JOSE FERNANDEZ, plaintiff-appellant, vs. FRANCISCO DE LA ROSA, defendant-appellee. Ladd, J.

: 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 interested 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 Doa 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 unwillingly 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) Doa 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 for 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 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 testifies, 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 purposed. We also find that the plaintiff furnished some further sums of money for the repair of 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 VVUCPmT6. (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 fact as to the purchase of the casco DbA. (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 answer 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 fact 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.) 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 that 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, the affectio 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 that fact that the defendant did actually go on and purchase the boat, 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 Tmbpj. (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 have 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 relinquish 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 co-partner 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. 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 No. 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 NBg6a. 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 REHEARING MAPA, J.: 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 vOtc. This reasoning rests upon a false basis. We have not taken into consideration the mere possibility of an inference, as the appellant gratuitously stated, 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 partnership, 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 precisely 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 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 NwxcftraB. 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. In the matter of the Petition for Authority To Continue use of the firm name Ozaeta, Romulo, etc. F: 2 separate petitions were filed by the surviving partners of Atty. Alexander Sycip and the surviving partners of Herminiano Ozaeta, praying that they be allowed to continue using, in the name of their firms, the names of partners who passed away. Arguments: 1. Under the law, a partnership is not prohibited from continuing its business under a firm name which includes the name of the deceased partner.( Art. 1840 of the Civil Code ) 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 deceased partner. 3. The Canons of Professional Ethics are not transgressed because as adopted by American Bar Association: 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. The deaths of the partners were wellpublicized. 5. No local custom prohibits the continued use of the partners name in

a professional firms name. 6. The continued use of the deceased partners name in the firm name of law partnerships has been consistently allowed by US Courts. I: W/N the names of the deceased partners should be allowed to continue in use in the firm name. H: 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. (partners should be living persons who can be subjected to liability) Art. 1840 treats more of a commercial partnership with a good will to protect rather than a professional partnership, with no sealable good will but whose reputation depends on the personal qualifications of its individual members. The partnership for the practice of law cannot be likened to partnerships formed by other professionals or for business. The practice of law is also a special privilege, highly personal and partaking of the nature of a public trust. Firm names, under local customs, identify the more active and more senior members or partners of the law firm. 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. NB: Rule 3.02 of the CPR approved and promulgated by the SC on June 21,1988 in effect abandoned the ruling in the Sycip case. (see Art. 1815 Civil Code

CHARLES F. WOODHOUSE, plaintiff-appellant, vs. FORTUNATO F. HALILI, defendant-appellant.G.R. No. L4811 July 31, 1953

Subject: BusOrg 1 (PAT)Doctrine: Fraud

FACTSOn November 29, 1947, plaintiff Woodhouse entered

into a written agreement with defendant Halili stating among others that: 1) that they shall organize a partnership for the bottling and distribution of Missionsoft drinks, plaintiff to act as industrial partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefore; 2) that plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership and 3) that the plaintiff was to receive 30 per cent of the net profits of the business.Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of Los Angeles, California, that he had interested a prominent financier (defendant herein) in the business, who was willing to invest half a milliondollars 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. Pursuant to this request, plaintiff was given a thirty days option on exclusive bottling and distribution rights for the Philippines. The contract was finally signed by plaintiff on December 3, 1947.When the bottling plant was already in operation, plaintiff demanded of defendant that the partnership papers be executed. Defendant Halili gave excuses and would not execute said agreement, thus the complaint by the plaintiff. Plaintiff prays for the : 1.execution of the contract of partnership; 2) accounting of profits and 3)share thereof of 30 percent with 4) damages in the amount of P200,000. The Defendant on the other hand claims that: 1) the defendants 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, 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, but that it was plaintiff who failed and 3)that plaintiff agreed to contribute to the exclusive franchise to the partnership, but plaintiff failed to do so with a 4) counterclaim for P200,00 as damages.The CFI ruling: 1) accounting of profits and to pay plaintiff 15 % of the profits and that the 2) execution of contract cannot be enforced upon parties. Lastly, the 3) fraud wasnt proved

immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive franchise, was to reduce, as he himself testified, plaintiffs 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.

ISSUES1. WON plaintiff falsely represented that he had an exclusive franchise to bottle Mission beverages2. WON false representation, if it existed, annuls the agreement to form the partnership

2. No. In consequence, article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be ground for the annulment of a contract, and the incidental deceit, which only renders the party who employs it liable for damages only. The Supreme 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.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 defendants counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. But if plaintiff 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. 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. Having arrived at the conclusion that the contract cannot be declared null and void, may the agreement be carried out or executed? The SC finds no merit in the claim of plaintiff that the partnership was already a fait 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. , The defendant may not be compelled against his will to carry out the agreement nor execute the partnership papers. The law recognizes the individuals freedom or liberty to do an act he has promised to do, or not to do it, as he pleases.

HELD1. Yes. Plaintiff did make false representations and this can be seen through his letters to Mission Dry Corporation asking for the latter to grant him temporary franchise so that he could settle the agreement with defendant. 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. The defendant believed, or was made to believe, that 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

Dispostive Postion: With modification above indicated, the judgment appealed from is hereby affirmed.

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee, -versusQUIRINO BOLAOS, defendant-appellant. FACTS: This was an action to recover possession of a parcel of land where the plaintiff was represented by a corporation. Issue: WON the case should be dismissed on the ground that the case was not brought by the real property in interest

Held:No.

there is nothing to the contention that the present action is not brought by the real party in interest, that is, by J. M. Tuason and Co., Inc. What the Rules of Court require is that an action be brought in the name of, but not necessarily by, the real party in interest. (Section 2, Rule 2.) The complaint is signed by the law firm of Araneta and Araneta, "counsel for plaintiff" and commences with the statement "comes now plaintiff, through its undersigned counsel." It is true that the complaint also states that the plaintiff is "represented herein by its Managing Partner Gregorio Araneta, Inc.", another corporation There is nothing against one corporation being represented by another person, natural or juridical, in a suit in court. The contention that Gregorio Araneta Inc. cannot act as managing partner for plaintiff on the theory that it is illegal for two corporations to enter into a partnership is without merit, for the true rule is that though a corporation has no power into a partnership, it may nevertheless enter into a joint venture with another where the nature of that venture is in line with the business authorized by its charter.

note in the amount of P20,000 payable in two equal installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on or before June 30, 1971), the whole sum becoming due upon default in the payment of the first installment on the date due, complete with the costs of collection. Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and attorney's fees. After the trial, the Court of First Instance held that: t. hqw From the evidence presented it is clear in the mind of the court that by virtue of the partnership agreement entered into by the parties-plaintiff and defendant the plaintiff did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the defendant was able to print 2,000 copies only authorized of which, however, were sold at P5.00 each. Nothing more was done after this and it can be said that the venture did not really get off the ground. On the other hand, the plaintiff failed to give his full contribution of P15,000.00. Thus, each party is entitled to rescind the contract which right is implied in reciprocal obligations under Article 1385 of the Civil Code whereunder 'rescission creates the obligation to return the things which were the object of the contract ... WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C. Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with interest at the legal rate from the filing of the complaint on June 19, 1972, and the costs of the suit. For insufficiency of evidence, the counterclaim is hereby dismissed. From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise rendered a decision against the petitioner. The dispositive portion of the decision reads: t.hqw PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay plaintiff- appellant Mariano E. Pecson: (a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued to Pecson under their agreement); (b) Eight thousand (P8,000), (the commission for eight months); (c) Seven thousand (P7,000) (as a return of Pecson's

NOTE: Point of the case is about joint ventures being treated separately from partnerships. Tuason does not explain why there was a difference in treatment of corporate involvement in partnerships as compared to that when it come to joint ventures. ISABELO MORAN, JR., petitioner, vs.THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.:+.wph!1 This is a petition for review on certiorari of the decision of the respondent Court of Appeals which ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson. As found by the respondent Court of Appeals, the undisputed facts indicate that: t.hqw xxx xxx xxx ... on February 22, 1971 Pecson and Moran entered into an agreement whereby both would contribute P15,000 each for the purpose of printing 95,000 posters (featuring the delegates to the 1971 Constitutional Convention), with Moran actually supervising the work; that Pecson would receive a commission of P l,000 a month starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a liquidation of the accounts in the distribution and printing of the 95,000 posters would be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few posters were printed; that on or about May 28, 1971, Moran executed in favor of Pecson a promissory

investment for the Veteran's Project); (d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the time payment is made) The petitioner contends that the respondent Court of Appeals decided questions of substance in a way not in accord with law and with Supreme Court decisions when it committed the following errors: I THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM. II THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S INVESTMENT. III THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE. IV ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT, THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY RECEIVED BY PECSON FROM MORAN. V THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES. The first question raised in this petition refers to the award of P47,500.00 as the private respondent's share in the unrealized profits of the partnership. The petitioner contends that the award is highly speculative. The petitioner maintains that the respondent court did not take into account the great risks involved in the business undertaking. We agree with the petitioner that the award of speculative damages has no basis in fact and law. There is no dispute over the nature of the agreement between the petitioner and the private respondent. It is a contract of partnership. The latter in his complaint alleged

that he was induced by the petitioner to enter into a partnership with him under the following terms and conditions: t.hqw 1. That the partnership will print colored posters of the delegates to the Constitutional Convention; 2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each; 3. That they will print Ninety Five Thousand (95,000) copies of the said posters; 4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month starting April 15, 1971 up to December 15, 1971; 5. That upon the termination of the partnership on December 15, 1971, a liquidation of the account pertaining to the distribution and printing of the said 95,000 posters shall be made. The petitioner on the other hand admitted in his answer the existence of the partnership. The rule is, 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 (Art. 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the appellee because the appellant therein was remiss in his obligations as a partner and as prime contractor of the construction projects in question. This case was decided on a particular set of facts. We awarded compensatory damages in the Uy case because there was a finding that the constructing business is a profitable one and that the UP construction company derived some profits from its contractors in the construction of roads and bridges despite its deficient capital." Besides, there was evidence to show that the partnership made some profits during the periods from July 2, 1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the partnership between the petitioner and the private respondent would have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative damages in favor of the private respondent. Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much more than what was expected of him. In this case, however, there was mutual breach. Private respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000 copies.

Article 1797 of the Civil Code provides: t.hqw 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. Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership. And even with an assurance made by one of the partners that they would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to recover the highly speculative profits. It is a rare business venture guaranteed to give 100% profits. In this case, on an investment of P15,000.00, the respondent was supposed to earn a guaranteed P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters costing P2.00 each but 2,000 of which were sold at P5.00 each. The fantastic nature of expected profits is obvious. We have to take various factors into account. The failure of the Commission on Elections to proclaim all the 320 candidates of the Constitutional Convention on time was a major factor. The petitioner undesirable his best business judgment and felt that it would be a losing venture to go on with the printing of the agreed 95,000 copies of the posters. Hidden risks in any business venture have to be considered. It does not follow however that the private respondent is not entitled to recover any amount from the petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The latter used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing cost of P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross income of P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and the private respondent. And since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies, the remaining P6,000.00 should therefore be returned to the private respondent. Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's supposed commission has no justifiable basis in law. Again, we agree with the petitioner. The partnership agreement stipulated that the petitioner would give the private respondent a monthly commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly commissions. The agreement does not state the basis of the commission. The payment of the commission could only have been predicated on relatively extravagant profits. The parties could not have intended the giving of a commission inspite of loss or failure of the venture. Since the venture was a failure, the private respondent is not entitled to the P8,000.00 commission. Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of investment in a magazine venture.

