G.R. No. L-17295 July 30, 1962 ANG PUE & COMPANY, ET AL., plaintiffs-appellants, vs.

SECRETARY OF COMMERCE AND INDUSTRY, defendantappellee. Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, Ang Pue and Tan Siong against the Secretary of Commerce and Industry to secure judgment "declaring that plaintiffs could extend for five years the term of the partnership pursuant to the provisions of plaintiffs' Amendment to the Article of Co-partnership." The answer filed by the defendant alleged, in substance, that the extension for another five years of the term of the plaintiffs' partnership would be in violation of the provisions of Republic Act No. 1180. It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company for a term of five years from May 1, 1953, extendible by their mutual consent. The purpose of the partnership was "to maintain the business of general merchandising, buying and selling at wholesale and retail, particularly of lumber, hardware and other construction materials for commerce, either native or foreign." The corresponding articles of partnership (Exhibit B) were registered in the Office of the Securities & Exchange Commission on June 16, 1953. On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among other things, that, after its enactment, a partnership not wholly formed by Filipinos could continue to engage in the retail business until the expiration of its term. On April 15, 1958 prior to the expiration of the five-year term of the partnership Ang Pue & Company, but after the enactment of the Republic Act 1180, the partners already mentioned amended the original articles of part ownership (Exhibit B) so as to extend the term of life of the partnership to another five years. When the amended articles were presented for registration in the Office of the Securities & Exchange Commission on April 16, 1958, registration was refused upon the ground that the extension was in violation of the aforesaid Act. From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this appeal. The question before us is too clear to require an extended discussion. To organize a corporation or a partnership that could claim a juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed only under such terms as the State may deem necessary to impose. That the State, through Congress, and in the manner provided by law, had the right to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos may engage in the retail business can not be seriously disputed. That this provision was clearly intended to apply to partnership already existing at the time of the enactment of the law is clearly showing by its provision giving them the right to continue

engaging in their retail business until the expiration of their term or life. To argue that because the original articles of partnership provided that the partners could extend the term of the partnership, the provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to erroneously assume that the aforesaid provision constitute a property right of which the partners can not be deprived without due process or without their consent. The agreement contain therein must be deemed subject to the law existing at the time when the partners came to agree regarding the extension. In the present case, as already stated, when the partners amended the articles of partnership, the provisions of Republic Act 1180 were already in force, and there can be not the slightest doubt that the right claimed by appellants to extend the original term of their partnership to another five years would be in violation of the clear intent and purpose of the law aforesaid. WHEREFORE, the judgment appealed from is affirmed, with costs

LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B. OA, LUZ B. OA, VIRGINIA B. OA and LORENZO B. OA, JR., petitioners, vs. THE COMMISSIONER OF INTERNAL REVENUE, respondent. Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above, holding that petitioners have constituted an unregistered partnership and are, therefore, subject to the payment of the deficiency corporate income taxes assessed against them by respondent Commissioner of Internal Revenue for the years 1955 and Year Investment 1956 in the total sum of P21,891.00, plus 5% surcharge and 1% monthly interest from December 15, 1958, subject Account to the provisions of Section 51 (e) (2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the 1949 1 costs of the suit, as well as the resolution of said court denying petitioners' motion for reconsideration of said 1950 P24,657.65 decision. 1951 51,301.31 The facts are stated in the decision of the Tax Court as follows: 1952 67,927.52 Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her five children. In 1953 61,258.27 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the settlement of her estate. Later, 1954 63,623.37 Lorenzo T. Oa the surviving spouse was appointed administrator of the estate of said deceased (Exhibit 100,786.00 3, pp. 1955 34-41, BIR rec.). On April 14, 1949, the administrator submitted the project of partition, which was approved by 1956 175,028.68 the Court on May 16, 1949 (See Exhibit K). Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed Oa, were still minors when the project of partition was approved, Lorenzo T. Oa, their father and administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed him guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.). The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a total assessed value of P17,590.00 and an undetermined amount to be collected from the War Damage Commission. Later, they received from said Commission the amount of P50,000.00, more or less. This amount was not divided among them but was used in the rehabilitation of properties owned by them in common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two were acquired after the death of the decedent with money borrowed from the Philippine Trust Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.). The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with the approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).

Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to divide the properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. As a result, petitioners' properties and investments gradually increased from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from the following year-end balances: Land Account P87,860.00 128,566.72 120,349.28 87,065.28 84,925.68 99,001.20 120,249.78 135,714.68 Building Account P17,590.00 96,076.26 110,605.11 152,674.39 161,463.83 167,962.04 169,262.52 169,262.52

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104) From said investments and properties petitioners derived such incomes as profits from installment sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 3738). The said incomes are recorded in the books of account kept by Lorenzo T. Oa where the corresponding shares of the petitioners in the net income for the year are also known. Every year, petitioners returned for income tax purposes their shares in the net income derived from said properties and securities and/or from transactions involving them (Exhibit 3,supra; t.s.n., pp. 25-26). However, petitioners did not actually receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in the hands of Lorenzo T. Oa who, as heretofore pointed out, invested them in real properties and securities. (See Exhibit 3, t.s.n., pp. 50, 102-104). On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners formed an unregistered partnership and therefore, subject to the corporate income tax, pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested against the assessment and asked for reconsideration of the ruling of respondent that they have formed an unregistered

partnership. Finding no merit in petitioners' request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for Respondent, June 12, 1961). The original assessment was as follows: 1955 Net income as per investigation ................ P40,209.89 Income tax due thereon ............................... 8,042.00 25% surcharge .............................................. 2,010.50 Compromise for non-filing .......................... 50.00 Total ............................................................... P10,102.50 1956 Net income as per investigation ................ P69,245.23 Income tax due thereon ............................... 13,849.00 25% surcharge .............................................. 3,462.25 Compromise for non-filing .......................... 50.00 Total ............................................................... P17,361.25 (See Exhibit 13, page 50, BIR records) Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of the Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the questioned assessment refers solely to the income tax proper for the years 1955 and 1956 and the "Compromise for non-filing," the latter item obviously referring to the compromise in lieu of the criminal liability for failure of petitioners to file the corporate income tax returns for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to Petition) Petitioners have assigned the following as alleged errors of the Tax Court: I. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP; II. THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM (sic); III. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP; IV. ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS; V. ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUING FROM THE

PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP. In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of Tax Appeals, should petitioners be considered as co-owners of the properties inherited by them from the deceased Julia Buales and the profits derived from transactions involving the same, or, must they be deemed to have formed an unregistered partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code? (2) Assuming they have formed an unregistered partnership, should this not be only in the sense that they invested as a common fund the profits earned by the properties owned by them in common and the loans granted to them upon the security of the said properties, with the result that as far as their respective shares in the inheritance are concerned, the total income thereof should be considered as that of co-owners and not of the unregistered partnership? And (3) assuming again that they are taxable as an unregistered partnership, should not the various amounts already paid by them for the same years 1955 and 1956 as individual income taxes on their respective shares of the profits accruing from the properties they owned in common be deducted from the deficiency corporate taxes, herein involved, assessed against such unregistered partnership by the respondent Commissioner? Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in interest died way back on March 23, 1944 and the project of partition of her estate was judicially approved as early as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance since those dates admittedly under the administration or management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in question refers to the later years 1955 and 1956. We believe this point to be important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he considered them as having formed an unregistered partnership. At least, there is nothing in the record indicating that an earlier assessment had already been made. Such being the case, and We see no reason how it could be otherwise, it is easily understandable why petitioners' position that they are co-owners and not unregistered co-partners, for the purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the fact that they were not similarly assessed earlier by the Bureau of Internal Revenue. The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to the project of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oa who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceed from the sales thereof in real properties and securities," as a result of which said properties and investments steadily

increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building account" in 1956. And all these became possible because, admittedly, petitioners never actually received any share of the income or profits from Lorenzo T. Oa and instead, they allowed him to continue using said shares as part of the common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective shares of the profits of their common business as reported by the said Lorenzo T. Oa. It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate securities. It is likewise admitted that all the profits from these ventures were divided among petitioners proportionately in accordance with their respective shares in the inheritance. In these circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oa as a common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by them proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in effect, they thereby formed an unregistered partnership within the purview of the above-mentioned provisions of the Tax Code. It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs, obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such status as coowners continues until the inheritance is actually and physically distributed among the heirs, for it is easily conceivable that after knowing their respective shares in the partition, they might decide to continue holding said shares under the common management of the administrator or executor or of anyone chosen by them and engage in business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code. It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants therein to be unregistered co-partners for tax purposes, that their common fund "was not something they found already in existence" and that "it was not a property inherited by them pro indiviso," but it is certainly far fetched to argue therefrom, as petitioners are doing here, that ergo, in all

instances where an inheritance is not actually divided, there can be no unregistered co-partnership. As already indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for this is simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share, there can be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an unregistered partnership is formed. This is exactly what happened to petitioners in this case. In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property from which the returns are derived," and, for that matter, on any other provision of said code on partnerships is unavailing. In Evangelista, supra, this Court clearly differentiated the concept of partnerships under the Civil Code from that of unregistered partnerships which are considered as "corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point thus: To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are 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 confirmity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporation. Again, pursuant to said section 84(b),the term "corporation" includes, among others, "joint

accounts,(cuentas en participacion)" and "associations", none of which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered general co-partnerships" which are possessed of the aforementioned personality have been expressly excluded by law (sections 24 and 84[b]) from the connotation of the term "corporation." .... xxx xxx xxx Similarly, the American Law ... provides its own concept of a partnership. Under the term "partnership" it includes not only a partnership as known in common law but, as well, a syndicate, group, pool, joint venture, or other unincorporated organization which carries on any business, financial operation, or venture, and which is not, within the meaning of the Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income Taxation, p. 789; emphasis ours.) The term "partnership" includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on. ... . (8 Merten's Law of Federal Income Taxation, p. 562 Note 63; emphasis ours.) For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships with the exception only of duly registered general 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. We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by appellants therein. As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes in question, of their inherited properties from those acquired by them subsequently, We consider as justified the following ratiocination of the Tax Court in denying their motion for reconsideration: In connection with the second ground, it is alleged that, if there was an unregistered partnership, the holding should be limited to the business engaged in apart from the properties inherited by petitioners. In other words, the taxable income of the partnership should be limited to the income derived from the acquisition and sale of real properties and corporate securities and should not include the income derived from the inherited properties. It is admitted that the inherited properties and the income derived therefrom were used in the business of buying and selling other real properties and corporate securities. Accordingly, the partnership income must include not only the income derived from the purchase and sale of other properties but also the income of the inherited properties.

Besides, as already observed earlier, the income derived from inherited properties may be considered as individual income of the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but the moment their respective known shares are used as part of the common assets of the heirs to be used in making profits, it is but proper that the income of such shares should be considered as the part of the taxable income of an unregistered partnership. This, We hold, is the clear intent of the law. Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the aforementioned resolution denying petitioners' motion for reconsideration of the decision of said court. Pertinently, the court ruled this wise: In support of the third ground, counsel for petitioners alleges: Even if we were to yield to the decision of this Honorable Court that the herein petitioners have formed an unregistered partnership and, therefore, have to be taxed as such, it might be recalled that the petitioners in their individual income tax returns reported their shares of the profits of the unregistered partnership. We think it only fair and equitable that the various amounts paid by the individual petitioners as income tax on their respective shares of the unregistered partnership should be deducted from the deficiency income tax found by this Honorable Court against the unregistered partnership. (page 7, Memorandum for the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.) In other words, it is the position of petitioners that the taxable income of the partnership must be reduced by the amounts of income tax paid by each petitioner on his share of partnership profits. This is not correct; rather, it should be the other way around. The partnership profits distributable to the partners (petitioners herein) should be reduced by the amounts of income tax assessed against the partnership. Consequently, each of the petitioners in his individual capacity overpaid his income tax for the years in question, but the income tax due from the partnership has been correctly assessed. Since the individual income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the Court to pass upon the same. Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as individual income tax cannot be credited as part payment of the taxes herein in question. It is argued that to sanction the view of the Tax Court is to oblige petitioners to pay double income tax on the same income, and, worse, considering the time that has lapsed since they paid their individual income taxes, they may already be barred by prescription from recovering their overpayments in a separate action. We do not agree. As We see it, the case of petitioners as regards the point under discussion is simply that of a taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate. Of course, such taxpayer has the right to be reimbursed what he has

erroneously paid, but the law is very clear that the claim and action for such reimbursement are subject to the bar of prescription. And since the period for the recovery of the excess income taxes in the case of herein petitioners has already lapsed, it would not seem right to virtually disregard prescription merely upon the ground that the reason for the delay is precisely because the taxpayers failed to make the proper return and payment of the corporate taxes legally due from them. In principle, it is but proper not to allow any relaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-a-vis their tax obligation to the State. IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with costs against petitioners.

G.R. No. L-1147 September 24, 1903 ESCOLASTICO DUTERTE Y ROSALES, plaintiff-appellant, vs. FLORENTINO RALLOS, defendant-appellee. The plaintiff-appellant claimed that he, the defendant, and one Castro were partners in the management of a cockpit. The defendant denied this. The court found that no such partnership existed and ordered judgment for the defendant. The plaintiff moved for a new trial, which was denied. To this order and the judgment he excepted and has brought here the evidence on which the court below based its finding. We have examined the evidence and are of the opinion that said finding, so far as the existence of the copartnership to September 1, 1901, is concerned, is plainly and manifestly against the evidence. We reach this conclusion chiefly from the documents written by the defendant and sent to the plaintiff. It is not contradicted that the plaintiff demanded by letter of the defendant a settlement of their accounts. These demands the defendant answered with the following letter: MY DEAR BOY: I am working at these accounts. Perhaps I will have them ready tomorrow morning. But I have no money, unless Mr. Spitz comes on one of these boats, when we will have funds. Yours, FLORENTINO RALLOS. April 13, 1902. On May 7 the defendant wrote another letter to the plaintiff which is in part as follows: CEBU, May 7, 1902. Seor Don Escolastico Duterte. DEAR BOY: In your letter which I received this afternoon, you designate me as a little less than embezzler. I have in my possession the money of no one but myself. If I have not called you an embezzler or something worse on account of all that you have done and are doing with me, reflect whether you have reason to write me in the manner you do. I have done you a favor in admitting you into the cockpit partnership, as the only manner in which I might collect what you owe me. I think you have made a mistake, and I will frankly refresh your memory. You are indebted to me clearly one thousand pesos, advanced for your former market contract. In the preceding year, the defendant sent to the plaintiff statements of the business for the months of June, July, and August. They are in legal effect the same. The one for July is as follows:

One-third Ticoy owes for seats

Ticoy's net share

Ticoy stands for the plaintiff. That the plaintiff rendered services in the management of the cockpit, and that the defendant paid him money on account of the cockpit, is undisputed. The defendant, after denying that the plaintiff was his partner, testified, among other things, as follows: The profits were divided. A portion was given to two friends, Seores Duterte and Castro, but not as partners. A portion was given to Seor Duterte solely because he was a friend who aided and encouraged the cockpit. I did not have an agreement with them. As a private individual, he had no duty to perform, except when he had to preside at the cockpit. I am not aware that they, or either of them, rendered other services. I did not tell them the reason why I gave them a share. I paid them for my pleasure, as friends, Duterte had no legal interest. Seor Duterte had not authority to employ any person in the cockpit; this function was exercised solely by Seor Isabelo Alburo, since I gave Seor Duterte a portion only as a friend. Castro, the other supposed partner, and a witness for the defendant, denied that he was such a partner, but his testimony is in part as follows: I do not remember what the profit was, but, as I have said, Seor Rallos sent me $20 or $30. I did not keep any account. I did not receive money monthly, but on Mondays Seor Rallos would send me some money. Seor Rallos began to send me money from 20 to 30 pesos, and this money was what obtained on the preceding Sunday in the cockpit. I think Seor Rallos sent it to me as a present for the reason that he could not be present at the cockpit. I am not a servant or employee of the cockpit. I have not any conversation with Seor Rallos with reference to I am not a servant or employee of Receipts of the cockpit of this city during the entire month of Julythe cockpit. I have not the business. When Seor Rallos $520.622 sent me that money he sent me no letter. He sent it to me by a messenger. I think that Seor Rallos sent me that money Expenses because I went to the cockpit and helped the president on account of the former. Seor Rallos asked me to go to the Cuotas $300.00 cockpit. Yes, I have had a conversation with Seor Rallos. In Rent, 6 days 60.00 this conversation Seor Rallos said nothing to me about money. Seor Rallos asked me to go to the cockpit to aid the Present to Biloy 20.00 president. It is not true, as I went to the cockpit only to do him a favor.

