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Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No.

L-35840 March 31, 1933

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.,
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FRANCISCO BASTIDA, plaintiff-appellee, vs. MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants. MENZI & CO., appellant. Romualdez Brothers and Harvey and O'Brien for appellant. Jose M. Casal, Alberto Barretto and Gibbs and McDonough for appellee. VICKERS, J.: This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the Court of First Instance of Manila. The case was tried on the amended complaint dated May 26, 1928 and defendants' amended answer thereto of September 1, 1928. For the sake of clearness, we shall incorporate herein the principal allegations of the parties. FIRST CAUSE OF ACTION Plaintiff alleged: I 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

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 partnership constituted between the defendant Menzi & Co., Inc., and the plaintiff;

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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.
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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 trademarks belonging to it;

2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered into an employment agreement with the plaintiff, who represented that he had had much experience in the mixing of fertilizers, to superintend the mixing of the ingredients in the manufacture of prepared fertilizers in its fertilizer department and to obtain orders for such prepared fertilizers subject to its approval, for a compensation of 50 per cent of the net profits which it might derive from the sale of the fertilizers prepared by him, and that said Francisco Bastida worked under said agreement until April 27, 1922, and received the compensation agreed upon for his services; that on the said 27th of April, 1922, the said Menzi & Co., Inc., and the said Francisco Bastida made and entered into the written agreement, which is marked Exhibit A, and made a part of the amended complaint in this case, whereby they mutually agreed that the employment of the said Francisco Bastida by the said Menzi & Co., Inc., in the capacity stated, should be for a definite period of five years from that date and under the other terms and conditions stated therein, but with the understanding and agreement that the said Francisco Bastida should receive as compensation for his said services only 35 per cent of the net profits derived from the sale of the fertilizers prepared by him during the period of the contract instead of 50 per cent of such profits, as provided in his former agreement; that the said Francisco Bastida was found to be incompetent to do anything in relation to its said fertilizer business with the exception of over-seeing the mixing of the ingredients in the manufacture of the same, and on or about the month of December, 1922, the defendant, Menzi & 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
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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
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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 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.
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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 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.
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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.
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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 & 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
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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
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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 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
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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 trademarks 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 goodwill, trademarks, 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.

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2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000, which is 35 per cent of the value of the goodwill and the trade marks of the fertilizer business; 3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000 which is 35 per cent of the value of the transportation equipment and machinery of the business; and 4. To order the defendants to pay the costs of this trial, and further, to grant any other remedy that this Honorable Court may deem just and equitable. Defendants alleged: 1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first cause of action in this amended answer; 2. That the good-will, if any, of 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;
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(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 co-partnership 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 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
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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 Menzi-Bordman Co. the good-will, trade-marks, business, and other assets of the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business with its stocks and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business from 1910 until that firm was taken over the Alien Property Custodian in 1917. Among the trade-marks thus acquired by the appellant were those known as the "ARADO", "HOZ", and "CORONA". They were registered in the Bureau of Commerce and Industry in the name of Menzi & Co. The trade marks "ARADO" and "HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and the trade mark "CORONA" had been used in its other business. The "HOZ" trade-mark was used by John

Bordman and the Menzi-Bordman Co. in the continuation of the fertilizer business that had belonged to Behn, Meyer & Co., Ltd. The business of Menzi & Co., Inc., was divided into several different departments, each of which was in charge of a manager, who received a fixed salary and a percentage of the profits. The corporation had to borrow money or obtain credits from time to time and to pay interest thereon. The amount paid for interest was charged against the department concerned, and the interest charges were taken into account in determining the net profits of each department. The practice of the corporation was to debit or credit each department with interest at the bank rate on its daily balance. The fertilizer business of Menzi & Co., Inc., was carried on in accordance with this practice under the "Sundries Department" until July, 1923, and after that as a separate department. In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to see Toehl, the manager of the sundries department of Menzi & Co., Inc., and told him that he had a written contract with the Philippine Sugar Centrals Agency for 1,250 tons of mixed fertilizers, and that he could obtain other contracts, including one from the Calamba Sugar Estates for 450 tons, but 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
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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 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:

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1922 . . . . . . . . . . . . . . . . . . . . . P1,874.73 1923 . . . . . . . . . . . . . . . . . . . . . 30,212.62 1924 . . . . . . . . . . . . . . . . . . . . . 101,081.56 1925 . . . . . . . . . . . . . . . . . . . . . 35,665.03 1926 . . . . . . . . . . . . . . . . . . . . . 27,649.98 Total . . . . . . . . . . . . . . . . . . . . P196,483.92