In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice of the Veterans" magazine venture, the respondent court ruled that: t.xxx xxx xxx ... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran does not question the due execution of said note. Must Moran therefore pay the amount of P20,000? The evidence indicates that the P20,000 was assigned by Moran to cover the following: t. hqw (a) P 7,000 the amount of the PNB check given by Pecson to Moran representing Pecson's investment in Moran's other project (the publication and printing of the 'Voice of the Veterans'); (b) P10,000 to cover the return of Pecson's contribution in the project of the Posters; (c) P3,000 representing Pecson's commission for three months (April, May, June, 1971). Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the Veterans' project, for this project never left the ground) ... As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review and rectify the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken absurd and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and (5) when the court, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both the appellant and the appellee. In this case, there is misapprehension of facts. The evidence of the private respondent himself shows that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The remaining P4,000.00 was the amount of profit that the private respondent expected to receive. The records show the following exhibits- t.hqw E Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor of defendant. Defendant admitted the authenticity of this check and of his receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered for the purpose of showing plaintiff's capital investment in the printing of the "Voice of the Veterans" for which he was promised a fixed profit of P8,000. This investment of P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff

as Exhibit P. Later, defendant returned P3,000.00 of the P6,000.00 investment thereby proportionately reducing the promised profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised profit), defendant signed and executed the promissory note for P7,000 marked Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000 representing full return of the capital investment and P1,000 partial payment of the promised profit. The P3,000 balance of the promised profit was made part consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is, therefore, being presented to show the consideration for the P20,000 promissory note. F Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of defendant. The authenticity of the check and his receipt of the proceeds thereof were admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29, 1972), and it is being presented to show the consideration for the P20,000 note and the existence and validity of the obligation. xxx xxx xxx L-Book entitled "Voice of the Veterans" which is being offered for the purpose of showing the subject matter of the other partnership agreement and in which plaintiff invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000 made up for the consideration of the P14,000 promissory note (Exhibit 2; Exhibit P). As explained in connection with Exhibit E. the P3,000 balance of the promised profit was later made part consideration of the P20,000 promissory note. M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit E. This document is being offered for the purpose of further showing the transaction as explained in connection with Exhibits E and L. N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P). This is also defendant's Exhibit 4. This document is being offered in support of plaintiff's explanation in connection with Exhibits E, L, and M to show the transaction mentioned therein. xxx xxx xxx P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered for the purpose of showing the transaction as explained in connection with Exhibits E, L, M, and N above. Explaining the above-quoted exhibits, respondent Pecson testified that: t.hqw Q During the pre-trial of this case, Mr. Pecson, the defendant presented a promissory note in the amount of P14,000.00 which has been marked as Exhibit 2. Do you know this promissory note? A Yes, sir.

Q What is this promissory note, in connection with your transaction with the defendant? A This promissory note is for the printing of the "Voice of the Veterans". Q What is this "Voice of the Veterans", Mr. Pecson? A It is a book.t.hqw (T.S.N., p. 19, Nov. 29, 1972) Q And what does the amount of P14,000.00 indicated in the promissory note, Exhibit 2, represent? A It represents the P6,000.00 cash which I gave to Mr. Moran, as evidenced by the Philippine National Bank Manager's check and the P8,000.00 profit assured me by Mr. Moran which I will derive from the printing of this "Voice of the Veterans" book. Q You said that the P6,000.00 of this P14,000.00 is covered by, a Manager's check. I show you Exhibit E, is this the Manager's check that mentioned? A Yes, sir. Q What happened to this promissory note of P14,000.00 which you said represented P6,000.00 of your investment and P8,000.00 promised profits? A Latter, Mr. Moran returned to me P3,000.00 which represented one-half (1/2) of the P6,000.00 capital I gave to him. Q As a consequence of the return by Mr. Moran of one-half (1/2) of the P6,000.00 capital you gave to him, what happened to the promised profit of P8,000.00? A It was reduced to one-half (1/2) which is P4,000.00. Q Was there any document executed by Mr. Moran in connection with the Balance of P3,000.00 of your capital investment and the P4,000.00 promised profits? A Yes, sir, he executed a promissory note. Q I show you a promissory note in the amount of P7,000.00 dated March 30, 1971 which for purposes of Identification I request the same to be marked as Exhibit M. . . Court t.hqw Mark it as Exhibit M. Q (continuing) is this the promissory note which you said was executed by Mr. Moran in connection with your transaction regarding the printing of the "Voice of the Veterans"?

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972). Q What happened to this promissory note executed by Mr. Moran, Mr. Pecson? A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the promissory note. Q Was there a receipt issued by you covering this payment of P4,000.00 in favor of Mr. Moran? A Yes, sir. (T.S.N., p. 23, Nov. 29, 1972). Q You stated that Mr. Moran paid the amount of P4,000.00 on account of the P7,000.00 covered by the promissory note, Exhibit M. What does this P4,000.00 covered by Exhibit N represent? A This P4,000.00 represents the P3,000.00 which he has returned of my P6,000.00 capital investment and the P1,000.00 represents partial payment of the P4,000.00 profit that was promised to me by Mr. Moran. Q And what happened to the balance of P3,000.00 under the promissory note, Exhibit M? A The balance of P3,000.00 and the rest of the profit was applied as part of the consideration of the promissory note of P20,000.00. (T.S.N., pp. 23-24, Nov. 29, 1972). The respondent court erred when it concluded that the project never left the ground because the project did take place. Only it failed. It was the private respondent himself who presented a copy of the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error to state that the project never took place and on this basis decree the return of the private respondent's investment. As already mentioned, there are risks in any business venture and the failure of the undertaking cannot entirely be blamed on the managing partner alone, specially if the latter exercised his best business judgment, which seems to be true in this case. In view of the foregoing, there is no reason to pass upon the fourth and fifth assignments of errors raised by the petitioner. We likewise find no valid basis for the grant of the counterclaim. WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS representing the amount of the private respondent's contribution to the partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits gained by the partnership in the sale of the two thousand (2,000)

copies of the posters, with interests at the legal rate on both amounts from the date the complaint was filed until full payment is made. Fleischer vs. Botica Nolasco Co. (1925) FACTS: March 13, 1923: Manuel Gonzales made a written statement to the Botica Nolasco, Inc., requesting that 5 shares of stock sold by him to Henry Fleischer be noted transferred to Fleischer's name He also acknowledged in said written statement the preferential right of the corporation to buy said five shares June 14, 1923: he withdraw and cancelled his written statement of March 13, 1923 Nolasco replied that his letter of June 14th was of no effect, and that the shares in question had been registered in the name of the Botica Nolasco, Inc., November 15, 1923: Fleischer filed an amended complaint against the Botica Nolasco, Inc., alleging that he became the owner of 5 shares of fully paid stock of Botica Nolasco Co (Nolasco) by purchase from their original owner, Manuel Gonzalez Despite repeated demands, Nolasco refused to register said shares in his name in the books of the corporation caused him damages amounting to P500 Nolasco's defense: article 12 of its by-laws: it had preferential right to buy the shares at the par value of P100/share, plus P90 as dividends corresponding to the year 1922 offer was refused by Fleischer Trial Court: favored Fleischer and ordered the shared be registered ISSUE: W/N article 12 of Nolasco's by-laws is in conflict with Act No. 1459 (Corporation Law), especially with section 35 (Now Sec. 63) HELD: Affirmed. mandamus will lie to compel the officers of the corporation to transfer said stock upon the books of the corporation Section 13, paragraph 7, above-quoted, empowers a corporation to make by-laws, not inconsistent with any existing law, for the transferring of its stock. section 35 of Act No. 1459 (now Sec. 63) contemplates no restriction as to whom they may be transferred or sold It does not suggest that any discrimination may be created by the corporation in favor or against a certain purchaser. The holder of shares, as owner of personal property, is at liberty, under said section, to dispose of them in favor of whomsoever he pleases, without any other limitation in this respect, than the general provisions of law GR: the by-laws of a corporation are valid if they are reasonable and calculated to carry into effect the objects of the corporation, and are not contradictory to the general policy of the laws of the land A by-law cannot take away or abridge the substantial rights of stockholder. Under a statute authorizing by- laws for the transfer of stock, a corporation can do no more than prescribe a general mode of transfer on the corporate books and cannot justify an unreasonable restriction upon the right of sale.

by-law cannot operate to defeat his rights as a purchaser who obtained them in good faith and for a valuable consideration In the matter of the Testate Estate of the deceased Edward E. Christensen, ADOLFO CRUZ AZNAR, petitioner.MARIA LUCY CHRISTENSEN DANEY and ADOLFO CRUZ AZNAR, petitioners-appellants, vs.MARIA HELEN CHRISTENSEN GARCIA and BERNARDA CAMPOREDONDO, oppositors-appellees. BERNARDA CAMPOREDONDO, plaintiff-appellee, vs. ADOLFO CRUZ AZNAR, as Executor of the Deceased EDWARD E. CHRISTENSEN, defendant-appellant. M. R. Sotelo for appellants.Leopoldo M. abellera and Amado A. Munda for appellee Maria Heliuen Christensen Garcia.Pedro P. Suarez and Oscar Breva for appellee Bernarda Camporedondo. FELIX, J.: From the records of the above-entitled cases, it appears that as of 1913,Edward E. Christensen, an American citizen, was already residing in Davao and on the following year became the manager of Mindanao Estates located in the municipality of Padada of the same province. At a certain time, which the lower court placed at 1917, a group of laborers recruited from Argao, Cebu, arrived to work in the said plantation. Among the group was a young girl,Bernarda Camporendondo, who became an assistant to the cook. Thereafter, thegirl and Edward E. Christensen, who was also unmarried staring living together as husband and wife and although the records failed to establishthe exact date when such relationship commenced, the lower court found the same to have been continous for over 30 years until the death of Christensen occurecd on April 30, 1953. Out of said relations, 2 children, Lucy and Helen Christensen, were allegedly born. G. R. NO. L-11484. Upon the demise of the American, who had left a considerable amount of properties his will naming Adolfo Cruz Aznar as executor was duly presented for probate in court and became the subject of Special Proceedings No. 622 of the Court of First Instance of Davao. Said will contains, among others, the following provisions: xxx xxx xxx.

7. I give, devise and bequeath unto MARIA LUCY CHRISTENSEN, now married toEduardo Garcia, about eighteen years of age and who, notwithstanding the factthat she was baptized Christensen, is not in any way related to me, nor hasshe been at any time adopted to me, and who, from all information I have now resides in Egipt, Digos, Davao, Philippines, the sum of THREEE THOUSAND SIXHUNDRED PESOS (P3,600) Philippine Currency, the same to be deposited in trustfor said Maria Lucy Christensen with the Davao Branch of the PhilippineNational Bank, and paid to her at the rate of One Hundred Pesos (P100), Philippine Currency per month until the the principal thereof as well as any interest which may have accrued thereon, is exhausted. 8. I give devise and bequeath unto BERNARDA CAMPORENDONDO, now residing inPadada, Davao, Philippines, the sum of One Thousand Pesos (P1,000), Philippine Currency. xxx xxx xxx.