We have, then, the testimony of the plaintiff that he made a verbal contract of partnership with the defendant for this business, uncontradicted evidence that he performed services in connection with it; that the defendant paid him the money on account thereof and sent him accounts for three months showing his interest to be one-third of the profits in addition to the $5 each day, and wrote him a letter in which he said that he admitted the plaintiff into the partnership in order to collect what the plaintiff owed him on another transaction. The reason which the defendant gives for paying the plaintiff money is not credible. We see no way of explaining the accounts submitted by the defendant to plaintiff on any theory other than that there was a partnership between them up to September 1, 1901, at least. The letter of the defendant, in which he says that he admitted the plaintiff into the partnership, can be explained on no other theory. That there was an agreement to share the profits is clearly proved by the accounts submitted. The plaintiff testified that the profits and losses were to be shared equally. But even omitting this testimony, the case is covered by article 1689 of the Civil Code, which provides that, in the absence of agreement as to the losses, they shall be shared as the gains are. Article 1668 of the Civil Code is not applicable to the case. No real estate was contributed by any member. The partnership did not become the owner of the cockpit. It is undisputed that this was owned by the defendant and that the partnership paid him ten dollars a day for the use of it. Neither can the judgment be sustained on the ground stated by the court in its decision and relied upon by counsel for the appellee here, namely, that Castro should have been joined as a party to the suit. One of the grounds for demurrer mentioned in section 91 of the Code of Civil Procedure is "that there is a defect or misjoinder of parties plaintiff or defendants." No demurrer was interposed on this or in any other ground, and by the terms of section 93 of the same Code, by omitting to demur on this ground the defendant waived the objection which he now makes. The finding of fact by the court below, that there was no partnership, at least to September 1, 1901, was plainly and manifestly against the evidence, and for that reason a new trial of this case must be had. In this new trial, if the evidence is the same as upon the first trial, the plaintiff will be entitled to an accounting, at least to September 1, 1901, and for such further term as the proof upon the new trial shows, in the opinion of the court below, that the partnership existed; that accounting can be had in this suit and a final judgment rendered for the plaintiff if any balance appears in his favor. No second or other suit will be necessary. The judgment of the court below is reversed and the case remanded for a new trial, with the costs of this instance against the appellee, and after the expiration of twenty days, reckoned from the date of this decision, judgment shall be

rendered accordingly, and the case is returned to the court below for compliance therewith

G.R. No. L-49982 April 27, 1988 ELIGIO ESTANISLAO, JR., petitioner, vs. THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO SANTIAGO,respondents. Agustin O. Benitez for petitioner. Benjamin C. Yatco for private respondents. GANCAYCO, J.: By this petition for certiorari the Court is asked to determine if a partnership exists between members of the same family arising from their joint ownership of certain properties. Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner of Annapolis and Aurora Blvd., QuezonCity which were then being leased to the Shell Company of the Philippines Limited (SHELL). They agreed to open and operate a gas station thereat to be known as Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken from the advance rentals due to them from SHELL for the occupancy of the said lots owned in common by them. A joint affidavit was executed by them on April 11, 1966 which was prepared 1 byAtty. Democrito Angeles They agreed to help their brother, petitioner herein, by allowing him to operate and manage the gasoline service station of the family. They negotiated with SHELL. For practical purposes and in order not to run counter to the company's policy of appointing only one dealer, it was agreed that petitioner would apply for the dealership. Respondent Remedios helped in managing the bussiness with petitioner from May 3, 1966 up to February 16, 1967. On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso that said agreement "cancels and supersedes the Joint Affidavit dated 11 April 1966 executed 2 by the co-owners." For sometime, the petitioner submitted financial statements regarding the operation of the business to private respondents, but therafter petitioner failed to render subsequent accounting. Hence through Atty. Angeles, a demand was made on petitioner to render an accounting of the profits. The financial report of December 31, 1968 shows that the business was able to make a profit of P 87,293.79 and that by 3 the year ending 1969, a profit of P 150,000.00 was realized. Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against petitioner praying among others that the latter be ordered: 1. to execute a public document embodying all the provisions of the partnership agreement entered into between plaintiffs and defendant as provided in Article 1771 of the New Civil Code;

2. to render a formal accounting of the business operation covering the period from May 6, 1966 up to December 21, 1968 and from January 1, 1969 up to the time the order is issued and that the same be subject to proper audit; 3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an amount of no less than P l50,000.00 with interest at the rate of 1% per month from date of demand until full payment thereof for the entire duration of the business; and 4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the suit (pp. 13-14 Record on Appeal.) After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary presiding judge of Branch IV of the trial court, rendered judgment dismissing the complaint and counterclaim and ordering private respondents to pay petitioner P 3,000.00 attorney's fee and costs. Private respondent filed a motion for reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who was the newly appointed presiding judge of the same branch, set aside the aforesaid derision and rendered another decision in favor of said respondents. The dispositive part thereof reads as follows: WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new judgment is hereby rendered in favor of the plaintiffs and as against the defendant: (1) Ordering the defendant to execute a public instrument embodying all the provisions of the partnership agreement entered into between plaintiffs and defendant as provided for in Article 1771, Civil Code of the Philippines; (2) Ordering the defendant to render a formal accounting of the business operation from April 1969 up to the time this order is issued, the same to be subject to examination and audit by the plaintiff, (3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of the business in the amount of P 150,000.00, with interest thereon at the rate of One (1%) Per Cent per month from date of demand until full payment thereof; (4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney's fees of plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record on Appeal). Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly committed by the trial court. In due course, a decision was rendered by the Court of Appeals on November 28,1978 affirming in toto the decision of the lower court with costs against petitioner. * A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not satisfied therewith, the petitioner now comes to this court by way of this petition for certiorari alleging that the respondent court erred: 1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional Cash Pledge Agreement (Exhs. "B2","6", and "L"); and

2. In declaring that a partnership was established by and among the petitioner and the private respondents as regards the ownership and or operation of the gasoline service station business. Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced(a) The joint Affidavit of April 11, 1966, Exhibit A reads: (1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED a corporation duly licensed to do business in the Philippines; (2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so that we can use the said amount to augment our capital investment in the operation of that gasoline station constructed ,by the said company on our two lots aforesaid by virtue of an outstanding Lease Agreement we have entered into with the said company; (3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and desire to help us in aumenting our capital investment in the operation of the said gasoline station, has agreed to give us the said amount of P 15,000.00, which amount will partake the nature of ADVANCED RENTALS; (4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be applied as monthly rentals for the sai two lots under our Lease Agreement starting on the 25th of May, 1966 until such time that the said of P 15,000.00 be applicable, which time to our estimate and one-half months from May 25, 1966 or until the 10th of October, 1966 more or less; (5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES LIMITED execute an instrument for us to sign embodying our conformity that the said amount that it will generously grant us as requested be applied as ADVANCED RENTALS; and (6) FURTHER AFFIANTS SAYETH NOT., (b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows: WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag, respectively) executed in favour of SHELL by the herein COOWNERS and another Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by CO-OWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining portions of two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS RECEIVE a total monthly rental

of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency; WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased land, and as Dealer under the Cash Pledge Agreement dated llth May 1966, he deposited to SHELL in cash the amount of PESOS TEN THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit of Shell petroleum products; . . . WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has secured the conformity of his CO-OWNERS to waive and assign to SHELL the total monthly rentals due to all of them to accumulate the equivalent amount of P 15,000, commencing 24th May 1966, this P 15,000 shall be treated as additional cash deposit to SHELL under the same terms and conditions of the aforementioned Cash Pledge Agreement dated llth May 1966. NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants among the CO-OWNERS herein and SHELL, said parties have agreed and hereby agree as follows: l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all CO-OWNERS, collectively, under the above describe two Lease Agreements, one dated 13th November 1963 and the other dated 19th March 1964 to enable DEALER to increase his existing cash deposit to SHELL, from P 10,000 to P 25,000, for such purpose, the SHELL COOWNERS and DEALER hereby irrevocably assign to SHELL the monthly rental of P 3,382.29 payable to them respectively as they fall due, monthly, commencing 24th May 1966, until such time that the monthly rentals accumulated, shall be equal to P l5,000. 2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by DEALER to SHELL, thereby in increasing his credit limit from P 10,000 to P 25,000. This agreement, therefore, cancels and supersedes the Joint affidavit dated 11 April 1966 executed by the COOWNERS. 3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from SHELL petroleum products, on credit, up to the amount of P 25,000. 4. This increase in the credit shall also be subject to the same terms and conditions of the above-mentioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied) In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the P 15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in the operation of the gasoline station, which advance rentals shall be credited as rentals from May 25, 1966 up to four and one-half months or until 10 October 1966, more or less covering said P 15,000.00. In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced (Exhibit 6), the private respondents and petitioners assigned to SHELL the monthly rentals due them commencing the 24th of May 1966 until such time that the monthly rentals accumulated equal P

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15,000.00 which private respondents agree to be a cash deposit of petitioner in favor of SHELL to increase his credit limit as dealer. As above-stated it provided therein that "This agreement, therefore, cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the CO-OWNERS." Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint Affidavit, whatever partnership agreement there was in said previous agreement had thereby been abrogated. We find no merit in this argument. Said cancelling provision was necessary for the Joint Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement also refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of reference to the P 15,000.00 hence the need to provide in the subsequent document that it "cancels and supersedes" the previous one. True it is that in the latter document, it is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the "capital investment" of the parties in the gasoline station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter document SHELL was a signatory and it would be against its policy if in the agreement it should be stated that the business is a partnership with private respondents and not a sole proprietorship of petitioner. Moreover other evidence in the record shows that there was in fact such partnership agreement between the parties. This is attested by the testimonies of private respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the 4 business. Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine and audit the books of their "common business' aming 5 negosyo). Respondent Remedios assisted in the running of the business. There is no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund with the intention of 6 dividing the profits among themselves. The sole dealership by the petitioner and the issuance of all government permits and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the parties of having only one dealer of the SHELL products. Further, the findings of facts of the respondent court are conclusive in this proceeding, and its conclusion based on the said facts are in accordancewith the applicable law. WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This decision is immediately executory and no motion for extension of time to file a motion for reconsideration shag beentertained. SO ORDERED.

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G.R. No. L-18010 June 21, 1922 BASILIO BORJA, petitioner-appellee, vs. P. W. ADDISON, ADELINA FERRER, VITALIANA BELISARIO, EUGENIO BELISARIO, and AURENO BELISARIO,objectorsappellants. This is an appeal from a decision of the Court of First Instance of Pangasinan ordering the registration, under Act No. 496, of two parcels of land in the name of the petitioner Basilio Borja. The parcels are situated in the barrio of San Francisco, municipality of Umingan, Pangasinan, and contain a total of over 326 hectares. At the trial of the case, a large number of opponents presented themselves but only two of them, P. W. Addison and Adelina Ferrer have appealed. The latter appears for herself and her three children, Vitaliana, Eugenio, and Aureno. The evidence established the following facts: (1) That one Eulalio Belisario acquired the two parcels of land in question through information posesoria proceedings, instituted in accordance with the provisions of articles 19-21 of the Royal Decree of February 13, 1894, and recorded under the provision of the Mortgage Law. The record of the proceedings show that Belisario occupied and began to cultivate the smaller parcel of land in 1880 and the larger one in 1882. According to the somewhat vague testimony of the witness Francisco Ira, Belisario was married to Paula Ira when he took possession of the parcels which therefore probably were community property of the marriage, but this fact does not appear from the record of the informacion posesoria proceedings or from any other document presented in evidence. (2) That on December 20, 1909, Eulalio Belisario conveyed the two parcels mentioned to one Jose Castillo, reserving the right to repurchase the lands for the sum of P550 within the term of five months and two days from the date of the sale. (3) That Paula Ira, the wife of Eulalio Belisario, died on February 13, 1913, leaving as her sole heir their son Maximo Belisario. (4) That after the death of the said Paula Ira, Eulalio and Maximo Belisario occupied and administered the two parcels of land in common. (5) That on August 25, 1913, and upon certain dates subsequent thereto, the lands in question were forfeited to and confiscated by the Government for the non-payment of taxes. (6) That on July 5, 1916, in civil case No. 435 in the court of the justice of the peace of Dagupan, C. H. McClure vs. Maximo Belisario and Eulalio Belisario, an order for attachment was issued against the lands described in certain land tax declarations of which tax Nos. 5437, 5348, and 5351 refer to parts of the land inscribed in the registry of deeds as finca No. 334, and of which tax No. 5352 refers to that land inscribed in the registry of deeds as finca No. 335. (7) That on July 31, 1916, the aforesaid order and notice of attachment were served upon Maximo Belisario and Eulalio

Belisario; and on August 5, 1916, the deputy provincial sheriff presented the said order and notice of attachment to the register of deeds for record, but no entries appear to have been made in the book of the registry. (8) That on October 14, 1916, pursuant to a writ of execution issued upon final judgment in said civil case No. 435, the attached lands, as specified in paragraph (6) hereof , we sold to the judgment creditor C. H. McClure, represented by Peter W. Addison. The sale was not recorded in the registry of deeds. (9) That on October 14, 1916, pursuant to a writ of execution issued upon final judgment of the court of the justice of the peace of Dagupan, in civil case No. 450, C. H. McClure vs. Felix Belisario and Eulalio Belisario, the statutory right of redemption belonging to Eulalio Belisario, of the land sold under execution in said case No. 435, was sold by the sheriff at public auction to the judgment creditor C. H. McClure, represented by Peter W. Addison. No record of this sale appears to have been made in the registry of deeds. (10) That on September 19, 1916, a writ of execution was issued upon final judgment of the court of the justice of the peace of Dagupan, in civil case No. 454, C. H. McClure vs. Eulalio Belisario, pursuant to which, on November 14, 1916, levy was made upon the undivided half of the two parcels of land in question, belonging to Eulalio Belisario and upon all right, title, and interest which he had or might have therein. (11) That on December 13, 1916, in conformity with a decision of the Supreme Court of the Philippine Islands, in the case of the Castillo vs. Belisario (35 Phil., 89). Jose Castillo executed in favor of Eulalio Belisario a deed of resale of the two parcels of land conveyed in the sale with right to repurchase mentioned in paragraph (2) hereof. (12) That on January 11, 1917, an alias writ of execution was issued in the said civil case No. 454, mentioned in paragraph (10) hereof, pursuant to which on February 10, 1917, the judgment creditor C. H. McClure, represented by P. W. Addison, purchased at execution sale the undivided half of the two parcels of land in question, belonging to the said Eulalio Belisario, and all rights, title, interests, and ownership which the defendant in execution had or might have in and to both of said parcels of land in their entirely. This sale was duly presented for record in the registry of deed on March 1, 1917, and recorded on the 14th of the same month. (13) That on January 19, 1917, Eulalio Belisario executed in favor of Basilio Borja a deed of sale of the two parcels of land in question for P7,500, reserving the right to repurchase the lands for the same price within the term of eighteen months from the date thereof. (14) That on January 26, 1917, the said deed of sale with right to repurchase was presented for record in the registry of deeds, but inscription was refused and the deed was returned on February 5, 1917, with an official communication from the register of deeds to the effect that it favor of Jose Castillo, mentioned in paragraph (2) hereof, had not been cancelled on the record.

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(15) That on February 13, 1917, the deed of resale from Jose Castillo to Eulalio Belisario, mentioned in paragraph (11) hereof, was presented for record in the registry of deeds and was recorded on February 26, 1917. (16) That on March 5, 1917, an alias writ of execution was issued in civil case No. 499 of the court of the justice of the peace of Dagupan, C. H. McClure vs. Maximo Belisario and Eulalio Belisario, pursuant to which, levy was made upon all the remaining interest belonging to said defendants, in and to the two parcels of lands in question, as specified in paragraph (19) and that notice of said levy was duly presented for record and entered upon the daybook of the register of deeds on March 7, 1917. (17) That on March 27, 1917, the deed of sale with right to repurchase executed by Eulalio Belisario in favor of Basilio Borja, mentioned in paragraph (13) hereof, was entered upon the day-book of the register of deed for the first time, this entry being cancelled on April 4, 1917. (18) That on March 30, 1917, Peter W. Addison purchased at the sheriff's sale under the execution in civil case No. 499, mentioned in paragraph (16) hereof, the undivided half of the two parcels of land in question, belonging to Maximo Belisario, and all the rights, title, interests and ownership which both of the defendants in execution, Maximo Belisario and Eulalio Belisario, had or might have in and toboth of the said parcels of land in their entirely (19) That on April 4, 1917, Peter W. Addison presented the certificate for the property and interest acquired at execution sale in civil case No. 499, for record in the registry of deed, the document being recorded on April 18, 1917. (20) That on November 12, 1917, in conformity with instructions received from the Judge of the Fourth Sala of the Court of First Instance of the City of Manila, the deed of sale with right to repurchase executed by Eulalio Belisario in favor of Basilio Borja and mentioned in paragraphs (13) and (18) hereof, was reinstated in the day-book and recorded in the registry of deems. (21) That on January 23, 1918, the attorney for Basilio Borja transmitted to the provincial sheriff of Pangasinan the sum of P230 for the redemption of the property and interest sold under execution in civil case No. 454, mentioned in paragraph (12) hereof. (22) That on February 11, 1918, the attorney for Basilio Borja was informed by the said sheriff the redemption mentioned in the preceding paragraph would be allowed only upon the condition that the right of redemption be exercised in the execution sales in civil cases Nos. 435, 499, and 450, mentioned in paragraphs (8), (9), and (18) hereof. (23) That on February 16, 1918, the affidavit of C. H. McClure for the consolidacion de dominio in civil case No. 454 was presented for record in the registry of deeds, and inscribed in the registry on February 19, 1919. (24) That on June 24, 1918, the provincial sheriff of Pangasinan signed final deeds of sale for the property and interest, mentioned in paragraph (12) and (18) hereof, in

favor of C. H. McClure and Peter W. Addison, the respective purchasers at execution sales in civil cases Nos. 454 and 499. (25) The on June 25, 1918, possession was delivered by the provincial sheriff of Pangasinan to Peter W. Addison, in his own representation and that of C. H. McClure, of the two parcels of land in question, sold under execution in civil cases Nos. 454 and 499. (26) That on July 3, 1918, the affidavit of Peter W. Addison for the consolidacion de dominio in civil case No. 499 was entered upon the day-book in the registry of deeds, and recorded in the registry on March 11, 1919. (27) That on July 12, 1918, C. H. McClure executed a quitclaim deed to Peter W. Addison, for all right, title, and interest that he had in the two parcels of land in question. (28) That on July 31, 1918, the deeds of sale executed by the provincial sheriff of Pangasinan, in favor of C. H. McClure in civil cases No. 454, as mentioned in paragraph (25) hereof, and the quit-claim deed executed by C. H. McClure in favor of Peter W. Addison, as mentioned in the preceding paragraph, were entered on the day-book of the registry of deeds, and inscribed in the registry on March 10, 1919. (29) That on January 21, 1919, the Director of Lands authorized Peter W. Addison to repurchase the lands in question, which had been forfeited to an confiscated by the Government, as mentioned in paragraph (5) hereof This repurchase was made under the last proviso of section 19 of Act No. 1791 and was not purchased with the formalities required for the sale of public lands by Act No. 926. (30) That on June 4, 1919, the provincial treasurer of Pangasinan issued a certificate of repurchase to Peter W. Addison, for the confiscated lands mentioned in the preceding paragraph, pursuant to which the said lands were reassessed for taxation in his name. (31) That on March 12, 1919, Eulalio Belisario not having exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof, the affidavit of Basilio Borja for theconsolidacion de dominio was presented for record in the registry of deeds and recorded in the registry on the same date. (32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor children, Vitaliana, Eugenio, and Aureno Belisario as his only heirs. (33) That in the execution and sales thereunder, in which C. H. McClure appears as the judgment creditor, he was represented by the opponent Peter W. Addison, who prepared and had charge of publication of the notices of the various sales and that in none of the sales was the notice published more than twice in a newspaper. The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may, we think, be disposed of in comparatively few words. As will be seen from the foregoing statement of facts, he rest his title (1) on the sales under the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the justice of the peace of Dagupan with the priority of inscription of the last two sales in the registry of deeds, and (2) on a purchase from the