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 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 co-partnership. 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 onehalf 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
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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

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 co-partnership. 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
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consideration. For instance, they objected to the interest charges on draft for materials purchased abroad. Their contention is that the corporation should have furnished the money to purchase these materials for cash, overlooking the fact that the interest was added to the cost price, and that the plaintiff was not prejudiced by the practice complained of. It was also urged, and this seems to us the height of absurdity, that the defendant corporation should have furnished free of charge such financial assistance as would have made it unnecessary to discount customers' notes, thereby enabling the business to reap the interest. In other words, the defendant corporation should have enabled the fertilizer department to do business on a credit instead of a cash basis. The charges now complained of, as we have already stated, are the same as those made under the verbal agreement, upon the termination of which the parties made a settlement; the charges in question were acquiesced in by the plaintiff for years, and it is now too late for him to contest them. The decision of this court in the case of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in point. 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
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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 thirty-three 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. Street, Villamor, and Villa-Real, JJ., concur. Justice Hull participated in this case, but on account of his absence on leave at the time of the promulgation of the decision he authorized the undersigned to certify that he voted to modify the decision of the trial court as appears in the foregoing decision of this court. VILLAMOR, J., Presiding.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines SUPREME COURT Manila EN BANC 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, objectors-appellants. Kincaid, Perkins and Kincaid, E. G. Turner, and C. W. Rheberg for Peter W. Addison as appellant. Alejo Mabanag for Adelina Ferrer and sons as appellants. OSTRAND, J.: 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
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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
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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. (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 to both 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)
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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 quit-claim 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 the consolidacion 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 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
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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
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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 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.

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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. Araullo, C. J., Malcolm, Avancea, Villamor, Johns, and Romualdez, JJ., concur. RESOLUTION September 9, 1922. OSTRAND, J.: The appellant in a motion for reconsideration ask that the court make an express pronouncement upon the question of law and fact involved in the sale of the lands in dispute made by Eulalio Belisario to Basilio Borja with special reference to the effect thereupon of the provisions of article 1927 of the Civil Code, inasmuch as when the sale was made the appellant was a judgment creditor of the vendor and the sale therefore would be presumed fraudulent. It may be observed that such sales are not void and that until set aside in a rescissory action they are legally effective, convey title, and cannot be attacked collaterally upon the aforementioned ground in a land registration proceeding. In justice to the appellant it may, however, be advisable to expressly reserve such right of a rescissory action as he may have and to have the reservation noted upon the certificate of title. It is therefore ordered that the decision herein rendered, and promulgated on June 21, 1922, be amended by inserting immediately after the penultimate paragraph of said section, the following paragraph: Let it be noted in the final decreed that the title is subject to the reservation of such right of action as P. W. Addison may have to set

aside the sale made by Eulalio Belisario to Basilio Borja on January 19, 1917, of the land herein described, provided such action is commenced with the period prescribed by section 49 of the Code of Civil Procedure. As so amended, the decision mentioned will stand as the final judgment of this court. Araullo, C. J., Malcolm, Avancea, Villamor, Johns, and Romualdez, JJ., concur.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 21639 September 25, 1924

ALBERT F. KIEL, plaintiff-appellee, vs. ESTATE OF P. S. SABERT, defendant-appellant. J. F. Yeager for appellant. J. S. Alano for appellee. MALCOLM, J.:
This action relates to the legal right of Albert F. Kiel to secure from the estate of P. S. Sabert the sum of P20,000, on a claim first presented to the commissioners
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and disallowed, then on appeal to the Court of First Instance allowed, and ultimately the subject-matter of the appeal taken to this court. A skeletonized statement of the case and the facts based on the complaint, the findings of the trial judge, and the record, may be made in the following manner: In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain public lands situated in the municipality of Parang, Province of Cotabato, known as Parang Plantation Company. Kiel subsequently took over the interest of Milfeil. In 1910, Kiel and P. S. Sabert entered into an agreement to develop the Parang Plantation Company. Sabert was to furnish the capital to run the plantation and Kiel was to manage it. They were to share and share alike in the property. It seems that this partnership was formed so that the land could be acquired in the name of Sabert, Kiel being a German citizen and not deemed eligible to acquire public lands in the Philippines. By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed the plantation. During the World War, he was deported from the Philippines. On August 16, 1919, five persons, including P. S. Sabert, organized the Nituan Plantation Company, with a subscribed capital of P40,000. On April 10, 1922, P. S. Sabert transferred all of his rights in two parcels of land situated in the municipality of Parang, Province of Cotabato, embraced within his homestead application No. 21045 and his purchase application No. 1048, in consideration of the sum of P1, to the Nituan Plantation Company. In this same period, Kiel appears to have tried to secure a settlement from Sabert. At least in a letter dated June 6, 1918, Sabert wrote Kiel that he had offered "to sell all property that I have for P40,000 or take in a partner who is willing to develop the plantation, to take up the K. & S. debt no matter which way I will straiten out with you." But Sabert's death came before any amicable arrangement could be reached and before an action by Kiel against Sabert could be decided. So these proceedings against the estate of Sabert.