12. I hereby give, devise and bequeath, unto my wellbeloved daughter, the said MARIA Lucy CHRISTENSEN DANEY (Mrs. Bernard Daney), now residing as aforesaid at No. 665 Rodger Young Village Los Angeles, California, U.S.A., all the income from the rest, remainder, and residue of my property and estate, real, personal and/or mixed, of whatsoever kind or character, andwheresover situated; of which I may be possessed at any death and which mayhave come to me from any source whatsoever, during her lifetime,Provided, honvever, that should the said MARIA LUCY CHRISTENSEN DANEY at any time prior to her decease having living issue, then, and in that event, the life interest herein given shall terminate, and if so terminated, then I give, devise, and bequeath to my said daughter, the said MARIA LUCY CHRISTENSEN DANEY, the rest remainder and residue of my property, with the same force and effectas if I had originally so given, devised and bequeathedit to her; and provided, further, that should be said Maria Lucy ChristensenDaney die without living issue then, and in that event, I give, devise and bequeath all the rest, remainder and residue of my property, one-half (1/2) to my well-beloved sister, Mrs. CARRIE LOIUSE C. BORTON, now residing at No. 2124 Twentieth Street, Bakersfield, California, U.S.A. and one-half (1/2) to the children of my deceased brother, JOSEPH C. CRISTENSEN, . . . 13. I hereby nominate and appoint Mr Adolfo Cruz Aznar, of Davao City, Philippines, my executor, and the executor of this, my last will and testament. . . . (Exh. A). Oppositions to the probate of this will were separately filed by Maria Helen Christensen Garcia and Bernarda Camporendondo, the first contending that thewill lacked the formalities required by law; that granting that he had, thedispositions made therein were illegal because although she and Lucy Christensen were both children had by the deceased with Bernarda Camporendondo, yet she was given only a meager sum of P3,600 out of an estate valued at $485,000 while Lucy would get the rest of the

3. I declare . . . that I have but one (1) child, named MARIA LUCY CHRISTENSEN (now Mrs. Bernard Daney), who was born in the Philippines about twenty-eight years ago, and who is now residing at No. 665 Rodger Young Village, Los Angeles, California, U.S.A. 4. I further declare that I have no living ascendants, andno descendantsexcept my above named daughter, MARIA LUCY CHRISTENSEN DANEY. xxx xxx xxx.

properties;and that the petitioner Adolfo Cruz Aznar was not qualified to be appointed as administrator of the estate because he had an interest adverse to thatof the estate. It was therefore prayed by his oppositor that the application for probate be denied and the will disallowed; that the proceeding be declared intestate and that another disinterested person be appointed as administrator. Bernarda Camporedondo, on the other hand, claimed ownership over one-halfof the entire estate in virtue of her relationship with the deceased, it being alleged that she and the testator having lived together as husband andwife continuously for a period of over 30 years, the properties acquired during such cohabitation should be governed by the rules on co-ownership. This opposition was dismissed by the probate court on the ground that shehad no right to intervene in said proceeding, for as such common-law wife she had no successional right that might be affected by the probate of thewill, and likewise, she could not be allowed to establish her title and co-ownership over the properties therein for such questions must be ventilated in a court of general jurisdiction. In view of this ruling of the Court and in order to attain the purpose sought by her overruled opposition Bernarda Camporedondo had to institute, as she did institute Civil Case No. 1076 of the Court of First Instance of Davao (G.R. No. L-11483) which we will consider and discuss hereinafter. In the meantime, Adolfo Cruz Aznar was appointed special adminsitrator of the estate after filing a bond for P5,000 pending the appointment of a regular one, and letters of special administrition were correspondingly issued to him on May 21, 1953. The records further show that subsequent to her original opposition. Helen Christensen Garcia filed a supplemental opposition and motion to declare her an acknowledged natural child of Edward E. Christensen, alleging that shewas conceived during the time when her mother Bernarda Camporendondo was living with the deceased as his common-law wife; that she had been in continous possession of the status of a natural child of the deceased; thatahe had in her favor evidence and/or proof that Edward Christensen was her father; and that she and Lucy had the same civil status as children of the decedent and Bernarda Camporedondo. This motion was opposed jointly by the executor and Maria Lucy Christensen Daney asserting that before, during and after the conception and birth of Helen Christensen Garcia, her mother was generally known to be carrying relations with 3 different men; that during the lifetime of the decedent and even years before his death, Edward Christensen verbally as well as in writing disavowed relationship with said oppositor; that oppositor appropriated and used the surname Christensen illegally and without permission from the deceased. Thus they prayed the Court that the will be allowed; that Maria Helen Christensen Garcia be declared not in any way related to the deceased; and that the motion of said oppositor be denied. After due hearing, the lower court in a decision dated February 28, 1953, found that oppositor Maria Helen Cristensen had been in continous possession of the status of a natural child of the deceased Edward Christensen notwithstanding the fact that she was disowned by him in his will, for such action must have been brought about by the latter's disaproval of said oppositor's marriage to a man he

did not like. But taking into considerationthat such possession of the status of a natural child did not itself constitute acknowledgment but may only be availed of to compel acknowledgment, the lower Court directed Maria Lucy Christensen Daney toacknowledge the oppositor as a natural child of Edward E. Christensen. Thewill was, however, allowed the letters testamentary consequently issued toAdolfo Cruz Aznar, the executor named therein. From the portion of the decision requiring Lucy Christensen to acknowledge Helen as a natural child of the testator, the former and the executor interposed an appeal to the Court of Appeals (CA-G. R. No. 13421-R), but the appellate tribunal elevatedthe same to Us on the ground that the case involves an estate the value of which far exceeds P50,000.00 and thus falls within the exclusive appellate jurisdiction of this Court pursuant to Section 17 (5), Republic Act No. 296. The principal issue in this litigation is whether the lower court erred in finding that the oppositor Maria Helen Christensen Garcia had been in continous possession of the status of a natural child of the deceased EdwardE. Christensen and in directing Maria Lucy Christensen Daney, recognizeddaughter and instituted heirs of the decedent, to acknowledge the former assuch natural child. Maria Lucy Christensen was born on April 25, 1922, and Maria Helen Christensen on July 2, 1934, of the same mother, Bernarda Camporedondo, during the period when the latter was publicly known to have been living as common-law wife of Edward E. Chrisiensen. From the facts of the case there can be no question as to Lucy's parentage, but controversy arose when Edward Christensen, in making his last will and testament, disavowed such paternity to Helen and gave her only a legacy of P3,600. ln the course of the proceeding for the probate of the will (Exh, A), Helen introduced documentary and testimonial evidence to support her claim that she, Lucy,was a natural child of the deceased and, therefore, entitled to the hereditaryshare corresponding to such descendant. Several witness testified in herfavor, including the mother Bernarda Camporendondo, her former teachers andother residents of the community, tending to prove that she was known in the locality as a child of the testator and was introduced by the latter to the circle of his friends and acquaintances as his daughter. Family portraits, greeting cards and letters were likewise presented to bolster herassertion that she had always been treated by the deceased and by Lucy herself as a member of the family. Lucy Christensen and Adolfo Cruz Aznar, as executor, tried to repudiate herclaim by introducing evidence to prove that on or about the period when shewas conceived and born, her mother was carrying an affair with another man,Zosimo Silva, a former laborer in her Paligue plantation. Silva executed an affidavit and even took the witness stand to testify to this effect. Appellants also strived to show that the defendant's solicitations for Helen's welfare and the help extended to her merely sprang out generosity and hammered on the fact that on several occasions, the deceased disclaimed any relationship with her (Exh. ODaney, Exh. Q-Daney, Exh. Z-Daney, Exh. 8-Helen). Going over the evidence adduced during the trial, it appears indubitable that on or about the period when Helen was born, Bernarda Camporendondo had established residence at her plantation at Paligue, Davao, and that although

Edward Christensen stayed in Davao City to manage his merchandising business, he spent the weekends with the former and their child Lucy in the Christensenplantation. Even granting that Zosimo Silva at his stage fitted himself intothe picture, it cannot be denied that Helen's mother and the deceased weregenerally and publicly known to be living together as husband and wife. Thismust have been the reason why Christensen from Helen's birth in 1934 providedfor her maintenance; shouldered the expenses for her education to the extentthat she was even enrolled as an intern in an exclusive college for girls inManila; tolerated or allowed her carrying the surname "Christensen", and ineffect gaver her the attention and care that a father would only do to this offspring. We should take note that nothing appears on record to show thatChristensen ever entertained any doubt or disputed Helen's paternity. Hisrepudations of her relationship with him came about only after he andBernarda Comperodondo parted ways in March, 1950, and apparently after Helentook sides with her mother. Furthermore, it seems that despite that decedent's desire that she continue her studies, Helen ignored the same andgot married to a man for Christensen held no high esteem. We may state at hisjuncture that while it is true that herein appellants introduced witnesses todisprove oppositor'r claim, the lower Court that had the opportunity to observe the conduct of the witnesses while testifying and could better gaugetheir credibility and impartiality in the case, arrived at the conclusion that Maria Helen Christensen had established that she had been in continouspossessions of the status of a natural child of the deceased. Considering the preponderant evidence on record, We see no reason to reverse said ruling.The testator' lastacts cannot be made the criterion in determining whether oppositor was his child or not, for human frailty and parental arrogance maydraw a person to adopt unnatural or harsh measures against an erring child orone who displeases just so the weight of his authority could be felt. In theconsideration of a claim that one is a natural child, the attitude or directacts of the person against whom such action is directed or that of his family before the controversy arose or during his lifetime if he predeceases the claimant, and not a single opportunity or an isolated occasions but as a whole, must be taken into account. The possession of such status is one of the cases that gives rise to the right, in favor of the child, of coumpulsaryrecognition. (Art. 283, Civil Code). The lower Court, however, after making its finding directed Maria Lucy Christensen Daney, an heir of the decedent, to recognize oppositor as a natural child of the deceased. This seems improper. The Civil Code for 2 kinds of acknowledgement of a natural child: voluntary and compulsory. In the first instance, which may be effected in the record of birth, a will, a statement before a court of record or in an authentic writing (Art. 278,Civil Code), court intervention is very nil and not altogether wanting, whereas in the second, judicial pronouncement is essential, and while it is true that the effect of a voluntary and a compulsory acknowledgment onthe right of the child so recognized is the same, to maintain the view of thelower Court would eliminate the distinction between voluntary acts and those brought about by judicial dicta. And if We consider that in the case, where, the presumed parent dies ahead of the child and action for compulsory recogniton is brought against the heirs of the deceased, as in the instant case, the situation would take absurd turn, for the heirs would be compelled to recognize such child as a natural child of the deceased without a properprovision of the law,

for as it now stands, the Civil Code only requires a declaration by the court of the child's status as a natural child of the parent who, if living, would be compelled to recognize his offspring as such.Therefore, We hold that in cases of compulsory recognition, as in the case at bar, it would be sufficient that a competent court, after taking into account all the evidence on record, would declare that under any of the circumstances specified by Article 283 of the Civil Code, a child has acquired the status of a natural child of the presumptive parent and as such is entitled to all rights granted it by law, for such declaration is by itself already a judicial recognition of the paternity of the parent concerned which is her against whom the action is directed, are bound to respect. G.R. No. L-11483 Coming now to Civil Case No. 1076 of the Court of First Instance of Davao, Bernarda Camporendondo claimed in her complaint 1/2 of the properties of thedeceased as coowner thereof in virtue of her relations with the deceased. She alleged as basis for action that she and the deceased Edward E. Christensen had lived and cohabitated as husband and wife, continously and openly for a period for more than 30 years; that within said period, plaintiff and the deceased acquired real and personal properties through their common effort and industry; and that in virtue of such relationship, she was a co-owner of said properties. As the executor refused to account forand deliver the share allegedly belonging to her despite her repeated demands, she prayed the court that said executor be ordered to submit an inventory and render an accounting of the entire estate of the deceased;to divide the same into 2 equal parts and declare that one of them lawfully belonged to plaintiff; and for such other reliefs as may be deemed just and equitable in the premises. In his answer, the executor denied the avermentsof the complaint, contending that the decedent was the sole owner of the properties left by him as they were acquired through his own efforts; thatplaintiff had never been a co-owner of any property acquired or possessed by the late Edward christensen during his lifetime; that the personal relationship between plaintiff and the deceased was purely clandestinebecause the former habitually lived in her plantation at Paligue, Davao, from the time she acquired the same in 1928; that she also maintained relations with 2 other men; and that the claim of plaintiff would violate the provisions of Article 2253 of the Civil Code as the vested rights of the compulsory heirs of the deceased would be impaired. Defendant thus prayed for the dismissal of the complaint and as counterclaim demanded the sum ofP70.000.00 representing actual, moral and exemplary damages. Due hearing was conducted thereon and after the parties ad submitted theirrespective memoranda, the lower Court on August 25, 1954, rendered judgmentfinding that the deceased Edward Christensen and Bernarda Camporendondo,not otherwise suffering from any impediment to contract marriage, lived together as husband and wife without marital ties continously for over 30years until the former's death in 1953; that out of such relations 2 childrenwere born; and that the properties in controversy were acquired by either orboth of them through their work or industry. Relying on Section 144 of theCivil Code which said court considered to have created another mode ofacquiring ownership, plaintiff was held to be entitled to one-half of

saidproperties as co-owner thereof in view of her relationship with the deceasedand ordered the executor to account for and deliver the same by her. Fromthis decision, defendant Aznar, as Executor of the will, perfected an appealto the Court of Appeals, but as the property involved in the litigation exceeds P50,000.00 said tribunal elevated the case to Us for consideration. It is not controverted that at the time of his death, Edward Christensen was the owner of certain properties, including shares of stock in the plantation bearing his name and a general merchandising store in Davao City. It is also undeniable that the deceased and appellee, both capacitated to enter into the married state, maintained relations as husband and wife, continuously and publicly for a considerable number of years which the lower Court declared to be until the death of Christensen in 1953. While as a general rule appellate courts do not usually disturb the lower court's findings of fact, unless said finding is not supported by or totally devoid of or inconsistent with the evidence on record, such finding must ofnecessity be modified to confrom with the evidence if the reviewing tribunalwere to arrive at the proper and just solution of the controversy. In theinstant case, the court a quo overlooked or failed to consider the testimonies of both Lucy and Helen Christensen to the effect that the deceased and their mother Bernarda Camporendondo had some sort of quarrel or misunderstanding and parted ways as of March, 1950, a fact which appelleewas not able to overcome. Taking into account the circumstances of this caseas found by the trial court, with the modification that the cohabitation should appear as continuous from the early 20's until March, 1950, the question left for our determination is whether Bernarda Camporedondo, byreason of such relationship, may be considered as a co-owner of the properties acquired by the deceased during said period and thus entitledto one-half thereof after the latter's death. Presumably taking judicial notice of the existence in our society of a certain kind of relationship brought about by couples living together as husbands and wives without the benefit of marriage, acquiring and bringingproperties unto said union, and probably realizing that while same may not beacceptable from the moral point of view they are as much entitled to theprotection of the laws as any other property owners, the lawmakersincorporated Article 144 in Republic Act No. 386 (Civil Code of the Philippines) to govern their property relations. Said article read as follows: ART. 114. When a man and a woman live together as husband and wife, but they are not married, or their marriage is void from the beginning, the property acquired by either or both of them through their work or industry or their wages and salaries shall be governed by the rules of co-ownership. It must be noted that such form of co-ownership requires that the man and the woman thus living together must not in any way be incapacitated to contract marriage and that the properties realized during their cohabitation be acquired through the work, industry, employment or occupation of both or either of them. And the same thing may be said of whose marriages are by provision of law declared void ab intio. While it is true that these requisites are fully met and satisfied in the case at bar, We must remember that the deceased and herein appellee were already estranged as of

