer to
the original complaint it stated that before the expiration of Exhibit A it notified
the plaintiff that it would not continueassociated with him in said business. The
trial judge concluded that the phrase "associated with", used by the defendant
corporation, indicated that it regarded the contract, Exhibit A, as an agreement
of copartnership.
In the first place, the complaint and answer having been superseded by the
amended complaint and the answer thereto, and the answer to the original
complaint not having been presented in evidence as an exhibit, the trial court
was not authorized to take it into account. "Where amended pleadings have
been filed, allegations in the original pleadings are held admissible, but in such
case the original pleadings can have no effect, unless formally offered in
evidence." (Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil., 148.)
In the second place, although the word "associated" may be related
etymologically to the Spanish word "socio", meaning partner, it does not in its
common acceptation imply any partnership relation.

The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant
corporation obligated itself to pay to the plaintiff 35 per cent of the net profits of
the fertilizer business, to advance to him P300 a month on account of his share
of the profits, and to grant him permission during 1923 to absent himself from
the Philippines for not more than one year are utterly incompatible with the
claim that it was the intention of the parties to form a copartnership. Various
other reasons for holding that the parties were not partners are advanced in
appellant's brief. We do not deem it necessary to discuss them here. We merely
wish to add that in the Vastago contract, Exhibit A, the plaintiff clearly
recognized Menzi & Co., Inc., as the owners of the fertilizer business in
question.
As to the various items of expense rejected by the trial judge, they were in our
opinion proper charges and erroneously disallowed, and this would be true even
if the parties had been partners. Although Menzi & Co., Inc., agreed to furnish
the necessary financial aid for the fertilizer business, it did not obligate itself to
contribute any fixed sum as capital or to defray at its own expense the cost of
securing the necessary credit. Some of the contentions of the plaintiff and his
expert witness Thompson are so obviously without merit as not to merit serious
consideration. For instance, they objected to the interest charges on draft for
materials purchased abroad. Their contention is that the corporation should
have furnished the money to purchase these materials for cash, overlooking the
fact that the interest was added to the cost price, and that the plaintiff was not
prejudiced by the practice complained of. It was also urged, and this seems to
us the height of absurdity, that the defendant corporation should have furnished
free of charge such financial assistance as would have made it unnecessary to
discount customers' notes, thereby enabling the business to reap the interest. In
other words, the defendant corporation should have enabled the fertilizer
department to do business on a credit instead of a cash basis.
The charges now complained of, as we have already stated, are the same as
those made under the verbal agreement, upon the termination of which the
parties made a settlement; the charges in question were acquiesced in by the
plaintiff for years, and it is now too late for him to contest them. The decision of
this court in the case of Kriedt vs. E. C. McCullough & Co. (37 Phil., 474), is in
point:
"1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF
PARTIES. — Acts done by the parties to a contract in the course of its
33
performance are admissible in evidence upon the question of its meaning, as
being their own contemporaneous interpretation of its terms.
"2. ID.; ID.; ACTION OF PARTIES UNDER PRIOR CONTRACT. — In an action
upon a contract containing a provision of doubtful application it appeared that
under a similar prior contract the parties had, upon the termination of said
contract, adjusted their rights and made a settlement in which the doubtful
clause had been given effect in conformity with the interpretation placed thereon
by one of the parties. Held: That this action of the parties under the prior
contract could properly be considered upon the question of the interpretation of
the same clause in the later contract.
 
"3. ID.; ID.; ACQUIESCENCE. — Where one of the parties to a contract
acquiesces in the interpretation placed by the other upon a provision of doubtful
application, the party so acquiescing is bound by such interpretation.
"4. ID.; ID.; ILLUSTRATION. — One of the parties to a contract, being aware at
the time of the execution thereof that the other placed a certain interpretation
upon a provision of doubtful application, nevertheless proceeded, without
raising any question upon the point, to perform the services which he was
bound to render under the contract. Upon the termination of the contract by
mutual consent a question was raised as to the proper interpretation of the
doubtful provision. Held: That the party raising such question had acquiesced in
the interpretation placed upon the contract by the other party and was bound
thereby."
The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of
the net profits derived by Menzi & Co., Inc., from its contract for fertilizers with
the Tabacalera. This finding in our opinion is not justified by the evidence. This
contract was obtained by Menzi & Co., Inc., shortly before plaintiff's contract
with the defendant corporation expired. Plaintiff tried to get the Tabacalera
contract for himself. When this contract was filled, plaintiff had ceased to work
for Menzi & Co., Inc., and he has no right to participate in the profits derived
therefrom.
Appellant's sixth assignment of error is that the trial court erred in finding the
value of the good-will of the fertilizer business in question to be P562,312, and
that the plaintiff was entitled to 35 per cent thereof of P196,709.20. In reaching
 34

this conclusion the trial court unfortunately relied on the opinion of the
accountant, Vernon Thompson, who assumed, erroneously as we have seen,
that the plaintiff and Menzi & Co., Inc., were partners; but even if they had been
partners there would have been no good-will to dispose of. The defendant
corporation had a fertilizer business before it entered it entered into any
agreement with the plaintiff; plaintiff's agreement was for a fixed period, five
years, and during that time the business was carried on in the same of Menzi &
Co., Inc., and in Menzi & Co.'s warehouses and after the expiration of plaintiff's
contract Menzi & Co., Inc., continued its fertilizer business, as it had a perfect
right to do. There was really nothing to which any good-will could attach.
Plaintiff maintains, however, that the trade-marks used in the fertilizer business
during the time that he was connected with it acquired great value, and that they
have been appropriated by the appellant to its own use. That seems to be the
only basis of the alleged good-will, to which a fabulous valuation was given. As
we have seen, the trademarks were not new. They had been used by Behn,
Meyer & Co. in its business for other goods and one of them for fertilizer. They
belonged to Menzi & Co., Inc., and were registered in its name; only the
expense of registering the formulas in the Bureau of Science was charged to
the business in which the plaintiff was interested. These trademarks remained
the exclusive property of Menzi & Co., and the plaintiff had no interest therein
on the expiration of his contract.

The balance due the plaintiff, as appears from Exhibit 52, s P21,633.20. We are
satisfied by the evidence that said balance is correct. SECOND DIVISION

For the foregoing reasons, the decision appealed from is modified and the [G.R. No. L-19342. May 25, 1972.]
defendant corporation is sentenced to pay the plaintiff twenty-one thousand, six
hundred and thirty-three pesos and twenty centavos (P21,633.20), with legal
LORENZO T. OÑA, and HEIRS OF JULIA BUNALES, namely: RODOLFO B.
interest thereon from the date of the filing of the complaint or June 17, 1927,
OÑA, MARIANO B. OÑA, LUZ B. OÑA, VIRGINIA B. OÑA, and LORENZO B.
without a special finding as to costs.
OÑA, JR., petitioners, vs. THE COMMISSIONER OF INTERNAL
REVENUE, respondent.
Street, Villamor and Villa-Real, JJ., concur.
Orlando Velasco for petitioners.
Hull, J., Participated in this case, but on account of his absence on leave at the
time of the promulgation of the decision he authorized to certify that he voted to
Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo
odify the decision of the trial court as appears in the foregoing decision of this
R.Rosete and Special Attorney Purificacion Ureta for respondent.
court. — Villamor, J., Presiding.
SYLLABUS
||| (Bastida v. Menzi & Co. Inc., G.R. No. 35840, [March 31, 1933], 58 PHIL 188-
226)

1. TAXATION; INTERNAL REVENUE CODE; CORPORATE TAX;
UNREGISTERED PARTNERSHIP; FORMATION THEREOF WHERE INCOME
FROM SHARES OF CO-HEIRS CONTRIBUTED TO COMMON FUND. —
From the moment petitioners allowed not only the incomes from their respective
shares of the inheritance but even the inherited properties themselves to be
used by Lorenzo T. Oña (who managed the properties) as a common fund in
undertaking several transactions or in business, with the intention of deriving
profit to be shared by them proportionally, such act was tantamount to actually
contributing such incomes to a common fund and, in effect, they thereby formed
an unregistered partnership within the purview of the provisions of the Tax
Code.
2. ID.; ID.; ID.; WHEN HEIRS NOT CONSIDERED AS UNREGISTERED CO-
PARTNERS AND NOT SUBJECT TO SUCH TAX. — In cases of inheritance,
there is a period when the heirs can be considered as co-owners rather than
unregistered co-partners within the contemplation of our corporate tax laws.
Before the partition and distribution of the estate of the deceased, all the income
thereof does belong commonly to all the heirs, obviously, without them
becoming thereby unregistered co-partners.
3. ID.; ID.; ID.; CIRCUMVENTIONS OF SECTIONS 24 AND 84(b) OF TAX
CODE WHEN HEIRS CONTINUE AS CO-OWNERS. — For tax purposes, the
co-ownership of inherited properties is automatically converted into an
unregistered partnership, for it is easily conceivable that after knowing their
respective shares in the partition, they (heirs) might decide to continue holding
said shares under the common management of the administrator or executor or
of anyone chosen by them and engage in business on that basis. Withal, if this
were not so, it would be the easiest thing for heirs in any inheritance to
circumvent and render meaningless Sections 24 and 84(b) of the National
Internal Revenue Code.
4. ID.; ID.; ID., HEIRS AS UNREGISTERED CO-PARTNERS; PARTNERSHIP
CONTEMPLATED IN CIVIL CODE NOT APPLICABLE. — Petitioners' reliance
on Article 1769, par. (3) of the Civil Code,providing that: "The sharing of gross
returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property from which
the returns are derived," and, for that matter, on any other provision of said
code on partnerships is unavailing. In Evangelista (102 Phil. 140), this Court
clearly differentiated the concept of partnerships under the Civil Code from that
35
of unregistered partnerships which are considered as "corporations" under
Sections 24 and 84(b) of the National Internal Revenue Code.
5. ID.; ID.; ID.; ID.; SEGREGATION OF INCOME FROM BUSINESS FROM
THAT OF INHERITED PROPERTIES, NOT PROPER. — Where the inherited
properties and the income derived therefrom were used in business of buying
and selling other real properties and corporate securities, the partnership
income must include not only the income derived from the purchase and sale of
other properties but also the income of the inherited properties.
6. ID.; ID.; INCOME TAX; ACTION FOR REIMBURSEMENT SUBJECT TO
PRESCRIPTION. — A taxpayer who has paid the wrong tax, assuming that the
failure to pay the corporate taxes in question was not deliberate, has the right to
be reimbursed what he has erroneously paid, but the law is very clear that the
claim and action for such reimbursement are subject to the bar of prescription.
And since the period for the recovery of the excess income taxes in the case of
herein petitioners has already lapsed, it would not seem right to virtually
disregard prescription merely upon the ground that the reason for the delay is
precisely because the taxpayers failed to make the proper return and payment
of the corporate taxes legally due from them.
Petition for review of the decision of the Court of Tax Appeals in CTA Case No.
617, similarly entitled as above, holding that petitioners have constituted an
unregistered partnership and are, therefore, subject to the payment of the
deficiency corporate income taxes assessed against them by respondent
Commissioner of Internal Revenue for the years 1955 and 1956 in the total sum
of P21,891.00, plus 5% surcharge and 1% monthly interest from December 15,
1958, subject to the provisions of Section 51 (e) (2) of the Internal Revenue
Code, as amended by Section 8 of Republic Act No. 2343 and the costs of the
suit, 1 as well as the resolution of said court denying petitioners' motion for
reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:
"Julia Buñales died on March 23, 1944, leaving as heirs her surviving spouse,
Lorenzo T. Oña and her five children. In 1948, Civil Case No. 4519 was
instituted in the Court of First Instance of Manila for the settlement of her estate.
Later, Lorenzo T. Oña, the surviving spouse was appointed administrator of the
estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the
administrator submitted the project of partition, which was approved by the

Court on May 16, 1949 (See Exhibit K). Because three of the heirs, namely Luz,
Virginia and Lorenzo, Jr., all surnamed Oña, were still minors when the project
of partition was approved, Lorenzo T. Oña, their father and administrator of the
estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of
Manila for appointment as guardian of said minors. On November 14, 1949, the
Court appointed him guardian of the persons and property of the aforenamed
minors (See p. 3, BIR rec.).
"The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the
heirs have undivided one-half (1/2) interest in ten parcels of land with a total
assessed value of P87,860.00, six houses with a total assessed value of
P17,590.00 and an undetermined amount to be collected from the War Damage
Commission. Later, they received from said Commission the amount of
P50,000.00, more or less. This amount was not divided among them but was
used in the rehabilitation of properties owned by them in common (t.s.n., p. 46).
Of the ten parcels of land aforementioned, two were acquired after the death of
the decedent with money borrowed from the Philippine Trust Company in the
amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 34-31, BIR rec.).
"The project of partition also shows that the estate shares equally with Lorenzo
T. Oña, the administrator thereof, in the obligation of P94,973.00, consisting of
loans contracted by the latter with the approval of the Court (see p. 3 of Exhibit
K; or see p. 74, BIR rec.).
"Although the project of partition was approved by the Court on May 16, 1949,
no attempt was made to divide the properties therein listed. Instead, the
properties remained under the management of Lorenzo T. Oña who used said
properties in business by leasing or selling them and investing the income
derived therefrom and the proceeds from the sales thereof in real properties
and securities. As a result, petitioners' properties and investments gradually
increased from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned
from the following year-end balances:
 "Year Investment Land Building
  Account Account Account
1949  P 87,860 P 17,590.00
1950 P 24,657.65 128,566.72 96,076.26
36
1951 51,301.31 120,349.28 110,605.11
1952 67,927.52 87,065.28 152,674.39
1953 61,258.27 84,925.68 161,463.83
1954 63,623.37 99,001.20 167,962.04
1955 100,786.00 120,249.78 169,262.52
1956 175,028.68 135,714.68 169,262.52
(See Exhibits 3 & K; t.s.n., pp. 22, 25-26, 40, 50, 102-104)
"From said investments and properties petitioners derived such incomes as
profits from installment sales of subdivided lots, profits from sales of stocks,
dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp.
37-38). The said incomes are recorded in the books of account kept by Lorenzo
T. Oña, where the corresponding shares of the petitioners in the net income for
the year are also known. Every year, petitioners returned for income tax
purposes their shares in the net income derived from said properties and
securities and/or from transactions involving them (Exhibit 3, supra; t.s.n., pp.
25-26). However, petitioners did not actually receive their shares in the yearly
income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in the
hands of Lorenzo T. Oña who, as heretofore pointed out, invested them in real
properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104).
"On the basis of the foregoing facts, respondent (Commissioner of Internal
Revenue) decided that petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax, pursuant to Section 24, in
relation to Section 84(b), of the Tax Code. Accordingly, he assessed against the
petitioners the amounts of P8,092.00 and P13,899.00 as corporate income
taxes for 1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17,
pp. 50 and 86, BIR rec.). Petitioners protested against the assessment and
asked for reconsideration of the ruling of respondent that they have formed an
unregistered partnership. Finding no merit in petitioners' request, respondent
denied it (See Exhibit 17, p. 86, BIR rec.). (See Pp. 1-4, Memorandum for
Respondent, June 12, 1961).
"The original assessment was as follows:
 37

"1955 tax returns for said years. (See Exh. 17, page 86, BIR records)." (Pp.1-3, Annex
"Net income as per investigation P40,209.89 C to Petition).
 ——————
Income tax due thereon 8,042.00 Petitioners have assigned the following as alleged errors of the Tax Court:
25% surcharge 2,010.50
Compromise for non-filing 50.00 "I
 ——————
Total P10,102.50 "THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE
 ========== PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP;

"1956 "II

"Net income as per investigation P69,245.23 "THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE CO-OWNERS OF THE PROPERTIES INHERITED AND
  (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM (sic);

 —————— "III

Income tax due thereon 13,849.00 "THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS
WERE LIABLE FOR CORPORATE INCOME TAXES FOR 1955 AND 1956 AS
25% surcharge 3,462.25 AN UNREGISTERED PARTNERSHIP;

Compromise for non-filing 50.00 "IV

 —————— "ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN

Total 17,361.25
 ==========
(See Exhibit 13, page 50, BIR records)
"Upon further consideration of the case, the 25% surcharge was eliminated in
line with the ruling of the Supreme Court in Collector v. Batangas Transportation
Co., G.R. No. L-9692, Jan. 6, 1958, so that the questioned assessment refers
solely to the income tax proper for the years 1955 and 1956 and the
'Compromise for non-filing,' the latter item obviously referring to the compromise
in lieu of the criminal liability for failure of petitioners to file the corporate income
UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED
IN NOT HOLDING THAT THE PETITIONERS WERE AN UNREGISTERED
PARTNERSHIP TO THE EXTENT ONLY THAT THEY IN VESTED THE
PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;.
"V
"ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT
DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS
INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON,
FROM THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP."

In other words, petitioners pose for our resolution the following questions: (1)
Under the facts found by the Court of Tax Appeals, should petitioners be
considered as co-owners of the properties inherited by them from the deceased
Julia Buñales and the profits derived from transactions involving the same, or,
must they be deemed to have formed an unregistered partnership subject to tax
under Sections 24 and 84(b) of the National Internal Revenue Code? (2)
Assuming they have formed an unregistered partnership, should this not be only
in the sense that they invested as a common fund the profits earned by the
properties owned by them in common and the loans granted to them upon the
security of the said properties, with the result that as far as their respective
shares in the inheritance are concerned, the total income thereof should be
considered as that of co-owners and not of the unregistered partnership? And
(3) assuming again that they are taxable as an unregistered partnership, should
not the various amounts already paid by them for the same years 1955 and
1956 as individual income taxes on their respective shares of the profits
accruing from the properties they owned in common be deducted from the
deficiency corporate taxes, herein involved, assessed against such unregistered
partnership by the respondent Commissioner?
Pondering on these questions, the first thing that has struck the Court is that
whereas petitioners' predecessor in interest died way back on March 23, 1944
and the project of partition of her estate was judicially approved as early as May
16, 1949, and presumably petitioners have been holding their respective shares
in their inheritance since those dates admittedly under the administration or
management of the head of the family, the widower and father Lorenzo T. Oña,
the assessment in question refers to the later years 1955 and 1956. We believe
this point to be important because, apparently, at the start, or in the years 1944
to 1954, the respondent Commissioner of Internal Revenue did treat petitioners
as co-owners, not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership. At least, there
is nothing in the record indicating that an earlier assessment had already been
made. Such being the case, and We see no reason how it could be otherwise, it
is easily understandable why petitioners' position that they are co-owners and
not unregistered co-partners, for the purposes of the impugned assessment,
cannot be upheld. Truth to tell, petitioners should find comfort in the fact that
they were not similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the
deceased among themselves pursuant to the project of partition approved in
1949, "the properties remained under the management of Lorenzo T. Oña who
38
used said properties in business by leasing or selling them and investing the
income derived therefrom and the proceeds from the sales thereof in real
properties and securities," as a result of which said properties and investments
steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in
"building account" in 1949 to P175,028.68 in "investment account,"
P135.714.68 in "land account" and P169,262.52 in "building account" in 1956
And all these became possible because, admittedly, petitioners never actually
received any share of the income or profits from Lorenzo T. Oña, and instead,
they allowed him to continue using said shares as part of the common fund for
their ventures, even as they paid the corresponding income taxes on the basis
of their respective shares of the profits of their common business as reported by
the said Lorenzo T. Oña.
It is thus incontrovertible that petitioners did not, contrary to their contention,
merely limit themselves to holding the properties inherited by them. Indeed, it is
admitted that during the material years herein involved, some of the said
properties were sold at considerable profit, and that with said profit, petitioners
engaged, thru Lorenzo T. Oña, in the purchase and sale of corporate securities.
It is likewise admitted that all the profits from these ventures were divided
among petitioners proportionately in accordance with their respective shares in
the inheritance. In these circumstances, it is Our considered view that from the
moment petitioners allowed not only the incomes from their respective shares of
the inheritance but even the inherited properties themselves to be used by
Lorenzo T. Oña as a common fund in undertaking several transactions or in
business, with the intention of deriving profit to be shared by them
proportionally, such act was tantamount to actually contributing such incomes to
a common fund and, in effect, they thereby formed an unregistered partnership
within the purview of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the
heirs can be considered as co-owners rather than unregistered co-partners
within the contemplation of our corporate tax laws aforementioned. Before the
partition and distribution of the estate of the deceased, all the income thereof
does belong commonly to all the heirs, obviously, without them becoming
thereby unregistered co-partners, but it does not necessarily follow that such
status as co-owners continues until the inheritance is actually and physically
distributed among the heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to continue holding said
shares under the common management of the administrator or executor or of
anyone chosen by them and engage in business on that basis. Withal, if this