In this court, the defendant-appellant assigns the following errors: The lower court erred
(1) In finding this was an action to establish a resulting trust in land. (2) In finding a resulting trust in land could have been established in public lands in favor of plaintiff herein who was an alien subject at the same time said alleged resulting trust was created. (3) In finding a resulting trust in land had been established by the evidence in the case. (4) In admitting the testimony of the plaintiff herein. (5) In admitting the testimony of William Milfeil, John C. Beyersdorfer, Frank R. Lasage, Oscar C. Butler and Stephen Jurika with reference to alleged statements and declarations of the deceased P. S. Sabert. (6) In finding any co-partnership existed between plaintiff and the deceased Sabert.

(7) In rendering judgment for the plaintiff herein. Errors 1, 2, and 3, relating to resulting trusts. These three errors discussing the same subject may be resolved together. In effect, as will soon appear, we reach the conclusion that both parties were in error in devoting so much time to the elaboration of these questions, and that a ruling on the same is not needed. It is conceivable, that the facts in this case could have been so presented to the court by means of allegations in the complaint, as to disclose characteristics of a resulting trust. But the complaint as framed asks for a straight money judgment against an estate. In no part of the complaint did plaintiff allege any interest in land, claim any interest in land, or pretend to establish a resulting trust in land. That the plaintiff did not care to press such an action is demonstrated by the relation of the fact of alienage with the rule, that a trust will not be created when, for the purpose of evading the law prohibiting one from taking or holding real property, he takes a conveyance thereof in the name of a third person. (26 R. C. L., 1214-1222; Leggett vs. Dubois [1835], 5 Paige, N. Y., 114; 28 Am. Dec., 413.)
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The parties are wrong in assuming that the trial judge found that this was an action to establish a resulting trust in land. In reality, all that the trial judge did was to ground one point of his decision on an authority coming from the Supreme Court of California, which discussed the subject of resulting trusts. Error 4, relating to the admission of testimony of the plaintiff herein. Well taken. The Code of Civil Procedure in section 383, No. 7, names as incompetent witnesses, parties to an action or proceeding against an executor or administrator of a deceased person upon a claim or demand against the estate of such deceased person, who "cannot testify as to any matter of fact occurring before the death of such deceased person." But the trial judge, misled somewhat by the decision of the Supreme Court of California in the city of Myers vs. Reinstein ([1885], 67 Cal., 89), permitted this testimony to go in, whereas if the decision had been read more carefully, it would have been noted that "the action was not on a claim or demand against the estate of Reinstein." Here this is exactly the situation which confronts us. The case of Maxilom vs. Tabotabo ([1907], 9 Phil., 390), is squarely on all fours with the case at bar. It was there held that "A party to an action against an executor or administrator of a deceased person, upon a claim against the estate of the latter, is absolutely prohibited by law from giving testimony concerning such claim or demand as to anything that occurred before the death of the person against whose estate the action is prosecuted." Error 5, relating to the testimony of five witnesses with reference to alleged statements and declarations of the deceased P. S. Sabert. Not well taken. By section 282 of the Code of Civil Procedure, the declaration, act, or omission of a deceased person having sufficient knowledge of the subject, against his pecuniary interest, is admissible as evidence to that extent against his successor in interest. By section 298, No. 4, of the same Code, evidence may be given up a trial of the following facts: ". . . the act or declaration of a deceased person, done