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Director of Lands after the land in question had been forfeited to the Government for non-payment of taxes under Act No. 1791. The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the notice of sale. Section 454 of the Code of civil Procedure reads in part as follows: SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows: 1. In case of perishable property, by posing written notice of the time and place of the sale in three public places of the municipality or city where the sale is to take place, for such time as may be reasonable, considering the character and condition of the property; 2. * * * * * * * 3. In cases of real property, by posting a similar notice particularly describing the property, for twenty days in three public places of the municipality or city where the property is situated, and also where the property is to be sold, and publishing a copy thereof once a week, for the same period, in some newspaper published or having general circulation in the province, if there be one. If there are newspaper published in the province in both the Spanish and English languages, then a like publication for a like period shall be made in one newspaper published in the Spanish language, and in one published in the English language:Provided, however, That such publication in a newspaper will not be required when the assessed valuation of the property does not exceed four hundred pesos; 4. * * * * * * * Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14, 1916; the notice first published gave the date of the sale as October 15th, but upon discovering that October 15th was a Sunday, the date was changed to October 14th. The correct notice was published twice in a local newspaper, the first publication was made on October 7th and the second and last on October 14th, the date of the sale itself. The newspaper is a weekly periodical published every Saturday afternoon. In case No. 454 there were only two publications of the notice in a newspaper, the first publication being made only fourteen days before the date of the sale. In case No. 499, there were also only two publications, the first of which was made thirteen days before the sale. In the last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon, in violation of section 457 of the Code of Civil Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00 in the morning until 4.30 in the afternoon. In all of the cases the notices of the sale were prepared by the judgment creditor or his agent, who also took charged of the publication of such notices. In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held that if a sheriff sells without the notice prescribe by the Code of Civil Procedure induced thereto by the judgment creditor and the purchaser at the sale is the judgment creditor, the sale is absolutely void and

not title passes. This must now be regarded as the settled doctrine in this jurisdiction whatever the rule may be elsewhere. It appears affirmatively from the evidence in the present case that there is a newspaper published in the province where the sale in question took place and that the assessed valuation of the property disposed of at each sale exceeded P400. Comparing the requirements of section 454, supra, with what was actually done, it is self-evident that notices of the sales mentioned were not given as prescribed by the statute and taking into consideration that in connection with these sales the appellant Addison was either the judgment creditor or else occupied a position analogous to that of a judgment creditor, the sales must be held invalid. The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The provisions of Act No. 1791 pertinent to the purchase or repurchase of land confiscated for non-payment of taxes are found in section 19 of the Act and read: . . . In case such redemption be not made within the time above specified the Government of the Philippine Islands shall have an absolute, indefeasible title to said real property. Upon the expiration of the said ninety days, if redemption be not made, the provincial treasurer shall immediately notify the Director of Lands of the forfeiture and furnish him with a description of the property, and said Director of Lands shall have full control and custody thereof to lease or sell the same or any portion thereof in the same manner as other public lands are leased or sold: Provided, That the original owner, or his legal representative, shall have the right to repurchase the entire amount of his said real property, at any time before a sale or contract of sale has been made by the director of Lands to a third party, by paying therefore the whole sum due thereon at the time of ejectment together with a penalty of ten per centum . . . . The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as the successor in interest of the original owner under the execution sale above discussed. As we have seen, he acquired no rights under these sales, was therefore not the successor of the original owner and could only have obtained a valid conveyance of such titles as the Government might have by following the procedure prescribed by the Public Land Act for the sale of public lands. he is entitled to reimbursement for the money paid for the redemption of the land, with interest, but has acquired no title through the redemption. The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is extensively argued in the briefs, but from our point of view is of no importance; void sheriff's or execution sales cannot be validated through inscription in the Mortgage Law registry. The opposition of Adelina Ferrer must also be overruled. She maintained that the land in question was community property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira in 1913, Maximo Belisario, the only son and heir of the spouses, entered into the joint

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administration of the property with his father; that this joint administration was equivalent to the formation of a new community of property between father and son and that it succeeded and extinguished the preexisting community of property between the spouses; that the special rights of the surviving husband as liquidator of the community property of the marriage thereupon also terminated; that, therefore, the surviving husband had not right to sell or otherwise dispose of more than his own undivided share of such community property and that, consequently, the right Maximo Belisario as the sole heir of his mother to one-half of the community property was unaffected by the sale made by his father to the petitioner Borja. This court held in the cases of Nable Jose vs. Nable Jose (41 Phil., 713) and Manuel and Laxamana vs. Losano(41 Phil., 855), that "in the absence of fraud and collusion, sales or mortgages of community property, either real or personal, made by a husband-administrator clothed with the insignia of ownership and in whose name the property is held, after the death of his spouse, are valid and effective. the purchaser being entitled to presume that such sales or mortgages are executed for the purpose of securing money to pay community debts and that the vendor has authority to dispose of the property thus administered by him and held in his name. . . ." Though this rule is, perhaps, not in harmony with the views of various commentators upon the Civil Code, it is the main supported by a line of decisions of the supreme court of Spain and until the pertinent provisions of the Civil Code are amended, will probably not be greatly modified by future decisions of this court. There is no reason in a law why the heirs of the deceased wife may not form a partnership with the surviving husband for the management and control of the community property of the marriage and conceivably such a partnership, or rather community of property, between the heirs and the surviving husband might be formed without a written agreement. But, in the absence of the formalities prescribed by the Code of Commerce or by articles 1667 and 1668 of the Civil Code, knowledge of the existence of the new partnership or community of property must, at least, be brought home to third persons dealing with the surviving husband in regard to community real property in order to bind them by the community agreement. In the present case the land was recorded in the real property register in the name of Eulalio Belisario and there is not a scintilla of evidence to show that the petitioner herein, Basilio Borja, had any notice of the fact that Maximo Belisario participated in the administration of the property or claimed any rights or ownership therein. The case, therefore, falls squarely within the rule laid down in the cases above cited and the deed from Eulalio Belisario to Basilio Borja must be held to have conveyed to the latter the whole fee of the land in question. The decision appealed from is affirmed without costs. The registration of the land will be made subject to the lien of P. W. Addison for the sums of money expended for the

redemption of the land from the forfeiture for nonpayment of taxes. So ordered.

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G.R. No. 3186 March 7, 1907 THE GREAT COUNCIL OF THE UNITED STATES OF THE IMPROVED ORDER OF RED MEN, plaintiff-appellee, vs. THE VETERAN ARMY OF THE PHILIPPINES, defendantappellant. Article 3 of the Constitution of the Veteran Army of the Philippines provides as follows: The object of this association shall be to perpetuate the spirit of patriotism and fraternity those men who upheld the Stars and Stripes in the Philippine Islands during the Spanish war and the Philippine insurrection, and to promote the welfare of its members in every just and honorable way; to assist the sick and afflicted and to bury the dead, to maintain among its members in time of peace the same union and harmony with which they served their country in times of war and insurrection. Article 5 provides that: This association shall be composed of (a) A department. (b) Two or more posts. It is provided in article 6 that the department shall be composed of a department commander, fourteen officers, and the commander of each post, or some member of the post appointed by him. Six members of the department constitute a quorum for the transaction of business. The Constitution also provides for the organization of posts. Among the posts thus organized is the General Henry W. Lawton Post, No. 1. On the 1st day of March, 1903, a contract of lease of parts of a certain buildings in the city of Manila was signed by W.W. Lewis, E.C. Stovall, and V.O., Hayes, as trustees of the Apache Tribe, No. 1, Improved Order of Red Men, as lessors, and Albert E. McCabe, citing for and on behalf of Lawton Post, Veteran Army of the Philippines as lessee. The lease was for the term of two years commencing February 1, 903, and ending February 28, 1905. The Lawton Post occupied the premises in controversy for thirteen months, and paid the rent for that time. It them abandoned them and this action was commenced to recover the rent for the unexpired term. Judgment was rendered in the court below on favor of the defendant McCabe, acquitting him of the complaint. Judgment was rendered also against the Veteran Army of the Philippines for P1,738.50, and the costs. From this judgment, the last named defendant has appealed. The plaintiff did not appeal from the judgment acquitting defendant McCabe of the complaint. It is claimed by the appellant that the action can not be maintained by the plaintiff, The Great Council of the United States of the Improved Order of Red Men, as this organization did not make the contract of lease. It is also claimed that the action can not be maintained against the Veteran Army of the Philippines because it never contradicted, either with the plaintiff or with Apach Tribe, No. 1, and never authorized anyone to so contract in its name.

We do not find it necessary to consider the first point because we think the contention of the appellant on the second point must be sustained. It is difficult to determine the exact nature of the defendant organization. It is of course not a mercantile partnership. There is some doubt as to whether it is a civil partnership, in view of the definition of the term in article 1665 of the Civil Code. That article is as follows: 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. It seems to be the opinion of the commentators that where the society is not constituted for the purpose of gain. it does not fall within this article of the Civil Code. Such an organization is fully covered by the Law of Associations of 1887, but that law was never extended to the Philippine Islands. According to some commentators it would be governed by the provisions relating to the community of property. However, the questions thus presented we do not find necessary to , and to not resolve. The view most favorable to the appellee is the one that makes the appellant a civil partnership. Assuming that is such, and is covered by the provisions of title 8, book 4 of the Civil Code, it is necessary for the appellee to prove that the contract in question was executed by some authorized to so by the Veteran Army of the Philippines. Article 1695 of the Civil Code provides as follows: Should no agreement have been made with regard to the form of management, the following rules shall be observed: 1 All the partners shall be considered as agents, and whatever any one of them may do by himself shall bind the partnership; but each one may oppose the act of the others before they may have produced any legal effect. One partner, therefore, is empowered to contract in the name of the partnership only when the articles of partnership make no provision for the management of the partnership business. In the case at bar we think that the articles of the Veteran Army of the Philippines do so provide. It is true that an express disposition to that effect is not found therein, but we think one may be fairly deduced from the contents of those articles. They declare what the duties of the several officers are. In these various provisions there is nothing said about the power of making contracts, and that faculty is not expressly given to any officer. We think that it was, therefore, reserved to the department as a whole; that is, that in any case not covered expressly by the rules prescribing the duties of the officers, the department were present. It is hardly conceivable that the members who formed this organization should have had the intention of giving to any one of the sixteen or more persons who composed the department the power to make any contract relating to the society which that particular officer saw fit to make, or that a contract when so made without consultation with, or knowledge of the other members of the department should bind it. We therefore, hold, that no contract, such as the one in question, is binding

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on the Veteran Army of the Philippines unless it was authorized at a meeting of the department. No evidence was offered to show that the department had never taken any such action. In fact, the proof shows that the transaction in question was entirely between Apache Tribe, No. 1, and the Lawton Post, and there is nothing to show that any member of the department ever knew anything about it, or had anything to do with it. The liability of the Lawton Post is not presented in this appeal. Judgment against the appellant is reversed, and the Veteran Army of the Philippines is acquitted of the complaint. No costs will be allowed to either party in this court. After the expiration of twenty days let judgment be rendered in accordance to the lower court for proper action. So ordered.

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G.R. No. L-35840 March 31, 1933 FRANCISCO BASTIDA, plaintiff-appellee, vs. MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants. MENZI & CO., appellant. This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the Court of First Instance of Manila. The case was tried on the amended complaint dated May 26, 1928 and defendants' amended answer thereto of September 1, 1928. For the sake of clearness, we shall incorporate herein the principal allegations of the parties. FIRST CAUSE OF ACTION Plaintiff alleged: I That the defendant J.M. Menzi, together with his wife and daughter, owns ninety-nine per cent (99%) of the capital stock of the defendant Menzi & Co., Inc., that the plaintiff has been informed and therefore believes that the defendant J.M. Menzi, his wife and daughter, together with the defendant P.C. Schlobohm and one Juan Seiboth, constitute the board of directors of the defendant, Menzi & Co., Inc.; II That on April 27, 1922, the defendant Menzi & Co., Inc. through its president and general manager, J.M. Menzi, under the authority of the board of directors, entered into a contract with the plaintiff to engage in the business of exploiting prepared fertilizers, as evidenced by the contract marked Exhibit A, attached to the original complaint as a part thereof, and likewise made a part of the amended complaint, as if it were here copied verbatim; III That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began to manufacture prepared fertilizers, the former superintending the work of actual preparation, and the latter, through defendants J.M. Menzi and P. C. Schlobohm, managing the business and opening an account entitled "FERTILIZERS" on the books of the defendant Menzi & Co., Inc., where all the accounts of the partnership business were supposed to be kept; the plaintiff had no participation in the making of these entries, which were wholly in the defendants' charge, under whose orders every entry was made; IV That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co., Inc., was obliged to render annual balance sheets to be plaintiff upon the 30th day of June of each year; that the plaintiff had no intervention in the preparation of these yearly balances, nor was he permitted to have any access to the books of account; and when the balance sheets were shown him, he, believing in good faith that they contained the true statement of the partnership business, and relying upon the good faith of the defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. Schlobohm, accepted and signed them, the last balance sheet having been rendered in the year 1926;

V That by reason of the foregoing facts and especially those set forth in the preceding paragraph, the plaintiff was kept in ignorance of the defendants' acts relating to the management of the partnership funds, and the keeping of accounts, until he was informed and so believes and alleges, that the defendants had conspired to conceal from him the true status of the business, and to his damage and prejudice made false entries in the books of account and in the yearly balance sheets, the exact nature and amount of which it is impossible to ascertain, even after the examination of the books of the business, due to the defendants' refusal to furnish all the books and data required for the purpose, and the constant obstacles they have placed in the way of the examination of the books of account and vouchers; VI That when the plaintiff received the information mentioned in the preceding paragraph, he demanded that the defendants permit him to examine the books and vouchers of the business, which were in their possession, in order to ascertain the truth of the alleged false entries in the books and balance sheets submitted for his approval, but the defendants refused, and did not consent to the examination until after the original complaint was filed in this case; but up to this time they have refused to furnish all the books, data, and vouchers necessary for a complete and accurate examination of all the partnership's accounts; and VII That as a result of the partial examination of the books of account of the business, the plaintiff has, through his accountants, discovered that the defendants, conspiring and confederating together, presented to the plaintiff during the period covered by the partnership contract false and incorrect accounts, (a) For having included therein undue interest; (b) For having entered, as a charge to fertilizers, salaries and wages which should have been paid and were in fact paid by the defendant Menzi & Co., Inc.; (c) For having collected from the partnership the income tax which should have been paid for its own account by Menzi & Co., Inc.; (d) For having collected, to the damage and prejudice of the plaintiff, commissions on the purchase of materials for the manufacture of fertilizers; (e) For having appropriated, to the damage and prejudice of the plaintiff, the profits obtained from the sale of fertilizers belonging to the partnership and bought with its own funds; and (f) For having appropriated to themselves all rebates for freight insurance, taxes, etc., upon materials for fertilizer bought abroad, no entries of said rebates having been made on the books to the credit of the partnership. Upon the strength of the facts set out in this first cause of action, the plaintiff prays the court: 1. To prohibit the defendants, each and every one of them, from destroying and concealing the books and papers of the