were to be allowed, it would be the easiest thing for heirs in any inheritance to
circumvent and render meaningless Sections 24 and 84(b) of the National
Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among
the reasons for holding the appellants therein to be unregistered co-partners for
tax purposes, that their common fund "was not something they found already in
existence" and that "[i]t was not a property inherited by them pro indiviso," but it
is certainly far fetched to argue therefrom, as petitioners are doing here,
that ergo, in all instances where an inheritance is not actually divided, there can
be no unregistered co-partnership. As already indicated, for tax purposes, the
co-ownership of inherited properties is automatically converted into an
unregistered partnership the moment the said common properties and/or the
incomes derived therefrom are used as a common fund with intent to produce
profits for the heirs in proportion to their respective shares in the inheritance as
determined in a project partition either duly executed in an extrajudicial
settlement or approved by the court in the corresponding testate or intestate
proceeding. The reason for this is simple. From the moment of such partition,
the heirs are entitled already to their respective definite shares of the estate and
the incomes thereof, for each of them to manage and dispose of as exclusively
his own without the intervention of the other heirs, and, accordingly he becomes
liable individually for all taxes in connection therewith. If after such partition, he
allows his share to be held in common with his co-heirs under a single
management to be used with the intent of making profit thereby in proportion to
his share, there can be no doubt that, even if no document or instrument were
executed for the purpose, for tax purposes, at least, an unregistered partnership
is formed. This is exactly what happened to petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of theCivil
Code,providing that: "The sharing of gross returns does not of itself establish a
partnership, whether or not the persons sharing them have a joint or common
right or interest in any property from which the returns are derived," and, for that
matter, on any other provision of said code on partnerships is unavailing. In
Evangelista, supra, this Court clearly differentiated the concept of partnerships
under the Civil Code from that of unregistered partnerships which are
considered as "corporations" under Sections 24 and 84(b) of the National
Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice,
elucidated on this point thus:
39
 "To begin with, the tax in question is one imposed upon 'corporations', which,
strictly speaking, are distinct and different from 'partnerships'. When our Internal
Revenue Code includes 'partnerships' among the entities subject to the tax on
'corporations', said Code must allude, therefore, to organizations which are not
necessarily 'partnerships', in the technical sense of the term. Thus, for instance,
section 24 of said Code exempts from the aforementioned tax 'duly registered
general partnerships', which constitute precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said
Code, 'the term corporation includes partnerships, no matter how created or
organized.' This qualifying expression clearly indicates that a joint venture need
not be undertaken in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporation. Again, pursuant to said
section 84(b), the term 'corporation' includes, among other, 'joint accounts,
(cuentas en participacion)' and 'associations', none of which has a legal
personality of its own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a condition essential to
the existence of the partnerships therein referred to. In fact, as above stated,
'duly registered general co-partnerships' — which are possessed of the
aforementioned personality — have been expressly excluded by law (sections
24 and 84 [b]) from the connotation of the term 'corporation.' . . .
"Similarly, the American Law
'. . . provides its own concept of a partnership. Under the term 'partnership' it
includes not only a partnership as known as common law but, as well, a
syndicate, group, pool, joint venture, or other unincorporated organization which
carries on any business, financial operation, or venture, and which is not, within
the meaning of the Code, a trust, estate, or a corporation. . . .' (7A Merten's Law
of Federal Income Taxation, p. 789; emphasis ours.).
'The term "partnership" includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business,
financial operation, or venture is carried on. . . .' (8 Merten's Law of Federal
Income Taxation, p. 562 Note 63; emphasis ours.)
"For purposes of the tax on corporations, our National Internal Revenue Code,
includes these partnerships — with the exception only of duly registered general
co-partnerships — within the purview of the term 'corporation.' It is, therefore,

clear to our mind that petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for corporations."
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner
of Internal Revenue, G. R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198,
wherein the Court ruled against a theory of co-ownership pursued by appellants
therein.
As regards the second question raised by petitioners about the segregation, for
the purposes of the corporate taxes in question, of their inherited properties
from those acquired by them subsequently, We consider as justified the
following ratiocination of the Tax Court in denying their motion for
reconsideration:
"In connection with the second ground, it is alleged that, if there was an
unregistered partnership, the holding should be limited to the business engaged
in apart from the properties inherited by petitioners. In other words, the taxable
income of the partnership should be limited to the income derived from the
acquisition and sale of real properties and corporate securities and should not
include the income derived from the inherited properties. It is admitted that the
inherited properties and the income derived therefrom were used in the
business of buying and selling other real properties and corporate securities.
Accordingly, the partnership income must include not only the income derived
from the purchase and sale of other properties but also the income of the
inherited properties."
Besides, as already observed earlier, the income derived from inherited
properties may be considered as individual income of the respective heirs only
so long as the inheritance or estate is not distributed or, at least, partitioned, but
the moment their respective known shares are used as part of the common
assets of the heirs to be used in making profits, it is but proper that the income
of such shares should be considered as the part of the taxable income of an
unregistered partnership. This, We hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have adequately resolved
by the Tax Court in the aforementioned resolution denying petitioners' motion
for reconsideration of the decision of said court. Pertinently, the court ruled this
Wise:
"In support of the third ground, counsel for petitioners allege:
40
'Even if we were to yield to the decision of this Honorable Court that the herein
petitioners have formed an unregistered partnership and, therefore, have to be
taxed as such, it might be recalled that the petitioners in their individual income
tax returns reported their shares of the profits of the unregistered partnership.
We think it only fair and equitable that the various amounts paid by the
individual petitioners as income tax on their respective shares of the
unregistered partnership should be deducted from the deficiency income tax
found by this Honor able Court against the unregistered partnership.' (page 7,
Memorandum for the Petitioner in Support of Their Motion for Reconsideration,
Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the
partnership must be reduced by the amounts of income tax paid by each
petitioner on his share of partnership profits. This is not correct; rather, it should
be the other way around. The partnership profits distributable to the partners
(petitioners herein) should be reduced by the amounts of income tax assessed
against the Partnership. Consequently, each of the petitioners in his individual
capacity overpaid his income tax for the years in question, but the income tax
due from the partnership has been correctly assessed. Since the individual
income tax liabilities of petitioners are not in issue in this proceeding, it is not
proper for the Court to pass upon the same."
Petitioners insist that it was error for the Tax Court to so rule that whatever
excess they might have paid as individual income tax cannot be credited as part
payment of the taxes herein in question. It is argued that to sanction the view of
the Tax Court is to oblige petitioners to pay double income tax on the same
income, and, worse, considering the time that has lapsed since they paid their
individual income taxes, they may already be barred by prescription from
recovering their overpayments in a separate action. We do not agree. As We
see it, the case of petitioners as regards the point under discussion is simply
that of a taxpayer who has paid the wrong tax, assuming that the failure to pay
the corporate taxes in question was not deliberate. Of course, such taxpayer
has the right to be reimbursed what he has erroneously paid, but the law is very
clear that the claim and action for such reimbursement are subject to the bar of
prescription, And since the period for the recovery of the excess income taxes
in the case of herein petitioners has already lapsed, it would not seem right to
virtually disregard prescription merely upon the ground that the reason for the
delay is precisely because the taxpayers failed to make the proper return and
payment of the corporate taxes legally due from them. In principle, it is but
proper not to allow any relaxation of the tax laws in favor of persons who are not

exactly above suspicion in their conduct vis-a-vis their tax obligation to the
State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals
appealed from is affirmed, with costs against petitioners.
||| (Oña v. Commissioner of Internal Revenue, G.R. No. L-19342, [May 25,
1972], 150-A PHIL 419-432)
EN BANC
[G.R. No. 35469. March 17, 1932.]
E. S. LYONS, plaintiff-appellant, vs. C. W. ROSENSTOCK, Executor of the
Estate of Henry W. Elser, deceased,defendant-appellee.
Harvey & O'Brien, for appellant.
DeWitt, Perkins & Brady, for appellee.
SYLLABUS
1. PRINCIPAL AND AGENT; RATIFICATION OF ACT OF AGENT; RIGHTS
INCIDENT TO OWNERSHIP. — Where one of two individuals who had been
associated in certain real estate deals, owing a sum of money to his associate,
invested it in the shares of a new company promoted by himself, and this action
was ratified by the associate, to whom the shares were accordingly issued, no
legal or equitable rights, other than those ordinarily incident to ownership, can
be deduced from the transaction in favor of the owner thus acquiring such
shares.
2. ID.; AGENT'S LIABILITY FOR INTEREST ON MONEY OF HIS
CONSTITUENT. — Under article 1724 of the Civil Code and article 264 of the
Code of Commerce, an agent is liable for interest on funds belonging to his
principal (constituent) which have been applied by the agent to unauthorized
uses.
3. EQUITY; TRUSTS; FOLLOWING TRUST FUNDS; WHEN CASE
GOVERNED BY ORDINARY RULE OF CIVIL LIABILITY. — The doctrine
41
developed in the courts of England and the United States relative to the
pursuing of trust funds is conversant with rights deducible from the application,
by a person in a trust relation with another, of specific property belonging to
such other person to some unauthorized purpose. The fact that one of two
coöwners subjects their joint property to a contingent liability which results in no
damage does not create a trust in favor of the other, and the liability thereby
incurred must be determined in conformity with the principles of the civil law
properly applicable to the case.
4. ID.; ID.; ID.; ID.; CASE AT BAR. — Where two individuals had been jointly
associated in various real estate deals, one of them, while the other was away,
bought a valuable piece of property with a view to the promotion of a suburban
development, and as he expected that his absent former associate would come
into this deal and contribute some capital to the purchase and development of
the property, he subjected a piece of mortgaged property owned by them jointly
to a second mortgage, to secure against loss a surety company which had been
induced to sign a note with the active promoter to secure a loan necessary to
complete the first payment on the property purchased. After the second
individual returned to Manila he consented for this second mortgage (which had
been executed under a sufficient power of attorney) to remain upon the property
until it was paid off, as was presently done.Held, that the use to which the joint
property was thus subjected did not create a trust in favor of the second
individual, with the effect of making him a co-partner in the ownership of the
property purchased as aforesaid.
DECISION
STREET, J p:
This action was instituted in the Court of First Instance of the City of Manila, by
E. S. Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser,
deceased, consequent upon the taking of an appeal by the executor from the
allowance of the claim sued upon by the committee on claims in said estate.
The purpose of the action is to recover four hundred forty-six and two thirds
shares of the stock of J. K. Pickering & Co., Ltd., together with the sum of about
P125,000, representing the dividends which accrued on said stock prior to
October 21, 1926, with lawful interest. Upon hearing the cause the trial court
absolved the defendant executor from the complaint, and the plaintiff appealed.

Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the
City of Manila where he was engaged during the years with which we are here
concerned in buying, selling, and administering real estate. In several ventures
which he had made in buying and selling property of this kind the plaintiff, E. S.
Lyons, had joined with him, the profits being shared by the two in equal parts. In
April, 1919, Lyons, whose regular vocation was that of a missionary, or
missionary agent, of the Methodist Episcopal Church, went on leave to the
United States and was gone for nearly a year and a half, returning on
September 21, 1920. On the eve of his departure Elser made a written
statement showing that Lyons was, at that time, half owner with Elser of three
particular pieces of real property. Concurrently with this act Lyons executed in
favor of Elser a general power of attorney empowering him to manage and
dispose of said properties at will and to represent Lyons fully and amply, to the
mutual advantage of both. During the absence of Lyons two of the pieces of
property above referred to were sold by Elser, leaving in hands a single piece of
property located at 616-618 Carriedo Street, in the City of Manila, containing
about 282 square meters of land, with the improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a piece of land,
containing about 1,500,000 square meters, near the City of Manila, and he
discerned therein a fine opportunity for the promotion and development of a
suburban improvement. This property, which will be herein referred to as the
San Juan Estate, was offered by its owners for P570,000. To afford a little time
for maturing his plans, Elser purchased an option on this property for P5,000,
and when this option was about to expire without his having been able to raise
the necessary funds, he paid P15,000 more for an extension of the option, with
the understanding in both cases that, in case the option should be exercised,
the amounts thus paid should be credited as part of the first payment. The
amounts paid for this option and its extension were supplied by Elser entirely
from his own funds. In the end he was able from his own means, and with the
assistance which he obtained from others, to acquire said estate. The amount
required for the first payment was P150,000, and as Elser had available only
about P120,000, including the P20,000 advanced upon the option, it was
necessary to raise the remainder by obtaining a loan for P50,000. This amount
was finally obtained from a Chinese merchant of the city named Uy Siuliong.
This loan was secured through Uy Cho Yee, a son of the lender; and in order to
get the money it was necessary for Elser not only to give a personal note signed
by himself and his two associates in the projected enterprise, but also by the
Fidelity & Surety Company. The money thus raised was delivered to Elser by
Uy Siuliong on June 24, 1920. With this money and what he already had in
bank purchased the San Juan Estate on or about June 28, 1920. For the
42
purpose of the further development of the property a limited partnership had,
about this time, been organized by Elser and three associates, under the name
of J. K. Pickering & Company; and when the transfer of the property was
effected the deed was made directly to this company. As Elser was the principal
capitalist in the enterprise he received by far the greater number of the shares
issued, his portion amounting in the beginning to 3,290 shares.
While these negotiations were coming to a head, Elser contemplated and hoped
that Lyons might be induced to come in with him and supply part of the means
necessary to carry the enterprise through. In this connection it appears that on
May 20, 1920, Elser wrote Lyons a letter, informing him that he had made an
offer for a big subdivision and that, if it should be acquired and Lyons would
come in, the two would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days
before the first option expired, Elser cabled Lyons that he had bought the San
Juan Estate and thought it advisable for Lyons to resign (Exhibit M-13),
meaning that he should resign his position with the mission board in New York.
On the same date he wrote Lyons a letter explaining some details of the
purchase, and added "Have advised in my cable that you resign and I hope you
can do so immediately and will come and join me on the lines we have so often
spoken about. . . .There is plenty of business for us all now and I believe we
have started something that will keep us going for some time." In one or more
communications prior to this, Elser had sought to impress Lyons with the idea
that he should raise all the money he could for the purpose of giving the
necessary assistance in future deals in real estate.
The enthusiasm of Elser did not communicate itself in any marked degree to
Lyons, and found him averse from joining in the purchase of the San Juan
Estate. In fact upon this visit of Lyons to the United States a grave doubt had
arisen as to whether he would ever return to Manila, and it was only in the
summer of 1920 that the board of missions of his church prevailed upon him to
return to Manila and resume his position as managing treasurer and one of its
trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New York
thanking Elser for his offer to take Lyons into his new project and adding that
from the standpoint of making money, he had passed up a good thing.
One source of embarrassment which had operated on Lyons to bring him to the
resolution to stay out of this venture, was that the board of missions was averse
to his engaging in business activities other than those in which the church was
concerned; and some of Lyons' missionary associates had apparently been
criticizing his independent commercial activities. This fact was dwelt upon in the

letter above- mentioned. Upon receipt of this letter Elser was of course informed
that it would be out of the question to expect assistance from Lyons in carrying
out the San Juan project. No further efforts to this end were therefore made by
Elser.
When Elser was concluding the transaction for the purchase of the San Juan
Estate, his books showed that he was indebted to Lyons to the extent of,
possibly, P11,669.72, which had accrued to Lyons from profits and earnings
derived from other properties; and when the J. K. Pickering & Company was
organized and stock issued, Elser indorsed to Lyons 200 of the shares allocated
to himself, as he then believed that Lyons would be one of his associates in the
deal. It will be noted that the par value of these 200 shares was more than
P8,000 in excess of the amount which Elser in fact owed to Lyons; and when
the latter returned to the Philippine Islands, he accepted these shares and sold
them for his own benefit. It seems to be supposed in the appellant's brief that
the transfer of these shares to Lyons by Elser supplies some sort of basis for
the present action, or at least strengthens the considerations involved in a
feature of the case to be presently explained. This view is manifestly untenable,
since the ratification of the transaction by Lyons and the appropriation by him of
the shares which were issued to him leaves no ground whatever for treating the
transaction as a source of further equitable rights in Lyons. We should perhaps
add that after Lyons' return to the Philippine Islands he acted for a time as one
of the members of the board of directors of the J. K. Pickering & Company, his
qualification for this office being derived precisely from the ownership of these
shares.
We now turn to the incident which supplies the main basis of this action. It will
be remembered that, when Elser obtained the loan of P50,000 to complete the
amount needed for the first payment on the San Juan Estate, the lender, Uy
Siuliong, insisted that he should procure the signature of the Fidelity & Surety
Co. on the note to be given for said loan. But before signing the note with Elser
and his associates, the Fidelity & Surety Co. insisted upon having security for
the liability thus assumed by it. To meet this requirement Elser mortgaged to the
Fidelity & Surety Co. the equity of redemption in the property owned by himself
and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920,
at which time Elser expected that Lyons would come in on the purchase of the
San Juan Estate. But when he learned from the letter from Lyons of July 21,
1920, that the latter had determined not to come into this deal, Elser began to
cast around for means to relieve the Carriedo property of the encumbrance
which he had placed upon it. For this purpose, on September 9, 1920, he
43
addressed a letter to the Fidelity & Surety Co., asking it to permit him to
substitute a property owned by himself at 644 M. H. del Pilar Street, Manila, and
1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo property,
as security. The Fidelity & Surety Co. agreed to the proposition; and on
September 15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new
mortgage on the M. H. del Pilar property and delivered the same, with 1,000
shares of J. K. Pickering & Company, to said company. The latter thereupon in
turn executed a cancellation of the mortgage on the Carriedo property and
delivered it to Elser. But notwithstanding the fact that these documents were
executed and delivered, the new mortgage and the release of the old were
never registered; and on September 25, 1920, thereafter, Elser returned the
cancellation of the mortgage on the Carriedo property and took back from the
Fidelity & Surety Co. the new mortgage on the M. H. del Pilar property, together
with the 1,000 shares of the J. K. Pickering & Company which he had delivered
to it.
The explanation of this change of purpose is undoubtedly to be found in the fact
that Lyons had arrived in Manila on September 21, 1920, and shortly thereafter,
in the course of a conversation with Elser told him to let the Carriedo mortgage
remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to
the conversation in which Lyons used the words above quoted, and as that
conversation supplies the most reasonable explanation of Elser's recession
from his purpose of relieving the Carriedo property, the trial court was, in our
opinion, well justified in accepting as a proven fact the consent of Lyons for the
mortgage to remain on the Carriedo property. This concession was not only
reasonable under the circumstances, in view of the abundant solvency of Elser,
but in view of the further fact that Elser had given to Lyons 200 shares of the
stock of the J. K. Pickering & Co., having a value of nearly P8,000 in excess of
the indebtedness which Elser had owed to Lyons upon statement of account.
The trial court found in effect that the excess value of these shares over Elser's
actual indebtedness was conceded by Elser to Lyons in consideration of the
assistance that had been derived from the mortgage placed upon Lyons'
interest in the Carriedo property. Whether the agreement was reached exactly
upon this precise line of thought is of little moment, but the relations of the
parties had been such that it was to be expected that Elser would be generous;
and he could scarcely have failed to take account of the use he had made of the
joint property of the two.
As the development of the San Juan Estate was a success from the start, Elser
paid the note of P50,000 to Uy Siuliong on January 18, 1921, although it was

not due until more than five months later. It will thus be seen that the
mortgaging of the Carriedo property never resulted in damage to Lyons to the
extent of a single cent; and although the court refused to allow the defendant to
prove that Elser was solvent at this time in an amount much greater than the
entire encumbrance placed upon the property, it is evident that the risk imposed
upon Lyons was negligible. It is also plain that no money actually deriving from
this mortgage was ever applied to the purchase of the San Juan Estate. What
really happened was that Elser merely subjected the property to a contingent
liability, and no actual liability ever resulted therefrom. The financing of the
purchase of the San Juan Estate, apart from the modest financial participation
of his three associates in the San Juan deal, was the work of Elser
accomplished entirely upon his own account.
The case for the plaintiff supposes that, when Elser placed a mortgage for
P50,000 upon the equity of redemption in the Carriedo property, Lyons, as half
owner of said property, became, as it were, involuntarily the owner of an
undivided interest in the property acquired partly by that money; and it is
insisted for him that, in consideration of this fact, he is entitled to the four
hundred forty- six and two-thirds shares of J. K. Pickering & Company, with the
earnings thereon, as claimed in his complaint.
Lyons tells us that he did not know until after Elser's death that the money
obtained from Uy Siuliong in the manner already explained had been used to
help finance the purchase of the San Juan Estate. He seems to have supposed
that the Carriedo property had been mortgaged to aid in putting through another
deal, namely, the purchase of a property referred to in the correspondence as
the "Ronquillo property"; and in this connection a letter of Elser of the latter part
of May, 1920, can be quoted in which he uses this language:
"As stated in cablegram I have arranged for P50,000 loan on Carriedo property.
Will use part of the money for Ronquillo buy (P60,000) if the owner comes
through."
Other correspondence shows that Elser had apparently been trying to buy the
Ronquillo property, and Lyons leads us to infer the he thought that the money
obtained by mortgaging the Carriedo property had been used in the purchase of
this property. It doubtless appeared so to him in the retrospect, but certain
considerations show that the letter above given. He had already been informed
that, although Elser was angling for the Ronquillo property, its price had gone
up, thus introducing a doubt as to whether he would get it; and the quotation
44
above given shows that the intended use of the money obtained by mortgaging
the Carriedo property was that only part of the P50,000 thus obtained would be
used in this way, if the deal went through. Naturally, upon the arrival of Lyons in
September, 1920, one of his first inquiries would have been, if he did not know
before, what was the status of the proposed trade for the Ronquillo property.
Elser's widow and one of his clerks testified that about June 15, 1920, Elser
cabled Lyons something to this effect: "I have mortgaged the property on
Carriedo Street, secured by my personal note. You are amply protected. I wish
you to join me in the San Juan Subdivision. Borrow all money you can." Lyons
says that no such cablegram was received by him, and we consider this point of
fact of little moment, since the proof shows that Lyons knew that the Carriedo
mortgage had been executed, and after his arrival in Manila he consented for
the mortgage to remain on the property until it was paid off, as shortly occurred.
It may well be that Lyons did not at first clearly understand all the ramifications
of the situations, but he knew enough, we think, to apprise him of the material
factors in the situation, and we concur in the conclusion of the trial court that
Elser did not act in bad faith and was guilty of no fraud.
In the purely legal aspect of the case, the position of the appellant is, in our
opinion, untenable. If Elser had used any money actually belonging to Lyons in
this deal, he would under article 1724 of the Civil Code and article 264 of the
Code of Commerce, be obligated to pay interest upon the money so applied to
his own use. Under the law prevailing in this jurisdiction a trust does not
ordinarily attach with respect to property acquired by a person who uses money
belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer,
25 Phil., 641). Of course, if an actual relation of partnership had existed in the
money used, the case might be different; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is claimed, existed.
But there was clearly no general relation of partnership between the parties;
and the most that can be said is that Elser and Lyons had been coparticipants
in various transactions in real estate. No objection can be made to the use of
the word partnership as a term descriptive of the relation in those particular
transactions, but it must be remembered that it was in each case a particular
partnership, under article 1678 of the Civil Code. It is clear that Elser, in buying
the San Juan Estate, was not acting for any partnership composed into a
proposition which would make Lyons a participant in this deal contrary to his
express determination.