March, 1950. There being no provision of law governing the cessation of such informal civil partnership, if ever existed, same may be considered terminated upon their separation or desistance to continue said relations.The Spanish Civil Code which was then enforce contains to counterpart of Article 144 and as the records in the instant case failed to show show thata subsequent reconciliation ever took place and considering that Republic ActNo. 386 which recognizeed such form of co-ownership went into operation onlyon August 30, 1950, evidently, this later enactment cannot be invoked as basis for appellee's claim. In determining the question poised by this action We may look upon the jurisprudence then obtaining on the matter. As early as 1925, this Court already declared that where a man and a woman, not suffering from any impediment to contract marriage, live together as husband and wife, an informal civil partnership exists and made the pronouncement that each of them has an intereat in the properties acquired during said union and is entitled to participate therein if said properties were the product oftheir JOINT efforts (Marata vs. Dionio G.R. No. 24449, Dec. 31, 1925). In another case, this Court similarly held that although there is no technical marital partnership between person living maritally without being lawfully married, nevertheless there is between them an informalcivil partnership, and the parties would be entitled to an equal interest where the property is acquired through their JOINT efforts (Lesaca vs. FelixVda. de Lesaca, 91 Phil., 135). Appellee, claiming that the properties in controversy were the product of their joint industry apparently in her desire to tread on the doctrine laiddown in the aforementioned cases, would lead Us to believe that her help wassolicited or she took a hand in the management of and/or acquisition of thesame. But such assertion appears incredible if We consider that she wasobserved by the trial Court as an illiterate woman who cannot even remembersimple things as the date when she arrived at the Mindanao Estate, when shecommenced relationship with the deceased, not even her approximate age orthat of her children. And considering that aside from her own declaration, which We find to be highly improbable, there appears no evidence to proveher alleged contribution or participation in the acquisition of the properties involved therein, and that in view of the holding of this Courtthat for a claim to one-half of such property to be allowed it must be provedthat the same was acquired through their joint efforts and labor (Flores vs.Rehabilitation Finance Corporation, * 50 Off. Gaz. 1029), We have no recoursebut reverse the holding of the lower Court and deny the claim of BernardaCampredondo. We may further state that even granting, for the sake ofargument, that this case falls under the provisions of Article 144 of theCivil Code, same would be applicable only as far as properties acquiredafter the effectivity of Republic Act 386 are concerned and to no other, forsuch law cannot be given retroactive effect to govern those already possessedbefore August 30, 1950. It may be argued, however, that being a newly created right, the provisions of Section 144 should be made to retroact if only toenforce such right. Article 2252 of the same Code is explicit in thisrespect when it states: SEC. 2252. Changes made and new provisions and rules laid down by this Code which may prejudice or impair vested or acquired rights in accordance with the old legislation, shall have ro retroactive effect.

xxx

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xxx.

maintaining its own books of accounts and bank accounts, and had a quota allocation with the Central Bank. In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded with the Securities and Exchange Commission on 20 December 1948. The limited partnership had been filing its income tax returns as a corporation, without objection by the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the income of the firm and the individual incomes of the partnersspouses Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955. Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing that of the Commissioner of Internal Revenue. The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax court's aforesaid decision. It raises these issues: (a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia Spirig Suter actually formed a single taxable unit; and (b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00. The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and Spirig and their subsequent acquisition of the interests of remaining partner Carlson in the partnership dissolved the limited partnership, and if they did not, the fiction of juridical personality of the partnership should be disregarded for income tax purposes because the spouses have exclusive ownership and control of the business; consequently the income tax return of respondent Suter for the years in question should have included his and his wife's individual incomes and that of the limited partnership, in accordance with Section 45 (d) of the National Internal Revenue Code, which provides as follows: (d) Husband and wife. In the case of married persons, whether citizens, residents or non-residents, only one consolidated return for the taxable year shall be filed by either spouse to cover the income of both spouses; .... In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his marriage with limited partner Spirig and their acquisition of

As it cannot be denied that the rights and legitimes of the compulsory heirsof the deceased Edward Christensen would be impaired or diminished if the claim of herein appellee would succeed, the answer to such argument wouldbe simply obvious. With regard to appellant Aznar's contention that the lower Court erred in admitting the testimony of appellee Bernarda Camporedondo dealing with facts that transpired before the death of Edward Christensen on the ground that it is prohibited by Section 26-(c), Rule 123 of the Rules of Court. We deem it unnecessary to delve on the same because even admitting that the court a quo committed the error assigned, yet it will not affect anymore the outcome of the case in view of the conclusion We have already arrived at on the main issue. On the strength of the foregoing considerations, We affirm the decision of the lower Court in case G.R. No. L-11484, with the modification that MariaLucy Christensen Daney need not be compelled to acknowledge her sister Maria Helen Christensen Garcia as a natural child of her father Edward E. Christensen, the declaration of the Court in this respect being sufficient to enable her to all the rights inherent to such status. The decision appealed from in case G.R. No. L-11483 is hereby reversed and another one rendered, dismissing plaintiff's complaint. Costs are taxed against appellants in G.R. No. L-11484 and against appellee Bernarda Camporedondo in G.R. No. L11483. It is so ordered.

COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents. Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner. A. S. Monzon, Gutierrez, Farrales and Ong for respondents. REYES, J.B.L., J.: A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947 by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00 to the partnership. On 1 October 1947, the limited partnership was registered with the Securities and Exchange Commission. The firm engaged, among other activities, in the importation, marketing, distribution and operation of automatic phonographs, radios, television sets and amusement machines, their parts and accessories. It had an office and held itself out as a limited partnership, handling and carrying merchandise, using invoices, bills and letterheads bearing its trade-name,

Carlson's interests in the partnership in 1948 is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New Civil Code, and that since its juridical personality had not been affected and since, as a limited partnership, as contra distinguished from a duly registered general partnership, it is taxable on its income similarly with corporations, Suter was not bound to include in his individual return the income of the limited partnership. We find the Commissioner's appeal unmeritorious. The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by operation of law because of the marriage of the only general partner, William J. Suter to the originally limited partner, Julia Spirig one year after the partnership was organized is rested by the appellant upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows: A husband and a wife may not enter into a contract of general copartnership, because under the Civil Code, which applies in the absence of express provision in the Code of Commerce, persons prohibited from making donations to each other are prohibited from entering into universal partnerships. (2 Echaverri 196) It follows that the marriage of partners necessarily brings about the dissolution of a preexisting partnership. (1 Guy de Montella 58) The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co., Ltd. was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of the Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in 1947), a universal partnership requires either that the object of the association be all the present property of the partners, as contributed by them to the common fund, or else "all that the partners may acquire by their industry or work during the existence of the partnership". William J. Suter "Morcoin" Co., Ltd. was not such a universal partnership, since the contributions of the partners were fixed sums of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that spouses were forbidden to enter by Article 1677 of the Civil Code of 1889. The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the aforesaid Article 1677: Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis permisiva de los contratos de sociedad particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y hay que estar a la norma general segun la que toda persona es capaz para contratar mientras no sea declarado incapaz por la ley. La jurisprudencia de la Direccion de los Registros fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo

de 1943. Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce. The appellant's view, that by the marriage of both partners the company became a single proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and Julia Spirig were separately owned and contributed by them before their marriage; and after they were joined in wedlock, such contributions remained their respective separate property under the Spanish Civil Code (Article 1396): The following shall be the exclusive property of each spouse: (a) That which is brought to the marriage as his or her own; .... Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become common property of both after their marriage in 1948. It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality of its own, distinct and separate from that of its partners (unlike American and English law that does not recognize such separate juridical personality), the bypassing of the existence of the limited partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles of our law. The limited partnership's separate individuality makes it impossible to equate its income with that of the component members. True, section 24 of the Internal Revenue Code merges registered general co-partnerships (compaias colectivas) with the personality of the individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership laws, and can not be extended by mere implication to limited partnerships. The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554, Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal personality of the corporations involved therein are not applicable to the present case. In the cited cases, the corporations were already subject to tax when the fiction of their corporate personality was pierced; in the present case, to do so would exempt the limited partnership from income taxation but would throw the tax burden upon the partnersspouses in their individual capacities. The corporations, in the cases cited, merely served as business conduits or alter egos of the stockholders, a factor that justified a disregard of their corporate personalities for tax purposes. This is not true in the present case. Here, the limited partnership is not a mere business conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns as such independent entity. The change in its membership, brought about by the marriage of the partners and their subsequent

acquisition of all interest therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy the interests of the remaining partner with the premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws. Regularity, not otherwise, is presumed. As the limited partnership under consideration is taxable on its income, to require that income to be included in the individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compaia colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes the latter on its income, but not the former, because it is in the case of compaias colectivas that the members, and not the firm, are taxable in their individual capacities for any dividend or share of the profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt But it is argued that the income of the limited partnership is actually or constructively the income of the spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the fruits of the wife's parapherna become conjugal only when no longer needed to defray the expenses for the administration and preservation of the paraphernal capital of the wife. Then again, the appellant's argument erroneously confines itself to the question of the legal personality of the limited partnership, which is not essential to the income taxability of the partnership since the law taxes the income of even joint accounts that have no personality of their own. 1 Appellant is, likewise, mistaken in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable is the "income of both spouses" (Section 45 [d] in their individual capacities. Though the amount of income (income of the conjugal partnership vis-a-vis the joint income of husband and wife) may be the same for a given taxable year, their consequences would be different, as their contributions in the business partnership are not the same. The difference in tax rates between the income of the limited partnership being consolidated with, and when split from the income of the spouses, is not a justification for requiring consolidation; the revenue code, as it presently stands, does not authorize it, and even bars it by requiring the limited partnership to pay tax on its own income.

appellee. BARRERA, J.: On January 24, 1958, petitioner Laguna Transportation Co., Inc. filed with the Court of First Instance of Laguna petition praying that an order be issued by the court declaring that it is not bound to register as a member of respondent Social Security System and, therefore, not obliged to pay to the latter the contributions required under the Social Security Act.1 To this petition, respondent filed its answer on February 11, 1958 praying for its dismissal due to petitioner's failure to exhaust administrative remedies, and for a declaration that petitioner is covered by said Act, since the latter's business has been in operation for at least 2 years prior to September 1, 1957. On February 11, 1958, respondent filed a motion for preliminary hearing on its defense that petitioner failed to exhaust administrative remedies. When the case was called for preliminary hearing, it was postponed by agreement of the parties. Subsequently, it was set for trial. On the date of the trial, the parties agreed to present, in lieu of any other evidence, a stipulation of facts, which they did on May 27, 1958, as follows: 1. That petitioner is a domestic corporation duly organized and existing under the laws of the Philippines, with principal place of business at Bian, Laguna; 2. That respondent is an agency created under Republic Act No. 1161, as amended by Republic Act No. 1792, with the principal place of business at the new GSIS Bldg., corner Arroceros and Concepcion Streets, Manila, where it may be served with summons; 3. That respondent has served notice upon the petitioner requiring it to register as member of the System and to remit the premiums due from all the employees of the petitioner and the contribution of the latter to the System beginning the month of September, 1957; 4. That sometime in 1949, the Bian Transportation Co., a corporation duly registered with the Securities and Exchange Commission, sold part of the lines and equipment it operates to Gonzalo Mercado, Artemio Mercado, Florentino Mata and Dominador Vera Cruz; 5. That after the sale, the said vendees formed an unregistered partnership under the name of Laguna Transportation Company which continued to operate the lines and equipment bought from the Bian Transportation Company, in addition to new lines which it was able to secure from the Public Service Commission; 6. That the original partners forming the Laguna Transportation Company, with the addition of two new members, organized a corporation known as the Laguna Transportation Company, Inc., which was registered with the Securities and Exchange Commission on June 20, 1956, and which corporation is the plaintiff now in this case; 7. That the incorporators of the Laguna Transportation

LAGUNA TRANSPORTATION CO., INC., petitionerappellant, vs.SOCIAL SECURITY SYSTEM, respondentappellee. Yatco & Yatco for appellant.Solicitor General Edilberto Barot, Solicitor Camilo Quiason and Crispin Baizas for

Company, Inc., and their corresponding shares are as follows: Name No. of Shares

subject to compulsory coverage under said law. . . .