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partnership constituted between the defendant Menzi & Co., Inc., and the plaintiff; 2. To summon each and every defendant to appear and give a true account of all facts relating to the partnership between the plaintiff and the defendant Menzi & Co., Inc., and of each and every act and transaction connected with the business of said partnership from the beginning to April 27, 1927, and a true statement of all merchandise of whatever description, purchased for said partnership, and of all the expenditures and sale of every kind, together with the true amount thereof, besides the sums received by the partnership from every source together with their exact nature, and a true and complete account of the vouchers for all sums paid by the partnership, and of the salaries paid to its employees; 3. To declare null and void the yearly balances submitted by the defendants to the plaintiff from 1922 to 1926, both inclusive; 4. To order the defendants to give a true statement of all receipts and disbursements of the partnership during the period of its existence, besides granting the plaintiff any other remedy that the court may deem just and equitable. EXHIBIT A CONTRATO que se celebra entre los Sres. Menzi y Compaia, de Manila, como Primera Parte, y D. Francisco Bastada, tambien de Manila, como Segunda Parte, bajo las siguientes CONDICIONES 1. El objeto de este contrato es la explotacion del negocio de Abonos o Fertilizantes Preparados, para diversas aplicaciones agricolas; 2. La duracion de este contrato sera de cinco aos, a contrar desde la fecha de su firma; 3. La Primera Parte se compromete a facilitar la ayuda financiera necesaria para el negocio; 4. La Segunda Parte se compromete a poner su entero tiempo y toda su experiencia a la disposicion del negocio; 5. La Segunda Parte no podra, directa o indirectamente, dedicarse por si sola ni en sociedad con otras personas, o de manera alguna que no sea con la Primera Parte, al negecio de Abonos, simples o preparados, o de materia alguna que se aplique comunmente a la fertilizacion de suelos y plantas, durante la vigencia de este contrato, a menos que obtenga autorizacion expresa de la Primera Parte para ello; 6. La Primera Parte no podra dedicarse, por si sola ni en sociedad o combinacion con otras personas o entidades, ni de otro modo que en sociedad con la Segunda Parte, al negocio de Abonos o Fertilizantes preparados, ya sean ellos importados, ya preparados en las Islas Fllipinas; tampoco podra dedicarse a la venta o negocio de materias o productos que tengan aplicacion como fertilizantes, o que se usen en la composicion de fertilizantes o abonos, si ellos son productos de suelo de la manufactura filipinos, pudiendo sin embargo vender o negociar en materim fertilizantes simples importados de los Estados Unidos o del Extranjero; 7. La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el 35 por ciento (treinta y cinco por ciento) de

las utilidades netas del negocio de abonos, liquidables el 30 de junio de cada ao; 8. La Primera Parte facilitara la Segunda, mensualmente, la cantidad de P300 (trescientos pesos), a cuenta de su parte de beneficios. 9. Durante el ao 1923 la Parte concedera a la Segunda permiso para que este se ausente de Filipinas por un periodo de tiempo que no exceda de un ao, sin menoscabo para derechos de la Segunda Parte con arreglo a este contrato. En testimonio de lo cual firmamos el presente en la Ciudad de Manila, I. F., a veintisiete de abril de 1922. MENZI & CO., INC. Por (Fdo.) J. MENZI General Manager Primera Parte (Fdo.) F. BASTIDA Segunda Parte MENZI & CO., INC. (Fdo.) MAX KAEGI Acting Secretary Defendants denied all the allegations of the amended complaint, except the formal allegations as to the parties, and as a special defense to the first cause of action alleged: 1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the general merchandise business in the Philippine Islands since its organization in October, 1921, including the importation and sale of all kinds of goods, wares, and merchandise, and especially simple fertilizer and fertilizer ingredients, and as a part of that business, it has been engaged since its organization in the manufacture and sale of prepared fertilizers for agricultural purposes, and has used for that purpose trade-marks belonging to it; 2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered into an employment agreement with the plaintiff, who represented that he had had much experience in the mixing of fertilizers, to superintend the mixing of the ingredients in the manufacture of prepared fertilizers in its fertilizer department and to obtain orders for such prepared fertilizers subject to its approval, for a compensation of 50 per cent of the net profits which it might derive from the sale of the fertilizers prepared by him, and that said Francisco Bastida worked under said agreement until April 27, 1922, and received the compensation agreed upon for his services; that on the said 27th of April, 1922, the said Menzi & Co., Inc., and the said Francisco Bastida made and entered into the written agreement, which is marked Exhibit A, and made a part of the amended complaint in this case, whereby they mutually agreed that the employment of the said Francisco Bastida by the said Menzi & Co., Inc., in the capacity stated, should be for a definite period of five years from that date and under the other terms and conditions stated therein, but with the understanding and agreement that the said Francisco Bastida should receive as compensation for his said services only 35 per cent of the net profits derived from the sale of the fertilizers prepared by him during the period of the contract instead of 50 per cent

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of such profits, as provided in his former agreement; that the said Francisco Bastida was found to be incompetent to do anything in relation to its said fertilizer business with the exception of over-seeing the mixing of the ingredients in the manufacture of the same, and on or about the month of December, 1922, the defendant, Menzi & Inc., in order to make said business successful, was obliged to and actually did assume the full management and direction of said business; 3. That the accounts of the business of the said fertilizer department of Menzi & Co., Inc., were duly kept in the regular books of its general business, in the ordinary course thereof, up to June 30, 1923, and that after that time and during the remainder of the period of said agreement, for the purpose of convenience in determining the amount of compensation due to the plaintiff under his agreement, separate books of account for its said fertilizer business were duly, kept in the name of 'Menzi & Co., Inc., Fertilizer', and used exclusively for that purpose and it was mutually agreed between the said Francisco Bastida and the said Menzi & Co., Inc., that the yearly balances for the determination of the net profits of said business due to the said plaintiff as compensation for his services under said agreement would be made as of December 31st, instead of June 30th, of each year, during the period of said agreement; that the accounts of the business of its said fertilizer department, as recorded in its said books, and the vouchers and records supporting the same, for each year of said business have been duly audited by Messrs. White, Page & Co., certified public accountants, of Manila, who, shortly after the close of business at the end of each year up to and including the year 1926, have prepared therefrom a manufacturing and profit and loss account and balance sheet, showing the status of said business and the share of the net profits pertaining to the plaintiff as his compensation under said agreement; that after the said manufacturing and profit and the loss account and balance sheet for each year of the business of its said fertilizer department up to and including the year 1926, had been prepared by the said auditors and certified by them, they were shown to and examined by the plaintiff, and duly accepted, and approved by him, with full knowledge of their contents, and as evidence of such approval, he signed his name on each of them, as shown on the copies of said manufacturing and profit and loss account and balance sheet for each year up to and including the year 1926, which are attached to the record of this case, and which are hereby referred to and made a part of this amended answer, and in accordance therewith, the said plaintiff has actually received the portion of the net profits of its said business for those years pertaining to him for his services under said agreement; that at no time during the course of said fertilizer business and the liquidation thereof has the plaintiff been in any way denied access to the books and records pertaining thereto, but on the contrary, said books and records have been subject to his inspection and examination at any time during business hours, and even since the commencement of this action, the plaintiff and his accountants, Messrs. Haskins &

Sells, of Manila, have been going over and examining said books and records for months and the defendant, Menzi & Co. Inc., through its officers, have turned over to said plaintiff and his accountant the books and records of said business and even furnished them suitable accommodations in its own office to examine the same; 4. That prior to the termination of the said agreement, Exhibit A, the defendant, Menzi & Co., Inc., duly notified the plaintiff that it would not under any conditions renew his said agreement or continue his said employment with it after its expiration, and after the termination of said agreement of April 27, 1927, the said Menzi & Co., Inc., had the certified public accountants, White, Page & Co., audit the accounts of the business of its said fertilizer department for the four months of 1927 covered by plaintiff's agreement and prepare a manufacturing and profit and loss account and balance sheet of said business showing the status of said business at the termination of said agreement, a copy of which was shown to and explained to the plaintiff; that at that time there were accounts receivable to be collected for business covered by said agreement of over P100,000, and there was guano, ashes, fine tobacco and other fertilizer ingredients on hand of over P75,000, which had to be disposed of by Menzi & Co., Inc., or valued by the parties, before the net profits of said business for the period of the agreement could be determined; that Menzi & Co., Inc., offered to take the face value of said accounts and the cost value of the other properties for the purpose of determining the profits of said business for that period, and to pay to the plaintiff at that time his proportion of such profits on that basis, which the plaintiff refused to accept, and being disgruntled because the said Menzi & Co., Inc., would not continue him in its service, the said plaintiff commenced this action, including therein not only Menzi & Co. Inc., but also it managers J.M. Menzi and P.C. Schlobohm, wherein he knowingly make various false and malicious allegations against the defendants; that since that time the said Menzi & Co., Inc., has been collecting the accounts receivable and disposing of the stocks on hand, and there is still on hand old stock of approximately P25,000, which it has been unable to dispose of up to this time; that as soon as possible a final liquidation and amounting of the net profits of the business covered by said agreement for the last four months thereof will be made and the share thereof appertaining to the plaintiff will be paid to him; that the plaintiff has been informed from time to time as to the status of the disposition of such properties, and he and his auditors have fully examined the books and records of said business in relation thereto. SECOND CAUSE OF ACTION As a second cause of action plaintiff alleged: I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action. II. That the examination made by the plaintiff's auditors of some of the books of the partnership that were furnished by the defendants disclosed the fact that said defendants had charged to "purchases" of the business, undue interest, the

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amount of which the plaintiff is unable to determine, as he has never had at his disposal the books and vouchers necessary for that purpose, and especially, owning to the fact that the partnership constituted between the plaintiff and the defendant Menzi & Co., Inc., never kept its own cash book, but that its funds were maliciously included in the private funds of the defendant entity, neither was there a separate BANK ACCOUNT of the partnership, such account being included in the defendant's bank account. III. That from the examination of the partnership books as aforesaid, the plaintiff estimates that the partnership between himself and the defendant Menzi & Co., Inc., has been defrauded by the defendants by way of interest in an amount of approximately P184,432.51, of which 35 per cent, or P64,551.38, belongs to the plaintiff exclusively. Wherefore, the plaintiff prays the court to render judgment ordering the defendants jointly and severally to pay him the sum of P64,551.38, or any amount which may finally appear to be due and owing from the defendants to the plaintiff upon this ground, with legal interest from the filing of the original complaint until payment. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That under the contract of employment, Exhibit A, of the amended complaint, the defendant, Menzi & Co., Inc., only undertook and agreed to facilitate financial aid in carrying on the said fertilizer business, as it had been doing before the plaintiff was employed under the said agreement; that the said defendant, Menzi & Co., Inc., in the course of the said business of its fertilizer department, opened letters of credit through the banks of Manila, accepted and paid drafts drawn upon it under said letters of credit, and obtained loans and advances of moneys for the purchase of materials to be used in mixing and manufacturing its fertilizers and in paying the expenses of said business; that such drafts and loans naturally provided for interest at the banking rate from the dates thereof until paid, as is the case in all, such business enterprises, and that such payments of interest as were actually made on such drafts, loans and advances during the period of the said employment agreement constituted legitimate expenses of said business under said agreement. THIRD CAUSE OF ACTION As third cause of action, plaintiff alleged: I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action. II. That under the terms of the contract Exhibit A, neither the defendants J.M. Menzi and P.C. Schlobohm, nor the defendant Menzi & Co., Inc., had a right to collect for itself or themselves any amount whatsoever by way of salary for services rendered to the partnership between the plaintiff and the defendant, inasmuch as such services were compensated with the 65% of the net profits of the business constituting their share.

III. That the plaintiff has, on his on account and with his own money, paid all the employees he has placed in the service of the partnership, having expended for their account, during the period of the contract, over P88,000, without ever having made any claim upon the defendants for this sum because it was included in the compensation of 35 per cent which he was to receive in accordance with the contract Exhibit A. IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied with collecting undue and excessive salaries for themselves, have made the partnership, or the fertilizer business, pay the salaries of a number of the employees of the defendant Menzi & Co., Inc. V. That under this item of undue salaries the defendants have appropriated P43,920 of the partnership funds, of which 35 per cent, or P15,372 belongs exclusively to the plaintiff. Wherefore, the plaintiff prays the court to render judgment ordering the defendants to pay jointly and severally to the plaintiff the amount of P15,372, with legal interest from the date of the filing of the original complaint until the date of payment. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4 of the special defense the first cause of action in this amended answer; 2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed and conducted its said fertilizer business, in which the plaintiff was to receive 35 percent of the net profits as compensation for this services, as hereinbefore alleged, from on or about January 1, 1923, when its other departments had special experienced Europeans in charge thereof, who received not only salaries but also a percentage of the net profits of such departments; that its said fertilizer business, after its manager took charge of it, became very successful, and owing to the large volume of business transacted, said business required great deal of time and attention, and actually consumed at least one-half of the time of the manager and certain employees of Menzi & Co., Inc., in carrying it on; that the said Menzi & Co., furnished office space, stationery and other incidentals, for said business, and had its employees perform the duties of cashiers, accountants, clerks, messengers, etc., for the same, and for that reason the said Menzi & Co., Inc., charged each year, from and after 1922, as expenses of said business, which pertained to the fertilizer department, as certain amount as salaries and wages to cover the proportional part of the overhead expenses of Menzi & Co., Inc.; that the same method is followed in each of the several departments of the business of Menzi & Co., Inc., that each and every year from and after 1922, a just proportion of said overhead expenses were charged to said fertilizer departments and entered on the books thereof, with the knowledge and consent of the plaintiff, and included in the auditors' reports, which were examined, accepted and approved by him, and he is now estopped from saying that such expenses were not legitimate and just expenses of said business. FOURTH CAUSE OF ACTION

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As fourth cause of action, the plaintiff alleged: I. That he hereby reproduces paragraph I, II, III, IV, and V of the first cause of action. II. That the defendant Menzi & Co., Inc., through the defendant J. M. Menzi and P. C. Schlobohm, has paid, with the funds of the partnership between the defendant entity and the plaintiff, the income tax due from said defendant entity for the fertilizer business, thereby defrauding the partnership in the amount of P10,361.72 of which 35 per cent belongs exclusively to the plaintiff, amounting to P3,626.60. III. That the plaintiff has, during the period of the contract, paid with his own money the income tax corresponding to his share which consists in 35 per cent of the profits of the fertilizer business, expending about P5,000 without ever having made any claim for reimbursement against the partnership, inasmuch as it has always been understood among the partners that each of them would pay his own income tax. Wherefore, the plaintiff prays the court to order the defendants jointly and severally to pay the plaintiff the sum of P3,362.60, with legal interest from the date of the filing of the original complaint until its payment. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make return to the Government of the Philippine Islands each year during the period of the agreement, Exhibit A, of the income of its whole business, including its fertilizer department; that the proportional share of such income taxes found to be due on the business of the fertilizer department was charged as a proper and legitimate expense of that department, in the same manner as was done in the other departments of its business; that inasmuch as the agreement with the plaintiff was an employment agreement, he was required to make his own return under the Income Tax Law and to pay his own income taxes, instead of having them paid at the source, as might be done under the law, so that he would be entitled to the personal exemptions allowed by the law; that the income taxes paid by the said Menzi & Co., Inc., pertaining to the business, were duly entered on the books of that department, and included in the auditors' reports hereinbefore referred to, which reports were examined, accepted and approved by the plaintiff, with full knowledge of their contents, and he is now estopped from saying that such taxes are not a legitimate expense of said business. FIFTH CAUSE OF ACTION As fifth cause of action, plaintiff alleged: I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action. II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., had been receiving, during the period of the contract Exhibit A, from foreign firms selling fertilizing material, a secret commission equivalent to 5 per cent of the

total value of the purchases of fertilizing material made by the partnership constituted between the plaintiff and the defendant Menzi Co., Inc., and that said 5 per cent commission was not entered by the defendants in the books of the business, to the credit and benefit of the partnership constituted between the plaintiff and the defendant, but to the credit of the defendant Menzi Co., Inc., which appropriated it to itself. III. That the exact amount, or even the approximate amount of the fraud thus suffered by the plaintiff cannot be determined, because the entries referring to these items do not appear in the partnership books, although the plaintiff believes and alleges that they do appear in the private books of the defendant Menzi & Co., Inc., which the latter has refused to furnish, notwithstanding the demands made therefore by the auditors and the lawyers of the plaintiff. IV. That taking as basis the amount of the purchases of some fertilizing material made by the partnership during the first four years of the contract Exhibit A, the plaintiff estimates that this 5 per cent commission collected by the defendant Menzi Co., Inc., to the damage and prejudice of the plaintiff, amounts to P127,375.77 of which 35 per cent belongs exclusively to the plaintiff. Wherefore, the plaintiff prays the court to order the defendants to pay jointly and severally to the plaintiff the amount of P44,581.52, or the exact amount owed upon this ground, after both parties have adduced their evidence upon the point. Defendants alleged: 1. That they repeat and make a part of this special defense paragraph 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That the defendant, Menzi & Co., Inc., did have during the period of said agreement, Exhibit A, and has now what is called a "Propaganda Agency Agreement" which the Deutsches Kalesyndikat, G.M.B., of Berlin, which is a manufacturer of potash, by virtue of which said Menzi & Co., Inc., was to receive for its propaganda work in advertising and bringing about sales of its potash a commission of 5 per cent on all orders of potash received by it from the Philippine Islands; that during the period of said agreement, Exhibit A, orders were sent to said concern for potash, through C. Andre & Co., of Hamburg, as the agent of the said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5 per cent commission, amounting in all to P2,222.32 for the propaganda work which it did for said firm in the Philippine Islands; that said commissioners were not in any sense discounts on the purchase price of said potash, and have no relation to the fertilizer business of which the plaintiff was to receive a share of the net profits for his services, and consequently were not credited to that department; 3. That in going over the books of Menzi Co., Inc., it has been found that there are only two items of commissions, which were received from the United Supply Co., of San Francisco, in the total of sum $66.51, which through oversight, were not credited on the books of the fertilizer department of Menzi &