It seems to be supposed that the doctrines of equity worked out in the
jurisprudence of England and the United States with reference to trusts supply a
basis for this action. The doctrines referred to operate, however, only where
money belonging to one person is used by another for the acquisition of
property which should belong to both; and it takes but little discernment to see
that the situation here involved is not one for the application of that doctrine, for
no money belonging to Lyons or any partnership composed of Elser and Lyons
was in fact used by Elser in the purchase of the San Juan Estate. Of course, if
any damage had been caused to Lyons by the placing of the mortgage upon the
equity of redemption in the Carriedo property, Elser's estate would be liable for
such damage. But it is evident that Lyons was not prejudiced by the act.
The appellee insists that the trial court committed error in admitting the
testimony of Lyons upon matters that passed between him and Elser while the
later was still alive. While the admission of this testimony was of questionable
propriety, any error made by the trial court on this point was error without injury,
and the determination of the question is not necessary to this decision. We
therefore pass the point without further discussion.
The judgment appealed from will be affirmed, and it is so ordered, with costs
against the appellant.
||| (Lyons v. Rosenstock, G.R. No. 35469, [March 17, 1932], 56 PHIL 632-643)
EN BANC
[G.R. No. 413. February 2, 1903.]
JOSE FERNANDEZ,  plaintiff-appellant, vs. FRANCISCO DE LA
ROSA,  defendant-appellee.
Vicente Miranda,  for appellant.
Simplicio del Rosario, for appellee.
SYLLABUS
1. PARTNERSHIP; INTENTION TO DIVIDE PROFITS. — Where the fact is
established that parties have mutually contributed to the purchase of a common
45
stock, under circumstances which afford no different explanation of their object,
it must be deduced that they intended a joint interest in the profits therefrom.
2. ID.; WRITTEN ARTICLES. — Since the general provisions of article 1280 of
the Civil Code are controlled by the special provisions of article 1667 idem,
written articles of copartnership are only necessary in the cases mentioned in
the latter.
3. ID.; DISSOLUTION. — Where the parties fail to agree upon articles of
copartnership and some of the contributions of one partner, less than all, are
returned to him and accepted with an express reservation of his rights as
partner, the partnership is not dissolved nor does he waive his right to an
accounting of the profits.
DECISION
LADD, J  p:
The object of this action is to obtain from the court a declaration that a
partnership exists between the parties, that the plaintiff has a consequent
interest in certain cascoes which are alleged to be partnership property, and
that the defendant is bound to render an account of his administration of the
cascoes and the business carried on with them.
Judgment was rendered for the defendant in the court below and the plaintiff
appealed.
The respective claims of the parties as to the facts, so far as it is necessary to
state them in order to indicate the point in dispute, may be briefly summarized.
The plaintiff alleges that in January, 1900, he entered into a verbal agreement
with the defendant to form a partnership for the purchase of cascoes and the
carrying on of the business of letting the same for hire in Manila, the defendant
to buy the cascoes and each partner to furnish for that purpose such amount of
money as he could, the profits to be divided proportionately; that in the same
January the plaintiff furnished the defendant 300 pesos to purchase a casco
designated as No. 1515, which the defendant did purchase for 500 pesos of
Doña Isabel Vales, taking the title in his own name; that the plaintiff furnished
further sums aggregating about 300 pesos for repairs on this casco; that on the
fifth of the following March he furnished the defendant 825 pesos to purchase
another casco designated as No. 2089, which the defendant did purchase for

1,000 pesos of Luis R. Yangco, taking the title to this casco also in his own
name; that in April the parties undertook to draw up articles of partnership for
the purpose of embodying the same in an authentic document, but that the
defendant having proposed a draft of such articles which differed materially
from the terms of the earlier verbal agreement, and being unwilling to include
casco No. 2089 in the partnership, they were unable to come to any
understanding and no written agreement was executed; that the defendant
having in the meantime had the control and management of the two cascoes,
the plaintiff made a demand for an accounting upon him, which the defendant
refused to render, denying the existence of the partnership altogether.
The defendant admits that the project of forming a partnership in the casco
business in which he was already engaged to some extent individually was
discussed between himself and the plaintiff in January, 1900, and earlier, one
Marcos Angulo, who was a partner of the plaintiff in a bakery business, being
also a party to the negotiations, but he denies that any agreement was ever
consummated. He denies that the plaintiff furnished any money in January,
1900, for the purchase of casco No. 1515, or for repairs on the same, but claims
that he borrowed 300 pesos on his individual account in January from the
bakery firm, consisting of the plaintiff, Marcos Angulo, and Antonio Angulo. The
825 pesos, which he admits he received from the plaintiff March 5, he claims
was for the purchase of casco No. 1515, which he alleged was bought March
12, and he alleges that he never received anything from the defendant toward
the purchase of casco No. 2089. He claims to have paid, exclusive of repairs,
1,200 pesos for the first casco and 2,000 pesos for the second one.
The case comes to this court under the old procedure, and it is therefore
necessary for us the review the evidence and pass upon the facts. Our general
conclusions may be stated as follows:
(1) Doña Isabel Vales, from whom the defendant bought casco No. 1515,
testifies that the sale was made and the casco delivered in January, although
the public document of sale was not executed till some time afterwards. This
witness is apparently disinterested, and we think it is safe to rely upon the truth
of her testimony, especially as the defendant, while asserting that the sale was
in March, admits that he had the casco taken to the ways of repairs in January.
It is true that the public document of sale was executed March 10, and that the
vendor declares therein that she is the owner of the casco, but such declaration
does not exclude proof as to the actual date of the sale, at least as against the
46
plaintiff, who was not a party to the instrument. (Civil Code, sec. 1218.) It often
happens, of course, in such cases, that the actual sale precedes by a
considerable time the execution of the formal instrument of transfer, and this is
what we think occurred here.
(2) The plaintiff presented in evidence the following receipt: "I have this day
received from D. Jose Fernandez eight hundred and twenty-five pesos for the
cost of a casco which we are to purchase in company. Manila, March 5, 1900.
Francisco de la Rosa." The authenticity of this receipt is admitted by the
defendant. If casco No. 1515 was bought, as we think it was, in January, the
casco referred to in the receipt which the parties "are to purchase in company"
must be casco No. 2089, which was bought March 22. We find this to be the
fact, and that the plaintiff furnished and the defendant received 825 pesos
toward the purchase of this casco, with the understanding that it was to be
purchased on joint account.
(3) Antonio Fernandez testifies that in the early part of January, 1900, he saw
Antonio Angulo give the defendant, in the name of the plaintiff, a sum of money,
the amount of which he is unable to state, for the purchase of a casco to be
used in the plaintiff's and defendant's business. Antonio Angulo also testified,
but the defendant claims that the fact that Angulo was a partner of the plaintiff
rendered him incompetent as a witness under the provisions of article 643 of
the then Code of Civil Procedure, and without deciding whether this point is well
taken, we have discarded his testimony altogether in considering the case. The
defendant admits the receipt of 300 pesos from Antonio Angulo in January,
claiming, as has been stated, that it was a loan from the firm. Yet he sets up the
claim that the 825 pesos which he received from the plaintiff in March were
furnished toward the purchase of casco No. 1515, thereby virtually admitting
that casco was purchased in company with the plaintiff. We discover nothing in
the evidence to support the claim that the 300 pesos received in January was a
loan, unless it may be the fact that the defendant had on previous occasions
borrowed money from the bakery firm. We think all the probabilities of the case
point to the truth of the evidence of Antonio Fernandez as to this transaction,
and we find the fact to be that the sum in question was furnished by the plaintiff
toward the purchase for joint ownership of casco No. 1515, and that the
defendant received it with the understanding that it was to be used for this
purpose. We also find that the plaintiff furnished some further sums of money
for the repair of this casco.

(4) The balance of the purchase price of each of the two cascoes over and
above the amount contributed by the plaintiff was furnished by the defendant.
(5) We are unable to find upon the evidence before us that there was any
specific verbal agreement of partnership, except such as may be implied from
the facts as to the purchase of the casco.
(6) Although the evidence is somewhat unsatisfactory upon this point, we think
it more probable than otherwise that no attempt was made to agree upon
articles of partnership till about the middle of the April following the purchase of
the cascoes.
(7) At some time subsequently to the failure of the attempt to agree upon
partnership articles and after the defendant had been operating the cascoes for
some time, the defendant returned to the plaintiff, 1,125 pesos, in two different
sums, one of 300 and one of 825 pesos. The only evidence in the record as to
the circumstances under which the plaintiff received these sums is contained in
his answers to the interrogatories proposed to him by the defendant, and the
whole of his statement on this point may properly be considered in determining
the facts as being in the nature of an indivisible admission. He states that both
sums were received with an express reservation on his part of all his rights as a
partner. We find this to be the fact.
Two questions of law are raised by the foregoing facts:
(1) Did a partnership exist between the parties? (2) If such partnership existed,
was it terminated as a result of the act of the defendant in receiving back the
1,125 pesos?
(1) "Partnership is a contract by which 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." (Civil Code, art. 1665.)
The essential points upon which the minds of the parties must meet in a
contract of partnership are, therefore, (1) mutual contribution to a common
stock, and (2) a joint interest in the profits. If the contract contains these two
elements the partnership relation results, and the law itself fixes the incidents of
this relation if the parties fail to do so. (Civil Code, secs. 1689, 1695.)
47
We have found as a fact that money was furnished by the plaintiff and received
by the defendant with the understanding that it was to be used for the purchase
of the cascoes in question. This establishes the first element of the contract,
namely, mutual contribution to a common stock. The second element, namely,
the intention to share profits, appears to be an unavoidable deduction from the
fact of the purchase of the cascoes in common, in the absence of any other
explanation of the object of the parties in making the purchase in that form, and,
it may be added, in view of the admitted fact that prior to the purchase of the
first casco the formation of a partnership had been a subject of negotiation
between them.
Under other circumstances the relation of joint ownership, a relation distinct
though perhaps not essentially different in its practical consequence from that of
partnership, might have been the result of the joint purchase. If, for instance, it
were shown that the object of the parties in purchasing in company had been to
make a more favorable bargain for the two cascoes than they could have done
by purchasing them separately, and that they had no ulterior object except to
effect a division of the common property when once they had acquired it,
theaffectio societatis would be lacking and the parties would have become joint
tenants only; but, as nothing of this sort appears in the case, we must assume
that the object of the purchase was active use and profit and not mere passive
ownership in common.
It is thus apparent that a complete and perfect contract of partnership was
entered into by the parties. This contract, it is true, might have been subject to a
suspensive condition, postponing its operation until an agreement was reached
as to the respective participation of the partners in the profits, the character of
the partnership as collective or en comandita, and other details, but although it
is asserted by counsel for the defendant that such was the case, there is little or
nothing in the record to support this claim, and the fact that the defendant did
actually go on and purchase the boats, as it would seem, before any attempt
had been made to formulate partnership articles, strongly discountenances the
theory.
The execution of a written agreement was not necessary in order to give
efficacy to the verbal contract of partnership as a civil contract, the contributions
of the partners not having been in the form of immovables or rights in
immovables. (Civil Code, art. 1667.) The special provision cited, requiring the
execution of a public writing in the single case mentioned and dispensing with

all formal requirements in other cases, renders inapplicable to this species of
contract the general provisions of article 1280 of the Civil Code.
(2) The remaining question is as to the legal effect of the acceptance by the
plaintiff of the money returned to him by the defendant after the definitive failure
of the attempt to agree upon partnership articles. The amount returned fell
short, in our view of the facts, of that which the plaintiff had contributed to the
capital of the partnership, since it did not include the sum which he had
furnished for the repairs of casco No. 1515. Moreover, it is quite possible, as
claimed by the plaintiff, that a profit may have been realized from the business
during the period in which the defendant had been administering it prior to the
return of the money, and if so he still retained that sum in his hands. For these
reasons the acceptance of the money by the plaintiff did not have the effect of
terminating the legal existence of the partnership by converting it into a societas
leonina, as claimed by counsel for the defendant.
Did the defendant waive his right to such interest as remained to him in the
partnership property by receiving the money? Did he by so doing waive his right
to an accounting of the profits already realized, if any, and a participation in
them in proportion to the amount he had originally contributed to the common
fund? Was the partnership dissolved by the "will or withdrawal of one of the
partners" under article 1705 of the Civil Code? We think these questions must
be answered in the negative.
There was no intention on the part of the plaintiff in accepting the money to
relinguish his rights as a partner, nor is there any evidence that by anything that
he said or by anything that he omitted to say he gave the defendant any ground
whatever to believe that he intended to relinquish them. On the contrary he
notified the defendant that he waived none of his rights in the partnership. Nor
was the acceptance of the money an act which was in itself inconsistent with
the continuance of the partnership relation, as would have been the case had
the plaintiff withdrawn his entire interest in the partnership. There is, therefore,
nothing upon which a waiver, either express or implied, can be predicated. The
defendant might have himself terminated the partnership relation at any time, if
he had chosen to do so, by recognizing the plaintiff's right in the partnership
property and in the profits. Having failed to do this he can not be permitted to
force a dissolution upon his copartner upon terms which the latter is unwilling to
accept. We see nothing in the case which can give the transaction in question
any other aspect than that of the withdrawal by one partner with the consent of
the other of a portion of the common capital.
48
The result is that we hold and declare that a partnership was formed between
the parties in January, 1900, the existence of which the defendant is bound to
recognize; that cascoes Nos. 1515 and 2089 constitute partnership property,
and that the plaintiff is entitled to an accounting of the defendant's
administration of such property, and of the profits derived therefrom. This
declaration does not involve an adjudication as to any disputed items of the
partnership account.
The judgment of the court below will be reversed without costs, and the record
returned for the execution of the judgment now rendered. So ordered.
Arellano, C.J., Torres, Cooper, and Mapa, JJ., concur.
Willard, J., dissenting.
ON MOTION FOR A REHEARING.
MAPA,  J p:
This case has been decided on appeal in favor of the plaintiff, and the
defendant has moved for a rehearing upon the following grounds:
1. Because that part of the decision which refers to the existence of the
partnership which is the object of the complaint is not based upon clear and
decisive legal grounds; and
2. Because, upon the supposition of the existence of the partnership, the
decision does not clearly determine whether the juridical relation between the
partners suffered any modification in consequence of the withdrawal by the
plaintiff of the sum of 1,125 pesos from the funds of the partnership, or if it
continued as before, the parties being thereby deprived, he alleges, of one of
the principal bases for determining with exactness the amount due to each.
With respect to the first point, the appellant cites the fifth conclusion of the
decision, which is as follows: "We are unable to find from the evidence before
us that there was any specific verbal agreement of partnership, except such as
may be implied from the facts as to the purchase of the cascoes."

Discussing this part of the decision, the defendant says that, in the judgment of
the court, if on the one hand there is no direct evidence of a contract, on the
other its existence can only be inferred from certain facts, and the defendant
adds that the possibility of an inference is not sufficient ground upon which to
consider as existing what may be inferred to exist, and still less as sufficient
ground for declaring its efficacy to produce legal effects.
This reasoning rests upon a false basis. We have not taken into consideration
the mere possibility of an inference, as the appellant gratuitously states, for the
purpose of arriving at a conclusion that a contract of partnership was entered
into between him and the plaintiff, but have considered the proof which is
derived from the facts connected with the purchase of the cascoes. It is stated
in the decision that with the exception of this evidence we find no other which
shows the making of the contract. But this does not mean (for it says exactly the
contrary) that this fact is not absolutely proven, as the defendant erroneously
appears to think. From this data we infer a fact which to our mind is certain and
positive, and not a mere possibility; we infer not that it is possible that the
contract may have existed, but that it actually did exist. The proofs constituted
by the facts referred to, although it is the only evidence, and in spite of the fact
that it is not direct, we consider, however, sufficient to produce such a
conviction, which may certainly be founded upon any of the various classes of
evidence which the law admits. There is all the more reason for its being so in
this case, because a civil partnership may be constituted in any form, according
to article 1667 of the Civil Code, unless real property or real rights are
contributed to it — the only case of exception in which it is necessary that the
agreement be recorded in a public instrument.
It is of no importance that the parties have failed to reach an agreement with
respect to the minor details of contract. These details pertain to the accidental
and not to the essential part of the contract. We have already stated in the
opinion what are the essential requisites of a contract of partnership, according
to the definition of article 1665. Considering as a whole the probatory facts
which appears from the record, we have reached the conclusion that the plaintiff
and the defendant agreed to the essential parts of that contract, and did in fact
constitute a partnerhip, with the funds of which were purchased the cascoes
with which this litigation deals, although it is true that they did not take the
precaution to recisely establish and determine from the beginning the conditions
with respect to the participation of each partner in the profits or losses of the
partnership. The disagreements subsequently arising between them, when
endeavoring to fix these conditions, should not and can not produce the effect
49
of destroying that which has been done, to the prejudice of one of the partners,
nor could it divest his rights under the partnership which had accrued by the
actual contribution of capital which followed the agreement to enter into a
partnership, together with the transactions effected with partnership funds. The
law has foreseen the possibility of the constitution of a partnership without an
express stipulation by the partners upon those conditions, and has established
rules which may serve as a basis for the distribution of profits and losses among
the partners. (Art. 1689 of the Civil Code.) We consider that the partnership
entered into by the plaintiff and the defendant falls within the provisions of this
article.
With respect to the second point, it is obvious that upon declaring the existence
of a partnership and the right of the plaintiff to demand from the defendant an
itemized accounting of his management thereof, it was impossible at the same
time to determine the effects which might have been produced with respect to
the interest of the partnership by the withdrawal by the plaintiff of the sum of
1,125 pesos. This could only be determined after a liquidation of the
partnership. Then, and only then, can it be known if this sum is to be charged to
the capital contributed by the plaintiff, or to his share of the profits, or to both. It
might well be that the partnership has earned profits, and that the plaintiff's
participation therein is equivalent to or exceeds the sum mentioned. In this case
it is evident that, notwithstanding that payment, his interest in the partnership
would still continue. This is one case. It would be easy to imagine many others,
as the possible results of a liquidation are innumerable. The liquidation will
finally determine the condition of the legal relations of the partners inter se at
the time of the withdrawal of the sum mentioned. It was not, nor is it possible to
determine this status a priori without prejudging the result, as yet unknown, of
the litigation. Therefore it is that in the decision no direct statement has been
made upon this point. It is for the same reason that it was expressly stated in
the decision that it "does not involve an adjudication as to any disputed item of
the partnership account."
The contentions advanced by the moving party are so evidently unfounded that
we can not see the necessity or convenience of granting the rehearing prayed
for, and the motion is therefore denied.
||| (Fernandez v. De la Rosa, G.R. No. 413, [February 2, 1903], 1 PHIL 671-
682)

EN BANC
[G.R. No. L-4811. July 31, 1953.]
CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F.
HALILI,  defendant-appellant.
Tañada, Pelaez & Teehankee for defendant and appellant.
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.
SYLLABUS
1. EVIDENCE; PAROL EVIDENCE RULE; INTEGRATION OF JURAL ACTS.
— Plaintiff entered into a written agreement with the defendant to the effect that
they shall organize a partnership for the bottling and distribution of soft drinks,
plaintiff to act as industrial partner or manager, and the defendant a capitalist
furnishing the capital necessary therefor. The defendant claims that his consent
to the agreement was secured by the representation of plaintiff that he was the
owner, or was about to become owner, of an exclusive bottling franchise, which
representation was false. The fraud and false representation is sought to be
proven by means, among others, of the drafts of the agreement prior to the final
one, which drafts are presumed to have already been integrated into the final
agreement. Are those prior drafts excluded from the prohibition of the parol
evidence rule? Held: The purpose of considering the drafts is not to vary, alter,
or modify the agreement, but to discover the intent of the parties thereto and the
circumstances surrounding the execution of the contract. The issue of fact is,
did plaintiff represent to defendant that he had an exclusive franchise?
Certainly, his acts or statements prior to the agreement are essential and
relevant to the determination of said issue. The act or statement of the plaintiff
was not sought to be introduced to change or alter the terms of the agreement,
but to prove how he induced the defendant to enter into it - to prove the
representations or inducements, or fraud, with which or by which he secured the
other party's consent thereto. These are expressly excluded from the parol
evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209;
Port Banga Lumber Co., vs. Export & Import Lumber Co., 26 Phil., 602; 3 Moran
50
221, 1952 rev. ed.) Fraud and false representation are an incident to the
creation of a jural act, not to its integration, and are not governed by the rules
on integration. Where parties prohibited from proving said representations or
inducements, on the ground that the agreement had already been entered into,
it would be impossible to prove misrepresentation or fraud. The parol evidence
rule expressly allows the evidence to be introduced when the validity of an
instrument is put in issue by the pleadings (sec. 22-a of Rule 123).
2. ID.; INTERPRETATION OF DOCUMENTS. — AS plaintiff knew what
defendant believed about his (plaintiff's exclusive franchise, as he induced him
to that belief, plaintiff may not be allowed to deny that defendant was induced
by that belief (sec. 63 of Rule 123).
3. FRAUD; FALSE REPRESENTATION; DOLO CAUSANTE AND DOLO
INCIDENTE; IT IS THE FORMER THAT VITIATES CONSENT. — Fraud is
manifested in illimitable number of degrees or gradations — from the innocent
praises of a salesman about the excellence of his wares to those malicious
machinations and representations that the law punishes as a crime. In
consequence, article 1270 of the Spanish Civil Codedistinguishes two kinds of
(civil) fraud, the causal fraud which may be a ground for the annulment of a
contract, and the incidental deceit which only renders the party who employs it
liable for damages. In order that fraud may vitiate consent, it must be the causal
(dolo causante), not merely the incidental (dolo incidente), inducement to the
making of the contract (art. 1270, Span. Civ. Code; Hill vs. Veloso, 31 Phil.,
160). In the case at bar, inasmuch as the principal consideration, the main
cause that induced defendant to enter into the partnership agreement with
plaintiff, was the ability of plaintiff to get the exclusive franchise to bottle and
distribute for the defendant or for the partnership, the false representation made
by the plaintiff was not the casual consideration, or the principal inducement,
that led the defendant to enter into the partnership agreement.
4. ID.; ID.; ID.; DAMAGES FOR DOLO INCIDENTE; PARTNERSHIP. — While
the representation that plaintiff had the exclusive franchise did not vitiate
defendant' consent to the contract, it was used by plaintiff to get from defendant
a share of 30 per cent of the net profits; in other words, by pretending that he
had the exclusive franchise and promising to transfer it to defendant, he
obtained the consent of the latter to give him (plaintiff) a big slice in the net
profits. This is the dolo incidente defined in article 1270 of the Spanish Civil
Code, because it was used to get the other party's consent to a big share in the
profits, an incidental matter in the agreement. (8 Manresa, 602.)