or made against his interest in respect to his real property." (See Leonardo vs. Santiago [1907], 7 Phil., 401.) The testimony of these witnesses with reference to the acts or declarations of Sabert was, therefore, properly received for whatever they might be worth. Error 6, relating to the existence of a copartnership between Kiel and Sabert. Not well taken. No partnership agreement in writing was entered into by Kiel and Sabert. The question consequently is whether or not the alleged verbal co-partnership formed by Kiel and Sabert has been proved, if we eliminate the testimony of Kiel and only consider the relevant testimony of other witnesses. In performing this task, we are not unaware of the rule of partnership that the declarations of one partner, not made in the presence of his co-partner, are not competent to prove the existence of a partnership between them as against such other partner, and that the existence of a partnership cannot be established by general reputation, rumor, or hearsay. (Mechem on Partnership, sec. 65; 20 R. C. L., sec. 53; Owensboro Wagon Company vs. Bliss [1901], 132 Ala., 253.) The testimony of the plaintiff's witnesses, together with the documentary evidence, leaves the firm impression with us that Kiel and Sabert did enter into a partnership, and that they were to share equally. Applying the tests as to the existence of partnership, we feel that competent evidence exists establishing the partnership. Even more primary than any of the rules of partnership above announced, is the injunction to seek out the intention of the parties, as gathered from the facts and as ascertained from their language and conduct, and then to give this intention effect. (Giles vs. Vette [1924], 263 U. S., 553.) Error 7, relating to the judgment rendered for the plaintiff. Well taken in part. The judgment handed down, it will be remembered, permitted the plaintiff to recover from the estate the full amount claimed, presumably on the assumption that Sabert having sold by property to the Nituan Plantation Company for
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P40,000, Kiel should have one-half of the same, or P20,000. There is, however, extant in the record absolutely no evidence as to the precise amount received by Sabert from the sale of this particular land. If it is true that Sabert sold all his land to the Nituan Plantation Company for P40,000, although this fact was not proven, what part of the P40,000 would correspond to the property which belonged to Kiel and Sabert under their partnership agreement? It impresses us further that Kiel under the facts had no standing in court to ask for any part of the land and in fact he does not do so; his only legal right is to ask for what is in effect an accounting with reference to its improvements and income as of 1917 when Sabert became the trustee of the estate on behalf of Kiel. As we have already intimated, we do not think that Kiel is entitled to any share in the land itself, but we are of the opinion that he has clearly shown his right to one-half of the value of the improvements and personal property on the land as to the date upon which he left the plantation. Such improvements and personal property include buildings, coconut palms, and other plantings, cattle and other animals, implements, fences, and other constructions, as well as outstanding collectible credits, if any, belonging to the partnership. The value of these improvements and of the personal property cannot be ascertained from the record and the case must therefore be remanded for further proceedings. In resume, we disregard errors 1, 2, and 3, we find well taken, errors 4 and 7, and we find not well taken, errors 5 and 6. The judgment appealed from is set aside and the record is returned to the lower court where the plaintiff, if he so desires, may proceed further to prove his claim against the estate of P. S. Sabert. Without costs. So ordered. Johnson, Street, Avancea, Villamor, Ostrand and Romualdez, JJ., concur.
The Lawphil Project - Arellano Law Foundation

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-9996 October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners, vs. THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents. Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner. Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and Solicitor Felicisimo R. Rosete for Respondents. CONCEPCION, J.: This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a decision of the Court of Tax Appeals, the dispositive part of which reads: FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive, in accordance with the respondent's assessment for the same in the total amount of P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is hereby dismissed with costs against petitioners. It appears from the stipulation submitted by the parties:

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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 P37.50 150.00 150.00
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14.84 1,144.71 10.34 1,912.30 1,575.90 P6,157.09

1949 Total including penalty RESIDENCE TAXES OF CORPORATION 1945 1946 1947 1948 1949 Total including surcharge TOTAL TAXES DUE

150.00 P527.00

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 co-partnerships (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.
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P38.75 38.75 38.75 38.75 38.75 P193.75 P6,878.34.

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 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

2. They invested the same, not merely not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and transactions undertaken, as well as the brief interregnum between each, particularly the last three purchases, is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired by the petitioners in February, 1943. In other words, one cannot but perceive a character of habitually peculiar to business transactions engaged in the purpose of gain. 3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. The properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there has been any change in the utilization thereof. 4. Since August, 1945, the properties have been under the management of one person, namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a corporation or business and enterprise operated for profit. 5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since the first property was acquired, and over twelve (12) years, since Simeon Evangelista became the manager. 6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances were present in the cases cited by petitioners herein, and, hence, those cases are not in point. Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts performed by them, a legal entity, with a personality independent of that of its members, did not come into existence, and some of the characteristics of partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court of Tax Appeals. To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships which constitute precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes, among other, joint accounts, (cuentas en participation)" and "associations," none of which has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships" which are possessed of the aforementioned personality have been expressly excluded by law (sections 24 and 84 [b] from the connotation of the term "corporation" It may not be amiss to add that petitioners' allegation to the effect that their liability in connection with the leasing of the lots above referred to, under the management of one person even if true, on which we express no opinion tends to increase the similarity between the nature of their venture
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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.).