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Co., Inc., but due allowance has now been given to the department for such item. SIXTH CAUSE OF ACTION As sixth cause of action, plaintiff alleged: I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause of action. II. That the defendant Menzi Co., Inc., in collusion with and through the defendants J.M. Menzi and P.C. Schlobohm and their assistants, has tampered with the books of the business making fictitious transfers in favor of the defendant Menzi & Co., Inc., of merchandise belonging to the partnership, purchased with the latter's money, and deposited in its warehouses, and then sold by Menzi & Co., Inc., to third persons, thereby appropriating to itself the profits obtained from such resale. III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff in this respect as the real amount obtained from such sales can only be ascertained from the examination of the private books of the defendant entity, which the latter has refused to permit notwithstanding the demand made for the purpose by the auditors and the lawyers of the plaintiff, and no basis of computation can be established, even approximately, to ascertain the extent of the fraud sustained by the plaintiff in this respect, by merely examining the partnership books. Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement as to all the profits received from the sale to third persons of the fertilizers pertaining to the partnership, and the profits they have appropriated, ordering them jointly and severally to pay 35 per cent of the net amount, with legal interest from the filing of the original complaint until the payment thereof. Defendant alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer: 2. That under the express terms of the employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., had the right to import into the Philippine Islands in the course of its fertilizer business and sell fro its exclusive account and benefit simple fertilizer ingredients; that the only materials imported by it and sold during the period of said agreement were simple fertilizer ingredients, which had nothing whatever to do with the business of mixed fertilizers, of which the plaintiff was to receive a share of the net profits as a part of his compensation. SEVENTH CAUSE OF ACTION As seventh cause of action, plaintiff alleged: I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action. II. That during the existence of the contract Exhibit A, the defendant Menzi & Co., Inc., for the account of the partnership constituted between itself and the plaintiff, and with the latter's money, purchased from a several foreign

firms various simple fertilizing material for the use of the partnership. III. That in the paid invoices for such purchases there are charged, besides the cost price of the merchandise, other amounts for freight, insurance, duty, etc., some of which were not entirely thus spent and were later credited by the selling firms to the defendant Menzi & Co., Inc. IV. That said defendant Menzi & Co., Inc., through and in collusion with the defendants J.M. Menzi and P.C. Schlobohm upon receipt of the credit notes remitted by the selling firms of fertilizing material, for rebates upon freight, insurance, duty, etc., charged in the invoice but not all expended, did not enter them upon the books to the credit of the partnership constituted between the defendant and the plaintiff, but entered or had them entered to the credit on Menzi & Co., Inc., thereby defrauding the plaintiff of 35 per cent of the value of such reductions. V. That the total amount, or even the approximate amount of this fraud cannot be ascertained without an examination of the private books of Menzi & Co., Inc., which the latter has refused to permit notwithstanding the demand to this effect made upon them by the auditors and the lawyers of the plaintiff. Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement as to the total amount of such rebates, and to sentence the defendants to pay the plaintiff jointly and severally 35 per cent of the net amount. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer: 2. That during the period of said employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., received from its agent, C. Andre & Co., of Hamburg, certain credits pertaining to the fertilizer business in the profits of which the plaintiff was interested, by way of refunds of German Export Taxes, in the total sum of P1,402.54; that all of department as received, but it has just recently been discovered that through error an additional sum of P216.22 was credited to said department, which does not pertain to said business in the profits of which the plaintiff is interested. EIGHT CAUSE OF ACTION A eighth cause of action, plaintiff alleged: I. That he hereby reproduces paragraphs I, II, III, IV and V of the first cause of action. II. That on or about April 21, 1927, that is, before the expiration of the contract Exhibit A of the complaint, the defendant Menzi & Co., Inc., acting as manager of the fertilizer business constituted between said defendant and the plaintiff, entered into a contract with the Compaia General de Tabacos de Filipinas for the sale of said entity of three thousand tons of fertilizers of the trade mark "Corona No. 1", at the rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be delivered, as they were delivered, according to information received by the plaintiff, during the months of

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November and December, 1927, and January, February, March, and April, 1928. III. That both the contract mentioned above and the benefits derived therefrom, which the plaintiff estimates at P90,000, Philippine currency, belongs to the fertilizer business constituted between the plaintiff and the defendant, of which 35 per cent, or P31,500, belongs to said plaintiff. IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April 27, 1927, the defendants have not rendered a true accounting of the profits obtained by the business during the last four months thereof, as the purposed balance submitted to the plaintiff was incorrect with regard to the inventory of merchandise, transportation equipment, and the value of the trade marks, for which reason such proposed balance did not represent the true status of the business of the partnership on April 30, 1927. V. That the proposed balance submitted to the plaintiff with reference to the partnership operations during the last four months of its existence, was likewise incorrect, inasmuch as it did not include the profit realized or to be realized from the contract entered into with the Compaia General de Tabacos de Filipinas, notwithstanding the fact that this contract was negotiated during the existence of the partnership, and while the defendant Menzi & Co., Inc., was the manager thereof. VI. That the defendant entity now contends that the contract entered into with the Compaia General de Tabacos de Filipinas belongs to it exclusively, and refuses to give the plaintiff his share consisting in 35 per cent of the profits produced thereby. Wherefore, the plaintiff prays the honorable court to order the defendants to render a true and detailed account of the business during the last four months of the existence of the partnership, i. e., from January 1, 1927 to April 27, 1927, and to sentence them likewise to pay the plaintiff 35 per cent of the net profits. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co., Inc., from the Compaia General de Tabacos Filipinas on April 21, 1927, was taken by it in the regular course of its fertilizer business, and was to be manufactured and delivered in December, 1927, and up to April, 1928; that the employment agreement of the plaintiff expired by its own terms on April 27, 1927, and he has not been in any way in the service of the defendant, Menzi & Co., Inc., since that time, and he cannot possibly have any interest in the fertilizers manufactured and delivered by the said Menzi & Co., Inc., after the expiration of his contract for any service rendered to it. NINTH CAUSE OF ACTION As ninth cause of action, plaintiff alleged: I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.

II. That during the period of the contract Exhibit A, the partnership constituted thereby registered in the Bureau of Commerce and Industry the trade marks "CORONA NO. 1", CORONA NO. 2", "ARADO", and "HOZ", the plaintiff and the defendant having by their efforts succeeded in making them favorably known in the market. III. That the plaintiff and the defendant, laboring jointly, have succeeded in making the fertilizing business a prosperous concern to such an extent that the profits obtained from the business during the five years it has existed, amount to approximately P1,000,000, Philippine currency. IV. That the value of the good will and the trade marks of a business of this nature amounts to at least P1,000,000, of which sum 35 per cent belongs to the plaintiff, or, P350,000. V. That at the time of the expiration of the contract Exhibit A, the defendant entity, notwithstanding and in spite of the plaintiff's insistent opposition, has assumed the charge of liquidating the fertilizing business, without having rendered a monthly account of the state of the liquidation, as required by law, thereby causing the plaintiff damages. VI. That the damages sustained by the plaintiff, as well as the amount of his share in the remaining property of the plaintiff, and may only be truly and correctly ascertained by compelling the defendants J. M. Menzi and P. C. Schlobohm to declare under oath and explain to the court in detail the sums obtained from the sale of the remaining merchandise, after the expiration of the partnership contract. VII. That after the contract Exhibit A had expired, the defendant continued to use for its own benefit the good-will and trade marks belonging to the partnership, as well as its transportation equipment and other machinery, thereby indicating its intention to retain such good-will, trade marks, transportation equipment and machinery, for the manufacture of fertilizers, by virtue of which the defendant is bound to pay the plaintiff 35 per cent of the value of said property. VIII. That the true value of the transportation equipment and machinery employed in the preparation of the fertilizers amounts of P20,000, 35 per cent of which amount to P7,000. IX. That the plaintiff has repeatedly demanded that the defendant entity render a true and detailed account of the state of the liquidation of the partnership business, but said defendants has ignored such demands, so that the plaintiff does not, and this date, know whether the liquidation of the business has been finished, or what the status of it is at present. Wherefore, the plaintiff prays the Honorable Court: 1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a true and detailed account of the status of business in liquidation, that is, from April 28, 1927, until it is finished, ordering all the defendants to pay the plaintiff jointly and severally 35 per cent of the net amount. 2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000, which is 35 per cent of the value of the goodwill and the trade marks of the fertilizer business;

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3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000 which is 35 per cent of the value of the transportation equipment and machinery of the business; and 4. To order the defendants to pay the costs of this trial, and further, to grant any other remedy that this Honorable Court may deem just and equitable. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That the good-will, if any, of said fertilizer business of the defendant, Menzi & Co., Inc., pertains exclusively to it, and the plaintiff can have no interest therein of any nature under his said employment agreement; that the trade-marks mentioned by the plaintiff in his amended complaint, as a part of such good-will, belonged to and have been used by the said Menzi & Co., Inc., in its fertilizer business from and since its organization, and the plaintiff can have no rights to or interest therein under his said employment agreement; that the transportation equipment pertains to the fertilizer department of Menzi & Co., Inc., and whenever it has been used by the said Menzi & Co., Inc., in its own business, due and reasonable compensation for its use has been allowed to said business; that the machinery pertaining to the said fertilizer business was destroyed by fire in October, 1926, and the value thereof in the sum of P20,000 was collected from the Insurance Company, and the plaintiff has been given credit for 35 per cent of that amount; that the present machinery used by Menzi & Co., Inc., was constructed by it, and the costs thereof was not charged to the fertilizer department, and the plaintiff has no right to have it taken into consideration in arriving at the net profits due to him under his said employment agreement. The dispositive part of the decision of the trial court is as follows: Wherefore, let judgment be entered: (a) Holding that the contract entered into by the parties, evidenced by Exhibit A, as a contract of general regular commercial partnership, wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the industrial partner; (b) Holding the plaintiff, by the mere fact of having signed and approved the balance sheets, Exhibits C to C-8, is not estopped from questioning the statements of the accounts therein contained; (c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the sum of P 60,385.67 with legal interest from the date of the filing of the original complaint until paid; (d) Dismissing the third cause of action; (e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay the plaintiff the sum of P3,821.41, with legal interest from the date of the filing of the original until paid; (f ) Dismissing the fifth cause of action; (g) Dismissing the sixth cause of action; (h) Dismissing the seventh cause of action;

(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to pay the plaintiff the sum of P6,578.38 with legal interest from January 1, 1929, the date of the liquidation of the fertilizer business, until paid; (j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the sum of P196,709.20 with legal interest from the date of the filing of the original complaint until paid; (k) Ordering the said defendant corporation, in view of the plaintiff's share of the profits of the business accruing from January 1, 1927 to December 31, 1928, to pay the plaintiff 35 per cent of the net balance shown in Exhibits 51 and 51-A, after deducting the item of P2,410 for income tax, and any other sum charged for interest under the entry "Purchases"; (l) Ordering the defendant corporation, in connection with the final liquidation set in Exhibit 52 and 52-A, to pay the plaintiff the sum of P17,463.54 with legal interest from January 1, 1929, until fully paid; (m) Dismissing the case with reference to the other defendants, J. M. Menzi and P. C. Schlobohm; and (n) Menzi & Co., Inc., shall pay the costs of the trial. The appellant makes the following assignment of error: I. The trial court erred in finding and holding that the contract Exhibit A constitutes a regular collective commercial copartnership between the defendant corporation, Menzi & Co., Inc., and the plaintiff, Francisco Bastida, and not a contract of employment. II. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged to the fertilizer business in question the sum of P10,918.33 as income taxes partners' balances, foreign drafts, local drafts, and on other credit balances in the sum of P172,530.49, and that 35 per cent thereof, or the sum of P60,358.67, with legal interest thereon from the date of filing his complaint, corresponds to the plaintiff. III. The trial court erred finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged to the fertilizer business in question the sum of P10,918.33 as income taxes for the years 1923, 1924, 1925 and 1926, and that the plaintiff is entitled to 35 per cent thereof, or the sum of P3,821.41, with legal interest thereon from the date of filing his complaint, and in disallowing the item of P2,410 charged as income tax in the liquidation in Exhibits 51 and 51 A for the period from January 1 to April 27, 1927. IV. The trial court erred in refusing to find and hold under the evidence in this case that the contract, Exhibit A was daring the whole period thereof considered by the parties and performed by them as a contract of employment in relation to the fertilizer business of the defendant, and that the accounts of said business were kept by the defendant, Menzi & Co., Inc., on that theory with the knowledge and consent of the plaintiff, and that at the end of each year for five years a balance sheet and profit and loss statement of said business were prepared from the books of account of said business on the same theory and submitted to the plaintiff, and that each year said balance sheet and profit and loss statement were examined, approved and signed by said contract in

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accordance therewith with full knowledge of the manner in which said business was conducted and the charges for interest and income taxes made against the same and that by reason of such facts, the plaintiff is now estopped from raising any question as to the nature of said contract or the propriety of such charges. V. The trial court erred in finding and holding that the plaintiff, Francisco Bastida, is entitled to 35 per cent of the net profits in the sum of P18,795.38 received by the defendant, Menzi & Co., Inc., from its contract with the Compaia General de Tabacos de Filipinas, or the sum of P6.578.38, with legal interest thereon from January 1, 1929, the date upon which the liquidation of said business was terminated. VI. The trial court erred in finding and holding that the value of the good-will of the fertilizer business in question was P562,312, and that the plaintiff, Francisco Bastida, was entitled to 35 per cent of such valuation, or the sum of P196,709.20, with legal interest thereon from the date of filing his complaint. VII. The trial court erred in rendering judgment in favor of the plaintiff and against defendant, Menzi & Co., Inc., (a) on the second cause of action, for the sum of P60,385.67, with legal interest thereon from the date of filing the complaint; (b) on the fourth cause of action, for the sum of P3,821.41, with legal interest thereon from the date of filing the complaint; (c) on the eight cause of action, for the sum of P6,578.38, with legal interest thereon from January 1, 1929; and (d) on the ninth cause of action, for the sum of P196,709.20, with legal interest thereon from the date of filing the original complaint; and (e) for the costs of the action, and in not approving the final liquidation of said business, Exhibits 51 and 51-A and 52 and 52-A, as true and correct, and entering judgment against said defendant only for the amounts admitted therein as due the plaintiff with legal interest, with the costs against the plaintiff. VIII. The trial court erred in overruling the defendants' motion for a new trial. It appears from the evidence that the defendants corporation was organized in 1921 for purpose of importing and selling general merchandise, including fertilizers and fertilizer ingredients. It appears through John Bordman and the MenziBordman Co. the good-will, trade-marks, business, and other assets of the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks and trademarks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business from 1910 until that firm was taken over the Alien Property Custodian in 1917. Among the trademarks thus acquired by the appellant were those known as the "ARADO", "HOZ", and "CORONA". They were registered in the Bureau of Commerce and Industry in the name of Menzi & Co. The trade marks "ARADO" and "HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and the trade mark "CORONA" had been used in its other business. The "HOZ" trade-mark was used by John Bordman and the Menzi-Bordman Co. in the continuation of the

fertilizer business that had belonged to Behn, Meyer & Co., Ltd. The business of Menzi & Co., Inc., was divided into several different departments, each of which was in charge of a manager, who received a fixed salary and a percentage of the profits. The corporation had to borrow money or obtain credits from time to time and to pay interest thereon. The amount paid for interest was charged against the department concerned, and the interest charges were taken into account in determining the net profits of each department. The practice of the corporation was to debit or credit each department with interest at the bank rate on its daily balance. The fertilizer business of Menzi & Co., Inc., was carried on in accordance with this practice under the "Sundries Department" until July, 1923, and after that as a separate department. In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to see Toehl, the manager of the sundries department of Menzi & Co., Inc., and told him that he had a written contract with the Philippine Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that he could obtain other contracts, including one from the Calamba Sugar Estates for 450 tons, but the he did not have the money to buy the ingredients to fill the order and carry on the on the business. He offered to assign to Menzi & Co., Inc., his contract with the Philippine Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain other orders for fifty per cent of the net profits that Menzi & Co., might derive therefrom. J.M. Menzi, the general manager of Menzi & Co., accepted plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and the defendant corporation proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer. On January 10, 1922 the defendant corporation at plaintiff's request gave him the following letter, Exhibit B: MANILA, 10 de enero de 1922 Sr. FRANCISCO BASTIDA Manila MUY SR. NUESTRO: Interin formalizamos el contrato que, en principio, tenemos convenido para la explotacion del negocio de abono y fertilizantes, por la presente venimos en confirmar su derecho de 50 por ciento de las untilidades que se deriven del contrato obtenido por Vd. de la Philippine Sugar Centrals (por 1250 tonel.) y del contrato con la Calamba Sugar Estates, asi como de cuantos contratos se cierren con definitiva de nuestro contrato mutuo, lo que formalizacion definitiva de nuestro contrato mutuo, lo que hacemos para garantia y seguridad de Vd. MENZI & CO., Por (Fdo.) W. TOEHL Menzi & Co., Inc., continued to carry on its fertilizer business under this arrangement with the plaintiff. It ordered ingredients from the United States and other countries, and the interest on the drafts for the purchase of these materials was changed to the business as a part of the cost of the