5. CONTRACTS AND OBLIGATIONS; CONSENT, NOT VITIATED BY DOLO
INCIDENTE; PARTNERSHIP; AGREEMENT TO FORM PARTNERSHIP,
CANNOT BE ENFORCED. — Having arrived at the conclusion that the
agreement to organize a partnership may not be declared null and void, may
the agreement be carried out or executed? Held: Under the Spanish Civil Code,
the defendant has an obligation to do, not to give. The law recognizes the
individual's freedom or liberty to do an act he has promised to do, or not to do it,
as he pleases. This is a very personal act (acto personalisimo) of which courts
may not compel compliance, as it is considered as an act of violence to do so.
(29 as it is considered as an act of violence to do so. (19 Scaevolla, 428, 431-
432.)
6. FALSE REPRESENTATION; DAMAGES FOR DOLO INCIDENTE. —
Plaintiff is entitled under the terms of the agreement to 30 per cent of the net
profits of the business. Against this amount of damages, the damage the
defendant suffered by plaintiff's misrepresentation that he had the exclusive
franchise, must be set off. (Art. 1101, Span. Civ. Code.) When the defendant
learned, in Los Angeles, California, that plaintiff did not have the exclusive
franchise which he pretended he had and which he had agreed to transfer to
the partnership, his spontaneous reaction was to reduce the plaintiff's share
from 30 per cent to 15 per cent only, to which reduction plaintiff appears to have
readily given his assent. Held: By the misrepresentation of the plaintiff, he
obtained a very high percentage (30%) of share in the profits. Upon learning of
the misrepresentation, defendant reduced plaintiff's share to 15 per cent, to
which defendant assented. The court can do no better than follow such
appraisal of the damages as the parties themselves had adopted.
DECISION
LABRADOR, J  p:
On November 29, 1947, the plaintiff entered into a written agreement, Exhibit A,
with the defendant, the most important provisions of which are (1) that they shall
organize a partnership for the bottling and distribution of Mission soft drinks,
plaintiff to act as industrial partner or manager, and the defendant as a
capitalist, furnishing the capital necessary therefor; (2) that the defendant was
to decide matters of general policy regarding the business, while the plaintiff
was to attend to the operation and development of the bottling plant; (3) that the
plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the
proposed partnership; and (4) that the plaintiff was to receive 30 per cent of the
51
net profits of the business. The above agreement was arrived at after various
conferences and consultations by and between them, with the assistance of
their respective attorneys. Prior to entering into this agreement, plaintiff had
informed the Mission Dry Corporation of Los Angeles, California, U. S. A.,
manufacturers of the bases and ingredients of the beverages bearing its name,
that he had interested a prominent financier (defendant herein) in the business,
who was willing to invest half a million dollars in the bottling and distribution of
the said beverages, and requested, in order that he may close the deal with
him, that the right to bottle and distribute be granted him for a limited time under
the condition that it will finally be transferred to the corporation (Exhibit H).
Pursuant to this request, plaintiff was given "a thirty days' option on exclusive
bottling and distribution rights for the Philippines" (Exhibit H). Formal
negotiations between plaintiff and defendant began at a meeting on November
27, 1947, at the Manila Hotel, with their lawyers attending. Before this meeting
plaintiff's lawyer had prepared a draft of the agreement, Exhibit II or OO, but this
was not satisfactory because a partnership, instead of a corporation, was
desired. Defendant's lawyer prepared after the meeting his own draft, Exhibit
HH. This last draft appears to be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did
not like to go to the United States without the agreement being first signed. On
that day plaintiff and defendant went to the United States, and on December 10,
1947, a franchise agreement (Exhibit V) was entered into between the Mission
Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granting
defendant the exclusive right, license, and authority to produce, bottle,
distribute, and sell Mission beverages in the Philippines. The plaintiff and the
defendant thereafter returned to the Philippines. Plaintiff reported for duty in
January, 1948, but operations were not begun until the first week of February,
1948. In January plaintiff was given as advance, on account of profits, the sum
of P2,000, besides the use of a car; in February, 1948, also P2,000, and in
March only P1,000. The car was withdrawn from plaintiff on March 9, 1948.
When the bottling plant was already in operation, plaintiff demanded of
defendant that the partnership papers be executed. At first defendant excused
himself, saying there was no hurry. Then he promised to do so after the sales of
the products had been increased to P50,000. As nothing definite was
forthcoming, after this condition was attained, and as defendant refused to give
further allowances to plaintiff, the latter caused his attorneys to take up the
matter with defendant with a view to a possible settlement. As none could be
arrived at, the present action was instituted.

In his complaint plaintiff asks for the execution of the contract of partnership, an
accounting of the profits, and a share thereof of 30 per cent, as well as
damages in the amount of P200,000. In his answer defendant alleges by way of
defense (1) that defendant's consent to the agreement, Exhibit A, was secured
by the representation of plaintiff that he was the owner, or was about to become
owner of an exclusive bottling franchise, which representation was false, and
that plaintiff did not secure the franchise, but was given to defendant himself; (2)
that defendant did not fail to carry out his undertakings, bus that it was plaintiff
who failed; (3) that plaintiff agreed to contribute the exclusive franchise to the
partnership, but plaintiff failed to do so. He also presented a counterclaim for
P200,000 as damages. On these issues the parties went to trial, and thereafter
the Court of First Instance rendered judgment ordering defendant to render an
accounting of the profits of the bottling and distribution business, subject of the
action, and to pay plaintiff 15 per cent thereof. It held that the execution of the
contract of partnership could not be enforced upon the parties, but it also held
that the defense of fraud was not proved. Against this judgment both parties
have appealed.
The most important question of fact to be determined is whether defendant had
falsely represented that he had an exclusive franchise to bottle Mission
beverages, and whether this false representation or fraud, if it existed, annuls
the agreement to form the partnership. The trial court found that it is improbable
that defendant was never shown the letter, Exhibit J, granting plaintiff the
option; that defendant would not have gone to the United States without
knowing what authority plaintiff had; that the drafts of the contract prior to the
final one can not be considered for the purpose of determining the issue, as
they are presumed to have been already integrated into the final agreement;
that fraud is never presumed and must be proved; that the parties were
represented by attorneys, and that if any party thereto got the worse part of the
bargain, this fact alone would not invalidate the agreement. On this appeal the
defendant, as appellant, insists that plaintiff did represent to the defendant that
he had an exclusive franchise, when as a matter of fact, at the time of its
execution, he no longer had it as the same had expired, and that, therefore, the
consent of the defendant to the contract was vitiated by fraud and it is,
consequently, null and void.
Our study of the record and a consideration of all the surrounding
circumstances lead us to believe that defendant's contention is not without
merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented
himself as being the exclusive grantee of a franchise, thus:
52
"A. I don't recall any discussion about that matter. I took along with me the file of
the office with regards to this matter. I notice from the first draft of the document
which I prepared which calls for the organization of a corporation, that the
manager, that is, Mr. Woodhouse, is represented as being the exclusive
grantee of a franchise from the Mission Dry Corporation. . . . "(t.s.n., p. 518)
As a matter of fact, the first draft that Mr. Laurea prepared, which was made
before the Manila Hotel conference on November 27th, expressly states that
plaintiff had the exclusive franchise. Thus, the first paragraph states:
'Whereas, the manager is the exclusive grantee of a franchise from the Mission
Dry Corporation San Francisco, California, for the bottling of Mission products
and their sale to the public throughout the Philippines;
xxx xxx xxx
"3. That the manager, upon the organization of the said corporation, shall
forthwith transfer to the said corporation his exclusive right to bottle Mission
products and to sell them throughout the Philippines."
xxx xxx xxx
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural
acts. We find that the principle invoked is inapplicable, since the purpose of
considering the prior draft is not to vary, alter, or modify the agreement, but to
discover the intent of the parties thereto and the circumstances surrounding the
execution of the contract. The issue of fact is: Did plaintiff represent to
defendant that he had an exclusive franchise? Certainly, his acts or statements
prior to the agreement are essential and relevant to the determination of said
issue. The act or statement of the plaintiff was not sought to be introduced to
change or alter the terms of the agreement, but to prove how he induced the
defendant to enter into it — to prove the representations or inducements, or
fraud, with which or by which he secured the other party's consent thereto.
These are expressly excluded from the parol evidence rule. (Bough and
Bough vs. Cantiveros and Hanopol, 40 Phil., 209; Port Banga Lumber
Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221, 1952 rev. ed.)
Fraud and false representation are an incident to the creation of a jural act, not
to its integration, and are not governed by the rules on integration. Were parties

prohibited from proving said representations or inducements, on the ground that
the agreement had already been entered into, it would be impossible to prove
misrepresentation or fraud. Furthermore, the parol evidence rule expressly
allows the evidence to be introduced when the validity of an instrument is put in
issue by the pleadings (section 22, par. (a), Rule 123, Rules of Court), as in this
case.
That plaintiff did make the representation can also be easily gleaned from his
own letters and his own testimony. In his letter to Mission Dry Corporation,
Exhibit H, he said:
". . . He told me to come back to him when I was able to speak with authority so
that we could come to terms as far as he and I were concerned. That is the
reason why the cable was sent. Without this authority, I am in a poor bargaining
position. . . .
"I would propose that you grant me the exclusive bottling and distributing rights
for a limited period of time, during which I may consummate my plans. . . .. "
By virtue of this letter the option on exclusive bottling was given to the plaintiff
on October 14, 1947. (See Exhibit J.) If this option for an exclusive franchise
was intended by plaintiff as an instrument with which to bargain with defendant
and close the deal with him, he must have used his said option for the above-
indicated purpose, especially as it appears that he was able to secure, through
its use, what he wanted.
Plaintiff's own version of the preliminary conversation he had with defendant is
to the effect that when plaintiff called on the latter, the latter answered, "Well,
come back to me when you have the authority to operate. I am definitely
interested in the bottling business." (t.s.n., pp. 60-61). When after the elections
of 1949 plaintiff went to see the defendant (and at the time he had already the
option), he must have exultantly told defendant that he had the authority
already. It is improbable and incredible for him to have disclosed the fact that he
had only an option to the exclusive franchise, which was to last thirty days only,
and still more improbable for him to have disclosed that, at the time of the
signing of the formal agreement, his option had already expired. Had he done
so, he would have destroyed all his bargaining power and authority, and in all
probability lost the deal itself.
53
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff
only undertook in the agreement "to secure the Mission Dry franchise for and in
behalf of the proposed partnership." The existence of this provision in the final
agreement does not militate against plaintiff having represented that he had the
exclusive franchise; it rather strengthens belief that he did actually make the
representation. How could plaintiff assure defendant that he would get the
franchise for the latter if he had not actually obtained it for himself? Defendant
would not have gone into the business unless the franchise was raised in his
name, or at least in the name of the partnership. Plaintiff assured defendant he
could get the franchise. Thus, in the draft prepared by defendant's attorney,
Exhibit HH, the above provision is inserted, with the difference that instead of
securing the franchise for the defendant, plaintiff was to secure it for the
partnership. To show that the insertion of the above provision does not
eliminate the probability of plaintiff representing himself as the exclusive grantee
of the franchise, the final agreement contains in its third paragraph the
following:
". . . and the manager is ready and willing to allow thecapitalists to use the
exclusive franchise . . . .
and in paragraph 11 it also expressly states:
"1. In the event of dissolution or termination of the partnership, . . . the franchise
from Mission Dry Corporation shall be reassigned to the manager."
These statements confirm the conclusion that defendant believed, or was made
to believe, the plaintiff was the grantee of an exclusive franchise. Thus it is that
it was also agreed upon that the franchise was to be transferred to the name of
the partnership, and that, upon its dissolution or termination, the same shall be
reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that
plaintiff did not have the exclusive franchise, was to reduce, as he himself
testified, plaintiff's participation in the net profits to one half of that agreed upon.
He could not have had such a feeling had not plaintiff actually made him believe
that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in
the making of the contract made fraud improbable. Not necessarily, because
the alleged representation took place before the conferences were had; in other

words, plaintiff had already represented to defendant, and the latter had already
believed in, the existence of plaintiff's exclusive franchise before the formal
negotiations, and they were assisted by their lawyers only when said formal
negotiations actually took place. Furthermore, plaintiff's attorney testified that
plaintiff had said that he had the exclusive franchise; and defendant's lawyer
testified that plaintiff explained to him, upon being asked for the franchise, that
he had left the papers evidencing it. (t. s. n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to
defendant that he was the holder of the exclusive franchise. The defendant was
made to believe, and he actually believed, that plaintiff had the exclusive
franchise. Defendant would not perhaps have gone to California and incurred
expenses for the trip, unless he believed that plaintiff did have that exclusive
privilege, and that the latter would be able to get the same from the Mission Dry
Corporation itself. Plaintiff knew what defendant believed about his (plaintiff's)
exclusive franchise, as he induced him to that belief, and he may not be allowed
to deny that defendant was induced by that belief. (IX Wigmore, sec. 2423; Sec.
65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to
a fraud that would vitiate the contract? It must be noted that fraud is manifested
in illimitable number of degrees or gradations, from the innocent praises of a
salesman about the excellence of his wares to those malicious machinations
and representations that the law punishes as a crime. In consequence, article
1270 of the Spanish Civil Codedistinguishes two kinds of (civil) fraud, the causal
fraud, which may be a ground for the annulment of a contract, and the incidental
deceit, which only renders the party who employs it liable for damages. This
Court has held that in order that fraud may vitiate consent, it must be the causal
(dolo causante), not merely the incidental (dolo incidente), inducement to the
making of the contract. (Article 1270, Spanish Civil Code; Hill vs.Veloso, 31
Phil. 160.) The record abounds with circumstances indicative of the fact that the
principal consideration, the main cause that induced defendant to enter into the
partnership agreement with plaintiff, was the ability of plaintiff to get the
exclusive franchise to bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendant's counsel was to the effect
that plaintiff obligated himself to secure a franchise for the defendant.
Correction appears in this same original draft, but the change is made not as to
the said obligation but as to the grantee. In the corrected draft the word
"capitalist" (grantee) is changed to "partnership." The contract in its final form
retains the substituted term "partnership." The defendant was, therefore, led to
54
the belief that plaintiff had the exclusive franchise, but that the same was to be
secured for or transferred to the partnership. The plaintiff no longer had the
exclusive franchise, or the option thereto, at the time the contract was
perfected. But while he had already lost his option thereto (when the contract
was entered into), the principal obligation that he assumed or undertook was to
secure said franchise for the partnership, as the bottler and distributor for the
Mission Dry Corporation. We declare, therefore, that if he was guilty of a false
representation, this was not the causal consideration, or the principal
inducement, that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was
actually the consideration or price plaintiff gave in exchange for the share of 30
per cent granted him in the net profits of the partnership business. Defendant
agreed to give plaintiff 30 per cent share in the net profits because he was
transferring his exclusive franchise to the partnership. Thus, in the draft
prepared by plaintiff's lawyer, Exhibit II, the following provision exists:
"3. That the MANAGER, upon the organization of the said corporation, shall
forthwith transfer to the said corporation his exclusive right to bottle Mission
products and to sell them throughout the Philippines. As a consideration for
such transfer, the CAPITALIST shall transfer to the Manager full paid non-
assessable shares of the said corporation . . . twenty-five per centum of the
capital stock of the said corporation." (Par. 3, Exhibit II; emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the
production or distribution of beverages. As a matter of fact, when the bottling
plant was being built, all that he suggested was about the toilet facilities for the
laborers.
We conclude from the above that while the representation that plaintiff had the
exclusive franchise did not vitiate defendant's consent to the contract, it was
used by plaintiff to get from defendant a share of 30 per cent of the net profits;
in other words, by pretending that he had the exclusive franchise and promising
to transfer it to defendant, he obtained the consent of the latter to give him
(plaintiff) a big slice in the net profits. This is the dolo incidente defined in article
1270 of the Spanish Civil Code, because it was used to get the other party's
consent to a big share in the profits, an incidental matter in the agreement.
"El dolo incidental no es el que puede producirse en el cumplimiento del
contrato sino que significa aqui, el que concurriendo en el consentimiento, o

precediendolo, no influyo para arrancar por si solo el consentimiento ni en la
totalidad de la obligacion, sino en algun extremo o accidente de esta, dando
lugar tan solo a una accion para reclamar indemnizacion de perjuicios." (8
Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null
and void, the question that next comes before us is, May the agreement be
carried out or executed? We find no merit in the claim of plaintiff that the
partnership was already a fiat accompli from the time of the operation of the
plant, as it is evident from the very language of the agreement that the parties
intended that the execution of the agreement to form a partnership was to be
carried out at a later date. They expressly agreed that they shall form a
partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the
franchise from the Mission Dry Corporation was obtained in California, plaintiff
himself had been demanding that defendant comply with the agreement. And
plaintiff's present action seeks the enforcement of this agreement. Plaintiff's
claim, therefore, is both inconsistent with their intention and incompatible with
his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled
against his will to carry out the agreement nor execute the partnership papers.
Under the Spanish Civil Code, the defendant has an obligation to do, not to
give. The law recognizes the individual's freedom or liberty to do an act he has
promised to do, or not to do it, as he pleases. It falls within what Spanish
commentators call a very personal act (acto personalisimo), of which courts
may not compel compliance, as it is considered an act of violence to do so.
"Efectos de las obligaciones consistentes en hechos personalisimo. Tratamos
de la ejecucion de las obligaciones de hacer en el solo caso de su
incumplimiento por parte del deudor, y sean los hechos personalisimos, ya se
hallen en la facultad de un tercero; porque el complimiento espontaneo de las
mismas esta regido por los preceptos relativos al pago, y en nada les afectan
las disposiciones del art. 1.098.
"Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor
puede ser precisado a realizar el hecho y por que medios.
"Se tiene por corriente entre los autores, y se traslada generalmente sin
observacion el pricipio romano nemo potest precise cogi ad factum. Los que
perciben la posibilidad de la destruccion de este principio, añaden que, aun
55
cuando se pudiera obligar al deudor, no deberia hacerse, porque esto
constituiria una violencia, y no es la violencia modo propio de cumplir las
obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo
mismo cuando decia que obligar por la violencia seria infringir la libertad e
imponer una especie de esclavitud."
xxx xxx xxx
"En efecto; las obligaciones contractuales no se acomodan bien con el empleo
de la fuerza fisica, no ya precisamente porque se constituya de este modo una
especie de esclavitud, segun el dicho de Antonio Gomez, sino porque se
supone que el acreedor tuvo en cuenta el caracter personalisimo del hecho
ofrecido, y calculo sobre la posibilidad de que por alguna razon no se realizase.
Repugna, ademas, a la conciencia social el empleo de la fuerza publica,
mediante coaccion sobre las pesonas, en las relaciones puramente
particulares; porque la evolucion de las ideas ha ido poniendo mas de relieve
cada dia el respeto a la personalidad humana, y no se admite bien la violencia
sobre el indivicuo la cual tiene caracter visiblemente penal, sino por motivos
que interesen a la colectividad de ciudadanos. Es, pues, posible y licita esta
violencia cuando se trata de las obligaciones que hemos llamado ex lege, que
afectan al orden social y a la entidad de Estado, y aparecen impuestas sin
consideracion a las conveniencias particulares, y sin que por este motivo
puedan tampoco ser modificadas; pero no debe serlo cuando la obligacion
reviste un interes puramente particular, como sucede en las contractuales, y
cuando, por consecuencia, pareceria salirse el Estado de su esfera propia,
entrado a dirimir, con apoyo de la fuerza colectiva, las diferencias producidas
entre los ciudadanos. (19 Scaevola 428, 431- 432.)"
The last question for us to decide is that of damages, damages that plaintiff is
entitled to receive because of defendant's refusal to form the partnership, and
damages that defendant is also entitled to collect because of the falsity of
plaintiff's representation. (Article 1101, Spanish Civil Code.) Under article 1106
of the Spanish Civil Code the measure of damages is the actual loss suffered
and the profits reasonably expected to be received, embraced in the
terms daño emergente and lucro cesante. Plaintiff is entitled under the terms of
the agreement to 30 per cent of the net profits of the business. Against this
amount of damages, we must set off the damage defendant suffered by
plaintiff's misrepresentation that he had the exclusive franchise, by which
misrepresentation he obtained a very high percentage of share in the profits.
 56

We can do no better than follow the appraisal that the parties themselves had
adopted.

When defendant learned in Los Angeles that plaintiff did not have the exclusive
franchise which he pretended he had and which he had agreed to transfer to
the partnership, his spontaneous reaction was to reduce plaintiff's share from 30
per cent to 15 per cent only, to which reduction defendant appears to have
readily given his assent. It was under this understanding, which amounts to a
virtual modification of the contract, that the bottling plant was established and
plaintiff worked as Manager for the first three months. If the contract may not be
considered modified as to plaintiff's share in the profits, by the decision of
defendant to reduce the same to one-half and the assent thereto of plaintiff,
then we may consider the said amount as a fair estimate of the damages
plaintiff is entitled to under the principle enunciated in the case of Varadero de
Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce
plaintiff's share and plaintiff's consent thereto amount to an admission on the
part of each of the reasonableness of this amount as plaintiff's share. This same
amount was fixed by the trial court. The agreement contains the stipulation that
upon the termination of the partnership, defendant was to convey the franchise
back to plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix
the period within which these damages shall be paid to plaintiff. In view of
paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the
net profits shall continue to be paid while defendant uses the franchise from the
Mission Dry Corporation. SECOND DIVISION

With the modification above indicated, the judgment appealed from is hereby [G.R. No. L-30616. December 10, 1990.]
affirmed. Without costs.
EUFRACIO D. ROJAS, plaintiff-appellant, vs. CONSTANCIO B.
|||  (Woodhouse v. Halili, G.R. No. L-4811, [July 31, 1953], 93 PHIL 526-542) MAGLANA, defendant-appellee.