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.)

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.) .

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.)
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Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against the petitioners herein. It is so ordered. Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur. BAUTISTA ANGELO, J., concurring: I agree with the opinion that petitioners have actually contributed money to a common fund with express purpose of engaging in real estate business for profit. The series of transactions which they had undertaken attest to this. This appears in the following portion of the decision: 2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they bought a lot for P100,000. On April 3, 1944, they purchase 21 lots for P18,000. This was soon followed on April 23, 1944, by the acquisition of another real state for P108,825. 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 petitioner in February, 1943, In other words, we cannot but perceive a character of habitually peculiar to business transactions engaged in for purposes of gain. I wish however to make to make the following observation: Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides: (2) Co-ownership or co-possession does not 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 partnership, whether or not the person sharing them have a joint or common right or interest in any property from which the returns are derived; From the above it appears that the fact that those who agree to form a co-ownership shared or do not share any profits made by the use of property held in common does not convert their venture into a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. This only means that, aside from the circumstance of profit, the presence of other elements constituting partnership is necessary, such as the clear intent to form a partnership, the existence of a judicial personality different from that of the individual partners, and the freedom to transfer or assign any interest in the property by one with the consent of the others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635- 636). It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership. Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not thereby rendered partners. They have no common stock or capital, and no community of interest as principal proprietors in the business itself which the proceeds derived. (Elements of the law of Partnership by Floyd R. Mechem, 2n Ed., section 83, p. 74.) A joint venture purchase of land, by two, does not constitute a copartnership in respect thereto; nor does not agreement to share the profits and loses on the sale of land create a partnership; the parties are only tenants in common. (Clark vs. Sideway, 142 U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.) Where plaintiff, his brother, and another agreed to become owners of a single tract of reality, holding as tenants in common, and to divide the profits of
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disposing of it, the brother and the other not being entitled to share in plaintiff's commissions, no partnership existed as between the parties, whatever relation may have been as to third parties. (Magee vs. Magee, 123 N. E. 6763, 233 Mass. 341.) In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally a participating in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables each party to make contract, manage the business, and dispose of the whole property. (Municipal Paving Co. vs Herring, 150 P. 1067, 50 Ill. 470.) The common ownership of property does not itself create a partnership between the owners, though they may use it for purpose of making gains; and they may, without becoming partners, agree among themselves as to the management and use of such property and the application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S. W. 363, 160 No. App. 14.) This is impliedly recognized in the following portion of the decision: "Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of these circumstances (referring to the series of transactions) such as to leave no room for doubt on the existence of said intent in petitioners herein."
The Lawphil Project - Arellano Law Foundation

C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased, defendant-appellee. Harvey & O'Brien for appellant. DeWitt, Perkins & Brandy for appellee. STREET, J.:
This action was institute in the Court of First Instance of the City of Manila, by E. S. Lyons against C. W. Rosenstock, as executor of the estate of H. W. Elser, deceased, consequent upon the taking of an appeal by the executor from the allowance of the claim sued upon by the committee on claims in said estate. The purpose of the action is to recover four hundred forty-six and two thirds shares of the stock of J. K. Pickering & Co., Ltd., together with the sum of about P125,000, representing the dividends which accrued on said stock prior to October 21, 1926, with lawful interest. Upon hearing the cause the trial court absolved the defendant executor from the complaint, and the plaintiff appealed. Prior to his death on June 18, 1923, Henry W. Elser had been a resident of the City of Manila where he was engaged during the years with which we are here concerned in buying, selling, and administering real estate. In several ventures which he had made in buying and selling property of this kind the plaintiff, E. S. Lyons, had joined with him, the profits being shared by the two in equal parts. In April, 1919, Lyons, whose regular vocation was that of a missionary, or missionary agent, of the Methodist Episcopal Church, went on leave to the United States and was gone for nearly a year and a half, returning on September 21, 1920. On the eve of his departure Elser made a written statement showing that Lyons was, at that time, half owner with Elser of three particular pieces of real property. Concurrently with this act Lyons execute in favor of Elser a general power of attorney empowering him to manage and dispose of said properties at will and to represent Lyons fully and amply, to the mutual advantage of both. During the absence of Lyons two of the pieces of property above referred to were sold by Elser, leaving in his hands a single piece of property located at 616-618 Carried Street, in the City of Manila, containing about 282 square meters of land, with the improvements thereon.