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materials. The mixed fertilizers were sold by Menzi & Co., Inc., between January 19 and April 1, 1922 under its "CORONA" brand. Menzi & Co., Inc., had only one bank account for its whole business. The fertilizer business had no separate capital. A fertilizer account was opened in the general ledger, and interest at the rate charged by the Bank of the Philippine Islands was debited or credited to that account on the daily balances of the fertilizer business. This was in accordance with appellant's established practice, to which the plaintiff assented. On or about April 24, 1922 the net profits of the business carried on under the oral agreement were determined by Menzi & Co., Inc., after deducting interest charges, proportional part of warehouse rent and salaries and wages, and the other expenses of said business, and the plaintiff was paid some twenty thousand pesos in full satisfaction of his share of the profits. Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B, the defendant corporation April 27, 1922 entered a written contract with the plaintiff, marked Exhibit A, which is the basis of the present action. The fertilizer business was carried on by Menzi & Co., Inc., after the execution of Exhibit A in practically the same manner as it was prior thereto. The intervention of the plaintiff was limited to supervising the mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas. The trade-marks used in the sale of the fertilizer were registered in the Bureau of Commerce & Industry in the name of Menzi & Co., Inc., and the fees were paid by that company. They were not changed to the fertilizer business, in which the plaintiff was interested. Only the fees for registering the formulas in the Bureau of Science were charged to the fertilizer business, and the total amount thereof was credited to this business in the final liquidation on April 27, 1927. On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and scraps to tobacco that it might need for its fertilizer business either in the Philippine Islands or for export to other countries. This contract is rendered to in the record as the "Vastago Contract". Menzi & Co., Inc., advanced the plaintiff, paying the salaries of his employees, and other expenses in performing his contract. White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month, and at the end of each year they prepared a balance sheet and a profit and loss statement of the fertilizer business. These statements were delivered to the plaintiff for examination, and after he had had an opportunity of verifying them he approved them without objection and returned them to Menzi & Co., Inc. Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer business the following amounts: 1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73 1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62 1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56

1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03 1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98 Total . . . . . . . . . . . . . . . . . . . . P196,483.92

To this amount must be added plaintiff's share of the net profits from January 1 to April 27, 1927, amounting to P34,766.87, making a total of P231,250.79. Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff that the contract for his services would not be renewed. When plaintiff's contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had on hand materials and ingredients and two Ford trucks of the book value of approximately P75,000, and accounts receivable amounting to P103,000. There were claims outstanding and bills to pay. Before the net profits could be finally determined, it was necessary to dispose of the materials and equipment, collect the outstanding accounts for Menzi & Co., Inc., prepared a balance sheet and a profit and loss statement for the period from January 1 to April 27, 1927 as a basis of settlement, but the plaintiff refused to accept it, and filed the present action. Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it proposed to the plaintiff that the old and damaged stocks on hand having a book value of P40,000, which the defendant corporation had been unable to dispose of, be sold at public or private sale, or divided between the parties. The plaintiff refused to agree to this. The defendant corporation then applied to the trial court for an order for the sale of the remaining property at public auction, but apparently the court did not act on the petition. The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the fertilizer business was completed in December, 1928 and a final balance sheet and a profit and loss statement were submitted to the plaintiff during the trial. During the liquidation the books of Menzi & Co., Inc., for the whole period of the contract in question were reaudited by White, Page & Co.., certain errors of bookkeeping were discovered by them. After making the corrections they found the balance due the plaintiff to be P21,633.20. Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and vouchers of Menzi & Co. Thompson assumed the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi & Co., Inc., was obliged to furnish free of charge all the capital the partnership should need. He naturally reached very different conclusions from those of the auditors of Menzi Co., Inc. We come now to a consideration of appellant's assignment of error. After considering the evidence and the arguments of counsel, we are unanimously of the opinion that under the facts of this case the relationship established between Menzi & Co. and by the plaintiff was to receive 35 per cent of the net profits of the fertilizer business of Menzi & Co., Inc., in compensation for his services of supervising the mixing of the

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fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its execution justified the finding that it was a contract of copartnership. Exhibit A, as appears from the statement of facts, was in effect a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant corporation for one-half of the net profits derived by the corporation from certain fertilizer contracts. Plaintiff was paid his share of the profits from those transactions after Menzi & Co., Inc., had deducted the same items of expense which he now protests. Plaintiff never made any objection to defendant's manner of keeping the accounts or to the charges. The business was continued in the same manner under the written agreement, Exhibit A, and for four years the plaintiff never made any objection. On the contrary he approved and signed every year the balance sheet and the profit and loss statement. It was only when plaintiff's contract was about to expire and the defendant corporation had notified him that it would not renew it that the plaintiff began to make objections. The trial court relied on article 116 of the Code of Commerce, which provides that articles of association by which two or more persons obligate themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shall be commercial, no matter what its class may be, provided it has been established in accordance with the provisions of this Code; but in the case at bar there was no common fund, that is, a fund belonging to the parties as joint owners or partners. The business belonged to Menzi & Co., Inc. The plaintiff was working for Menzi & Co., Inc. Instead of receiving a fixed salary or a fixed salary and a small percentage of the net profits, he was to receive 35 per cent of the net profits as compensation for his services. Menzi & Co., Inc., was to advanced him P300 a month on account of his participation in the profits. It will be noted that no provision was made for reimbursing Menzi & Co., Inc., in case there should be no net profits at the end of the year. It is now well settled that the old rule that sharing profits as profits made one a partner is overthrown. (Mechem, second edition, p. 89.) It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become partners. Great stress in laid by the trial judge and plaintiff's attorneys on the fact that in the sixth paragraph of Exhibit A the phrase "en sociedad con" is used in providing that defendant corporation not engage in the business of prepared fertilizers except in association with the plaintiff (en sociedad con). The fact is that en sociedad con as there used merely means en reunion con or in association with, and does not carry the meaning of "in partnership with". The trial judge found that the defendant corporation had not always regarded the contract in question as an employment agreement, because in its answer to the original complaint it stated that before the expiration of Exhibit A it notified the plaintiff that it would not continue associated with him in said business. The trial judge concluded that the phrase

"associated with", used by the defendant corporation, indicated that it regarded the contract, Exhibit A, as an agreement of copartnership. In the first place, the complaint and answer having been superseded by the amended complaint and the answer thereto, and the answer to the original complaint not having been presented in evidence as an exhibit, the trial court was not authorized to take it into account. "Where amended pleadings have been filed, allegations in the original pleadings are held admissible, but in such case the original pleadings can have no effect, unless formally offered in evidence." (Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27 Phil., 148.) In the second place, although the word "associated" may be related etymologically to the Spanish word "socio", meaning partner, it does not in its common acceptation imply any partnership relation. The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation obligated itself to pay to the plaintiff 35 per cent of the net profits of the fertilizer business, to advance to him P300 a month on account of his share of the profits, and to grant him permission during 1923 to absent himself from the Philippines for not more than one year are utterly incompatible with the claim that it was the intention of the parties to form a copartnership. Various other reasons for holding that the parties were not partners are advanced in appellant's brief. We do not deem it necessary to discuss them here. We merely wish to add that in the Vastago contract, Exhibit A, the plaintiff clearly recognized Menzi & Co., Inc., as the owners of the fertilizer business in question. As to the various items of the expense rejected by the trial judge, they were in our opinion proper charges and erroneously disallowed, and this would true even if the parties had been partners. Although Menzi & Co., Inc., agreed to furnish the necessary financial aid for the fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray at its own expense the cost of securing the necessary credit. Some of the contentions of the plaintiff and his expert witness Thompson are so obviously without merit as not to merit serious consideration. For instance, they objected to the interest charges on draft for materials purchased abroad. Their contention is that the corporation should have furnished the money to purchase these materials for cash, overlooking the fact that the interest was added to the cost price, and that the plaintiff was not prejudiced by the practice complained of. It was also urged, and this seems to us the height of absurdity, that the defendant corporation should have furnished free of charge such financial assistance as would have made it unnecessary to discount customers' notes, thereby enabling the business to reap the interest. In other words, the defendant corporation should have enabled the fertilizer department to do business on a credit instead of a cash basis. The charges now complained of, as we have already stated, are the same as those made under the verbal agreement, upon the termination of which the parties made a

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settlement; the charges in question were acquiesced in by the plaintiff for years, and it is now too late for him to contest them. The decision of this court in the case of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in point. A portion of the syllabus of that case reads as follows: 1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. Acts done by the parties to a contract in the course of its performance are admissible in evidence upon the question of its meaning, as being their own contemporaneous interpretation of its terms. 2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. In an action upon a contract containing a provision a doubtful application it appeared that under a similar prior contract the parties had, upon the termination of said contract, adjusted their rights and made a settlement in which the doubtful clause had been given effect in conformity with the interpretation placed thereon by one of the parties. Held: That this action of the parties under the prior contract could properly be considered upon the question of the interpretation of the same clause in the later contract. 3. ID.; ID.; ACQUIESCENCE. Where one of the parties to a contract acquiesces in the interpretation placed by the other upon a provision of doubtful application, the party so acquiescing is bound by such interpretation. 4. ID.; ID.; ILLUSTRATION. One of the parties to a contract, being aware at the time of the execution thereof that the other placed a certain interpretation upon a provision of doubtful application, nevertheless proceeded, without raising any question upon the point, to perform the services which he was bound to render under the contract. Upon the termination of the contract by mutual consent a question was raised as to the proper interpretation of the doubtful provision. Held: That the party raising such question had acquiesced in the interpretation placed upon the contract by the other party and was bound thereby. The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the net profits derived by Menzi & Co., Inc., from its contract for fertilizers with the Tabacalera. This finding in our opinion is not justified by the evidence. This contract was obtained by Menzi & Co., Inc., shortly before plaintiff's contract with the defendant corporation expired. Plaintiff tried to get the Tabacalera contract for himself. When this contract was filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no right to participate in the profits derived therefrom. Appellant's sixth assignment of error is that the trial court erred in finding the value of the good-will of the fertilizer business in question to be P562,312, and that the plaintiff was entitled to 35 per cent thereof or P196,709.20. In reaching this conclusion the trial court unfortunately relied on the opinion of the accountant, Vernon Thompson, who assumed, erroneously as we have seen, that the plaintiff and Menzi & Co., Inc., were partners; but even if they had been partners there would have been no good-will to dispose of. The defendant corporation had a fertilizer business before it entered into any agreement with the plaintiff; plaintiff's

agreement was for a fixed period, five years, and during that time the business was carried on in the name of Menzi & Co., Inc., and in Menzi & Co.'s warehouses and after the expiration of plaintiff's contract Menzi & Co., Inc., continued its fertilizer business, as it had a perfect right to do. There was really nothing to which any good-will could attach. Plaintiff maintains, however, that the trade-marks used in the fertilizer business during the time that he was connected with it acquired great value, and that they have been appropriated by the appellant to its own use. That seems to be the only basis of the alleged good-will, to which a fabulous valuation was given. As we have seen, the trade- marks were not new. They had been used by Behn, Meyer & Co. in its business for other goods and one of them for fertilizer. They belonged to Menzi & Co., Inc., and were registered in its name; only the expense of registering the formulas in the Bureau of Science was charged to the business in which the plaintiff was interested. These trade-marks remained the exclusive property of Menzi & Co., and the plaintiff had no interest therein on the expiration of his contract. The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20. We are satisfied by the evidence that said balance is correct. For the foregoing reasons, the decision appealed from is modified and the defendant corporation is sentenced to pay the plaintiff twenty-one thousand, six hundred and thirtythree pesos and twenty centavos (P21,633.20), with legal interest thereon from the date of the filing of the complaint on June 17, 1927, without a special finding as to costs.

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G.R. No. 126881 October 3, 2000 HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN ENG LAY,respondents. In this petition for review on certiorari, petitioners pray for 1 the reversal of the Decision dated March 13, 1996 of the 2 former Fifth Division of the Court of Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states: THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint dismissed. The facts are: Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother TAN ENG LAY on February 19, 1990. The 3 complaint, docketed as Civil Case No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the petitioners filed an amended 4 complaint impleading private respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the trial court in its 5 Order dated May 3, 1991. The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the business of selling lumber and hardware and construction supplies. They named their enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's death. Petitioners herein averred that the business prospered due to the hard work and thrift of the alleged partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber. After trial, Regional Trial Court of Baguio City, Branch 7 6 rendered judgment on April 12, 1995, to wit: WHEREFORE, in view of all the foregoing, judgment is hereby rendered: a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership; b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners in a business venture and/or particular partnership called Benguet Lumber and as such should share in the profits and/or losses of the business venture or particular partnership;

c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal right to share in said assets; d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner in a particular partnership have descended to the plaintiffs who are his legal heirs. e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber Company, Inc. so the plaintiffs know their proper share in the business; f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet Lumber Company, Inc. until such time that said corporation is finally liquidated are directed to submit the name of any person they want to be appointed as receiver failing in which this Court will appoint the Branch Clerk of Court or another one who is qualified to act as such. g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the instant case. h) Dismissing the counter-claim of the defendant for lack of merit. SO ORDERED. Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered the assailed decision reversing the judgment of the trial court. Petitioners' motion 7 for reconsideration was denied by the Court of Appeals in a 8 Resolution dated October 11, 1996. Hence, the present petition. As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners complained that Exhibits "4" to "4-U" offered by the defendants before the trial court, consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges were filed, rendered 9 judgment dismissing the cases for insufficiency of evidence. In their assignment of errors, petitioners claim that: I THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).

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II THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF. III THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION: a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE BENGUET LUMBER COMPOUND; b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF BENGUET LUMBER; c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES THEREIN; d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE SUPPLIERS (PAGE 18, DECISION). IV THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION). V THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION). As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not be disturbed on 10 appeal if such are supported by the evidence. Our jurisdiction, it must be emphasized, does not include review of factual issues. Thus: Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition for review on certiorari. The petition shall raise only questions of 11 law which must be distinctly set forth. [emphasis supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to analyze the evidentiary basis on which the lower court rendered judgment. Review of factual issues is therefore warranted: (1) when the factual findings of the Court of Appeals and the trial court are contradictory; (2) when the findings are grounded entirely on speculation, surmises, or conjectures; (3) when the inference made by the Court of Appeals from its findings of fact is manifestly mistaken, absurd, or impossible; (4) when there is grave abuse of discretion in the appreciation of facts; (5) when the appellate court, in making its findings, goes beyond the issues of the case, and such findings are contrary to the admissions of both appellant and appellee; (6) when the judgment of the Court of Appeals is premised on a misapprehension of facts; (7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered, will justify a different conclusion; (8) when the findings of fact are themselves conflicting; (9) when the findings of fact are conclusions without citation of the specific evidence on which they are based; and (10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but such findings are 12 contradicted by the evidence on record. In reversing the trial court, the Court of Appeals ruled, to wit: We note that the Court a quo over extended the issue because while the plaintiffs mentioned only the existence of a partnership, the Court in turn went beyond that by justifying the existence of a joint venture. When mention is made of a joint venture, it would presuppose parity of standing between the parties, equal proprietary interest and the exercise by the parties equally of the conduct of the business, thus: xxx xxx xxx We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of the pre-war Benguet Lumber were confiscated if not burned by the Japanese. After the war, because of the absence of capital to start a lumber and hardware business, Lay and Kee pooled the proceeds of their individual businesses earned from buying and selling military supplies, so that the common fund would be enough to form a partnership, both in the lumber and hardware business. That Lay and Kee actually established the Benguet Lumber in Baguio City, was even testified to by witnesses. Because of the pooling of resources, the post-war Benguet Lumber was eventually established. That the father of the plaintiffs and Lay were partners, is obvious from the fact that: (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2) they were the ones giving orders to the employees, (3) they were the ones preparing orders from the suppliers, (4) their families stayed together at the