From this decision, petitioner appealed directly to us, raising purely questions of law. Amount Subscribed Petitioner claims that the lower court erred in holding that it is an employer engaged in business as a common carrier P33,300.00 which had been in operation for at least 2 years prior to the enactment of the Social Security Act and, therefore, subject to compulsory coverage thereunder. 33,300.00 Section 9 of the Social Security Act, in part, provides: SEC. 9 Compulsory Coverage. Coverage in the System shall be compulsory upon all employees between the ages of sixteen and sixty years, inclusive, if they have been for at least six months in the service of an employer who is a member of the System. Provided, That the Commission may not compel any employer to become a member of the System unless he shall have been in operation for at least two years . . . . (Italics supplied.).

Dominador Cruz

333 shares

Maura Mendoza

333 shares

Gonzalo Mercado

66 shares

6,600.00

Artemio Mercado

94 shares

9,400.00

Florentino Mata

110 shares

11,000.00

It is not disputed that the Laguna Transportation Company, an unregistered partnership composed of Gonzalo Mercado, Artemio Mercado, Florentina Mata, and Dominador Vera Sabina Borja 64 shares 6,400.00 Cruz, commenced the operation of its business as a common carrier on April 1, 1949. These 4 original partners, with 2 others (Maura Mendoza and Sabina Borja) later converted the partnership into a corporate entity, by 1,000 shares P100,000.00 registering its articles of incorporation with the Securities and Exchange Commission on June 20, 1956. The firm name "Laguna Transportation Company" was not altered, 8. That the corporation continued the same transportation except with the addition of the word "Inc." to indicate that business of the unregistered partnership; petitioner was duly incorporated under existing laws. The corporation continued the same transportation business of 9. That the plaintiff filed on August 30, 1957 an Employee's the unregistered partnership, using the same lines and Data Record . . . and a supplemental Information Sheet . . .; equipment. There was, in effect, only a change in the form of the organization of the entity engaged in the business of 10. That prior to November 11, 1957, plaintiff requested for transportation of passengers. Hence, said entity as an exemption from coverage by the System on the ground that employer engaged in business, was already in operation for it started operation only on June 20, 1956, when it was at least 3 years prior to the enactment of the Social Security registered with the Securities and Exchange Commission Act on June 18, 1954 and for at least two years prior to the but on November 11, 1957, the Social Security System passage of the amendatory act on June 21, 1957. Petitioner notified plaintiff that it was covered; argues that, since it was registered as a corporation with the Securities and Exchange Commission only on June 20, 1956, it must be considered to have been in operation only 11. On November 14, 1957, plaintiff through counsel sent a on said date. While it is true that a corporation once formed letter to the Social Security System contesting the claim of is conferred a juridical personality separate and district from the System that plaintiff was covered, . . . the persons composing it, it is but a legal fiction introduced for purposes of convenience and to subserve the ends of 12. On November 27, 1957, Carlos Sanchez, Manager of justice. The concept cannot be extended to a point beyond the Production Department of the respondent System for its reasons and policy, and when invoked in support of an and in behalf of the Acting Administrator, informed plaintiff end subversive of this policy, will be disregarded by the that plaintiff's business has been in actual operation for at courts. (13 Am. Jur. 160.) least two years, . . . On the basis of the foregoing stipulation of facts, the court, on August 15, 1958, rendered a decision the dispositive part of which reads: Wherefore, the Court is of the opinion and so declares that the petitioner was an employer engaged in business as common carrier which had been in operation for at least two years prior to the enactment of Republic Act No. 1161, as amended by Republic Act 1792 and by virtue thereof, it was If any general rule can be laid down, in the present state of authority, it is that a corporation will be looked upon as a legal entity as a general rule, and until sufficient reason to the contrary appears; but, when the motion of legal entity is used to defeat public convenience, justify wrong, protect fraud, or defend crime, the law will regard the corporation as an association of persons. (1 Fletcher Cyclopedia Corporations [Perm. Ed.] 135-136; U.S. Milwaukee Refrigeration Transit Co., 142 Fed. 247, cited in Koppel Philippines, Inc. vs. Yatco, 43 Off. Gaz., 4604.)

To adopt petitioner's argument would defeat, rather than promote, the ends for which the Social Security Act was enacted. An employer could easily circumvent the statute by simply changing his form of organization every other year, and then claim exemption from contribution to the System as required, on the theory that, as a new entity, it has not been in operation for a period of at least 2 years. the door to fraudulent circumvention of the statute would, thereby, be opened. Moreover, petitioner admitted that as an employer engaged in the business of a common carrier, its operation commenced on April 1, 1949 while it was a partnership and continued by the corporation upon its formation on June 20, 1956. Unlike in the conveyance made by the Bian Transportation Company to the partners Gonzalo Mercado, Artemio Mercado, Florentino Mata, and Dominador Vera Cruz, no mention whatsoever is made either in the pleadings or in the stipulation of facts that the lines and equipment of the unregistered partnership had been sold and transferred to the corporation, petitioner herein. This omission, to our mind, clearly indicates that there was, in fact, no transfer of interest, but a mere change in the form of the organization of the employer engaged in the transportation business, i.e., from an unregistered partnership to that of a corporation. As a rule, courts will look to the substance and not to the form.(Colonial Trust Co. vs. Montolo Eric Works, 172 Fed. 310; Metropolitan Holding Co. vs. Snyder, 79 F. 2d 263, 103 A.L.R. 612; Arnold vs. Willits, et al., 44 Phil., 634; 1 Fletcher Cyclopedia Corporations [Perm. Ed.] 139-140.) Finally, the weight of authority supports the view that where a corporation was formed by, and consisted of members of a partnership whose business and property was conveyed and transferred to the corporation for the purpose of continuing its business, in payment for which corporate capital stock was issued, such corporation is presumed to have assumed partnership debts, and is prima facie liable therefor. (Stowell vs. Garden City News Corps., 57 P. 2d 12; Chicago Smelting & Refining Corp. vs. Sullivan, 246 IU, App. 538; Ball vs. Bross., 83 June 19, N.Y. Supp. 692.) The reason for the rule is that the members of the partnership may be said to have simply put on a new coat, or taken on a corporate cloak, and the corporation is a mere continuation of the partnership. (8 Fletcher Cyclopedia Corporations [Perm. Ed.] 402-411.) Wherefore, finding no error in the judgment of the court a quo, the same is hereby affirmed, with costs against petitioner-appellant. So ordered.

CONCEPCION, J.: This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part of which reads: FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive, in accordance with the respondent's assessment for the same in the total amount of P6,878.34, which is hereby affirmed and the petition for review filed by petitioner 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 P59,1400.00 which amount together with their personal monies was used by them for the purpose of buying real properties,. 2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40 sq. m. including improvements thereon from the sum of P100,000.00; this property has an assessed value of P57,517.00 as of 1948; 3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00; this property has an assessed value of P82,255.00 as of 1948; 4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m. including improvements thereon for P108,825.00. This property has an assessed value of P4,983.00 as of 1948; 5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including improvements thereon for P237,234.34. This property has an 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 collect and receive rents; to issue receipts therefor; in default of such payment, to bring suits against the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit all notes and checks for them; 7. That after having bought the above-mentioned real properties the petitioners had the same rented or leases to various tenants; 8. That from the month of March, 1945 up to an including December, 1945, the total amount collected as rents on their real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby leaving them a net rental income of P5,948.33; 9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of which amount was deducted

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. Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and Solicitor Felicisimo R. Rosete for Respondents.

in the sum of P16,288.27 for expenses thereby leaving them a net rental income of P7,498.13; 10. That in 1948, they realized a gross rental income of P17,453.00 out of the which amount was deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35. It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence tax for the years 1945-1949, computed, according to assessment made by said officer, as follows: INCOME TAXES 1949 1945 14.84 Total including surcharge 1,144.71 TOTAL TAXES DUE 1947 10.34 Said letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954, whereupon 1,912.30 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 1,575.90 taxes in question, with costs against the respondent. After appropriate proceedings, the Court of Tax Appeals the P6,157.09 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 whether petitioners are subject to the tax on corporations provided for in section 24 of P37.50 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 150.00 the meaning of the terms "corporation" and "partnership," as used in section 24 and 84 of said Code, the pertinent parts of which read: 150.00 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 150.00 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 copartnerships (compaias colectivas), a tax upon such P527.00 income equal to the sum of the following: . . . SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock companies, joint accounts (cuentas en participacion), associations or 38.75

1945

P38.75

1946

38.75

1947

38.75

1948

38.75

P193.75

1946

P6,878.

1948

1949

Total including surcharge and compromise

REAL ESTATE DEALER'S FIXED TAX

1946

1947

1948

1949

Total including penalty

RESIDENCE TAXES OF CORPORATION

insurance companies, but does not include duly registered general copartnerships. (compaias 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, properly, or industry to a common fund, with the intention of dividing the profits among themselves. Pursuant to the 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 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 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 P18,000.00. 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 the petitioners in February, 1943. In other words, one cannot but perceive a character of habitually peculiar to business transactions engaged in the purpose 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 and 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 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 participation)" 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 copartnerships" 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 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 provisions 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 designed 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 interinsuarance 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 Code, a trust or an estate, or a partnership. (7A Mertens Law of Federal Income Taxation, p. 788; emphasis supplied.). 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 organizations 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 supplied.) The term 'partnership' includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis supplied.) . For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships with the exception only of duly registered general copartnerships within the purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is concerned and are subject to the income tax for corporations. As regards the residence of tax for corporations, section 2 of Commonwealth 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 jointstock company, partnership, joint account (cuentas en participacion), association or insurance company, no matter how created or organized. (emphasis supplied.)

Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of our National Internal Revenue Code (commonwealth Act No. 466), and that the latter was approved on June 15, 1939, the day immediately after the approval of said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms "corporation" and "partnership" are used in both statutes with substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax for corporations. Lastly, the records show that petitioners have habitually engaged in leasing the properties above mentioned for a period of over twelve years, and that the yearly gross rentals of said properties from June 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. . . (emphasis supplied.) Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against the petitioners herein. It is so ordered.

JOHN FORTIS, Plaintiff-Appellee , HERMANOS, Defendants-Appellants. WILLARD, J.:

vs.