Ambrosio Padilla, Mempin & Reyes Law Offices for plaintiff-appellant.

Occeña Law Office for defendant-appellee.

DECISION

PARAS, J p:

This is a direct appeal to this Court from a decision ** of the then Court of First
Instance of Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518,
dismissing appellant's complaint.
As found by the trial court, the antecedent facts of the case are as follows:
On January 14, 1955, Maglana and Rojas executed their Articles of Co-
Partnership (Exhibit "A") called Eastcoast Development Enterprises (EDE) with
only the two of them as partners. The partnership EDE with an indefinite term of
existence was duly registered on January 21, 1955 with the Securities and
Exchange Commission.
One of the purposes of the duly-registered partnership was to "apply or secure
timber and/or minor forests products licenses and concessions over public
and/or private forest lands and to operate, develop and promote such forests
rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed together with an
application for a timber concession covering the area located at Cateel and
Baganga, Davao with the Bureau of Forestry which was approved and Timber
License No. 35-56 was duly issued and became the basis of subsequent
renewals made for and in behalf of the duly registered partnership EDE. LLpr
Under the said Articles of Co-Partnership, appellee Maglana shall manage the
business affairs of the partnership, including marketing and handling of cash
and is authorized to sign all papers and instruments relating to the partnership,
while appellant Rojas shall be the logging superintendent and shall manage the
logging operations of the partnership. It is also provided in the said articles of
co-partnership that all profits and losses of the partnership shall be divided
share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956, there was no
operation of said partnership (Record on Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana decided to avail of
the services of Pahamotang as industrial partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their
Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name
EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight
57
difference in the purpose of the second partnership which is to hold and secure
renewal of timber license instead of to secure the license as in the first
partnership and the term of the second partnership is fixed to thirty (30) years,
everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas started operation
on May 1, 1956, and was able to ship logs and realize profits. An income was
derived from the proceeds of the logs in the sum of P643,633.07 (Decision, R.A.
919).
On October 25, 1956, Pahamotang, Maglana and Rojas executed a document
entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP,
EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D") agreeing
among themselves that Maglana and Rojas shall purchase the interest, share
and participation in the Partnership of Pahamotang assessed in the amount of
P31,501.12. It was also agreed in the said instrument that after payment of the
sum of P31,501.12 to Pahamotang including the amount of loan secured by
Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall
become the owners of all equipment contributed by Pahamotang and the
EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the
second partnership, be dissolved. Pahamotang was paid in fun on August 31,
1957. No other rights and obligations accrued in the name of the second
partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was continued by Maglana
and Rojas without the benefit of any written agreement or reconstitution of their
written Articles of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management contract with another
logging enterprise, the CMS Estate, Inc. He left and abandoned the partnership
(Decision, R.A. 947).
On February 4, 1957, Rojas withdrew his equipment from the partnership for
use in the newly acquired area (Decision, R.A. 948).
The equipment withdrawn were his supposed contributions to the first
partnership and was transferred to CMS Estate, Inc. by way of chattel mortgage
(Decision, R.A. p. 948).

On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation
to contribute, either in cash or in equipment, to the capital investments of the
partnership as well as his obligation to perform his duties as logging
superintendent.
Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to
comply with the promised contributions and he will not work as logging
superintendent. Maglana then told Rojas that the latter's share will just be 20%
of the net profits. Such was the sharing from 1957 to 1959 without complaint or
dispute (Decision, R.A. 949). LLphil
Meanwhile, Rojas took funds from the partnership more than his contribution.
Thus, in a letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas
that he dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of First Instance of
Davao against Maglana for the recovery of properties, accounting, receivership
and damages, docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed
commissioners to examine the long and voluminous accounts of the Eastcoast
Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid.,
pp. 102-114) was denied by Judge Romero for want of merit (Ibid., p. 125).
Judge Romero also required the inclusion of the entire year 1961 in the report
to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the
commissioners started examining the records and supporting papers of the
partnership as well as the information furnished them by the parties, which were
compiled in three (3) volumes.
On May 11, 1964, Maglana filed his motion for leave of court to amend his
answer with counterclaim, attaching thereto the amended answer (Ibid., pp. 26-
336), which was granted on May 22, 1964 (Ibid., p. 336).
On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners'
Report (Ibid., p. 337).
58
On June 29, 1965, Rojas filed his motion for reconsideration of the order dated
May 27, 1964 approving the report of the commissioners which was opposed by
the appellee.
On September 19, 1964, appellant's motion for reconsideration was denied
(Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9, 1964 and the
following issues were agreed upon to be submitted to the trial court:
(a) The nature of partnership and the legal relations of Maglana and Rojas after
the dissolution of the second partnership;
(b) Their sharing basis: whether in proportion to their contribution or share and
share alike;
(c) The ownership of properties bought by Maglana in his wife's name;
(d) The damages suffered and who should be liable for them; and
(e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving
the partnership (Decision, R.A. pp. 895-896). llcd
After trial, the lower court rendered its decision on March 11, 1968, the
dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly considered, judgment is
hereby rendered by the Court declaring that:
"1. The nature of the partnership and the legal relations of Maglana and Rojas
after Pahamotang retired from the second partnership, that is, after August 31,
1957, when Pahamotang was finally paid his share — the partnership of the
defendant and the plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should be on the basis of
computation, that is the ratio and proportion of their respective contributions, or
on the basis of share and share alike — this covered by actual contributions of
the plaintiff and the defendant and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual contributions; that from 1957 to 1959,

the sharing is on the basis of 80% for the defendant and 20% for the plaintiff of
the profits, but from 1960 to the date of dissolution, February 23, 1961, the
plaintiff's share will be on the basis of his actual contribution and, considering
his indebtedness to the partnership, the plaintiff is not entitled to any share in
the profits of the said partnership;
"3. As to whether the properties which were bought by the defendant and
placed in his or in his wife's name were acquired with partnership funds or with
funds of the defendant and — the Court declares that there is no evidence that
these properties were acquired by the partnership funds, and therefore the
same should not belong to the partnership;
"4. As to whether damages were suffered and, if so, how much, and who
caused them and who should be liable for them — the Court declares that
neither parties is entitled to damages, for as already stated above it is not a
wise policy to place a price on the right of a person to litigate and/or to come to
Court for the assertion of the rights they believe they are entitled to;
"5. As to what is the legal effect of the letter of defendant to the plaintiff dated
February 23, 1961; did it dissolve the partnership or not — the Court declares
that the letter of the defendant to the plaintiff dated February 23, 1961, in effect
dissolved the partnership;
"6. Further, the Court relative to the canteen, which sells foodstuffs, supplies,
and other merchandise to the laborers and employees of the Eastcoast
Development Enterprises, — the COURT DECLARES THE SAME AS NOT
BELONGING TO THE PARTNERSHIP;
 
"7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo
Angeles David — is VALID AND BINDING UPON THE PARTIES AND
SHOULD BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO
THE PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the
partnership the amount of P69,000.00 the profits he received from the CMS
Estate, Inc. operated by him;
59
"9. The claim that plaintiff Rojas should be ordered to pay the further sum of
P85,000.00 which according to him he is still entitled to receive from the CMS
Estate, Inc. is hereby denied considering that it has not yet been actually
received, and further the receipt is merely based upon an expectancy and/or
still speculative;
"10. The Court also directs and orders plaintiff Rojas to pay the sum of
P62,988.19 his personal account to the partnership;
"11. The Court also credits the defendant the amount of P85,000.00 the amount
he should have received as logging superintendent, and which was not paid to
him, and this should be considered as part of Maglana's contribution likewise to
the partnership; and
"12. The complaint is hereby dismissed with costs against the plaintiff. cdrep
"SO ORDERED." Decision, Record on Appeal, pp. 985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership and legal
relationship of the Maglana-Rojas after Pahamotang retired from the second
partnership.
The lower court is of the view that the second partnership superseded the first,
so that when the second partnership was dissolved there was no written
contract of co-partnership; there was no reconstitution as provided for in the
Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership
which was carried on by Rojas and Maglana after the dissolution of the second
partnership was a de facto partnership and at will. It was considered as a
partnership at will because there was no term, express or implied; no period
was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).
On the other hand, Rojas insists that the registered partnership under the firm
name of Eastcoast Development Enterprises (EDE) evidenced by the Articles of
Co-Partnership dated January 14, 1955 (Exhibit "A") has not been novated,
superseded and/or dissolved by the unregistered articles of co-partnership
among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated
March 4, 1956 (Exhibit "C") and accordingly, the terms and stipulations of said
registered Articles of Co-Partnership (Exhibit "A") should govern the relations

between him and Maglana. Upon withdrawal of Agustin Pahamotang from the
unregistered partnership (Exhibit "C"), the legally constituted partnership EDE
(Exhibit "A") continues to govern the relations between them and it was legal
error to consider a de factopartnership between said two partners or a
partnership at will. Hence, the letter of appellee Maglana dated February 23,
1961, did not legally dissolve the registered partnership between them, being in
contravention of the partnership agreement agreed upon and stipulated in their
Articles of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to the rights
enumerated in Article 1837 of the Civil Code and to the sharing profits between
them of "share and share alike" as stipulated in the registered Articles of Co-
Partnership (Exhibit "A").
After a careful study of the records as against the conflicting claims of Rojas
and Maglana, it appears evident that it was not the intention of the partners to
dissolve the first partnership, upon the constitution of the second one, which
they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for
Defendant-Appellee, pp. 24-25). Except for the fact that they took in one
industrial partner; gave him an equal share in the profits and fixed the term of
the second partnership to thirty (30) years, everything else was the same. Thus,
they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES,
they pursued the same purposes and the capital contributions of Rojas and
Maglana as stipulated in both partnerships call for the same amounts. Just as
important is the fact that all subsequent renewals of Timber License No. 35-36
were secured in favor of the First Partnership, the original licensee. To all
intents and purposes therefore, the First Articles of Partnership were only
amended, in the form of Supplementary Articles of Co-Partnership (Exhibit "C")
which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated,
even during the existence of the second partnership, all business transactions
were carried out under the duly registered articles. As found by the trial court, it
is an admitted fact that even up to now, there are still subsisting obligations and
contracts of the latter (Decision, R.A. pp. 950-957). No rights and obligations
accrued in the name of the second partnership except in favor of Pahamotang
which was fully paid by the duly registered partnership (Decision, R.A., pp. 919-
921). LLpr
On the other hand, there is no dispute that the second partnership was
dissolved by common consent. Said dissolution did not affect the first
partnership which continued to exist. Significantly, Maglana and Rojas agreed
to purchase the interest, share and participation in the second partnership of
Pahamotang and that thereafter, the two (Maglana and Rojas) became the
60
owners of equipment contributed by Pahamotang. Even more convincing, is the
fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his
obligation to contribute either in cash or in equipment, to the capital investment
of the partnership as well as his obligation to perform his duties as logging
superintendent. This reminder cannot refer to any other but to the provisions of
the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied
that he will not be able to comply with the promised contributions and he will not
work as logging superintendent. By such statements, it is obvious that Roxas
understood what Maglana was referring to and left no room for doubt that both
considered themselves governed by the articles of the duly registered
partnership.
Under the circumstances, the relationship of Rojas and Maglana after the
withdrawal of Pahamotang can neither be considered as a De
FactoPartnership, nor a Partnership At Will, for as stressed, there is an existing
partnership, duly registered.
As to the question of whether or not Maglana can unilaterally dissolve the
partnership in the case at bar, the answer is in the affirmative.
Hence, as there are only two parties when Maglana notified Rojas that he
dissolved the partnership, it is in effect a notice of withdrawal.
Under Article 1830, par. 2 of the Civil Code, even if there is a specified term,
one partner can cause its dissolution by expressly withdrawing even before the
expiration of the period, with or without justifiable cause. Of course, if the cause
is not justified or no cause was given, the withdrawing partner is liable for
damages but in no case can he be compelled to remain in the firm. With his
withdrawal, the number of members is decreased, hence, the dissolution. And
in whatever way he may view the situation, the conclusion is inevitable that
Rojas and Maglana shall be guided in the liquidation of the partnership by the
provisions of its duly registered Articles of Co-Partnership; that is, all profits and
losses of the partnership shall be divided "share and share alike" between the
partners.
But an accounting must first be made and which in fact was ordered by the trial
court and accomplished by the commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the corresponding contribution of
the partners from 1956-1961 are as follows: Eufracio Rojas who should have
 61

contributed P158,158.00, contributed only P18,750.00 while Maglana who
should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A.
p. 976). It is a settled rule that when a partner who has undertaken to contribute
a sum of money fails to do so, he becomes a debtor of the partnership for
whatever he may have promised to contribute (Article 1786, Civil Code) and for
interests and damages from the time he should have complied with his
obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA
94 [1984]). Being a contract of partnership, each partner must share in the
profits and losses of the venture. That is the essence of a partnership (Ibid., p.
95).
Thus, as reported in the Commissioners' Report, Rojas is not entitled to any
profits. In their voluminous reports which was approved by the trial court, they
showed that on 50-50% basis, Rojas will be liable in the amount of
P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the
basis of actual capital contribution, he will be liable for P52,040.31.
PREMISES CONSIDERED, the assailed decision of the Court of First Instance
of Davao, Branch III, is hereby MODIFIED in the sense that the duly registered
partnership of Eastcoast Development Enterprises continued to exist until
liquidated and that the sharing basis of the partners should be on share and
share alike as provided for in its Articles of Partnership, in accordance with the
computation of the commissioners. We also hereby AFFIRM the decision of the
trial court in all other respects. cdll
SO ORDERED.
||| (Rojas v. Maglana, G.R. No. L-30616, [December 10, 1990], 270 PHIL 192-
204)

Consequently, except as to the legal relationship of the partners after the

withdrawal of Pahamotang which is unquestionably a continuation of the duly
registered partnership and the sharing of profits and losses which should be on
the basis of share and share alike as provided for in the duly registered Articles
of Co-Partnership, no plausible reason could be found to disturb the findings
and conclusions of the trial court. prcd

As to whether Maglana is liable for damages because of such withdrawal, it will

be recalled that after the withdrawal of Pahamotang, Rojas entered into a
management contract with another logging enterprise, the CMS Estate, Inc., a
company engaged in the same business as the partnership. He withdrew his
equipment, refused to contribute either in cash or in equipment to the capital
investment and to perform his duties as logging superintendent, as stipulated in
their partnership agreement. The records also show that Rojas not only
abandoned the partnership but also took funds in an amount more than his
contribution (Decision, R.A., p. 949).

In the given situation Maglana cannot be said to be in bad faith nor can he be
liable for damages.
THIRD DIVISION

[G.R. No. 109248. July 3, 1995.]
GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.
BACORRO,  petitioners, vs. HON. COURT OF APPEALS, SECURITIES AND
EXCHANGE COMMISSION and JOAQUIN L. MISA,  respondents.
Bito, Lozada, Ortega & Castillo  for petitioners.
Misa Law Offices and Adrian Sison for private respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; PARTNERSHIP AT WILL; DISSOLUTION,
ELUCIDATED. — A partnership that does not fix its term is a partnership at will.
That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and
Castillo," is indeed such a partnership need not be unduly belabored. The birth
and life of a partnership at will is predicated on the mutual desire and consent of
the partners. 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 a 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. In passing,
neither would the presence of a period for its specific duration or the statement
of a particular purpose for its creation prevent the dissolution of any partnership
by an act or will of a partner. Among partners, mutual agency arises and the
doctrine of delectus personae allows them to have the power, although not
necessarily the right, to dissolve the partnership. An unjustified dissolution by
the partner can subject him to a possible action for damages. The dissolution of
a partnership is the change in the relation of the parties caused by any partner
ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business. Upon its dissolution, the partnership continues and
its legal personality is retained until the complete winding up of its business
culminating in its termination. The liquidation of the assets of the partnership
following its dissolution is governed by various provisions of the Civil Code,
however, an agreement of the partners, like any other contract, is binding
among them and normally takes precedence to the extent applicable over the
Code's general provisions. And here, the term "retirement" must have been
62
used in the Articles of Partnership in a generic sense to mean the dissociation
by a partner, inclusive of resignation or withdrawal, from the partnership that
thereby dissolves it.
2. ID.; ID.; ID.; ID.; WITHDRAWAL OF PARTNER; BAD FAITH, NOT
PRESENT. — Attorney Misa did not act in bad faith. Public respondents viewed
his withdrawal to have been spurred by "interpersonal conflict" among the
partners. It would not be right, to let any of the partners remain in the
partnership under such an atmosphere of animosity; certainly, not against their
will. Indeed, for as long as the reason for withdrawal of a partner is not contrary
to the dictates of justice and fairness, nor for the purpose of unduly visiting harm
and damage upon the partnership, bad faith cannot be said to characterize the
act. Bad faith, in the context here used, is no different from its normal concept of
a conscious and intentional design to do a wrongful act for a dishonest purpose
or moral obliquity.
DECISION
VITUG, J  p:
The instant petition seeks a review of the decision rendered by the Court of
Appeals, dated 26 February 1993, in CA-G. R. SP No. 24638 and No. 24648
affirming in toto that of the Securities and Exchange Commission ("SEC") in
SEC AC 254. cdasia
The antecedents of the controversy, summarized by respondent Commission
and quoted at length by the appellate court in its decision, are hereunder
restated.
"The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly
registered in the Mercantile Registry on 4 January 1937 and reconstituted with
the Securities and Exchange Commission on 4 August 1948. The SEC records
show that there were several subsequent amendments to the articles of
partnership on 18 September 1958, to change the firm [name] to ROSS, SELPH
and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL
ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO,
BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO,
BITO MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA &
LOZADA; on 7 June 1977 to BITO, MISA & LOZADA; on 19 December 1980,
[Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada associated

themselves together, as senior partners with respondents-appellees Gregorio F.
Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior partners.
"On February 17, 1988, petitioner-appellant wrote the respondents-appellees a
letter stating: cdta
'"I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective
at the end of this month.
I trust that the accountants will be instructed to make the proper liquidation of
my participation in the firm.'
"On the same day, petitioner-appellant wrote respondents-appellees another
letter stating: cdtai
'"Further to my letter to you today, I would like to have a meeting with all of you
with regard to the mechanics of liquidation, and more particularly, my interest in
the two floors of this building. I would like to have this resolved soon because it
has to do with my own plans.'
"On 19 February 1988, petitioner-appellant wrote respondents-appellees
another letter stating:
"The partnership has ceased to be mutually satisfactory of the working
conditions of our employees including the assistant attorneys. All my efforts to
ameliorate the below subsistence level of the pay scale of our employees have
been thwarted by the other partners. Not only have they refused to give
meaningful increases to the employees, even attorneys, are dressed down
publicly in a loud voice in a manner that deprived them of their self-respect. The
result of such policies is the formation of the union, including the assistant
attorneys.'
"On 30 June 1988, petitioner filed with this Commission's Securities
Investigation and Clearing Department (SICD) a petition for dissolution and
liquidation of partnership, docketed as SEC Case No. 3384 praying that the
Commission:
'"1. Decree the formal dissolution and order the immediate liquidation of (the
partnership of) Bito, Misa & Lozada; cdta
63
'2. Order the respondents to deliver or pay for petitioner's share in the
partnership assets plus the profits, rent or interest attributable to the use of his
right in the assets of the dissolved partnership;
'3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any
of their correspondence, checks and pleadings and to pay petitioners damages
for the use thereof despite the dissolution of the partnership in the amount of at
least P50,000.00;
'4. Order respondents jointly and severally to pay petitioner attorney's fees and
expense of litigation in such amounts as may be proven during the trial and
which the Commission may deem just and equitable under the premises but in
no case less than ten (10%) per cent of the value of the shares of petitioner of
P100,00.00; cdta
'5. Order the respondents to pay petitioner moral damages with the amount of
P500,000.00 and exemplary damages in the amount of P200,000.00.
'Petitioner likewise prayed for such other and further reliefs that the Commission
may deem just and equitable under the premises.'
"On 13 July 1988, respondents-appellees filed their opposition to the
petition. aisadc
"On 13 July 1988, petitioner filed his Reply to the Opposition.
"On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve
the said law partnership. Accordingly, the petitioner and respondents are hereby
enjoined to abide by the provisions of the Agreement relative to the matter
governing the liquidation of the shares of any retiring or withdrawing partner in
the partnership interest.'" 1 aisadc
On appeal, the SEC en banc  reversed the decision of the Hearing Officer and
held that the withdrawal of Attorney Joaquin L. Misa had dissolved the
partnership of "Bito, Misa & Lozada." The Commission ruled that, being a
partnership at will, the law firm could be dissolved by any partner at anytime,
such as by his withdrawal therefrom, regardless of good faith or bad faith, since

no partner can be forced to continue in the partnership against his will. In its
decision, dated 17 January 1990, the SEC held:
"WHEREFORE, premises considered the appealed order of 31 March 1989 is
hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and obligations of the
parties." 2
The parties sought a reconsideration of the above decision. Attorney Misa, in
addition, asked for an appointment of a receiver to take over the assets of the
dissolved partnership and to take charge of the winding up of its affairs. On 04
April 1991, respondent SEC issued an order denying reconsideration, as well as
rejecting the petition for receivership, and reiterating the remand of the case to
the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G. R.
SP No. 24638 and CA-G. R. SP No. 24648). LibLex
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito
and Attorney Mariano Lozada both died on, respectively, 05 September 1991
and 21 December 1991. The death of the two partners, as well as the
admission of new partners, in the law firm prompted Attorney Misa to renew his
application for receivership (in CA G. R. SP No. 24648). He expressed concern
over the need to preserve and care for the partnership assets. The other
partners opposed the prayer.
 