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Benguet Lumber compound, and (5) all their children were employed in the business in different capacities. xxx xxx xxx It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to submit an accounting corresponding to the period after the war until Kee's death in 1984. It had no business book, no written account nor any memorandum for that matter and no license mentioning the existence of a partnership [citation omitted]. Also, the exhibits support the establishment of only a proprietorship. The certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the only registered owner of the Benguet Lumber and Hardware. His application for registration, effective 1954, in fact mentioned that his business started in 1945 until 1985 (thereafter, the incorporation). The deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber Company, on the basis of his SSS coverage effective 1958, Exhibit "3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee was similarly listed only as an employee; precisely, he was on the payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned also as the proprietor. xxx xxx xxx We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any form, but when an immovable is constituted, the execution of a public instrument becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which case a public instrument is also necessary, and which is to be recorded with the Securities and Exchange Commission. In this case at bar, we can easily assume that the business establishment, which from the language of the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real properties and to the fact that it is now a compound. The execution of a public instrument, on the other hand, was never established by the appellees. And then in 1981, the business was incorporated and the incorporators were only Lay and the members of his family. There is no proof either that the capital assets of the partnership, assuming them to be in existence, were maliciously assigned or transferred by Lay, supposedly to the corporation and since then have been treated as a part of the latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint. These are not evidences supporting the existence of a partnership: 1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk house in Trinidad, but within the compound of the lumber establishment, as testified to by Tandoc; 2) that both Lay and Kee were seated on a table and were "commanding people" as testified to by the son, Elpidio Tan; 3) that both were supervising the

laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80 pieces of the G.I. sheets were added to the business. Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or written. However, if it involves real property or where the capital is P3,000.00 or more, the execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3) money property or industry contribution; 4) community of funds and interest, mentioning equality of the partners or one having a proportionate share in the benefits; and 5) intention to divide the profits, being the true test of the partnership. The intention to join in the business venture for the purpose of obtaining profits thereafter to be divided, must be established. We cannot see these elements from the testimonial evidence of the appellees. As can be seen, the appellate court disputed and differed from the trial court which had adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this connection, we have held that whether a partnership exists is a factual matter; consequently, since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative to the correctness of the assessment of the evidence 13 by the court a quo. Inasmuch as the Court of Appeals and the trial court had reached conflicting conclusions, perforce we must examine the record to determine if the reversal was justified. The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet Lumber. A contract of partnership is defined by law as one where: . . . two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves. Two or more persons may also form a partnership for the 14 exercise of a profession. Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide the profits among 15 themselves. The agreement need not be formally reduced into writing, since statute allows the oral constitution of a partnership, save in two instances: (1) when immovable 16 property or real rights are contributed, and (2) when the partnership has a capital of three thousand pesos or 17 18 more. In both cases, a public instrument is required. An inventory to be signed by the parties and attached to the public instrument is also indispensable to the validity of the partnership whenever immovable property is contributed to 19 the partnership. The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which it said is akin to a 20 particular partnership. A particular partnership is distinguished from a joint adventure, to wit: (a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership, with no firm

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name and no legal personality. In a joint account, the participating merchants can transact business under their own name, and can be individually liable therefor. (b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the business of pursuing to a successful termination may continue for a number of years; a partnership generally relates to a continuing business of 21 various transactions of a certain kind. A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners, in which each party has an equal proprietary interest in the capital or property contributed, and where each party exercises equal 22 rights in the conduct of the business." Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, 23 et. al., we expressed the view that a joint venture may be likened to a particular partnership, thus: The legal concept of a joint venture is of common law origin. It has no precise legal definition, but it has been generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. (Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdiction is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981). Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of partnership but there is none. The alleged partnership, though, was never formally organized. In addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented the parties from complying with the provisions of the New Civil Code when it took effect on August 30, 1950. But all that is in the past. The net effect, however, is that we are asked to

determine whether a partnership existed based purely on circumstantial evidence. A review of the record persuades us that the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by petitioners falls short of the quantum of proof required to establish a partnership. Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay, could have expounded on the precise nature of the business relationship between them. In the absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his resources to a common fund for the purpose of establishing a partnership. The testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not with the number of witnesses wherein 24 preponderance lies; the quality of their testimonies is to be considered. None of petitioners' witnesses could suitably account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceased wife was 25 related to Matilde Abubo. He stated that when he met Tan Eng Kee after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly 26 owned by both brothers. Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between 27 Peralta and his brother. Tan Eng Lay consistently testified that he had his business and his brother had his, that it was only later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the 28 existence of a partnership. Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the partners share in the profits and 29 losses. Each has the right to demand an accounting as long 30 as the partnership exists. We have allowed a scenario wherein "[i]f excellent relations exist among the partners at the start of the business and all the partners are more interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits is perfectly 31 plausible." But in the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A 32 person is presumed to take ordinary care of his concerns. As we explained in another case: In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she did not furnish any help or intervention in the management of the theatre. In the third place, it does not appear that she has even demanded from defendant any accounting of the expenses and earnings of the business. Were she really a partner, her first concern should have been to find out how the business was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to any of the acts that a partner should have done; all that she did was to receive her share of P3,000.00 a month, which cannot be interpreted in any

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manner than a payment for the use of the premises which she had leased from the owners. Clearly, plaintiff had always acted in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this offer as the real contract between 33 them. [emphasis supplied] A demand for periodic accounting is evidence of a 34 partnership. During his lifetime, Tan Eng Kee appeared never to have made any such demand for accounting from his brother, Tang Eng Lay. This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then called. The authenticity of these documents was questioned by petitioners, to the extent that they filed criminal charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as wages of an employee. In connection therewith, Article 1769 of the Civil Code provides: In determining whether a partnership exists, these rules shall apply: (1) Except as provided by Article 1825, persons who are not partners as to each other are not partners as to third persons; (2) Co-ownership or co-possession does not of itself establish a partnership, whether such co-owners or co-possessors do or do not share any profits made by the use of the property; (3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any property which the returns are derived; (4) The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner in the business, but no such inference shall be drawn if such profits were received in payment: (a) As a debt by installment or otherwise; (b) As wages of an employee or rent to a landlord; (c) As an annuity to a widow or representative of a deceased partner; (d) As interest on a loan, though the amount of payment vary with the profits of the business; (e) As the consideration for the sale of a goodwill of a business or other property by installments or otherwise. In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee received amounts of money allegedly representing his share in the profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the profits of the business

between themselves, which is one of the essential features of a partnership. Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees; that both were supervising the employees; that both were the ones who determined the price at which the stocks were to be sold; and that both placed orders to the suppliers of the Benguet Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary employees. However, private respondent counters that: Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in Benguet Lumber for the following reasons: (i) even a mere supervisor in a company, factory or store gives orders and directions to his subordinates. So long, therefore, that an employee's position is higher in rank, it is not unusual that he orders around those lower in rank. (ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner, can order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a partner does not necessarily have to perform this particular task. It is, thus, not an indication that Tan Eng Kee was a partner. (iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this privilege was not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal relations existed between them. Whatever privileges Tan Eng Lay gave his brother, and which were not given the other employees, only proves the kindness and generosity of Tan Eng Lay towards a blood relative. (iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in connection with the pricing of stocks, this does not adequately prove the existence of a partnership relation between them. Even highly confidential employees and the owners of a company sometimes argue with respect to certain matters which, in no way indicates that they are 35 partners as to each other. In the instant case, we find private respondent's arguments to be well-taken. Where circumstances taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective effect of these circumstances may be such as to support a finding of the existence of the parties' 36 intent. Yet, in the case at bench, even the aforesaid circumstances when taken together are not persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that as a member of the family, he occupied a niche above the rank-and-file employees. He would have enjoyed liberties otherwise unavailable were he not kin, such

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as his residence in the Benguet Lumber Company compound. He would have moral, if not actual, superiority over his fellow employees, thereby entitling him to exercise powers of supervision. It may even be that among his duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a business organized and run as informally as Benguet Lumber Company. There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak of. Hence, the petition must fail. WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is herebyAFFIRMED in toto. No pronouncement as to costs. SO ORDERED.

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G.R. No. 75875 December 15, 1989 WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners, vs. SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents. G.R. No. 75951 December 15, 1989 SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners, vs. THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and LUCIANO SALAZAR, respondents. G.R. Nos. 75975-76 December 15, 1989 LUCIANO E. SALAZAR, petitioner, vs. SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF APPEALS, respondents. These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all subsequent elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more than three (3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the six (6) nominees, they shall vote only among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without interference from ASI. The antecedent facts can be summarized as follows: In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the directors of the corporation: 3. Articles of Incorporation (a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall specifically provide for (1) Cumulative voting for directors: xxx xxx xxx 5. Management (a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three of the nine directors shall be designated by American-Standard, and the other six shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875) At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto powers over a number of corporate acts and the right to designate certain officers, such as a member of the Executive Committee whose vote was required for important corporate transactions. Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by Philippine nationals. The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the business successes, there came a deterioration of the initially harmonious relations between the two groups. According to the Filipino group, a basic disagreement was due to their desire to expand the export operations of the company to which ASI objected as it apparently had other subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated. On March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to the election of the members of the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to nominate only nine persons as nominees for the nine-member board of directors, and the legal advice of

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Saniwares' legal counsel. The following events then, transpired: ... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by the ASI representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote on the ruling was taken. The Chairman then instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried and declared the meeting adjourned. Protests against the adjournment were registered and having been ignored, Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but only recessed and that the meeting would be reconvened in the next room. The Chairman then threatened to have the stockholders who did not agree to the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the elevator lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the

four (4) remaining positions of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76) These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be the legitimate directors of the corporation. The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed the hearing officer's decision. The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were consolidated and the appellate court in its decision ordered the remand of the case to the Securities and Exchange Commission with the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible, under the supervision of the Commission. Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors: I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL. II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF LAW. III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875) Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds: 11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by stockholders and the replacement of the conditions of such

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agreements with terms never contemplated by the stockholders but merely dictated by the CA . 11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without due process of law in order that a favored group of stockholders may be illegally benefitted and guaranteed a continuing monopoly of the control of a corporation. (pp. 1415, Rollo-75975-76) On the other hand, the petitioners in G.R. No. 75951 contend that: I THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE AGREEMENT AND THE LAW. II THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24, Rollo75951) The issues raised in the petitions are interrelated, hence, they are discussed jointly. The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the business established by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity during elections of Saniwares' board of directors. The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some other relation depends upon their actual intention which is determined in accordance with the rules governing the interpretation and construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668) The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a joint venture. They specifically mention number 16 under Miscellaneous Provisions which states: xxx xxx xxx c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875) They object to the admission of other evidence which tends to show that the parties' agreement was to establish a joint venture presented by the Lagdameo and Young Group on the ground that it contravenes the parol evidence rule under

section 7, Rule 130 of the Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded in their pleading that the "Agreement" failed to express the true intent of the parties. The parol evidence Rule under Rule 130 provides: Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is to be considered as containing all such terms, and therefore, there can be, between the parties and their successors in interest, no evidence of the terms of the agreement other than the contents of the writing, except in the following cases: (a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties or the validity of the agreement is put in issue by the pleadings. (b) When there is an intrinsic ambiguity in the writing. Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the parties, to wit: xxx xxx xxx 4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the existence of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall constitute the majority, and the other ASI shall constitute the minority stockholder. In any event, the evident intention of the Philippine Investors and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and if some words in the Agreement appear to be contrary to the evident intention of the parties, the latter shall prevail over the former (Art. 1370, New Civil Code). The various stipulations of a contract shall be interpreted together attributing to the doubtful ones that sense which may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417) It has been ruled: In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an enterprise for their joint profit, the question whether they intended by their agreement to create a joint adventure, or to assume some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871) In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of the organization of Saniwares and the unusual arrangements which govern its policy making

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body are all consistent with a joint venture and not with an ordinary corporation. As stated by the SEC: According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group of investors, on the condition that the Agreement should contain provisions to protect ASI as the minority. An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to designate a member of the Executive Committee and the vote of this member is required for certain transactions [Sec. 3 (b) (i)]. The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)]. The Agreement further provides that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to Saniwares and the latter paid royalties for the same. (At p. 2). xxx xxx xxx It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power. Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-majority voting requirements for amendments of the articles and by-laws; and most significantly to the issues of tms case, the provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6, clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the minority stockholder. Premises considered, we believe that under the Agreement there are two groups of stockholders who established a corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5) Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board. Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in respect of any

transaction hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax purposes and liabilities to third parties. Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are constrained to seek the technology and marketing assistance of huge multinational corporations of the developed world. Arrangements are formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its brand names, and other such assistance. However, there is always a danger from such arrangements. The foreign group may, from the start, intend to establish its own sole or monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test the Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes profitable, the foreign group undermines the local majority ownership and actively tries to completely or predominantly take over the entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To the extent that such subversive actions can be lawfully prevented, the courts should extend protection especially in industries where constitutional and legal requirements reserve controlling ownership to Filipino citizens. The Lagdameo Group stated in their appellees' brief in the Court of Appeal In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements regarding the exercise of their voting rights. Sec. 100. Agreements by stockholders.xxx xxx xxx 2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or as determined in accordance with a procedure agreed upon by them. Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each other but are divisible into groups representing a single Identifiable interest. For example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of one family and/or business or interest group are considered as one (which, it is respectfully submitted, they should be for purposes of determining how closely held Saniwares is there were as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of

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appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof). Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20 stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot honestly claim that Saniwares is a public issue or a widely held corporation. In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly applied principles of corporation law designed primarily for public issue corporations. These courts have indicated that express arrangements between corporate joint ventures should be construed with less emphasis on the ordinary rules of law usually applied to corporate entities and with more consideration given to the nature of the agreement between the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with legal questions as to the extent to which the requirements arising from the corporate form of joint venture corporations should control, and the courts ruled that substantial justice lay with those litigants who relied on the joint venture agreement rather than the litigants who relied on the orthodox principles of corporation law. As correctly held by the SEC Hearing Officer: It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of corporation management. A noted authority has pointed out that just as in close corporations, shareholders' agreements in joint venture corporations often contain provisions which do one or more of the following: (1) require greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of shareholders power to select a specified number of directors; (3) give to the shareholders control over the selection and retention of employees; and (4) set up a procedure for the settlement of disputes by arbitration (See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16) Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the exercise of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain: Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation has twenty five stockholders, and therefore cannot qualify as a close corporation under section 96, can some of them enter into an agreement to vote as a unit in the election of directors? It is

submitted that there is no reason for denying stockholders of corporations other than close ones the right to enter into not voting or pooling agreements to protect their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not parties to the agreement. Of course, voting or pooling agreements are perhaps more useful and more often resorted to in close corporations. But they may also be found necessary even in widely held corporations. Moreover, since the Code limits the legal meaning of close corporations to those which comply with the requisites laid down by section 96, it is entirely possible that a corporation which is in fact a close corporation will not come within the definition. In such case, its stockholders should not be precluded from entering into contracts like voting agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p. 405) In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC, is valid and binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94) In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares' board of directors, the Court of Appeals correctly stated: As in other joint venture companies, the extent of ASI's participation in the management of the corporation is spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the remaining six by the other stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in consonance with the minority position of ASI. Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere to their respective rights and obligations thereunder. Appellants seem to contend that any allocation of board seats, even in joint venture corporations, are null and void to the extent that such may interfere with the stockholder's rights to cumulative voting as provided in Section 24 of the Corporation Code. This Court should not be prepared to hold that any agreement which curtails in any way cumulative voting should be struck down, even if such agreement has been freely entered into by experienced businessmen and do not prejudice those who are not parties thereto. It may well be that it would be more cogent to hold, as the Securities and Exchange Commission has held in the decision appealed from, that cumulative voting rights may be voluntarily waived by stockholders who enter into special relationships with each other to pursue and implement specific purposes, as in joint venture relationships between foreign and local stockholders, so long as such agreements do not adversely affect third parties. In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all that needs to be done is to give life and effect to the particular contractual

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rights and obligations which the parties have assumed for themselves. On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats Cannot be disregarded. On the other hand, the rights of the stockholders to cumulative voting should also be protected. In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection, we feel that the proper and just solution to give due consideration to both factors suggests itself quite clearly. This Court should recognize and uphold the division of the stockholders into two groups, and at the same time uphold the right of the stockholders within each group to cumulative voting in the process of determining who the group's nominees would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means that if the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties. Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (Rollo-75875, pp. 38-39) The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in electing directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides: And provided finally that the election of aliens as members of the board of directors or governing body of corporations or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable participation or share in the capital of such entities. (amendments introduced by Presidential Decree 715, section 1, promulgated May 28, 1975) The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is whether or not that provision is applicable to a joint venture with clearly defined agreements: The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been generally

understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership, since their elements are similar community of interest in the business, sharing of profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however recognized a distinction between these two business forms, and has held that although a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation Code 1981) Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556). Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the ASI Group may vote their additional equity lies in the agreement of the parties. Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of director seats under Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative voting in the process of determining who the group's nominees would be under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates to the manner of voting for these nominees. This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors. To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden to them would obliterate their minority status as agreed upon by the parties. As aptly stated by the appellate court: ... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the three directors it is allowed to

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designate under the Agreement, and may even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties. Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (At p. 39, Rollo, 75875) Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible domination by the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is that the AntiDummy Act allows the ASI group to elect board directors in proportion to their share in the capital of the entity. It is to be noted, however, that the same law also limits the election of aliens as members of the board of directors in proportion to their allowance participation of said entity. In the instant case, the foreign Group ASI was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this limitation of six to three board seats should always be maintained as long as the joint venture agreement exists considering that in limiting 3 board seats in the 9-man board of directors there are provisions already agreed upon and embodied in the parties' Agreement to protect the interests arising from the minority status of the foreign investors. With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting during the election of the board of directors of the enterprise as ruled by the appellate court and submits that the six (6) directors allotted the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning "nominate, delegate or appoint." They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are allowed to select their nominees separately and not as a common slot determined by the majority of their group. Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees which is cumulative voting while section 5(a)

relates to the manner of nominating the members of the board of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its legality. The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent on the directors thus elected being genuine members of the Filipino group, not voters whose interest is to increase the ASI share in the management of Saniwares. The joint venture character of the enterprise must always be taken into account, so long as the company exists under its original agreement. Cumulative voting may not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are substantial safeguards in the Agreement which are intended to preserve the majority status of the Filipino investors as well as to maintain the minority status of the foreign investors group as earlier discussed. They should be maintained. WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875. SO ORDERED.