GUTIERREZ

Plaintiff, an employee of defendants during the years 1900, 1901, and 1902, brought this action to recover a balance due him as salary for the year 1902. He alleged that he was entitled, as salary, to 5 per cent of the net profits of the business of the defendants for said year. The complaint also contained a cause of action for the sum of 600 pesos, money expended by plaintiff for the defendants during the year 1903. The court below, in its judgment, found that the contract had been made as claimed by the plaintiff; that 5 per cent of the net profits of the business for the year 1902 amounted to 26,378.68 pesos, Mexican currency; that the plaintiff had received on account of such salary 12,811.75 pesos, Mexican currency, and ordered judgment against the defendants for the sum 13,566.93 pesos, Mexican currency, with interest thereon from December 31, 1904. The court also ordered judgment against the defendants for the 600 pesos mentioned in the complaint, and intereat thereon. The total judgment rendered against the defendants in favor of the plaintiff, reduced to Philippine currency, amounted to P13,025.40. The defendants moved for a new trial, which was denied, and they have brought the case here by bill of exceptions.chanroblesvirtualawlibrary chanrobles virtual law library (1) The evidence is sufifcient to support the finding of the court below to the effect that the plaintiff worked for the

defendants during the year 1902 under a contract by which he was to receive as compensation 5 per cent of the net profits of the business. The contract was made on the part of the defendants by Miguel Alonzo Gutierrez. By the provisions of the articles of partnership he was made one of the managers of the company, with full power to transact all of the business thereof. As such manager he had authority to make a contract of employment with the plaintiff.chanroblesvirtualawlibrary chanrobles virtual law library (2) Before answering in the court below, the defendants presented a motion that the complaint be made more definite and certain. This motion was denied. To the order denying it the defendants excepted, and they have assigned as error such ruling of the court below. There is nothing in the record to show that the defendants were in any way prejudiced by this ruling of the court below. If it were error it was error without prejudice, and not ground for reversal. (Sec. 503, Code of Civil Procedure.)chanrobles virtual law library (3) It is claimed by the appellants that the contract alleged in the complaint made the plaintiff a copartner of the defendants in the business which they were carrying on. This contention can not bo sustained. It was a mere contract of employnent. The plaintiff had no voice nor vote in the management of the affairs of the company. The fact that the compensation received by him was to be determined with reference to the profits made by the defendants in their business did not in any sense make by a partner therein. The articles of partnership between the defendants provided that the profits should be divided among the partners named in a certain proportion. The contract made between the plaintiff and the then manager of the defendant partnership did not in any way vary or modify this provision of the articles of partnership. The profits of the business could not be determined until all of the expenses had been paid. A part of the expenses to be paid for the year 1902 was the salary of the plaintiff. That salary had to be deducted before the net profits of the business, which were to be divided among the partners, could be ascertained. It was undoubtedly necessary in order to determine what the salary of the plaintiff was, to determine what the profits of the business were, after paying all of the expenses except his, but that determination was not the final determination of the net profits of the business. It was made for the purpose of fixing the basis upon which his compensation should be determined.chanroblesvirtualawlibrary chanrobles virtual law library (4) It was no necessary that the contract between the plaintiff and the defendants should be made in writing. (Thunga Chui vs. Que Bentec, 1 1 Off. Gaz., 818, October 8, 1903.)chanrobles virtual law library (5) It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had made the contract, had died prior to the trial of the action, and the defendants claim that by reasons of the provisions of section 383, paragraph 7, of the Code of Civil Procedure, plaintiff could not be a witness at the trial. That paragraph provides that parties to an action against an executor or aministrator upon a claim or demand against the estate of a deceased person can not testify as to any matter of fact occurring before the death of such deceased person. This action was not brought against the administrator of

Miguel Alonzo, nor was it brought upon a claim against his estate. It was brought against a partnership which was in existence at the time of the trial of the action, and which was juridical person. The fact that Miguel Alonzo had been a partner in this company, and that his interest therein might be affected by the result of this suit, is not sufficient to bring the case within the provisions of the section above cited.chanroblesvirtualawlibrary chanrobles virtual law library (6) The plaintiff was allowed to testify against the objection and exception of the defendants, that he had been paid as salary for the year 1900 a part of the profits of the business. This evidence was competent for the purpose of corroborating the testimony of the plaintiff as to the existence of the contract set out in the complaint.chanroblesvirtualawlibrary chanrobles virtual law library (7) The plaintiff was allowed to testify as to the contents of a certain letter written by Miguel Glutierrez, one of the partners in the defendant company, to Miguel Alonzo Gutierrez, another partner, which letter was read to plaintiff by Miguel Alonzo. It is not necessary to inquire whether the court committed an error in admitting this evidence. The case already made by the plaintiff was in itself sufficient to prove the contract without reference to this letter. The error, if any there were, was not prejudicial, and is not ground for revesal. (Sec. 503, Code of Civil Procedure.)chanrobles virtual law library (8) For the purpose of proving what the profits of the defendants were for the year 1902, the plaintiff presented in evidence the ledger of defendants, which contained an entry made on the 31st of December, 1902, as follows: Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66 Utilidades liquidas obtenidas durante el ano y que abonamos conforme a la proporcion que hemos establecido segun el convenio de sociedad. The defendant presented as a witness on, the subject of profits Miguel Gutierrez, one of the defendants, who testiffied, among other things, that there were no profits during the year 1902, but, on the contrary, that the company suffered considerable loss during that year. We do not think the evidence of this witnees sufficiently definite and certain to overcome the positive evidence furnished by the books of the defendants themselves.chanroblesvirtualawlibrary chanrobles virtual law library (9) In reference to the cause of action relating to the 600 pesos, it appears that the plaintiff left the employ of the defendants on the 19th of Macrh, 1903; that at their request he went to Hongkong, and was there for about two months looking after the business of the defendants in the matter of the repair of a certain steamship. The appellants in their brief say that the plaintiff is entitled to no compensation for his services thus rendered, because by the provisions of article 1711 of the Civil Code, in the absence of an agreement to the contrary, the contract of agency is supposed to be gratuitous. That article i not applicable to this case, because the amount of 600 pesos not claimed as compensation for services but as a reimbursment for money expended by the plaintiff in the business of the defendants. The article of the code that is applicable is article

1728.chanroblesvirtualawlibrary library

chanrobles

virtual

law

The judgment of the court below is affirmed, with the costs, of this instance against the appellants. After the expiration of twenty days from the date of this decision let final judgment be entered herein, and ten days thereafter let the case be remanded to the lower court for execution. So ordered. 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 & Brandy for appellee. STREET, J.: This action was institute 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 statements showing that Lyons was, at that time, half owner with Elser of three particular pieces of real property. Concurrently with this act Lyons execute 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 his hands a single piece of property located at 616-618 Carried 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 Elser purchased the San Juan Estate on or about June 28, 1920. For the 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 amount 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 Lyson to bring him to the resolution to stay out of this venture, was that the board of mission 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 book 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 requirements 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 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 Pillar 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 Lyon's 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 the 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 the 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 held finance the purchase of the San Juan Estate. He seems to have supposed that the Carried 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 that he thought that the money obtained by mortgaging the Carriedo property had been used in the purchase of this property. It doubtedless appeared so to him in the retrospect, but certain consideration show that he was inattentive to the contents of the quotation from 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 could get it; and the quotation 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 situation, 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 difference; 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, 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 of himself and Lyons, and the law cannot be distorted 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 trust 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 prejudice by that act. The appellee insist that the trial court committed error in admitting the testimony of Lyons upon matters that passed between him and Elser while the latter 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.

R.B. INDUSTRIAL DEVELOPMENT COMPANY, LIMITED, and RAY N. KITTILSTVEDT, petitioners, vs.HON. MANUEL LOPEZ ENAGE, Judge of the Court of First Instance of Agusan, Branch II, and EASTERN TIMBER CORPORATION, respondents. Simon F. Puyot, Edelmiro A. Amante and Virgilio N. Atega, Sr. for petitioners.Honorato S. Hermosisima and Ruben L. Roxas, for respondents. SANCHEZ, J.: This original action for certiorari and prohibition asks us to strike down the power of the Court of First Instance of Agusan to proceed with its Civil Case 1087.1 Petitioners R.B. Industrial Development Company, Limited (Industrial for short) and Ray N. Kittilstvedt, with vehemence say, inter alia, that private respondent Eastern Timber Corporation (hereinafter referred to simply as Eastern) has no cause of

action against them; and, that the lower court is without jurisdiction to take cognizance of said case. Petitioners express grave concern over the great probability that the lower court would issue an injunction to prevent Industrial from logging within the forest area covered by its concession. We, accordingly, issued a cease and-desist order upon petitioners' application. The present controversy has its roots in facts now to be recited: Ray N. Kittilstvedt was granted by the Bureau of Forestry a forest concession in Cabadbaran, Agusan, with an area of 6,850 hectares under Ordinary Timber License 1286-'59 (New) dated January 22, 1959 to expire on June 30, 1959. Said license was on its face non-transferable. And yet, on December 22, 1959, i.e., five months and twenty-nine days after the license expired, Eastern, at the time still in the process of organization,2 became Kittilstvedt's assignee of the lapsed license aforesaid in exchange for 400 shares with a par value of P40,000 of Eastern's capital stock. Soon thereafter, that is, on March 30, 1960, Kittilstvedt sold his 400 shares in Eastern for the same consideration of P40,000 to Democrito O. Plaza, now Eastern's stockholder. Of interest is that immediately after the transfer of the license, Kittilstvedt was made vice-president of Eastern. Claim is now advanced that inspite of the fact that Kittilsvedt is supposed to own 96.15% of the paid-up capital stock, 3 he (vice-president) did not share in the corporation's management. Kittilstvedt's timber license was extended on March 6, 1963, denominated as Ordinary Timber License 878-'63 in his name. It was again renewed, likewise in his name, on October 27, 1965, this time as Ordinary Timber License 847-61566. While the license appears in Kittilstvedt's name, averment is made by Eastern that the expenses for the renewal of the license such as application fees, license fees, forestry bonds and other incidental expenses were paid for by Eastern. The day following the issuance of the last renewal license (847-61566), or on October 28, 1965, Kittilstvedt transferred the same to Industrial. Industrial thus obtained its own Ordinary Timber License 981-103166 (New). On December 21, 1965, Eastern lodged a complaint with the Director of Forestry against R.B. Mining Co., Ltd. (instead of Industrial) and Kittilstvedt, praying for (1) the cancellation of the ordinary timber license allegedly issued in the name of R.B. Mining Co., Ltd., and (2) the issuance in lieu thereof of another license in the name of Eastern; and (3) in the meantime, for an order stopping R.B. Mining Co., Ltd. or any person to conduct logging operations within the forest area covered by Ordinary Timber License 981103166 (New). The remedy pursued in the Bureau of Forestry was thereafter abandoned. Came the court case (Civil Case 1087) filed on February 4, 1966 in the court of first instance adverted to at the beginning of this opinion.4 This time, Eastern sued Kittilstvedt and Industrial asking for the following reliefs: (1)

preliminary injunction to stop logging operations in the area under Industrial's timber license; (2) nullification of the transfer of Kittilstvedt to Industrial; (3) declaration that plaintiff is the owner of the said timber license appearing in the name of Industrial; (4) directing defendants to transfer said license in Eastern's name; and, (5) accounting by defendants of logs and forest products, damages, attorneys' fees, and costs. This complaint was met by defendants' motion to dismiss mainly upon the two grounds heretofore mentioned. The court held in abeyance resolution on the motion to dismiss. Defendants moved to reconsider. Then, on May 2, 1967, the trial court issued an order5 (1) denying the motion to reconsider; (2) denying plaintiff's exparte motion to declare defendants in default; (3) ordering defendants to answer the complaint within the reglementary period; and (4) setting for on June 5, 1967 plaintiff's urgent motion for preliminary injunction. On June 1, 1967, defendants went to the Court of Appeals on certiorari (CA-G.R. 31431-R). Since jurisdiction was the main question involved therein, cognizable only by the Supreme Court, the Court of Appeals, on June 14, 1967, dismissed the petition. Meanwhile, on June 5, 1967, at a time when the certiorari petition was pending consideration by the Court of Appeals, respondent judge issued two orders: the first, declaring defendants in default and denying their counsel's request to defer the proceedings, and giving leave to plaintiff to present evidence before the deputy clerk of court; the second, authorizing the deputy clerk of court to receive plaintiff's evidence in connection with the latter's (Eastern's) application for a preliminary injunction. Defendants below, Industrial and Kittilstvedt, lost no time in coming to this Court on certiorari and prohibition aforesaid. We will now proceed to discuss the legal issues tendered by the petition and the return, and the written arguments of the parties.1wph1.t 1. The forefront question is whether or not Eastern, plaintiff below (respondent here), has a cause of action against defendants (herein petitioners) Industrial and Kittilstvedt. For, indeed, if Eastern did not have a cause of action, it would be futile to proceed any further. Eastern's cause of action is anchored on the deed of assignment and affidavit both executed by Kittilstvedt on December 29, 1959 conveying to Eastern all his rights under Ordinary Timber License 1286-'59 (New). But did Eastern acquire any right under these documents to entitle it to sue for the performance of any prestation thereunder by Kittilstvedt? Our answer is No. First, the license had already expired. There was no license to transfer. Second, the license itself says that such license is non-transferable. And, Eastern is duty bound to be guided by that prohibition. Third, the conveyance was illegal. Ex dolo malo non oritur actio. A party to an illegal contract cannot come to court and ask to