Republic of the Philippines


SUPREME COURT Manila EN BANC G.R. No. L-35469 March 17, 1932 E. S. LYONS, plaintiff-appellant, vs.

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In the spring of 1920 the attention of Elser was drawn to a piece of land, containing about 1,500,000 square meters, near the City of Manila, and he discerned therein a fine opportunity for the promotion and development of a suburban improvement. This property, which will be herein referred to as the San Juan Estate, was offered by its owners for P570,000. To afford a little time for maturing his plans, Elser purchased an option on this property for P5,000, and when this option was about to expire without his having been able to raise the necessary funds, he paid P15,000 more for an extension of the option, with the understanding in both cases that, in case the option should be exercised, the amounts thus paid should be credited as part of the first payment. The amounts paid for this option and its extension were supplied by Elser entirely from his own funds. In the end he was able from his own means, and with the assistance which he obtained from others, to acquire said estate. The amount required for the first payment was P150,000, and as Elser had available only about P120,000, including the P20,000 advanced upon the option, it was necessary to raise the remainder by obtaining a loan for P50,000. This amount was finally obtained from a Chinese merchant of the city named Uy Siuliong. This loan was secured through Uy Cho Yee, a son of the lender; and in order to get the money it was necessary for Elser not only to give a personal note signed by himself and his two associates in the projected enterprise, but also by the Fidelity & Surety Company. The money thus raised was delivered to Elser by Uy Siuliong on June 24, 1920. With this money and what he already had in bank Elser purchased the San Juan Estate on or about June 28, 1920. For the purpose of the further development of the property a limited partnership had, about this time, been organized by Elser and three associates, under the name of J. K. Pickering & Company; and when the transfer of the property was effected the deed was made directly to this company. As Elser was the principal capitalist in the enterprise he received by far the greater number of the shares issued, his portion amount in the beginning to 3,290 shares. While these negotiations were coming to a head, Elser contemplated and hoped that Lyons might be induced to come in with him and supply part of the means necessary to carry the enterprise through. In this connection it appears that on May 20, 1920, Elser wrote Lyons a letter, informing him that he had made an offer for a big subdivision and that, if it should be acquired and Lyons would come in, the two would be well fixed. (Exhibit M-5.) On June 3, 1920, eight days before the first option expired, Elser cabled Lyons that he had bought the San Juan Estate and thought it advisable for Lyons to resign (Exhibit M-13), meaning

that he should resign his position with the mission board in New York. On the same date he wrote Lyons a letter explaining some details of the purchase, and added "have advised in my cable that you resign and I hope you can do so immediately and will come and join me on the lines we have so often spoken about. . . . There is plenty of business for us all now and I believe we have started something that will keep us going for some time." In one or more communications prior to this, Elser had sought to impress Lyons with the idea that he should raise all the money he could for the purpose of giving the necessary assistance in future deals in real estate. The enthusiasm of Elser did not communicate itself in any marked degree to Lyons, and found him averse from joining in the purchase of the San Juan Estate. In fact upon this visit of Lyons to the United States a grave doubt had arisen as to whether he would ever return to Manila, and it was only in the summer of 1920 that the board of missions of his church prevailed upon him to return to Manila and resume his position as managing treasurer and one of its trustees. Accordingly, on June 21, 1920, Lyons wrote a letter from New York thanking Elser for his offer to take Lyons into his new project and adding that from the standpoint of making money, he had passed up a good thing. One source of embarrassment which had operated on Lyson to bring him to the resolution to stay out of this venture, was that the board of mission was averse to his engaging in business activities other than those in which the church was concerned; and some of Lyons' missionary associates had apparently been criticizing his independent commercial activities. This fact was dwelt upon in the letter above-mentioned. Upon receipt of this letter Elser was of course informed that it would be out of the question to expect assistance from Lyons in carrying out the San Juan project. No further efforts to this end were therefore made by Elser. When Elser was concluding the transaction for the purchase of the San Juan Estate, his book showed that he was indebted to Lyons to the extent of, possibly, P11,669.72, which had accrued to Lyons from profits and earnings derived from other properties; and when the J. K. Pickering & Company was organized and stock issued, Elser indorsed to Lyons 200 of the shares allocated to himself, as he then believed that Lyons would be one of his associates in the deal. It will be noted that the par value of these 200 shares was more than
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P8,000 in excess of the amount which Elser in fact owed to Lyons; and when the latter returned to the Philippine Islands, he accepted these shares and sold them for his own benefit. It seems to be supposed in the appellant's brief that the transfer of these shares to Lyons by Elser supplies some sort of basis for the present action, or at least strengthens the considerations involved in a feature of the case to be presently explained. This view is manifestly untenable, since the ratification of the transaction by Lyons and the appropriation by him of the shares which were issued to him leaves no ground whatever for treating the transaction as a source of further equitable rights in Lyons. We should perhaps add that after Lyons' return to the Philippine Islands he acted for a time as one of the members of the board of directors of the J. K. Pickering & Company, his qualification for this office being derived precisely from the ownership of these shares. We now turn to the incident which supplies the main basis of this action. It will be remembered that, when Elser obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan Estate, the lender, Uy Siuliong, insisted that he should procure the signature of the Fidelity & Surety Co. on the note to be given for said loan. But before signing the note with Elser and his associates, the Fidelity & Surety Co. insisted upon having security for the liability thus assumed by it. To meet this requirement Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the property owned by himself and Lyons on Carriedo Street. This mortgage was executed on June 30, 1920, at which time Elser expected that Lyons would come in on the purchase of the San Juan Estate. But when he learned from the letter from Lyons of July 21, 1920, that the latter had determined not to come into this deal, Elser began to cast around for means to relieve the Carriedo property of the encumbrance which he had placed upon it. For this purpose, on September 9, 1920, he addressed a letter to the Fidelity & Surety Co., asking it to permit him to substitute a property owned by himself at 644 M. H. del Pilar Street, Manila, and 1,000 shares of the J. K. Pickering & Company, in lieu of the Carriedo property, as security. The Fidelity & Surety Co. agreed to the proposition; and on September 15, 1920, Elser executed in favor of the Fidelity & Surety Co. a new mortgage on the M. H. del Pillar property and delivered the same, with 1,000 shares of J. K. Pickering & Company, to said company. The latter thereupon in turn executed a cancellation of the mortgage on the Carriedo property and delivered it to Elser. But notwithstanding the fact that these documents were executed and delivered, the new mortgage and the release of the old were never