The Court of Appeals, finding no reversible error on the part of respondent
Commission, AFFIRMED in toto the SEC decision and order appealed from. In
fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty.
Misa's withdrawal from the partnership had changed the relation of the parties
and inevitably caused the dissolution of the partnership; (b) that such
withdrawal was not in bad faith; (c) that the liquidation should be to the extent of
Attorney Misa's interest or participation in the partnership which could be
computed and paid in the manner stipulated in the partnership agreement; (d)
that the case should be remanded to the SEC Hearing Officer for the
corresponding determination of the value of Attorney Misa's share in the
partnership assets; and (e) that the appointment of a receiver was unnecessary
64
as no sufficient proof had been shown to indicate that the partnership assets
were in any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners
confine themselves to the following issues: cdt
1. Whether or not the Court of Appeals has erred in holding that the partnership
of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at
will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal
of private respondent dissolved the partnership regardless of his good or bad
faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves. cdt
A partnership that does not fix its term is a partnership at will. That the law firm
"Bito, Misa & Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed
such a partnership need not be unduly belabored. We quote, with approval, like
did the appellate court, the findings and disquisition of respondent SEC on this
matter, viz:
"The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The 'DURATION' clause simply
states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory
and upon the death or legal incapacity of one of the partners, shall be continued
by the surviving partners.'
"The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948): cdt

"2. Purpose. The purpose for which the partnership is formed, is to act as legal
adviser and representative of any individual, firm and corporation engaged in
commercial, industrial or other lawful businesses and occupations; to counsel
and advise such persons and entities with respect to their legal and other
affairs; and to appear for and represent their principals and client in all courts of
justice and government departments and offices in the Philippines, and
elsewhere when legally authorized to do so.'
"The 'purpose' of the partnership is not the specific undertaking referred to in
the law. Otherwise, all partnerships, which necessarily must have a purpose,
would all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would
so exist. Apparently what the law contemplates, is a specific undertaking or
'project' which has a definite or definable period of completion." 3
The birth and life of a partnership at will is predicated on the mutual desire and
consent of the partners. 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 a
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 4 but that it can result in a liability for
damages. 5
In passing, neither would the presence of a period for its specific duration or the
statement of a particular purpose for its creation prevent the dissolution of any
partnership by an act or will of a partner.  6 Among partners, 7 mutual agency
arises and the doctrine of delectus personaeallows them to have the  power,
although not necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for
damages. LLpr
The dissolution of a partnership is the change in the relation of the parties
caused by any partner ceasing to be associated in the carrying on, as might be
distinguished from the winding up of, the business. 8 Upon its dissolution, the
partnership continues and its legal personality is retained until the complete
winding up of its business culminating in its termination. 9
65
The liquidation of the assets of the partnership following its dissolution is
governed by various provisions of the Civil Code; 10however, an agreement of
the partners, like any other contract, is binding among them and normally takes
precedence to the extent applicable over the Code's general provisions. We
here take note of paragraph 8 of the "Amendment to Articles of Partnership"
reading thusly:
". . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners
for allocation as the Senior Partners may determine; provided, however, that
with respect to the two (2) floors of office condominium which the partnership is
now acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time
of such death of retirement shall be determined by two (2) independent
appraisers, one to be appointed (by the partnership and the other by the)
retiring partner or the heirs of a deceased partner, as the case may be. In the
event of any disagreement between the said appraisers a third appraiser will be
appointed by them whose decision shall be final. The share of the retiring or
deceased partner in the aforementioned two (2) floor office condominium shall
be determined upon the basis of the valuation above mentioned which shall be
paid monthly within the first ten (10) days of every month in installments of not
less than P20,000.00 for the Senior Partners, P10,000.00 in the case of two (2)
existing Junior Partners and P5,000.00 in the case of the new Junior
Partner." 11 cdt
The term "retirement" must have been used in the articles, as we so hold, in a
generic sense to mean the dissociation by a partner, inclusive of resignation or
withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and
respondent Commission on their common factual finding, i. e., that Attorney
Misa did not act in bad faith. Public respondents viewed his withdrawal to have
been spurred by "interpersonal conflict" among the partners. It would not be
right, we agree, to let any of the partners remain in the partnership under such
an atmosphere of animosity; certainly, not against their will. 12 Indeed, for as
long as the reason for withdrawal of a partner is not contrary to the dictates of
justice and fairness, nor for the purpose of unduly visiting harm and damage
upon the partnership, bad faith cannot be said to characterize the act. Bad faith,
in the context here used, is no different from its normal concept of a conscious

and intentional design to do a wrongful act for a dishonest purpose or moral
obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement
on costs. cdt
SO ORDERED.
|||  (Ortega v. Court of Appeals, G.R. No. 109248, [July 3, 1995], 315 PHIL 573-
583)
FIRST DIVISION
[G.R. No. 142612. July 29, 2005.]
OSCAR ANGELES and EMERITA ANGELES petitioners, vs. THE HON.
SECRETARY OF JUSTICE and FELINO MERCADO,respondents.
Leonardo G. Ragasa, Jr. for petitioners.
Cayetano T. Santos & Associates  for private respondent.
SYLLABUS
1.POLITICAL LAW; COURT OR TRIBUNAL; WHEN ITS ACT CONSTITUTES
GRAVE ABUSE OF DISCRETION; EXPLAINED. — An act of a court or tribunal
may constitute grave abuse of discretion when the same is performed in a
capricious or whimsical exercise of judgment amounting to lack of jurisdiction.
The abuse of discretion must be so patent and gross as to amount to an
evasion of positive duty, or to a virtual refusal to perform a duty enjoined by law,
as where the power is exercised in an arbitrary and despotic manner because
of passion or personal hostility.
2.REMEDIAL LAW; SPECIAL CIVIL ACTIONS; CERTIORARI; FILING OF
PETITION REQUIRES PRIOR FILING OF MOTION FOR
RECONSIDERATION; EXCEPTIONS. — A previous motion for reconsideration
before the filing of a petition for certiorari is necessary unless: (1) the issue
66
raised is one purely of law; (2) public interest is involved; (3) there is urgency;
(4) a question of jurisdiction is squarely raised before and decided by the lower
court; and (5) the order is a patent nullity.
3.CIVIL LAW; CONTRACTS; CONTRACT OF PARTNERSHIP; FAILURE TO
REGISTER DOES NOT INVALIDATE A CONTRACT THAT HAS THE
ESSENTIAL REQUISITES OF PARTNERSHIP. — Mere failure to register the
contract of partnership with the SEC does not invalidate a contract that has the
essential requisites of a partnership. The purpose of registration of the contract
of partnership is to give notice to third parties. Failure to register the contract of
partnership does not affect the liability of the partnership and of the partners to
third persons. Neither does such failure to register affect the partnership's
juridical personality. A partnership may exist even if the partners do not use the
words "partner" or "partnership."
DECISION
The Case
This is a petition for certiorari 1 to annul the letter-resolution 2 dated 1 February
2000 of the Secretary of Justice in Resolution No. 155. 3 The Secretary of
Justice affirmed the resolution 4 in I.S. No. 96-939 dated 28 February 1997
rendered by the Provincial Prosecution Office of the Department of Justice in
Santa Cruz, Laguna ("Provincial Prosecution Office"). The Provincial
Prosecution Office resolved to dismiss the complaint for estafa filed by
petitioners Oscar and Emerita Angeles ("Angeles spouses") against respondent
Felino Mercado ("Mercado").
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint for
estafa under Article 315 of the Revised Penal Code against Mercado before the
Provincial Prosecution Office. Mercado is the brother-in-law of the Angeles
spouses, being married to Emerita Angeles' sister Laura.
In their affidavits, the Angeles spouses claimed that in November 1992,
Mercado convinced them to enter into a contract of antichresis, 5colloquially
known as sanglaang-perde, covering eight parcels of land ("subject land")
planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna and
owned by Juana Suazo. The contract of antichresis was to last for five years

with P210,000 as consideration. As the Angeles spouses stay in Manila during
weekdays and go to Laguna only on weekends, the parties agreed that
Mercado would administer the lands and complete the necessary paperwork. 6
After three years, the Angeles spouses asked for an accounting from Mercado.
Mercado explained that the subject land earned P46,210 in 1993, which he
used to buy more lanzones trees. Mercado also reported that the trees bore no
fruit in 1994. Mercado gave no accounting for 1995. The Angeles spouses claim
that only after this demand for an accounting did they discover that Mercado
had put the contract of sanglaang-perde over the subject land under Mercado
and his spouse's names. 7 The relevant portions of the contract of sanglaang-
perde, signed by Juana Suazo alone, read:
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO
(P210,000), salaping gastahin, na aking tinanggap sa mag[-]asawa nila G. AT
GNG. FELINO MERCADO, mga nasa hustong gulang, Filipino, tumitira at may
pahatirang sulat sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna,
ay aking ipinagbili, iniliwat at isinalin sa naulit na halaga, sa nabanggit na mag[-]
asawa nila G. AT GNG. FELINO MERCADO[,] sa kanila ay magmamana,
kahalili at ibang dapat pagliwatan ng kanilang karapatan, ang lahat na ibubunga
ng lahat na puno ng lanzones, hindi kasama ang ibang halaman na
napapalooban nito, ng nabanggit na WALONG (8) Lagay na Lupang Cocal-
Lanzonal, sa takdang LIMA (5) NA [sic] TAON, magpapasimula sa taong 1993,
at magtatapos sa taong 1997, kaya't pagkatapos ng lansonesan sa taong 1997,
ang pamomosision at pakikinabang sa lahat na puno ng lanzones sa nabanggit
na WALONG (8) Lagay na Lupang Cocal-Lanzonal ay manunumbalik sa akin,
sa akin ay magmamana, kahalili at ibang dapat pagliwatan ng aking karapatan
na ako ay walang ibabalik na ano pa mang halaga, sa mag[-] asawa nila G. AT
GNG. FELINO MERCADO. aIAHcE
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay
nagkasundo na ako ay bibigyan nila ng LIMA (5) na [sic] kaing na lanzones
taon-taon sa loob ng LIMA (5) na [sic] taon ng aming kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay
nagkasundo na silang mag[-]asawa nila G. AT GNG. FELINO MERCADO ang
magpapaalis ng dapo sa puno ng lansones taon-taon [sic] sa loob ng LIMA (5)
[sic] taonng [sic] aming kasunduang ito. 8
67
In his counter-affidavit, Mercado denied the Angeles spouses' allegations.
Mercado claimed that there exists an industrial partnership, colloquially known
as sosyo industrial, between him and his spouse as industrial partners and the
Angeles spouses as the financiers. This industrial partnership had existed since
1991, before the contract of antichresis over the subject land. As the years
passed, Mercado used his and his spouse's earnings as part of the capital in
the business transactions which he entered into in behalf of the Angeles
spouses. It was their practice to enter into business transactions with other
people under the name of Mercado because the Angeles spouses did not want
to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles
and contracts under his name for the Angeles spouses. Mercado also attached
the minutes of the barangay conciliation proceedings held on 7 September
1996. During the barangay conciliation proceedings, Oscar Angeles stated that
there was a written sosyo industrial agreement: capital would come from the
Angeles spouses while the profit would be divided evenly between Mercado and
the Angeles spouses. 9
The Ruling of the Provincial Prosecution Office
On 3 January 1997, the Provincial Prosecution Office issued a resolution
recommending the filing of criminal information for estafa against Mercado. This
resolution, however, was issued without Mercado's counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving
the 3 January 1997 resolution, Mercado moved for its reconsideration. Hence,
on 26 February 1997, the Provincial Prosecution Office issued an amended
resolution dismissing the Angeles spouses' complaint for estafa against
Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour. The
partnership was initially unsaddled [with] problems. Management became the
source of misunderstanding including the accounting of profits, which led to
further misunderstanding until it was revealed that the contract with the orchard
owner was only with the name of the respondent, without the names of the
complainants.

The accusation of "estafa" here lacks enough credible evidentiary support to
sustain a  prima facie finding.
Premises considered, it is respectfully recommended that the complaint for
estafa be dismissed.
RESPECTFULLY SUBMITTED. 10
The Angeles spouses filed a motion for reconsideration, which the Provincial
Prosecution Office denied in a resolution dated 4 August 1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses emphasized that
the document evidencing the contract of sanglaang-perde with Juana Suazo
was executed in the name of the Mercado spouses, instead of the Angeles
spouses. The Angeles spouses allege that this document alone proves
Mercado's misappropriation of their P210,000. aHTDAc
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the indictment of
[Mercado] for the crime of estafa cannot be sustained. [The Angeles spouses]
failed to show sufficient proof that [Mercado] deliberately deceived them in the
"sanglaang perde" transaction. The document alone, which was in the name of
[Mercado and his spouse], failed to convince us that there was deceit or false
representation on the part of [Mercado] that induced the [Angeles spouses] to
part with their money. [Mercado] satisfactorily explained that the [Angeles
spouses] do not want to be revealed as the financiers. Indeed, it is difficult to
believe that the [Angeles spouses] would readily part with their money without
holding on to some document to evidence the receipt of money, or at least to
inspect the document involved in the said transaction. Under the circumstances,
we are inclined to believe that [the Angeles spouses] knew from the very start
that the questioned document was not really in their names.
In addition, we are convinced that a partnership truly existed between the
[Angeles spouses] and [Mercado]. The formation of a partnership was clear
from the fact that they contributed money to a common fund and divided the
profits among themselves. Records would show that [Mercado] was able to
make deposits for the account of the [Angeles spouses]. These deposits
68
represented their share in the profits of their business venture. Although the
[Angeles spouses] deny the existence of a partnership, they, however, never
disputed that the deposits made by [Mercado] were indeed for their account.
The transcript of notes on the dialogue between the [Angeles spouses] and
[Mercado] during the hearing of their barangay conciliation case reveals that the
[Angeles spouses] acknowledged their joint business ventures with [Mercado]
although they assailed the manner by which [Mercado] conducted the business
and handled and distributed the funds. The veracity of this transcript was not
raised in issued [sic] by [the Angeles spouses]. Although the legal formalities for
the formation of a partnership were not adhered to, the partnership relationship
of the [Angeles spouses] and [Mercado] is evident in this case. Consequently,
there is no estafa where money is delivered by a partner to his co-partner on
the latter's representation that the amount shall be applied to the business of
their partnership. In case of misapplication or conversion of the money received,
the co-partner's liability is civil in nature (People v. Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED. 11
Hence, this petition.
Issues
The Angeles spouses ask us to consider the following issues:
1.Whether the Secretary of Justice committed grave abuse of discretion
amounting to lack of jurisdiction in dismissing the appeal of the Angeles
spouses;
2.Whether a partnership existed between the Angeles spouses and Mercado
even without any documentary proof to sustain its existence;
3.Assuming that there was a partnership, whether there was misappropriation
by Mercado of the proceeds of the lanzones after the Angeles spouses
demanded an accounting from him of the income at the office of the barangay
authorities on 7 September 1996, and Mercado failed to do so and also failed to
deliver the proceeds to the Angeles spouses;
4.Whether the Secretary of Justice should order the filing of the information for
estafa against Mercado. 12

The Ruling of the Court
The petition has no merit.
Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretionwhen the
same is performed in a capricious or whimsical exercise of judgment amounting
to lack of jurisdiction. The abuse of discretion must be so patent and gross as to
amount to an evasion of positive duty, or to a virtual refusal to perform a duty
enjoined by law, as where the power is exercised in an arbitrary and despotic
manner because of passion or personal hostility. 13
The Angeles spouses fail to convince us that the Secretary of Justice committed
grave abuse of discretion when he dismissed their appeal. Moreover, the
Angeles spouses committed an error in procedure when they failed to file a
motion for reconsideration of the Secretary of Justice's resolution. A previous
motion for reconsideration before the filing of a petition for certiorari is
necessary unless: (1) the issue raised is one purely of law; (2) public interest is
involved; (3) there is urgency; (4) a question of jurisdiction is squarely raised
before and decided by the lower court; and (5) the order is a patent
nullity. 14 The Angeles spouses failed to show that their case falls under any of
the exceptions. In fact, this present petition forcertiorari is dismissible for this
reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with Mercado. The
Angeles spouses rely on Articles 1771 to 1773 of the Civil Code, which state
that:
Art. 1771.A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a public
instrument shall be necessary.
Art. 1772.Every contract of partnership having a capital of three thousand pesos
or more, in money or property, shall appear in a public instrument, which must
be recorded in the Office of the Securities and Exchange Commission.
69
Failure to comply with the requirements of the preceding paragraph shall not
affect the liability of the partnership and the members thereof to third persons.
Art. 1773.A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.
The Angeles spouses' position that there is no partnership because of the lack
of a public instrument indicating the same and a lack of registration with the
Securities and Exchange Commission ("SEC") holds no water. First, the
Angeles spouses contributed money to the partnership and not immovable
property. Second, mere failure to register the contract of partnership with the
SEC does not invalidate a contract that has the essential requisites of a
partnership. The purpose of registration of the contract of partnership is to give
notice to third parties. Failure to register the contract of partnership does not
affect the liability of the partnership and of the partners to third persons. Neither
does such failure to register affect the partnership's juridical personality. A
partnership may exist even if the partners do not use the words "partner" or
"partnership." cSIADH
Indeed, the Angeles spouses admit to facts that prove the existence of a
partnership: a contract showing a sosyo industrial or industrial partnership,
contribution of money and industry to a common fund, and division of profits
between the Angeles spouses and Mercado.
Whether there was
Misappropriation by Mercado
The Secretary of Justice adequately explained the alleged misappropriation by
Mercado: "The document alone, which was in the name of [Mercado and his
spouse], failed to convince us that there was deceit or false representation on
the part of [Mercado] that induced the [Angeles spouses] to part with their
money. [Mercado] satisfactorily explained that the [Angeles spouses] do not
want to be revealed as the financiers." 15
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which
decided the civil case for damages, injunction and restraining order filed by the
Angeles spouses against Mercado and Leo Cerayban, stated:

. . . [I]t was the practice to have all the contracts of antichresis of their
partnership secured in [Mercado's] name as [the Angeles spouses] are
apprehensive that, if they come out into the open as financiers of said contracts,
they might be kidnapped by the New People's Army or their business deals be
questioned by the Bureau of Internal Revenue or worse, their assets and
unexplained income be sequestered, as . . . Oscar Angeles was then working
with the government. 16
Furthermore, accounting of the proceeds is not a proper subject for the present
case. aSIATD
For these reasons, we hold that the Secretary of Justice did not abuse his
discretion in dismissing the appeal of the Angeles spouses.
WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The
present petition for certiorari is DISMISSED.
SO ORDERED.
|||  (Angeles v. Secretary of Justice, G.R. No. 142612, [July 29, 2005], 503 PHIL
93-103)
THIRD DIVISION
[G.R. No. 134559. December 9, 1999.]
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and
EMETERIA BARING,  petitioners, vs. COURT OF APPEALS and MANUEL
TORRES, respondents.
Delfin V. Nacua for petitioners.
Zosa & Quijano Law Offices for private respondent.
70
SYNOPSIS
Petitioners and respondent entered into a joint venture agreement for the
development of a parcel land located at Lapu-Lapu City island of Mactan into a
subdivision. Pursuant to the contract, petitioners executed a deed of sale
covering the said parcel of land in favor of the respondent, who then had it
registered in his name. Thereafter, respondent mortgaged the property in the
bank, and according to the joint agreement, the money obtained amounting to
P40,000.00 was to be used for the development of the subdivision. However,
the project did not push through, and the land was subsequently foreclosed by
the bank. Because of this, petitioners filed a civil case before the Regional Trial
Court of Cebu City, which was later dismissed by the trial court. On appeal, the
Court of Appeals affirmed the decision of the trial court. The appellate court held
that the petitioner 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. Aggrieved by the decision, petitioner filed the instant petition
contending that the Court of Appeals erred in concluding that the transaction
between the petitioners and respondent was that of a joint
venture/partnership. IaECcH
The Supreme Court found the petition bereft of merit. A reading of the terms of
the Joint Venture Agreement indubitably showed the existence of a partnership
pursuant to Article 1767 of the Civil Code. The Court also found no reversible
error in the CA's ruling that petitioners are not entitled to damages. Accordingly,
the petition was denied and the challenged decision was affirmed.
SYLLABUS
1. CIVIL LAW; CONTRACTS; BIND THE PARTIES NOT ONLY TO WHAT HAS
BEEN EXPRESSLY STIPULATED, BUT ALSO TO ALL NECESSARY
CONSEQUENCES THEREOF. — 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 consequence 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.
2. ID.; PARTNERSHIP; THE CONTRACT OF PARTNERSHIP IS NOT VOID
EVEN WHEN NO INVENTORY OF THE REAL PROPERTY IS MADE IF
THIRD PARTIES ARE NOT PREJUDICED. — 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, "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.
3. ID.; CONTRACTS; CONSIDERATION; MORE PROPERLY DENOMINATED
AS CAUSE, CAN TAKE DIFFERENT FORMS, SUCH AS THE PRESTATION
OR PROMISE OF A THING OR SERVICE BY ANOTHER. — 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. In this case,
the cause of the contract of sale consisted not in the stated peso value of the
land, but in the expectation of profits from the subdivision project, for which the
land was intended to be used. As explained by the trial court, "the land was in
effect given to the partnership as [petitioner's] participation therein. . . . There
was therefore a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [would] get sixty
percent of the net profits."
4. REMEDIAL LAW; CIVIL PROCEDURE; FACTUAL ISSUES CANNOT BE
RESOLVED IN A PETITION FOR REVIEW UNDER RULE 45. — True, the
Court of Appeals held that petitioners' acts were not the cause of the failure of
71
the project. But it also ruled that neither was respondent responsible therefor. 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. Accordingly, we find no
reversible error in the CA's ruling that petitioners are not entitled to
damages. EScaIT
DECISION
PANGANIBAN, J  p:
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. cdphil
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision 1 of the Court of Appeals 2 (CA) in CA-GR CV No. 42378 and its June
25, 1998 Resolution denying reconsideration. The assailed Decision affirmed
the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case No. R-
21208, which disposed as follows:
"WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiff's
complaint. The counterclaims of the defendant are likewise ordered dismissed.
No pronouncement as to costs." 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a
"joint venture agreement" with Respondent Manuel Torres for the development
of a parcel of land into a subdivision. Pursuant to the contract, they executed a
Deed of Sale covering the said parcel of land in favor of respondent, who then
had it registered in his name. By mortgaging the property, respondent obtained

from Equitable Bank a loan of P40,000 which, under the Joint Venture
Agreement, was to be used for the development of the subdivision. 4 All three
of them also agreed to share the proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently foreclosed by
the bank.
According to petitioners, the project failed because of "respondent's lack of
funds or means and skills." They add that respondent used the loan not for the
development of the subdivision, but in furtherance of his own company,
Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement the
Agreement. With the said amount, he was able to effect the survey and the
subdivision of the lots. He secured the Lapu Lapu City Council's approval of the
subdivision project which he advertised in a local newspaper. He also caused
the construction of roads, curbs and gutters. Likewise, he entered into a
contract with an engineering firm for the building of sixty low-cost housing units
and actually even set up a model house on one of the subdivision lots. He did
all of these for a total expense of P85,000. Cdpr
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.
72
Thus, they must bear the loss suffered by the partnership in the same
proportion as their share in the profits stipulated in the contract. Disagreeing
with the trial court's pronouncement that losses as well as profits in a joint
venture should be distributed equally, 7 the CA invokedArticle 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." prcd
The Issue
Petitioners impute to the Court of Appeals the following error:
". . . [The] Court of Appeals erred in concluding that the transaction . . . between
the petitioners and respondent was that of a joint venture/partnership, ignoring
outright the provision of Article 1769, and other related provisions of the Civil
Code of the Philippines." 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership

Petitioners deny having formed a partnership with respondent. They contend
that the Joint Venture Agreement and the earlier Deed of Sale, both of which
were the bases of the appellate court's finding of a partnership, were void.
In the same breath, however, they assert that under those very same contracts,
respondent is liable for his failure to implement the project. Because the
agreement entitled them to receive 60 percent of the proceeds from the sale of
the subdivision lots, they pray that respondent pay them damages equivalent to
60 percent of the value of the property. 9
The pertinent portions of the Joint Venture Agreement read as follows:
"KNOW ALL MEN BY THESE PRESENTS:
"This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th
day of March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST
PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA
BARING, . . . the SECOND PARTY:
WITNESSETH:
"That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY,
this property 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: cdphil
"ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED
THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square
meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
73
the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.
"SECOND: That the SECOND PARTY, had received from the FIRST PARTY,
the necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
currency, for their personal obligations and this particular amount will serve as
an advance payment from the FIRST PARTY for the property mentioned to be
sub-divided and to be deducted from the sales.
"THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the
interest and the principal amount involving the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division
project is terminated and ready for sale to any interested parties, and the
amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will
be deducted accordingly.
"FOURTH: That all general expense[s] and all cost[s] involved in the sub-
division project should be paid by the FIRST PARTY, exclusively and all the
expenses will not be deducted from the sales after the development of the sub-
division project.
"FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40%
for the FIRST PARTY, and additional profits or whatever income deriving from
the sales will be divided equally according to the . . . percentage [agreed upon]
by both parties.
"SIXTH: That the intended sub-division project of the property involved will start
the work and all improvements upon the adjacent lots will be negotiated in both
parties['] favor and all sales shall [be] decided by both parties. cdtai
"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. llcd
Respondent's actions clearly belie petitioners' contention that he made no
contribution to the partnership. Under Article 1767 of the Civil Code, a partner
may contribute not only money or property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what
has been expressly stipulated, but also to all necessary consequences thereof,
as follows:
"ART. 1315.  Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
74
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
 75

property. 13 They cannot in one breath deny the contract and in another
recognize it, depending on what momentarily suits their purpose. Parties cannot
adopt inconsistent positions in regard to a contract and courts will not tolerate,
much less approve, such practice. llcd
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 underArticle
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.
 
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. cdtai
WHEREFORE, the Petition is hereby DENIED and the challenged Decision
AFFIRMED. Costs against petitioners.
SO ORDERED.
||| (Torres v. Court of Appeals, G.R. No. 134559, [December 9, 1999], 378 PHIL
170-182)

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

In this case, the cause of the contract of sale consisted not in the stated peso
value of the land, but in the expectation of profits from the subdivision project,
for which the land was intended to be used. As explained by the trial court, "the
land was in effect given to the partnership as [petitioner's] participation therein. .
. . There was therefore a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they [would] get sixty
percent of the net profits."

Liability of the Parties

Claiming that 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.

THIRD DIVISION
[G.R. No. 84197. July 28, 1989.]
PIONEER INSURANCE & SURETY CORPORATION, petitioner,vs. THE HON.
COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC.,
(BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S.
LIM, respondents.
[G.R. No. 84157. July 28, 1989.]
JACOB S. LIM, petitioner, vs. COURT OF APPEALS, PIONEER INSURANCE
AND SURETY CORPORATION, BORDER MACHINERY and HEAVY
EQUIPMENT CO., INC., FRANCISCO and MODESTO CERVANTES and
CONSTANCIO MAGLANA,respondents.
Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation.
Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim.
Renato J. Robles for BORMAHECO, Inc. and Cervanteses.
Leonardo B. Lucena for Constancio Maglana.
SYLLABUS
1. CIVIL LAW; DAMAGES; INSURANCE; AN INSURER IS SURROGATED TO
THE RIGHTS OF THE INSURED AGAINST THE WRONGDOER UPON
RECEIPT OF THE INDEMNITY. — The petitioner's argument that the
respondents had no interest in the reinsurance contract as this is strictly
between the petitioner as insured and the reinsuring company pursuant to
Section 91 (should be Section 98) of the Insurance Code has no basis. Under
the provisions of Article 2207 of the Civil Code if a property is insured and the
owner receives the indemnity from the insurer, the insurer is deemed
subrogated to the rights of the insured against the wrongdoer and if the amount
paid by the insurer does not fully cover the loss, then the aggrieved party is the
one entitled to recover the deficiency. Evidently, under this legal provision, the
76
real party in interest with regard to the portion of the indemnity paid is the
insurer and not the insured. (PAL v. Heald Lumber Co., 101 Phil. 1031; Manila
Mahogany Manufacturing Corporation v. Court of Appeals, 154 SCRA 650
[1987]
2. REMEDIAL LAW; ACTIONS; PARTIES; ONLY THE REISURER OF THE
INSURER ACTING AS AN ATTORNEY-IN-FACT OF THE REINSURER CAN
COLLECT AGAINST THE INDEMNITY AGREEMENT. — The appellate court
did not commit a reversible error in dismissing the petitioner's complaint as
against the respondents for the reason that the petitioner was not the real party
in interest in the complaint and, therefore, has no cause of action against the
respondents.
3. ID.; EVIDENCE; FINDINGS OF FACT OF THE TRIAL COURT UPHELD ON
APPEAL. — We find the trial court's findings on the matter replete with evidence
to substantiate its finding that the counter-indemnitors are not liable to the
petitioner. Pioneer, having foreclosed the chattel mortgage on the planes and
spare parts, no longer has any further action against the defendants as
indemnitors to recover any unpaid balance of the price. The indemnity
agreement was ipso jureextinguished upon the foreclosure of the chattel
mortgage. These defendants, as indemnitors, would be entitled to be
subrogated to the right of Pioneer should they make payments to the latter.
(Articles 2067 and 2080, New Civil Code)
4. CIVIL LAW; CONTRACTS; A DE FACTO PARTNERSHIP IS CREATED
WHERE PERSONS ASSOCIATE THEMSELVES BUT FAILED TO FORM A
CORPORATION. — Where persons associate themselves together under
articles to purchase property to carry on a business, and their organization is so
defective as to come short of creating a corporation within the statute, they
become in legal effect partners inter se, and their rights as members of the
company to the property acquired by the company will be recognized (Smith v.
Schoodoc Pond Packing Co., 84 A 268, 109 Me. 555; Whipple v. Parker, 29
Mich. 369).
5. ID.; ID.; ID.; DOCTRINE NOT APPLICABLE WHERE THERE WAS REALLY
NO INVENTION TO FORM A CORPORATION; PARTIES NEED NOT SHARE
IN LOSSES; CASE AT BAR. — The petitioner never had the intention to form a
corporation with the respondents despite his representations to them. This gives
credence to the cross-claims of the respondents to the effect that they were
induced and lured by the petitioner to make contributions to a proposed

corporation which was never formed because the petitioner reneged on their
agreement. Applying the principles of law earlier cited to the facts of the case,
necessarily, no de facto partnership was created among the parties which
would entitle the petitioner to a reimbursement of the supposed losses of the
proposed corporation. The record shows that the petitioner was acting on his
own and not in behalf of his other would-be incorporators in transacting the sale
of the airplanes and spare parts.
DECISION
The subject matter of these consolidated petitions is the decision of the Court of
Appeals in CA-G.R. CV No. 66195 which modified the decision of the then
Court of First Instance of Manila in Civil Case No. 66135. The plaintiff's
complaint (petitioner in G.R. No. 84197) against all defendants (respondents in
G.R. No. 84197) was dismissed but in all other respects the trial court's decision
was affirmed. LLpr
The dispositive portion of the trial court's decision reads as follows:
"WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring
him to pay plaintiff the amount of P311,056.02, with interest at the rate of 12%
per annum compounded monthly; plus 15% of the amount awarded to plaintiff
as attorney's fees from July 2, 1966, until full payment is made; plus P70,000.00
moral and exemplary damages.
"It is found in the records that the cross party plaintiffs incurred additional
miscellaneous expenses aside from P151,000.00, making a total of
P184,878.74. Defendant Jacob S. Lim is further required to pay cross party
plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the
amount of P184,878.74 with interest from the filing of the cross-complaints until
the amount is fully paid; plus moral and exemplary damages in the amount of
P184,878.84 with interest from the filing of the cross-complaints until the
amount is fully paid; plus moral and exemplary damages in the amount of
P50,000.00 for each of the two Cervanteses.
"Furthermore, he is required to pay P20,000.00 to Bormaheco and the
Cervanteses, and another P20,000.00 to Constancio B. Maglana as attorney's
fees.
xxx xxx xxx
77
"WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against
defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is
dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco
and the Cervanteses the amount of P20,000.00 as attorney's fees and the
amount of P4,379.21, per year from 1966 with legal rate of interest up to the
time it is paid.
"Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount
of P20,000.00 as attorney's fees and costs.
"No moral or exemplary damages is awarded against plaintiff for this action was
filed in good faith. The fact that the properties of the Bormaheco and the
Cervanteses were attached and that they were required to file a counterbond in
order to dissolve the attachment, is not an act of bad faith. When a man tries to
protect his rights, he should not be saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided for in the Rules of Court, and it
was the court that ordered it, in the exercise of its discretion.
"No damage is decided against Malayan Insurance Company, Inc., the third-
party defendant, for it only secured the attachment prayed for by the plaintiff
Pioneer. If an insurance company would be liable for damages in performing an
act which is clearly within its power and which is the reason for its being, then
nobody would engage in the insurance business. No further claim or counter-
claim for or against anybody is declared by this Court." (Rollo — G.R. No.
24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline
business as owner-operator of Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim
entered into and executed a sales contract (Exhibit A) for the sale and purchase
of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the
total agreed price of US $109,000.00 to be paid in installments. One DC-3
Aircraft with Registry No. PIC-718, arrived in Manila on June 7, 1965 while the
other aircraft, arrived in Manila on July 18, 1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer,
petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond No.
6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance
price of the aircrafts and spare parts.

It appears that Border Machinery and Heavy Equipment Company, Inc.
(Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio
Maglana (respondents in both petitions) contributed some funds used in the
purchase of the above aircrafts and spare parts. The funds were supposed to
be their contributions to a new corporation proposed by Lim to expand his
airline business. They executed two (2) separate indemnity agreements
(Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other
jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity
agreements stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and save harmless
Pioneer from and against any/all damages, losses, costs, damages, taxes,
penalties, charges and expenses of whatever kind and nature which Pioneer
may incur in consequence of having become surety upon the bond/note and to
pay, reimburse and make good to Pioneer, its successors and assigns, all sums
and amounts of money which it or its representatives should or may pay or
cause to be paid or become liable to pay on them of whatever kind and nature.
On June 10, 1965, Lim doing business under the name and style of SAL
executed in favor of Pioneer as deed of chattel mortgage as security for the
latter's suretyship in favor of the former. It was stipulated therein that Lim
transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was
duly registered with the Office of the Register of Deeds of the City of Manila and
with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law
and the Civil Aeronautics Law (Republic Act No. 776), respectively.
Lim defaulted on his subsequent installment payments prompting JDA to
request payments from the surety. Pioneer paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel
mortgage before the Sheriff of Davao City. The Cervanteses and Maglana,
however, filed a third party claim alleging that they are co-owners of the
aircrafts.
On July 19, 1966, Pioneer filed an action for judicial foreclosure with an
application for a writ of preliminary attachment against Lim and respondents,
the Cervanteses, Bormaheco and Maglana. cdll
In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims
against Lim alleging that they were not privies to the contracts signed by Lim
and, by way of counterclaim, sought for damages for being exposed to litigation
78
and for recovery of the sums of money they advanced to Lim for the purchase
of the aircrafts in question.
After trial on the merits, a decision was rendered holding Lim liable to pay
Pioneer but dismissed Pioneer's complaint against all other defendants.
As stated earlier, the appellate court modified the trial court's decision in that the
plaintiffs complaint against all the defendants was dismissed. In all other
respects the trial court's decision was affirmed.
We first resolve G.R. No. 84197.
Petitioner Pioneer Insurance and Surety Corporation avers that:
RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT
DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE
REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT
CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT FROM
HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL
COURT. (Rollo — G.R. No. 84197, p. 10)
The petitioner questions the following findings of the appellate court:
"We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had
reinsured its risk of liability under the surety bond in favor of JDA and
subsequently collected the proceeds of such reinsurance in the sum of
P295,000.00. Defendants' alleged obligation to Pioneer amounts to
P295,000.00, hence, plaintiff's instant action for the recovery of the amount of
P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is not the
real party in interest to institute the instant action as it does not stand to be
benefited or injured by the judgment.
"Plaintiff Pioneer's contention that it is representing the reinsurer to recover the
amount from defendants, hence, it instituted the action is utterly devoid of merit.
Plaintiff did not even present any evidence that it is the attorney-in-fact of the
reinsurance company, authorized to institute an action for and in behalf of the
latter. To qualify a person to be a real party in interest in whose name an action
must be prosecuted, he must appear to be the present real owner of the right
sought to be enforced (Moran, Vol. I, Comments on the Rules of Court, 1979

ed., p. 155.). It has been held that the real party in interest is the party who
would be benefited or injured by the judgment or the party entitled to the avails
of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real
party in interest is meant a present substantial interest as distinguished from a
mere expectancy or a future, contingent, subordinate or consequential interest
(Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d
1600, 385 III, 414; Flowers v. Germana, 1 NW 2d 424; Weber v. City of Cheye,
97 P. 2d 667, 669, quoting 47 C.V. 35).
"Based on the foregoing premises, plaintiff Pioneer cannot be considered as the
real party in interest as it has already been paid by the reinsurer the sum of
P295,000.00 — the bulk of defendants' alleged obligation to Pioneer.
"In addition to the said proceeds of the reinsurance received by plaintiff Pioneer
from its reinsurer, the former was able to foreclose extra-judicially one of the
subject airplanes and its spare engine, realizing the total amount of P37,050.00
from the sale of the mortgaged chattels. Adding the sum of P37,050.00, to the
proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff
has been overpaid in the amount of P33,383.72 considering that the total
amount it had paid to JDA totals to only P298,666.28. To allow plaintiff Pioneer
to recover from defendants the amount in excess of P298,666.28 would be
tantamount to unjust enrichment as it has already been paid by the reinsurance
company of the amount plaintiff has paid to JDA as surety of defendant Lim vis-
a-vis defendant Lim's liability to JDA. Well settled is the rule that no person
should unjustly enrich himself at the expense of another (Article 22, New Civil
Code)." (Rollo-84197, pp. 24-25).
The petitioner contends that — (1) it is at a loss where respondent court based
its finding that petitioner was paid by its reinsurer in the aforesaid amount, as
this matter has never been raised by any of the parties herein both in their
answers in the court below and in their respective briefs with respondent court;
(Rollo, p. 11) (2) even assuming hypothetically that it was paid by its reinsurer,
still none of the respondents had any interest in the matter since the
reinsurance is strictly between the petitioner and the re-insurer pursuant to
section 91 of the Insurance Code; (3) pursuant to the indemnity agreements,
the petitioner is entitled to recover from respondents Bormaheco and Maglana;
and (4) the principle of unjust enrichment is not applicable considering that
whatever amount he would recover from the co-indemnitor will be paid to the
reinsurer.
79
The records belie the petitioner's contention that the issue on the reinsurance
money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows that two of the
issues threshed out were:
xxx xxx xxx
"1. Has Pioneer a cause of action against defendants with respect to so much of
its obligations to JDA as has been paid with reinsurance money?
2. If the answer to the preceding question is in the negative, has Pioneer still
any claim against defendants, considering the amount it has realized from the
sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R.
No. 84157).
In resolving these issues, the trial court made the following findings:
"It appearing that Pioneer reinsured its risk of liability under the surety bond it
had executed in favor of JDA, collected the proceeds of such reinsurance in the
sum of P295,000, and paid with the said amount the bulk of its alleged liability
to JDA under the said surety bond, it is plain that on this score it no longer has
any right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of the reinsurance (sic), that is
suing defendants for the amount paid to it by the reinsurers, notwithstanding
that the cause of action pertains to the latter, Pioneer says: 'The reinsurers
opted instead that the Pioneer Insurance & Surety Corporation shall pursue
alone the case.' '. . . . Pioneer Insurance & Surety Corporation is representing
the reinsurers to recover the amount.' In other words, insofar as the amount
paid to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact.
But in the first place, there is not the slightest indication in the complaint that
Pioneer is suing as attorney-in-fact of the reinsurers for any amount. Lastly, and
most important of all, Pioneer has no right to institute and maintain in its own
name an action for the benefit of the reinsurers. It is well-settled that an action
brought by an attorney-in-fact in his own name instead of that of the principal
will not prosper, and this is so even where the name of the principal is disclosed
in the complaint.

"'Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must
be prosecuted in the name of the real party in interest.' This provision is
mandatory. The real party in interest is the party who would be benefited or
injured by the judgment or is the party entitled to the avails of the suit.
"'This Court has held in various cases that an attorney-in-fact is not a real party
in interest, that there is no law permitting an action to be brought by an attorney-
in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco
and Gonzalo, 19 Phil. Rep. 12; Filipinas Industrial Corporation v. San Diego
G.R. No. L-22347, 1968, 23 SCRA 706, 710-714.'"
"The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has
collected P295,000.00 from the reinsurers, the uninsured portion of what it paid
to JDA is the difference between the two amounts, or P3,666.28. This is the
amount for which Pioneer may sue defendants, assuming that the indemnity
agreement is still valid and effective. But since the amount realized from the
sale of the mortgaged chattels are P35,000.00 for one of the airplanes and
P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still overpaid
by P33,383.72. Therefore, Pioneer has no more claim against defendants."'
(Record on Appeal, pp. 360-363).
The payment to the petitioner made by the reinsurers was not disputed in the
appellate court. Considering this admitted payment, the only issue that cropped
up was the effect of payment made by the reinsurers to the petitioner.
Therefore, the petitioner's argument that the respondents had no interest in the
reinsurance contract as this is strictly between the petitioner as insured and the
reinsuring company pursuant to Section 91 (should be Section 98) of the
Insurance Code has no basis.
"In general a reinsurer, on payment of a loss acquires the same rights by
subrogation as are acquired in similar cases where the original insurer pays a
loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925).
"The rules of practice in actions on original insurance policies are in general
applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v.
Pennsylvania Fire Ins. Co., 55 S.E. 330, 126 GA. 380, 7 Ann. Con. 1134)".
Hence the applicable law is Article 2207 of the new Civil Code, to wit:
80
"Art. 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the
wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person who
has violated the contract. If the amount paid by the insurance company does
not fully cover the injury or loss, the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or injury."
Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc.
v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in
Manila Mahogany Manufacturing Corporation v. Court of Appeals (154 SCRA
650 [1987]):.
"Note that if a property is insured and the owner receives the indemnity from the
insurer, it is provided in said article that the insurer is deemed subrogated to the
rights of the insured against the wrongdoer and if the amount paid by the
insurer does not fully cover the loss, then the aggrieved party is the one entitled
to recover the deficiency. Evidently, under this legal provision, the real party in
interest with regard to the portion of the indemnity paid is the insurer and not
the insured." (Emphasis supplied).
It is clear from the records that Pioneer sued in its own name and not as an
attorney-in-fact of the reinsurer.
Accordingly, the appellate court did not commit a reversible error in dismissing
the petitioner's complaint as against the respondents for the reason that the
petitioner was not the real party in interest in the complaint and, therefore, has
no cause of action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards the counter
indemnitors should not have been dismissed on the premise that the evidence
on record shows that it is entitled to recover from the counter indemnitors. It
does not, however, cite any grounds except its allegation that respondent
"Maglana's defense and evidence are certainly incredible" (p. 12, Rollo) to back
up its contention.
On the other hand, we find the trial court's findings on the matter replete with
evidence to substantiate its finding that the counter-indemnitors are not liable to
the petitioner. The trial court stated:

"Apart from the foregoing proposition, the indemnity agreement ceased to be
valid and effective after the execution of the chattel mortgage.
"Testimonies of defendants Francisco Cervantes and Modesto Cervantes.
"Pioneer Insurance, knowing the value of the aircrafts and the spare parts
involved, agreed to issue the bond provided that the same would be mortgaged
to it, but this was not possible because the planes were still in Japan and could
not be mortgaged here in the Philippines. As soon as the aircrafts were brought
to the Philippines, they would be mortgaged to Pioneer Insurance to cover the
bond, and this indemnity agreement would be cancelled.
"The following is averred under oath by Pioneer in the original complaint:
"'The various conflicting claims over the mortgaged properties have impaired
and rendered insufficient the security under the chattel mortgage and there is
thus no other sufficient security for the claim sought to be enforced by this
action.'"
"This is judicial admission and aside from the chattel mortgage there is no other
security for the claim sought to be enforced by this action, which necessarily
means that the indemnity agreement had ceased to have any force and effect at
the time this action was instituted. Sec 2, Rule 129, Revised Rules of Court.
"Prescinding from the foregoing, Pioneer, having foreclosed the chattel
mortgage on the planes and spare parts, no longer has any further action
against the defendants as indemnitors to recover any unpaid balance of the
price. The indemnity agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These defendants, as indemnitors, would
be entitled to be subrogated to the right of Pioneer should they make payments
to the latter. Articles 2067 and 2080 of the New Civil Code of the Philippines.
Independently of the preceding proposition Pioneer's election of the remedy of
foreclosure precludes any further action to recover any unpaid balance of the
price.
SAL or Lim, having failed to pay the second to the eight and last installments to
JDA and Pioneer as surety having made of the payments to JDA, the alternative
remedies open to Pioneer were as provided in Article 1484 of the New Civil
Code, known as the Recto Law.
81
Pioneer exercised the remedy of foreclosure of the chattel mortgage both by
extrajudicial foreclosure and the instant suit. Such being the case, as provided
by the aforementioned provisions, Pioneer 'shall have no further action against
the purchaser to recover any unpaid balance and any agreement to the contrary
is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L-24772, May
27, 1968, 23 SCRA 791, 795-6.
The operation of the foregoing provision cannot be escaped from through the
contention that Pioneer is not the vendor but JDA. The reason is that Pioneer is
actually exercising the rights of JDA as vendor, having subrogated it in such
rights. Nor may the application of the provision be validly opposed on the
ground that these defendants and defendant Maglana are not the vendee but
indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L-27862,
Nov. 20, 1974, 61 SCRA 124.
The restructuring of the obligations of SAL or Lim, thru the change of their
maturity dates discharged these defendants from any liability as alleged
indemnitors. The change of the maturity dates of the obligations of Lim, or SAL,
extinguished the original obligations thru novations, thus discharging the
indemnitors.
"'The principal hereof shall be paid in eight equal successive three months
interval installments, the first of which shall be due and payable 25 August
1965, the remainder of which . . . shall be due and payable on the 26th day . . .
of each succeeding three months and the last of which shall be due and
payable 26th May 1967.'"
"However, at the trial of this case, Pioneer produced a memorandum executed
by SAL, or Lim and JDA, modifying the maturity dates of the obligations, as
follows:
"'The principal hereof shall be paid in eight equal successive three month
interval installments the first of which shall be due and payable 4 September
1965, the remainder of which . . . shall be due and payable on the 4th day . . . of
each succeeding months and the last of which shall be due and payable 4th
June 1967.'"
"Not only that, Pioneer also produced eight purported promissory notes bearing
maturity dates different from that fixed in the aforesaid memorandum; the due
date of the first installment appears as October 15, 1965, and those of the rest

of the installments, the 15th of each succeeding three months, that of the last
installment being July 15, 1967.
"These restructuring of the obligations with regard to their maturity dates,
effected twice, were done without the knowledge, much less, would have it
believed that these defendants Maglana (sic). Pioneer's official Numeriano
Carbonel, would have it believed that these defendants and defendant Maglana
knew of and consented to the modification of the obligations. But if that were so,
there would have been the corresponding documents in the form of a written
notice to as well as written conformity of these defendants, and there are no
such document. The consequence of this was the extinguishment of the
obligations and of the surety bond secured by the indemnity agreement which
was thereby also extinguished. Applicable by analogy are the rulings of the
Supreme Court in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553,
563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538.
"'Art. 2079. An extension granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty. The mere failure on the part
of the creditor to demand payment after the debt has become due does not of
itself constitute any extension of time referred to herein, (New Civil Code).'"
"Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson &
Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571.
"Pioneer's liability as surety to JDA had already prescribed when Pioneer paid
the same. Consequently, Pioneer has no more cause of action to recover from
these defendants, as supposed indemnitors what it has paid to JDA. By virtue of
an express stipulation in the surety bond, the failure of JDA to present its claim
to Pioneer within ten days from default of Lim or SAL on every installment,
released Pioneer from liability from the claim.
"Therefore, Pioneer is not entitled to exact reimbursement from these
defendants thru the indemnity.
"'Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement
from his co-debtors if such payment is made after the obligation has prescribed
or became illegal.'"
"These defendants are entitled to recover damages and attorney's fees from
Pioneer and its surety by reason of the filing of the instant case against them
82
and the attachment and garnishment of their properties. The instant action is
clearly unfounded insofar as plaintiff drags these defendants and defendant
Maglana." (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157).
We find no cogent reason to reverse or modify these findings.
Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
"1. What legal rules govern the relationship among co-investors whose
agreement was to do business through the corporate vehicle but who failed to
incorporate the entity in which they had chosen to invest? How are the losses to
be treated in situations where their contributions to the intended 'corporation'
were invested not through the corporate form? This Petition presents these
fundamental questions which we believe were resolved erroneously by the
Court of Appeals ('CA')." (Rollo, p. 6).
These questions are premised on the petitioner's theory that as a result of the
failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana
and petitioner Lim to incorporate, a  de factopartnership among them was
created, and that as a consequence of such relationship all must share in the
losses and/or gains of the venture in proportion to their contribution. The
petitioner, therefore, questions the appellate court's findings ordering him to
reimburse certain amounts given by the respondents to the petitioner as their
contributions to the intended corporation, to wit:
"However, defendant Lim should be held liable to pay his co-defendants' cross-
claims in the total amount of P184,878.74 as correctly found by the trial court,
with the interest from the filing of the cross-claims until the amount is fully paid.
Defendants Lim should pay one-half of the said amount to Bormaheco and the
Cervanteses and the other one-half to defendant Maglana. It is established in
the records that defendant Lim had duly received the amount of P151,000.00
from defendants Bormaheco and Maglana representing the latter's participation
in the ownership of the subject airplanes and spare parts (Exhibit 58). In
addition, the cross-party plaintiffs incurred additional expenses, hence, the total
sum of P184,878.74."
We first state the principles.

"While it has been held that as between themselves the rights of the
stockholders in a defectively incorporated association should be governed by
the supposed charter and the laws of the state relating thereto and not by the
rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446,
94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form
a corporation and who carry on business under the corporate name occupy a
position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann.
Cas. 1913A 1065). Thus, where persons associate themselves together under
articles to purchase property to carry on a business, and their organization is so
defective as to come short of creating a corporation within the statute, they
become in legal effect partners inter se, and their rights as members of the
company to the property acquired by the company will be recognized (Smith v.
Schoodoc Pond Packing Co., 84 A 268, 109 Me. 555; Whipple v. Parker, 29
Mich. 369). So, where certain persons associated themselves as a corporation
for the development of land for irrigation purposes, and each conveyed land to
the corporation, and two of them contracted to pay a third the difference in the
proportionate value of the land conveyed by him, and no stock was ever issued
in the corporation, it was treated as a trustee for the associates in an action
between them for an accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds distributed among them in proportion
to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal.
446).  However, such a relation does not necessarily exist, for ordinarily persons
cannot be made to assume the relation of partners, as between themselves,
when their purpose is that no partnership shall exist (London Assur. Corp. v.
Drennen, Minn., 6 S. Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should
be implied only when necessary to do justice between the parties; thus, one
who takes no part except to subscribe for stock in a proposed corporation which
is never legally formed does not become a partner with other subscribers who
engage in business under the name of the pretended corporation, so as to be
liable as such in an action for settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between
certain stockholders and other stockholders, who were also directors, will not be
implied in the absence of an agreement, so as to make the former liable to
contribute for payment of debts illegally contracted by the latter (Heald v. Owen,
44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464).
(Emphasis supplied).
In the instant case, it is to be noted that the petitioner was declared non-suited
for his failure to appear during the pre-trial despite notification. In his answer,
the petitioner denied having received any amount from respondents
Bormaheco, the Cervanteses and Maglana. The trial court and the appellate
83
court, however, found through Exhibit 58, that the petitioner received the
amount of P151,000.00 representing the participation of Bormaheco and Atty.
Constancio B. Maglana in the ownership of the subject airplanes and spare
parts. The record shows that defendant Maglana gave P75,000.00 to petitioner
Jacob Lim thru the Cervanteses. LexLib
It is therefore clear that the petitioner never had the intention to form a
corporation with the respondents despite his representations to them. This gives
credence to the cross-claims of the respondents to the effect that they were
induced and lured by the petitioner to make contributions to a proposed
corporation which was never formed because the petitioner reneged on their
agreement. Maglana alleged in his cross-claim:
". . . that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes
and Maglana to expand his airline business. Lim was to procure two DC-3's
from Japan and secure the necessary certificates of public convenience and
necessity as well as the required permits for the operation thereof. Maglana
sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to
Lim which Cervantes did and Lim acknowledged receipt thereof Cervantes,
likewise, delivered his share of the undertaking. Lim in an undertaking
sometime on or about August 9, 1965, promised to incorporate his airline in
accordance with their agreement and proceeded to acquire the planes on his
own account. Since then up to the filing of this answer, Lim has refused, failed
and still refuses to set up the corporation or return the money of Maglana."
(Record on Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged in their answer,
counterclaim, cross-claim and third party complaint:
"Sometime in April 1965, defendant Lim lured and induced the answering
defendants to purchase two airplanes and spare parts from Japan which the
latter considered as their lawful contribution and participation in the proposed
corporation to be known as SAL. Arrangements and negotiations were
undertaken by defendant Lim. Down payments were advanced by defendants
Bormaheco and the Cervanteses and Constancio Maglana (Exh. E-1). Contrary
to the agreement among the defendants, defendant Lim in connivance with the
plaintiff, signed and executed the alleged chattel mortgage and surety bond
agreement in his personal capacity as the alleged proprietor of the SAL. The
answering defendants learned for the first time of this trickery and

misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel
mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to file
an adverse claim in the form of third party claim. Notwithstanding repeated oral
demands made by defendants Bormaheco and Cervanteses, to defendant Lim,
to surrender the possession of the two planes and their accessories and or
return the amount advanced by the former amounting to an aggregate sum of
P178,997.14 as evidenced by a statement of accounts, the latter ignored,
omitted and refused to comply with them." (Record on Appeal, pp. 341-342).
Applying therefore the principles of law earlier cited to the facts of the case,
necessarily, no de facto partnership was created among the parties which
would entitle the petitioner to a reimbursement of the supposed losses of the
proposed corporation. The record shows that the petitioner was acting on his
own and not in behalf of his other would-be incorporators in transacting the sale
of the airplanes and spare parts. LLjur
WHEREFORE, the instant petitions are DISMISSED. The questioned decision
of the Court of Appeals is AFFIRMED.
|||  (Pioneer Insurance & Surety Corp. v. Court of Appeals, G.R. Nos. 84197 &
84157, [July 28, 1989], 256 PHIL 1061-1078)
THIRD DIVISION
[G.R. No. 136448. November 3, 1999.]
LIM TONG LIM,  petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES,
INC.,  respondent.
Roberto A. Abad  for petitioner.
Benjamin S. Benito & Associates for private respondent.
SYNOPSIS
Antonio Chua and Peter Yao entered into a contract in behalf of Ocean Quest
Fishing Corporation for the purchase of fishing nets from respondent Philippine
84
Fishing Gear Industries, Inc. Chua and Yao claimed that they were engaged in
business venture with petitioner Lim Tong Lim, who, however, was not a
signatory to the contract. The buyers failed to pay the fishing nets. Respondent
filed a collection against Chua, Yao and petitioner Lim in their capacities as
general partners because it turned out that Ocean Quest Fishing Corporation is
a non-existent corporation. The trial court issued a Writ of Preliminary
Attachment, which the sheriff enforced by attaching the fishing nets. The trial
court rendered its decision ruling that respondent was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were jointly liable
to pay respondent. Lim appealed to the Court of Appeals, but the appellate
court affirmed the decision of the trial court that petitioner Lim is a partner and
may thus be held liable as such. Hence, the present petition. Petitioner claimed
that since his name did not appear on any of the contracts and since he never
directly transacted with the respondent corporation, ergo, he cannot be held
liable. cIaCTS
The Supreme Court denied the petition. The Court ruled that having reaped the
benefits of the contract entered into by Chua and Yao, with whom he had an
existing relationship, petitioner Lim is deemed a part of said association and is
covered by the doctrine of corporation by estoppel. The Court also ruled that
under the principle of 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.
SYLLABUS
1. CIVIL LAW; PARTNERSHIP; AGREEMENT THAT ANY LOSS OR PROFIT
FROM THE SALE AND OPERATION OF THE BOATS WOULD BE DIVIDED
EQUALLY AMONG THEM SHOWS THAT THE PARTIES HAD INDEED
FORMED A PARTNERSHIP. — From the factual findings of both lower courts,
it is clear that Chua, Yao and Lim had decided to engage in a fishing business,
which they started by buying boats worth P3.35 million, financed by a loan
secured from Jesus Lim who was petitioner's brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally among them the excess
or loss. These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term "common fund" under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an
intangible like credit or industry. That the parties agreed that any loss or profit
from the sale and operation of the boats would be divided equally among them

also shows that they had indeed formed a partnership. Moreover, it is clear that
the partnership extended not only to the purchase of the boat, but also to that of
the nets and the floats. The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business. It would have been
inconceivable for Lim to involve himself so much in buying the boat but not in
the acquisition of the aforesaid equipment, without which the business could not
have proceeded. Given the preceding facts, it is clear that there was, among
petitioner, Chua and Yao, a partnership engaged in the fishing business. 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.
2. ID.; ID.; COMPROMISE AGREEMENT OF THE PARTIES 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.
3. ID.; ID.; PETITIONER WAS A PARTNER, NOT A LESSOR. — Verily, as
found by the lower courts, petitioner entered into a business agreement with
Chua and Yao, in which debts were undertaken in order to finance the
acquisition and the upgrading of the vessels which would be used in their
fishing business. The sale of the boats, as well as the division among the three
of the balance remaining after the payment of their loans, proves beyond cavil
that F/B Lourdes, though registered in his name, was not his own property but
an asset of the partnership. It is not uncommon to register the properties
acquired from a loan in the name of the person the lender trusts, who in this
case is the petitioner himself. After all, he is the brother of the creditor, Jesus
Lim. We stress that it is unreasonable — indeed, it is absurd — for petitioner to
85
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.
4. MERCANTILE LAW; PRIVATE CORPORATIONS; HAVING REAPED THE
BENEFITS OF THE CONTRACT ENTERED INTO BY PERSONS WITH
WHOM HE PREVIOUSLY HAD AN EXISTING RELATIONSHIP, PETITIONER
IS DEEMED TO BE PART OF SAID ASSOCIATION AND IS COVERED BY
THE DOCTRINE OF CORPORATION BY ESTOPPEL. — 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 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.
5. REMEDIAL LAW; PROVISIONAL REMEDIES; ATTACHMENT; ISSUE OF
VALIDITY THEREOF, MOOT AND ACADEMIC. — 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.
VITUG, J., concurring:
1. CIVIL LAW; PARTNERSHIP; EXTENT OF LIABILITY OF PARTNERS IN A
GENERAL PARTNERSHIP. — When a person by his act or deed represents
himself. as a partner in an existing partnership or with one or more persons not
actual partners, he is deemed an agent of such persons consenting to such
representation and in the same manner, if he were a partner, with respect to
persons who rely upon the representation. The association formed by Chua,
Yao and Lim, should be, as it has been deemed, a de factopartnership with all
the consequent obligations for the purpose of enforcing the rights of third
persons. The liability of general partners (in a general partnership as so
opposed to a limited partnership) is laid down in Article 1816 which posits that
all partners shall be liable pro rata beyond the partnership assets for all the
contracts which may have been entered into in its name, under its signature,
and by a person authorized to act for the partnership.
2. ID.; ID.; ID.; INSTANCES WHEN THE PARTNERS CAN BE HELD
SOLIDARILY LIABLE WITH THE PARTNERSHIP. — This rule is to be
construed along with other provisions of the Civil Code which postulate that the
partners can be held solidarily liable with the partnership specifically in these
instances. — (1) where, by any wrongful act or omission of any partner acting in
the ordinary course of the business of the partnership or with the authority of his
co-partners, loss or injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is liable therefor to the
same extent as the partner so acting or omitting to act; (2) where one partner
acting within the scope of his apparent authority receives money or property of
a third person and misapplies it; and (3) where the partnership in the course of
its business receives money or property of a third person and the money or
property so received is misapplied by any partner while it is in the custody of the
partnership — consistently with the rules on the nature of civil liability in delicts
and quasi-delicts.
DECISION
PANGANIBAN,  J p:
86
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. cda
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, 1which disposed as follows:
"WHEREFORE, [there being] no reversible error in the appealed decision, the
same is hereby affirmed." 2
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling,
which was affirmed by the CA, reads as follows:
"WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by this
Court on September 20, 1990; cdphil
2. That defendants are jointly liable to plaintiff for the following amounts, subject
to the modifications as hereinafter made by reason of the special and unique
facts and circumstances and the proceedings that transpired during the trial of
this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets
covered by the Agreement plus P68,000.00 representing the unpaid price of the
floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiff's invoices and
computed on their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated
February 9, 1990;
ii. Accrued interest 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); cdasia
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
87
of P900,000.00 as this amount replaced the attached nets and floats.
Considering, however, that the total judgment obligation as computed above
would amount to only P840,216.92, it would be inequitable, unfair and unjust to
award the excess to the defendants who are not entitled to damages and who
did not put up a single centavo to raise the amount of P900,000.00 aside from
the fact that they are not the owners of the nets and floats. For this reason, the
defendants are hereby relieved from any and all liabilities arising from the
monetary judgment obligation enumerated above and for plaintiff to retain
possession and ownership of the nets and floats and for the reimbursement of
the P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED." 3 cdasia
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. LLpr
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: cdll
"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
88
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:
"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)." 13 cdtai
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed
Decision on the following grounds:
"I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A
COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER LIM
ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP
AGREEMENT EXISTED AMONG THEM.
"II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS
ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT
THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS
UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
"III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND
ATTACHMENT OF PETITIONER LIM'S GOODS."
In determining whether petitioner may be held liable for the fishing nets and
floats 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. cdasia

This Court's Ruling
The Petition is devoid of merit.
First and Second Issues:
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:
"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." llcd
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 theFB Nelson for the sum of
P3.35 million;
89
(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. cdtai
(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.cdtai
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
90
findings mentioned above nullified petitioner's argument that the existence of a
partnership was based only on the Compromise Agreement. LLphil
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, includingF/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. prLL
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:

"Sec. 21. Corporation by estoppel. — All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as general
partners for all debts, liabilities and damages incurred or arising as a result
thereof: Provided however, That when any such ostensible corporation is sued
on any transaction entered by it as a corporation or on any tort committed by it
as such, it shall not be allowed to use as a defense its lack of corporate
personality.
"One who assumes an obligation to an ostensible corporation as such, cannot
resist performance thereof on the ground that there was in fact no
corporation." LibLex
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
91
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. cdrep
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 insideF/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 inAlonso
v. Villamor: 19 prLL
"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."
 92

Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued
against the nets. We agree with the Court of Appeals that this issue is now moot
and academic. As previously discussed, F/B Lourdes was an asset of the
partnership and that it was placed in the name of petitioner, only to assure
payment of the debt he and his partners owed. The nets and the floats were
specifically manufactured and tailor-made according to their own design, and
were bought and used in the fishing venture they agreed upon. Hence, the
issuance of the Writ to assure the payment of the price stipulated in the invoices
is proper. Besides, by specific agreement, ownership of the nets remained with
Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED.
Costs against petitioner. Cdpr
SO ORDERED.
it has been deemed, a de facto partnership with all the consequent obligations
for the purpose of enforcing the rights of third persons. The liability of general
partners (in a general partnership as so opposed to a limited partnership) is laid
down in Article 1816 2 which posits that all partners shall be liable pro
rata  beyond the partnership assets for all the contracts which may have been
entered into in its name, under its signature, and by a person authorized to act
for the partnership. This rule is to be construed along with other provisions of
the Civil Code which postulate that the partners can be held solidarily liable
with the partnership specifically in these instances — (1) where, by any
wrongful act or omission of any partner acting in the ordinary course of the
business of the partnership or with the authority of his co-partners, loss or injury
is caused to any person, not being a partner in the partnership, or any penalty is
incurred, the partnership is liable therefor to the same extent as the partner so
acting or omitting to act; (2) where one partner acting within the scope of his
apparent authority receives money or property of a third person and misapplies
it; and (3) where the partnership in the course of its business receives money or
property of a third person and the money or property so received is misapplied
by any partner while it is in the custody of the partnership 3 — consistently with
the rules on the nature of civil liability in delicts and quasi-delicts

||| (Lim Tong Lim v. Philippine Fishing Gear Industries, Inc., G.R. No. 136448,
Melo, Purisima and Gonzaga-Reyes, JJ.,concur.
[November 3, 1999], 376 PHIL 76-95)

Vitug, J., pls. see concurring opinion.

Separate Opinions

VITUG, J., concurring:

I share the views expressed in the ponencia of an esteemed colleague, Mr.

Justice Artemio V. Panganiban, particularly the finding that Antonio Chua, Peter
Yao and petitioner Lim Tong Lim have incurred the liabilities of general
partners. I merely would wish to elucidate a bit, albeit briefly, the liability of
partners in a general partnership.

When a person by his act or deed represents himself as a partner in an existing

partnership or with one or more persons not actual partners, he is deemed an
agent of such persons consenting to such representation and in the same
manner, if he were a partner, with respect to persons who rely upon the
representation. 1 The association formed by Chua, Yao and Lim, should be, as