have his illegal objects carried out.6 Forestry Administrative Order No. 21, dated September 18, 1954,7 expressly prohibits such transfer. This order reads: The transfer, sale or conveyance of any license, permit or lease issued by the Director of Forestry, now or hereafter authorized under the forest laws, rules and regulations in favor of any individual, companies or private corporations within the period of three years after the issuance of such license, permit or lease, or any transaction under any guise which will allow or permit others to enjoy the privilege granted therein, is hereby prohibited. After the period of three years from the issuance of the license, permit or lease, the licensee, permittee or lessee may, with the approval of the Secretary of Agriculture and Natural Resources, be allowed to transfer, sell or convey his license, permit or lease in favor of qualified persons, companies or corporations, provided that the licensee, permittee or lessee has fully complied with all the requirements of the law and the rules and regulations thereunder promulgated by the Director of Forestry; and provided further, that there is no evidence that such transfer, sale or conveyance is being made for purposes of speculation.8 Forestry Administrative Order No. 21 was issued by the Secretary of Agriculture and Natural Resources upon recommendation of the Director of Forestry on authority of Sections 79(b) and 1817 of the Revised administrative Code. Judicial test has since recognized that administrative orders of this nature have the force and effect of law.9 Why then should transfer of licenses be regulated, by the Bureau of Forestry? We look at Forestry Administrative Order No. 21 just transcribed. We perceive that it is not without reason. By Section 1824 of the Revised Administrative Code, the governing principle is that the public forests of the Philippines "shall be held and administered for the protection of the public interests, the utility and safety of the forests, and the perpetuation thereof in productive condition by wise use". This is but an echo, of Section 1817, of the same Code which, speaking of regulations of the Bureau of Forestry, states that such "regulations of the Bureau of Forestry with the approval of the Department Head first had, shall, among other things contain provisions deemed expedient or necessary to secure the protection and conservation of the public forests in such manner as to insure a continued supply of valuable timber and other forest products for the future, and regulating the use and occupancy of the forests and forest reserves, to the same end". We have recently said that there is the pressing need for forest preservation, conservation, protection, development and reforestation.10 And, it is to be observed that in the administrative order heretofore adverted to, there is a discernible purpose at once laudable. With tremendous profits that logging operations may bring, the probability of the government having to cope with unscrupulous loggers is not altogether remote. The transfer, sale or conveyance of forest concessions, so the rule says, should not be "made for purposes of speculation". One without a legitimate

purpose to operate a logging concession may obtain a license to be able to peddle it and thus make the proverbial quick peso. There is the other concessionaire already with a license covering a sufficient area, who may be driven by greed to acquire more with detriment to public interests. Is it then too far-fetched to say that it is the bounden duty of those called upon to enforce our forest laws to minimize, if not totally curb, the activities or emergence of those speculators and dummies? It is within the area of the State's concern to encourage the exploitation of our natural resources by honest, qualified licensees who are willing and able to exert their utmost efforts and dare the risks and privations concomitant to the opening of frontiers. Likewise, it is the State's responsibility to see to it that benefits accrue both to the concessionaire and the country in general. It is not out of place then to say that the law may grant or withhold the transfer of timber licenses. To repeat, Eastern seeks relief in the court below upon a deed of conveyance of a forest license eleven months and seven days after the issuance thereof, and after its term has expired. This is contrary to the prohibition in Forestry Administrative Order No. 21. It is illegal. Eastern acquired no rights therefrom. Eastern cannot compel Kittilstvedt to comply with the terms of that contract. For, there is no duty where the law forbids.11 And even if we concede that the transfer were valid, the same would not produce any effect until and unless approved by the Director of Forestry and the Secretary of Agriculture and Natural Resources. And the suit below being one for specific performance of an illegal conveyance will not prosper for lack of cause of action. 2. Eastern may complain about its investment. We are in no position to bring to the surface what has actually transpired in the relations between Eastern and Kittilstvedt. We observe though that the consideration in shares of stock for P40,000 was purportedly given on December 29, 1959. Quite interesting to note is that there is in the record a statement that the same shares of stock were transferred by Kittilstvedt to Democrito O. Plaza on March 30, 1960 in consideration of P40,000. And yet, surprisingly enough, the first payment of P10,000 (on the P40,000) was made by Democrito O. Plaza on December 4, 1959 in cash, which according to the receipt signed by Kittilstvedt was for "partial payment of the purchase price of my 400 shares of stock with the Eastern Timber Corporation". That payment to Kittilstvedt of P10,000, it thus appears, preceded even the transfer of the license and the acquisition by Kittilstvedt of the stocks sold. Not escaping our notice also is the fact that for over five years, Eastern made no move to transfer to its name Kittilstvedt's license. But, by its own representations to the Bureau of Forestry and to this Court, Eastern says that it spent "for the renewal of the license such as application fees, license fees, forestry bonds and other incidental expenses involved in the renewal of the O.T. License issued to Kittilstvedt".12 It is a wonder, too, why, despite his clear majority in stockholdings, Kittilstvedt would complain of being shut off from Eastern's management, when he can easily dispose of the other directors or whip them into line. The conduct observed by the parties but emphasizes the

unique relationship between Kittilstvedt and Eastern and the latter's stockholders. Those are matters that should first be looked into by the Bureau of Forestry. Then the Bureau of Forestry, on the basis of its findings of fact, must first rule on whether or not transfer of license should be allowed, and its conclusions if favorable must be approved by the Secretary of Agriculture and Natural Resources. It is only after all these shall have happened and they have not that Eastern can lay claim, if any it has, to the transfer of the license in its name. And again we say that Eastern has no cause of action. 3. We now come to the jurisdictional issue. The thrust of the reliefs sought by Eastern is that it be, declared owner of the timber license now in the name of Industrial, and that, in consequence, the transfer thereof by Kittilstvedt to Industrial be annulled. But the question of whether or not Industrial's timber license should be cancelled and a new one issue in Eastern's name in lieu thereof is one, upon the facts of record, beyond the reach of the courts. Such a prerogative is vested in the Bureau of Forestry by Section 1816 of the Revised Administrative Code. This codal provision reads: SEC. 1816. Jurisdiction of Bureau of Forestry. The Bureau of Forestry shall have jurisdiction and authority over the demarcation protection, management, reproduction, reforestation, occupancy, and use of all public forests and forest reserves and over the granting of licenses for game, and fish, and for the taking of forest products, including stone and earth, therefrom. A doctrine long recognized is that where the law confines in an administrative office the power to determine particular questions or matters, upon the facts to be presented, the jurisdiction of such office shall prevail over the courts.13 Respondent Eastern had gone to the Bureau of Forestry. It withdrew its complaint. Eastern may not go to the courts of justice which have no jurisdiction in the first instance to approve the alleged transfer and to direct the issuance of the license in favor of Eastern. At this stage, the jurisdiction of the court may not be invoked. Absent a cause of action and the lower court's jurisdiction, there was grave abuse of discretion in that court's refusal to dismiss the case under review. For the reasons given, the petition for certiorari and prohibition is hereby granted; the writ of preliminary injunction heretofore issued is made permanent; and the respondent judge or whoever takes his place is hereby directed to dismiss Civil Case 1087 of the Court of First Instance of Agusan entitled "Eastern Timber Corporation, Plaintiff, vs. Ray N. Kittilstvedt and R. B. Industrial Development Company, Limited, Defendants". G.R. No. L-929 THUNGA CHUI, plaintiff-appellee, vs. QUE BENTEC, defendant-appellant. Manuel Torres for appellant. W.H. Bishop for appellee. Willard, J.:

The case was before this court in November, 1902. It was then decided that the only question open to the appellant was whether the findings of fact made by the trial judge in this decision supported the judgment. (Thunga Chui vs. Que Bentec, 1 O.G. 4, 1 Phil. 356.) The appellant claims that the partnership contract was required to be in writing by article 119 of the Code of Commerce and, the amount of the capital being more than 1,500 pesetas, by article 1280 of the Civil Code and article 51 of the Code of Commerce. We think it fairly appears from the decision that the contract of partnership was not in writing. Whether this was a civil or a commercial partnership we consider immaterial, for in neither case do we think that the contention of the appellant can prevail. 1. Considered as civil partnership, that part of article 1280 of the Civil Code applicable to the case is as follows: All other contracts, on which the amount of the prestaciones of one or the two contracting parties exceed 1,500 pesetas, must also be drawn in writing, even when they are private documents. Articles 1278 and 1279 of the same code are as follows: ART. 1278. Contracts shall be binding, whatever the form may be in which they have been entered into, provided the essential conditions required for their validity are present. ART. 1279. When the law exacts the execution of a deed or other special form for making effectual suitable obligations of a contract, the contracting parties may compel each other to comply with such forms, from the moment in which consent and the other requirements, necessary for their validity, have taken place. The plaintiff contributed to the partnership 1,000 pesos and the defendant 2,000, and it is therefore claimed by the latter that the case falls under article 1280, and that before the plaintiff can maintain any action on the verbal contract he must proceed under article 1279 to compel the defendant to reduce it to writing. Whatever may be said of earlier decisions of the supreme court of Spain upon the proper construction of these three articles, the latter ones, have, we think, settled the question involved against the claim of the appellant. In the judgment of May 3, 1897, the court said: Article 1279 does not impose an obligation, but confers a privilege upon both contracting parties, and the fact that plaintiff has not made use of same does not bar his action. In the judgment of October 19, 1901, (Alcubilla, appendix, 1902, p. 139), it appeared that the plaintiff, Doa Ana Laborda, agreed with the defendant, Don Nemesio Alamanzon, to leave the employment which she then had and to enter the defendant's service, and he agreed that if she left his service he would pay her during life an annuity equal to the salary which she was receiving in her former employment. This contract was verbal. Having been dismissed, she sued for several months' salary and the annuity. The judgment of the audiencia was in her favor, and the defendant removed the case to the Supreme Court,

assigning as error that the court had infringed article 1280. The judgment was affirmed, the court saying: Contracts are binding and therefore enforceable reciprocally by the contracting parties, whatever may be the form in which the contract has been entered into, provided that the essential conditions for their validity are present. The observance of this general rule, expressly established by article 1278 of the Civil Code, is not in opposition to the provisions of the two following articles, as this Supreme Court has repeatedly held, and especially in its judgment of July 4, 1899. Article 1280 is limited to an enumeration of the acts contracts which should be reduced to writing, in a public or private document. Article 1279, far from making the enforceability of the contract dependent upon any special extrinsic form, recognizes its enforceability by the mere act of granting to the contracting parties an adequate remedy whereby to compel the execution of a public writing, or any other special form, whenever such form is necessary in order that the contract may produce the effect which is desired, according to whatever may be its object. This, in substance, is equivalent to establishing as an implied condition of every contract that these formal requisites shall be complied with, notwithstanding the absence of any express agreement by the contracting parties to that effect, but does not subordinate the principal action for the enforcement of the agreement to the bringing of the secondary action concerning the form. Such subordination would be unnecessary, as the cause of action would be the same in both cases, i.e., the existence of a valid contract. Hence it follows that the court below in its judgment has not committed the error assigned as the sole ground for its reversal, even supposing that the contract upon which this case turns is one of the class which should be reduced to writing. The same doctrine was announced in the judgment of June 18, 1902 (Alcubilla, Appendix, 1902, p. 806), the court there saying: As has been repeatedly held this court, the enforceability of contracts does not depend upon their extrinsic form, but solely upon the presence of the conditions necessary for their validity which it is not denied are present in the contract in question that contracts are binding whatever may be the form of their celebration. The reduction to writing in a public or private document, required by the law with respect to certain contracts, is not an essential requisite of their existence, but is simply a coercive power granted to the contracting parties by which they can reciprocally compel the observance of these formal requisites. It follows, hence, that article 1280 of the Civil Code has not been violated as alleged in the first assignment of error because the contract was not reduced to writing, notwithstanding the fact that the amount involved exceeds 1,500 pesetas, even supposing this article to be applicable to a contract of a mercantile character such as that in question which is specially covered by the Code of Commerce. In the judgment of July 4, 1899, it was found by the Audiencia that the plaintiff had sold to the defendants by a verbal contract her rights in an inheritance. She, claiming that the case fell under article 1280 (4), appealed from the judgment against her, alleging that such rights could only be transferred by a public document. This contention was not sustained.