registered; and on September 25, 1920, thereafter, Elser returned the cancellation of the mortgage on the Carriedo property and took back from the Fidelity & Surety Co. the new mortgage on the M. H. del Pilar property, together with the 1,000 shares of the J. K. Pickering & Company which he had delivered to it. The explanation of this change of purpose is undoubtedly to be found in the fact that Lyons had arrived in Manila on September 21, 1920, and shortly thereafter, in the course of a conversation with Elser told him to let the Carriedo mortgage remain on the property ("Let the Carriedo mortgage ride"). Mrs. Elser testified to the conversation in which Lyons used the words above quoted, and as that conversation supplies the most reasonable explanation of Elser's recession from his purpose of relieving the Carriedo property, the trial court was, in our opinion, well justified in accepting as a proven fact the consent of Lyons for the mortgage to remain on the Carriedo property. This concession was not only reasonable under the circumstances, in view of the abundant solvency of Elser, but in view of the further fact that Elser had given to Lyons 200 shares of the stock of the J. K. Pickering & Co., having a value of nearly P8,000 in excess of the indebtedness which Elser had owed to Lyons upon statement of account. The trial court found in effect that the excess value of these shares over Elser's actual indebtedness was conceded by Elser to Lyons in consideration of the assistance that had been derived from the mortgage placed upon Lyon's interest in the Carriedo property. Whether the agreement was reached exactly upon this precise line of thought is of little moment, but the relations of the parties had been such that it was to be expected that Elser would be generous; and he could scarcely have failed to take account of the use he had made of the joint property of the two. As the development of the San Juan Estate was a success from the start, Elser paid the note of P50,000 to Uy Siuliong on January 18, 1921, although it was not due until more than five months later. It will thus be seen that the mortgaging of the Carriedo property never resulted in damage to Lyons to the extent of a single cent; and although the court refused to allow the defendant to prove the Elser was solvent at this time in an amount much greater than the entire encumbrance placed upon the property, it is evident that the risk imposed upon Lyons was negligible. It is also plain that no money actually deriving from this mortgage was ever applied to the purchase of the San Juan Estate. What really happened was the Elser merely subjected the property to a contingent liability, and no actual
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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 fortysix 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
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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. Avancea, C.J., Johnson, Malcolm, Villamor, Villa-Real and Imperial, JJ., concur. The Lawphil Project - Arellano Law Foundation