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G.R. No. L-9996 October 15, 1957 EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners, vs. THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents. 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 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 1945 1946 1947 1948 1949 Total including surcharge and compromise REAL ESTATE DEALER'S FIXED TAX 1946 1947 1948 1949 Total including penalty RESIDENCE TAXES OF CORPORATION 1945 1946 1947 1948 1949 Total including surcharge TOTAL TAXES DUE P38.75 38.75 38.75 38.75 38.75 P193.75 P6,878.34. P37.50 150.00 150.00 150.00 P527.00 14.84 1,144.71 10.34 1,912.30 1,575.90 P6,157.09

Said letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954, whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of the respondent contained

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in his letter of demand dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes in question, with costs against the respondent. After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the respondent, and a petition for reconsideration and new trial having been subsequently denied, the case is now before Us for review at the instance of the petitioners. The issue in this case whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code, as well as to the residence tax for corporations and the real estate dealers fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the terms "corporation" and "partnership," as used in section 24 and 84 of said Code, the pertinent parts of which read: SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and paid annually upon the total net income received in the preceding taxable year from all sources by every corporation organized in, or existing under the laws of the Philippines, no matter how created or organized but not including duly registered general copartnerships (compaias colectivas), a tax upon such 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 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

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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 joint-stock 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.

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[G.R. No. 127405. October 4, 2000] MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A. ANAY, respondents. This is a petition for review of the Decision of the Court of [1] Appeals in CA-G.R. CV No. 41616, affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil Case [2] No. 88-509. Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint venture with her for the importation and local distribution of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job of marketing the product considering her experience and established relationship with West Bend Company, a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and general manager, and Anay as head of the marketing department and later, vice-president for sales. Anay organized the administrative staff and sales force while Tocao hired and fired employees, determined commissions and/or salaries of the employees, and assigned them to different branches. The parties agreed that Belos name should not appear in any documents relating to their transactions with West Bend Company. Instead, they agreed to use Anays name in securing distributorship of cookware from that company. The parties agreed further that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two percent (2%) for her demonstration services. The agreement was not reduced to writing on the strength of Belos assurances that he was sincere, dependable and honest when it came to financial commitments. Anay having secured the distributorship of cookware products from the West Bend Company and organized the administrative staff and the sales force, the cookware business took off successfully. They operated under the name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made good his monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited Anay to the distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as president and general manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on July 13, 1987. A portion of the letter reads:

Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of our company, will attend in [3] response to the invitation. (Italics supplied.) Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the business on account of the unsatisfactory sales record in the Makati and Cubao offices. On August 31, 1987, she received a plaque of appreciation from the administrative and sales people [4] through Marjorie Tocao for her excellent job performance. On October 7, 1987, in the presence of Anay, Belo signed a [5] memo entitling her to a thirty-seven percent (37%) commission for her personal sales "up Dec 31/87. Belo explained to her that said commission was apart from her ten percent (10%) share in the profits. On October 9, 1987, Anay [6] learned that Marjorie Tocao had signed a letter addressed to the Cubao sales office to the effect that she was no longer the vice-president of Geminesse Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie Tocao had barred her from holding office and conducting demonstrations in both Makati [7] and Cubao offices. Anay attempted to contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and the audit of the company to determine her share in the net profits. When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a letter. Still, that letter was not answered. Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not receive the same commission although the company netted a gross sales of P13,300,360.00. On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a [8] complaint for sum of money with damages against Marjorie D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140. In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following: (1) P32,00.00 as unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception of its business operation until she was illegally dismissed to determine her ten percent (10%) share in the net profits. She further prayed that she be paid the five percent (5%) overriding commission on the remaining 150 West Bend cookware sets before her dismissal. [9] In their answer, Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was neither reduced in writing, nor ratified, was either unenforceable or void or inexistent. As far as Belo was concerned, his only role was to introduce Anay to Marjorie Tocao. There could not have been a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole proprietorship of Marjorie Tocao.

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Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and her complaint referred to either her compensation or dismissal, such complaint should have been lodged with the Department of Labor and not with the regular court. Petitioners (defendants therein) further alleged that Anay filed the complaint on account of ill-will and resentment because Marjorie Tocao did not allow her to lord it over in the Geminesse Enterprise. Anay had acted like she owned the enterprise because of her experience and expertise. Hence, petitioners were the ones who suffered actual damages including unreturned and unaccounted stocks of Geminesse Enterprise, and serious anxiety, besmirched reputation in the business world, and various damages not less than P500,000.00. They also alleged that, to vindicate their names, they had to hire counsel for a fee of P23,000.00. At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties [10] are entitled to damages. In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He, however, admitted that the two had agreed that Anay would receive a three to four percent (3-4%) share in the gross sales of the cookware. He denied contributing capital to the business or receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao, who was new in the business. He attended and/or presided over business meetings of the venture in his capacity as a guarantor but he never participated in decision-making. He claimed that he wrote the memo granting the plaintiff thirty-seven percent (37%) commission upon her dismissal from the business venture at the request of Tocao, because Anay had no other income. For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay. However, she admitted that Anay was an expert in the cookware business and hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on personal sales; five percent (5%) on gross sales; two percent (2%) on product demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that she got the capital for the business out of the sale of the sewing machines used in her garments business and from Peter Lo, a Singaporean friend-financier who loaned her the funds with interest. Because she treated Anay as her coequal, Marjorie received the same amounts of commissions as her. However, Anay failed to account for stocks valued at P200,000.00. On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows: WHEREFORE, in view of the foregoing, judgment is hereby rendered: 1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987

and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff in the net profits of the cookware business; 2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150) cookware sets available for disposition when plaintiff was wrongfully excluded from the partnership by defendants; 3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period covering January 8, 1988 to February 5, 1988 amounted to P32,000.00; 4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages, and 5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit. SO ORDERED. The trial court held that there was indeed an oral partnership agreement between the plaintiff and the defendants, based on the following: (a) there was an intention to create a partnership; (b) a common fund was established through contributions consisting of money and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the administrative officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a partnership existed between the parties. The letter of Roger Muencheberg of West Bend Company stating that he awarded the distributorship to Anay and Marjorie Tocao because he was convinced that with Marjories financial contribution and Anays experience, the combination of the two would be invaluable to the partnership, also supported that conclusion. Belos claim that he was merely a guarantor has no basis since there was no written evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a memo giving Anay 37% commission on personal sales belied this. On the contrary, it demonstrated his involvement as a partner in the business. The trial court further held that the payment of commissions did not preclude the existence of the partnership inasmuch as such practice is often resorted to in business circles as an impetus to bigger sales volume. It did not matter that the agreement was not in writing because Article 1771 of the Civil Code provides that a partnership may be constituted in any form. The fact that Geminesse Enterprise was registered in Marjorie Tocaos name is not determinative of whether or not the business was managed and operated by a sole proprietor or a partnership. What was registered with the Bureau of Domestic Trade was merely the business name or style of Geminesse Enterprise. The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits

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realized from the appropriation of the partnership business and goodwill. An innocent partner thus possesses pecuniary interest in every existing contract that was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled. [11] Petitioners appeal to the Court of Appeals was dismissed, but the amount of damages awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages. Their Motion for Reconsideration was denied by the Court of Appeals for lack of [12] merit. Petitioners Belo and Marjorie Tocao are now before this Court on a petition for review on certiorari, asserting that there was no business partnership between them and herein private respondent Nenita A. Anay who is, therefore, not entitled to the damages awarded to her by the Court of Appeals. Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existed between them and private respondent Anay because Geminesse Enterprise came into being exactly a year before the alleged partnership was formed, and that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing, without any memorandum whatsoever regarding the alleged [13] partnership. The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both the trial and appellate courts. This Court cannot set aside factual findings of such courts absent any showing that there is no evidence to support the conclusion drawn by the court a [14] quo. In this case, both the trial court and the Court of Appeals are one in ruling that petitioners and private respondent established a business partnership. This Court finds no reason to rule otherwise. To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to contribute money, property or industry to a common fund; and (2) intention on the part of the partners [15] to divide the profits among themselves. It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are contributed [16] thereto. This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a written one. Where no immovable property or real rights are involved, what matters is that the parties have complied with the requisites of a partnership. The fact that there appears to be no record in the Securities and Exchange Commission of a public instrument embodying the partnership agreement [17] pursuant to Article 1772 of the Civil Code did not cause the nullification of the partnership. The pertinent provision of the Civil Code on the matter states: Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with the requirements of article 1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage in the business of distributorship of cookware. Private respondent contributed such expertise to the partnership and hence, under the law, she was the industrial or managing partner. It was through her reputation with the West Bend Company that the partnership was able to open the business of distributorship of that companys cookware products; it was through the same efforts that the business was propelled to financial success. Petitioner Tocao herself admitted private respondents indispensable role in putting up the business when, upon being asked if private respondent held the positions of marketing manager and vice-president for sales, she testified thus: A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only me there then her and then two (2) people, so about four (4). Now, after that when she recruited already Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of marketing managers of which definitely Nita as superior to them would be the Vice [18] President. By the set-up of the business, third persons were made to believe that a partnership had indeed been forged between petitioners and private respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the same company states: Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda and Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela, Menchu Javier. They will continue to gather other key people and build up the organization. All they need is the finance and the [19] products to sell. On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of the established fact that he presided over meetings regarding matters affecting the operation of the business. Moreover, his having authorized in writing on October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that private respondent should receive thirty-seven (37%) of the proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest in the business. His claim that he was merely a guarantor is belied by that personal act of proprietorship in the business. Moreover, if he was indeed a guarantor of future debts of petitioner Tocao [20] under Article 2053 of the Civil Code, he should have presented documentary evidence therefor. While Article 2055 of the Civil Code simply provides that guaranty must be express, Article 1403, the Statute of Frauds, requires that a special promise to answer for the debt, default or miscarriage [21] of another be in writing. [22] Petitioner Tocao, a former ramp model, was also a capitalist in the partnership. She claimed that she herself financed the business. Her and petitioner Belos roles as both

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capitalists to the partnership with private respondent are buttressed by petitioner Tocaos admissions that petitioner Belo was her boyfriend and that the partnership was not their only business venture together. They also established a firm that they called Wiji, the combination of petitioner Belos [23] first name, William, and her nickname, Jiji. The special relationship between them dovetails with petitioner Belos claim that he was acting in behalf of petitioner Tocao. Significantly, in the early stage of the business operation, petitioners requested West Bend Company to allow them to utilize their banking and trading facilities in Singapore in the matter of importation and payment of the cookware [24] products. The inevitable conclusion, therefore, was that petitioners merged their respective capital and infused the amount into the partnership of distributing cookware with private respondent as the managing partner. The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between petitioners and private respondent. While it is true that the receipt of a percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the [25] business, the evidence in the case at bar controverts an employer-employee relationship between the parties. In the first place, private respondent had a voice in the management of the affairs of the cookware [26] distributorship, including selection of people who would constitute the administrative staff and the sales force. Secondly, petitioner Tocaos admissions militate against an employer-employee relationship. She admitted that, like her [27] who owned Geminesse Enterprise, private respondent received only commissions and transportation and [28] representation allowances and not a fixed [29] salary. Petitioner Tocao testified: Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go over this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you please go over this and tell the Honorable Court whether you ever came across this document and know of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain percentage for promotions, advertising, incentive. Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: Overrides Marjorie Ann Tocao P21,410.50 this means that you have received this amount? A: Oh yes, sir. Q: I see. And, by way of amplification this is what you are saying as one representing commission, representation, advertising and promotion? A: Yes, sir. Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this? A: Thats her overriding commission.

Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same P21,410.50 is merely by coincidence? A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense because of her expertise in the business she is vital to my business. So, as part of the incentive I offer her the same thing. Q: So, in short you are saying that this you have shared together, I mean having gotten from the company P21,140.50 is your way of indicating that you were treating her as an equal? A: As an equal. Q: As an equal, I see. You were treating her as an equal? A: Yes, sir. Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir. Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there you will acknowledge you have received that? A: Yes, sir. Q: Again in concept of commission, representation, promotion, etc.? A: Yes, sir. Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received the same amount? A: Yes, sir. Q: And, as in your previous statement it is not by coincidence that these two (2) are the same? A: No, sir. Q: It is again in concept of you treating Miss Anay as your equal? [30] A: Yes, sir. (Italics supplied.) If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall receive the same income in the business. In a partnership, each partner must share in the profits and losses of the venture, except that the industrial partner shall not be liable for the [31] losses. As an industrial partner, private respondent had the right to demand for a formal accounting of the business and [32] to receive her share in the net profit. The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of Domestic Trade on August 19, 1987 was merely [33] the name of that enterprise. While it is true that in her undated application for renewal of registration of that firm name, petitioner Tocao indicated that it would be engaged in [34] retail of kitchenwares, cookwares, utensils, skillet, she also admitted that the enterprise was only 60% to 70% for the cookware business, while 20% to 30% of its business activity was devoted to the sale of water sterilizer or [35] purifier. Indubitably then, the business name Geminesse Enterprise was used only for practical reasons - it was utilized

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as the common name for petitioner Tocaos various business activities, which included the distributorship of cookware. Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and unremitted stocks of Geminesse Enterprise amounting to [36] P208,250.00. Obviously a ploy to offset the damages awarded to private respondent, that claim, more than anything else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this Court said: The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated, the petitioner and private complainant [37] remained as co-partners. x x x. It is not surprising then that, even after private respondent had been unceremoniously booted out of the partnership in October 1987, she still received her overriding commission until December 1987. Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for herself and/or for petitioner Belo financial gains resulting from private respondents efforts to make the business venture a success. Thus, as petitioner Tocao became adept in the business operation, she started to assert herself to the extent that she would even shout at private respondent in front of [38] other people. Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to hold office in both the Makati and Cubao sales offices concretely spoke of her perception that private respondent was no longer [39] necessary in the business operation, and resulted in a falling out between the two. However, a mere falling out or misunderstanding between partners does not convert the [40] partnership into a sham organization. The partnership exists until dissolved under the law. Since the partnership created by petitioners and private respondent has no fixed term and is therefore a partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Thus: x x x. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that mutual resolve, along with each partners capability to give it, and the absence of cause for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a liability for [41] damages. An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a partnership, the doctrine of delectus personae allows the partners to have the power, although not necessarily [42] the right to dissolve the partnership.

In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to the Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales [43] of Geminesse Enterprise. By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated thereby; it continues [44] until the winding up of the business. The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in petitioners claim for stocks that had been entrusted to private respondent in the pursuit of the partnership business. The determination of the amount of damages commensurate with the factual findings upon which it is based is primarily [45] the task of the trial court. The Court of Appeals may modify that amount only when its factual findings are diametrically [46] opposed to that of the lower court, or the award is palpably or scandalously and unreasonably [47] excessive. However, exemplary damages that are awarded by way of example or correction for the public [48] good, should be reduced to P50,000.00, the amount correctly awarded by the Court of Appeals. Concomitantly, the award of moral damages of P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly, attorneys fees that should be granted on account of the award of exemplary damages and petitioners evident bad faith in refusing to satisfy private respondents plainly valid, [49] just and demandable claims, appear to have been excessively granted by the trial court and should therefore be reduced to P25,000.00. WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to the pertinent provisions of the Civil Code. This case is remanded to the Regional Trial Court for proper proceedings relative to said dissolution. The appealed decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as follows --1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to determine private respondents ten percent (10%) share in the net profits of the partnership; 2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding commission for the one hundred and fifty (150) cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioners; 3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the total production which, for the period covering January 8, 1988 to February 5, 1988, amounted to P32,000.00;

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4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the amount of P25,000.00.SO ORDERED. G.R. No. L-2484 April 11, 1906 JOHN FORTIS, Plaintiff-Appellee , vs. GUTIERREZ HERMANOS, Defendants-Appellants. 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. (1) The evidence is sufficient 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. (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.) (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 be sustained. It was a mere contract of employment. 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. (4) It was no necessary that the contract between the plaintiff and the defendants should be made in writing. (Thunga Chui 1 vs. Que Bentec, 1 Off. Gaz., 818, October 8, 1903.) (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. (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. (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.)

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(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. (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. 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.

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G.R. No. L-35469 March 17, 1932 E. S. LYONS, Plaintiff-Appellant, vs. C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, Defendant-Appellee. 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 616618 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

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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 abovementioned. 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

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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.

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