In the judgment of April 17, 1897, cited by the appellant the judgment was annulled only in one particular, and the decision of the Supreme Court is capable of the construction that, in ordering judgment against the defendants for the price of certain lands sold by a private document, the Audiencia should have inserted to clause requiring the plaintiff on receiving the amount to execute the proper public document. As so construed it is consistent with the decisions heretofore cited. We think that it can now be said that when the question arises between the immediate parties to the contract the constant doctrine of the Supreme Curt is stated to these decisions. The same result must be reached if we consider the question without reference to the authorities. If the requisites of article 1261 exist, the contract is valid between the parties. This is expressly stated in article 1278. Although a contract is by article 1280 required to be in writing, yet it can be "made effective" without that writing, the plaintiff can maintain an action against the other contracting party at once on the verbal contract without resort to article 1279. That need be done only when by reason of the subjectmatter of the contract, or for other causes, the plaintiff can not make the contract fully effective without the prescribed document. The case of Elias Gueb vs. Trinidad Ruiz, decided by this court on November 7, 1901, was placed upon the ground that, in the assignment by the creditor to plaintiff of a demand against the defendant, the latter was a third person, and that as against him the assignment could not be made effective without the writing mentioned in article 1280. 2. If the Civil Code is to govern this contract, what has been said disposes of the claim of the appellant based on article 1280. The appellant, however, assigns as error the infringement of articles 119 and 51 of the Code of Commerce. Article 117 of the Code of Commerce is as follows: The contract of mercantile partnership entered into with the essential requisites of the law shall be valid and binding upon the parties thereto, whatever may be its form, or whatever lawful and fair conditions and combinations may enter into it, provided they are not expressly prohibited by this Code . . . . We hold that under this article a verbal contract of partnership is good as between the parties themselves. The phrase "essential requisites of the law" means those general requirements of the law which are of the essence of every contract, namely, parties who are capable of contracting, the meeting of the minds, the absence of fraud, and those enumerated in article 1261 of the Civil Code. If the intention was to require a compliance with article 119, it would have been moral natural to have used the expression found in article 116, namely, "according to the provisions of this Code." The word "form" refers to the manner in which the contract is made, whether by parol or in writing, and not the class to which it may belong as general, limited, or corporate. In view of the fact that organization in one of these three forms is expressly prescribed in subsequent sections, it would be unusual to expect a statement in this section that the contract should be valid between the parties

even if it was in one of these forms. In article 1667 of the Civil Code, the word "form" is used in the sense which we have given to the word here. This article, 117, is expressly limited to partners, and as to them it is declared that a verbal contract is sufficient. But when third persons are involved, the Code has established a different rule. Article 118 and 119 are as follows: ART. 118. Contracts executed between commercial associations and any other persons capable of binding themselves shall be valid and binding, provided the same are legal and honest, and that the requisites mentioned in the following article are complied with. ART. 119. Every commercial associations, before beginning business, shall be obliged to record its establishments, agreements, and conditions in a public instrument, which shall be presented for record in the commercial registry, in accordance with the provisions of article 17. Additional instruments which modify or alter in any manner whatsoever the original contracts of the association are subject to the same formalities, in accordance with the provisions of article 25. Partners can not make private agreements, but all must appear in the articles of partnerships. It is expressly provided in article 118 that contracts with third persons shall not be valid unless the provisions of article 119 are complied with. There is no such provision in article 117. It is not there said that the contract shall not be valid between the parties unless article 119 is complied with. The effect of a failure to comply with article 119 is the subject of several articles. This article requires the contract to be recorded in the Mercantile Registry. This is required also by article 17; yet article 24 says that even if it is not so recorded it shall be valid as between the partners, but as to third persons. Article 120 declares that the managers of the partnership who fail to comply with article 119 shall be liable to third persons with whom they have dealt. But we can find nothing in the Code which declares that a failure to comply with the article in respect to the public writing shall have any effect upon the partners as between themselves. The last paragraph of article 119 is applicable only to a third persons, for as between the partners themselves there could be no secret agreements in the contract. Article 285 of the Code of Commerce of 1829 plainly required a public instrument, even as between the partners. If the intention was to make no change in the law in this respect, that article would have been retained. But as it appears from the preface cited below, the intention was to change that provision. The most reliable commentary on this Code is the preface attached to the Code of the Peninsula of 1885. Therein is declared the meaning of the law, and upon the question here at issue are made the following statements: The provisions of the projected Code with respect to the different manners and forms under which mercantile partnerships can be organized are based upon similar principles. These principles may be reduced to three, to wit:

Absolute lack of restriction on the part of association to organize as they may see fit; complete absence of governmental intervention in the interior regime of these entities; publicity of such partnership matters as may be of interest to third persons. ... In consequence of the third principle, i.e., the guaranty to the interest of third persons, it is provided that, although every contract of partnership is binding upon the associates in whatsoever manner it may appear the contract has been entered into, it is not so with respect to outsiders until such time as the contract is evidence by a public writing recorded in the Mercantile Registry, in which office, furthermore, must be recorded all contracts introducing reforms into the original contract of partnership, the emission of shares and bonds payable to bearer, and the dissolution of partnership. ... Although the projected Code does not impose any penalty or establish any coercive measures in order to compel the associates to make public the organization of the partnership by means of the Mercantile Registry, it holds all persons directly in charge of the management of the company personally liable for all damages which a failure to comply with this requisite may cause to third persons, who in no case will be bound by the terms or conditions of the contract of partnership of the contents of which they are ignorant. But for this same reason the partners can not avail themselves of this lack of publicity, for they having full knowledge of the terms and conditions of the agreement by which the partnership is created, it is binding upon them from the very moment of its celebration. This is the doctrine of the projected Code, in this respect repealing the present Code, which establishes a contrary principle. In the case of Prautch, Scholes and Co. vs. Hernandez (1 O.G. 203, 1 Phil. 705) we held that a commercial partnership which had not complied with article 119 could not maintain an action in its partnership name against a third person. That case is consistent with our present holding. There being no provision of the Code of Commerce which requires the contract of partnership to be in any particular form as between the partners, this case does not fall within the terms of article 52 of this Code, and that article is not applicable. Article 117, expressly authorizing, as we hold, a verbal contract of partnership as between the partners, such a contract is thereby excepted from the operations of article 51. The case at bar is covered by the former article and not the latter. Whether, therefore, this be a civil partnership and so governed by the Civil Code, or a commercial partnership and so governed by the Code of Commerce, in neither case can the objections made by the appellant be sustained. The judgment of the court below is affirmed, with the costs of this instance to appellant. G.R. No. L-39607 ENCARNACION MAGALONA, ET AL., plaintiffs-appellees, vs. JUAN PESAYCO, defendant-appellant. Manuel Polido and Pedro V. Jimenez for appellant. Lutero and Lutero and Ramon Maza for appellee. Goddard, J.:

In the month of September, 1930, the plaintiffs, Encarnacion Magalona, Juan Sermeno, and the defendant, Juan Pesayco, formed a partnership for the purpose of catching "semillas de bagus o aua" in the sea and rivers within the jurisdiction of the municipality of San Jose, Antique Province, for the year 1931. It was agreed that the defendant should put in a bid for this privilege and that the partners should each supply one third of the capital in case the defendant was awarded the desired privilege. The defendant, having had experience in this line, was to be the manager in case his bid was accepted. The defendant offered the sum of P5,550.09 for the year ending December 31, 1931. As a deposit of one-fourth of the amount of the bid was required each of the partners put up one third of this amount. This bid, being the highest, was accepted by the municipality and the privilege was awarded to the defendant. The latter entered upon his duties under the contract and gave an account of two sales of "semillas de bagus", to Tiburcio Lutero as representative of the plaintiff Magalona. As the defendant, on April 21, 1931, had on hand only P410 he wired, Exhibit A, Lutero for sufficient money to complete the payment of the first quarter which was to be paid within the first twenty days of the second quarter of the year 1931. This telegram reads as follows: "Hemos conseguido plazo hasta esta tarde tenemos aqui cuatrocientos diez gira telegraficamente restante." Lutero immediately sent P1,000 to the municipal treasurer of San Jose, Antique (Exhibit D). The defendant managed the business from January 1,1931, and with the exception of the two sales above-mentioned, never gave any account of his catches or sales to his partners, the plaintiffs. In view of this the herein complaint was filed April 21, 1931, in which it was prayed that a receiver be appointed by the court to take charge of the funds of the partnership and the management of its affairs; that the defendant be ordered to render an account of his management and to pay to the plaintiff their participation in the profits thereof; that the defendant be required to turn over to the receiver all of the funds of the partnership and that the defendant be condemned to pay the costs. The plaintiffs put up a bond of P5,000 and a receiver was appointed who also put up a bond for the same amount. The receiver took over the management and took possession of all the devices and implements used in the catching of "semillas de bagus". At the trial it was proven that before April 20, 1931, the defendant obtained and sold a total of 975,000 "semillas de bagus" the market value of which was P3 per thousand. The defendant made no report of this nor did he pay the plaintiffs any part of the P2,925 realized by him on the sales thereof. This was not denied. In his two counter-complaints the defendant prays that he be awarded damages in the sum of P34,700. He denies that there was a partnership and depends principally upon the fact that the partnership agreement was not in writing. The partnership was conclusively proven by the oral testimony of the plaintiffs and other witnesses, two of whom were Attorneys Lutero and Maza. The defense made no objection to the questions asked with regard to the forming of this partnership. This court has held that if a party permits

a contract, which the law provides shall be in writing, to be proved, without objection as to the form of the proof, it is just as binding as if the statute had been complied with. However, we cannot agree with the appellant that one of the requisites of a partnership agreement such as the one under consideration, is that it should be in writing oJdADkRPz. Article 1667 of the Civil Code provides that "Civil partnerships may be established in any form whatever, unless real property or real rights are contributed to the same, in which case a public instrument shall be necessary." Articles of partnership are not required to be in writing except in the cases mentioned in article 1667, Civil Code, which controls article 1280 of the same Code. (Fernandez vs. Dela Rosa, 1 Phil. 671.) A verbal partnership agreement is valid between the parties even though more than 1,500 pesetas are involved and can be enforced without bringing action under article 1279, Civil Code, to compel execution of a written instrument. (Arts. 1261, 1278-1280, 1667, Civil Code; arts. 116-119, 51, Code of Commerce.) Thunga Chui vs. Que Bentec, 2 Phil. 561. (4 Phil. Digest, 3468.) The dispositive part of the decision of the trial court reads as follows: Habiendose probado, sin pruebas en contrario, de que el demandado obtuvo durante su administracion de este negocio, semillas de bagus por valor de P2,925 que no dio cuenta ni participacion a sus consocios los demandantes, el Juzgado declara al demandado en deber a la sociedad, compuesta por demandantes y demandado, en la suma de P2,925, importe de 975,000 semillas de bagus a P3 el millar, y ordena que entregue esta suma al depositario judicial nombrado, como fondos de dicha sociedad. Se sobreseen las contrademandas y se condena en costas al demandado. Asi se ordena. This decision is affirmed with costs in both instances against the defendant-appellant. So ordered.