The attention of Elser was drawn to a piece of land, referred to as the San Juan Estate. He obtained the loan of P50,000 to complete the amount needed for the first payment on the San Juan Estate. The lender insisted that he should procure the signature of the Fidelity & Surety Co. on the note to be given for said loan. Elser mortgaged to the Fidelity & Surety Co. the equity of redemption in the property owned by himself and Lyons on Carriedo Street to secure the liability thus assumed by it. 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 fortysix and two-thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint. ISSUE: Whether there was a general relation of partnership. NO RULING: The position of the appellant is, in our opinion, untenable. If Elser had used any money actually belonging to Lyons in this deal, he would under article 1724 of the Civil Code and article 264 of the Code of Commerce, be obligated to pay interest upon the money so applied to his own use. Under the law prevailing in this jurisdiction a trust does not ordinarily attach with respect to property acquired by a person who uses money belonging to another (Martinez vs. Martinez, 1 Phil., 647; Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual relation of partnership had existed in the money used, the case might be different; and much emphasis is laid in the appellant's brief upon the relation of partnership which, it is claimed, existed. But there was clearly no general relation of partnership, 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.

G.R. No. L-35469 March 17, 1932 E. S. LYONS vs. C. W. ROSENSTOCK, Executor of the Estate of Henry W. Elser, deceased FACTS: Henry W. Elser was engaged in buying, selling, and administering real estate. E. S. Lyons joined with him, the profits being shared by the two in equal parts. 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. Elser made 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.

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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. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION
G.R. No. 183133 July 26, 2010

took their oath of allegiance to the government upon reaching the age of majority, but who failed to immediately file the documents of election with the nearest civil registry, be considered foreign nationals subject to deportation as undocumented aliens for failure to obtain alien certificates of registration? Positioned upon the facts of this case, the question is translated into the inquiry whether or not the omission negates their rights to Filipino citizenship as children of a Filipino mother, and erase the years lived and spent as Filipinos. The resolution of these questions would significantly mark a difference in the lives of herein petitioners. The Facts Balgamelo Cabiling Ma (Balgamelo), Felix Cabiling Ma, Jr. (Felix, Jr.), Valeriano Cabiling Ma (Valeriano), Lechi Ann Ma (Lechi Ann), Arceli Ma (Arceli), Nicolas 1 Ma (Nicolas), and Isidro Ma (Isidro) are the children of Felix (Yao Kong) Ma, a 2 Taiwanese, and Dolores Sillona Cabiling, a Filipina. Records reveal that petitioners Felix, Jr., Balgamelo and Valeriano were all born under aegis of the 1935 Philippine Constitution in the years 1948, 1951, and 3 1957, respectively. They were all raised in the Philippines and have resided in this country for almost sixty (60) years; they spent their whole lives, studied and received their primary and secondary education in the country; they do not speak nor understand the Chinese language, have not set foot in Taiwan, and do not know any relative of their father; they have not even traveled abroad; and they have 4 already raised their respective families in the Philippines. During their age of minority, they secured from the Bureau of Immigration their 5 Alien Certificates of Registration (ACRs). Immediately upon reaching the age of twenty-one, they claimed Philippine citizenship in accordance with Section 1(4), Article IV, of the 1935 Constitution, which provides that "(t)hose whose mothers are citizens of the Philippines and,
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BALGAMELO CABILING MA, FELIX CABILING MA, JR., AND VALERIANO CABILING MA, Petitioners, vs. COMMISSIONER ALIPIO F. FERNANDEZ, JR., ASSOCIATE COMMISSIONER ARTHEL B. CARONOGAN, ASSOCIATE COMMISSIONER JOSE DL. CABOCHAN, ASSOCIATE COMMISSIONER TEODORO B. DELARMENTE AND ASSOCIATE COMMISSIONER FRANKLIN Z. LITTAUA, in their capacities as Chairman and Members of the Board of Commissioners (Bureau of Immigration), and MAT G. CATRAL, Respondents. DECISION PEREZ, J.:

Should children born under the 1935 Constitution of a Filipino mother and an alien father, who executed an affidavit of election of Philippine citizenship and

upon reaching the age of majority, elect Philippine citizenship" are citizens of the Philippines. Thus, on 15 August 1969, Felix, Jr. executed his affidavit of election of Philippine citizenship and took his oath of allegiance before then Judge Jose 6 L. Gonzalez, Municipal Judge, Surigao, Surigao del Norte. On 14 January 1972, Balgamelo did the same before Atty. Patrocinio C. Filoteo, Notary Public, 7 Surigao City, Surigao del Norte. In 1978, Valeriano took his oath of allegiance before then Judge Salvador C. Sering, City Court of Surigao City, the fact of 8 which the latter attested to in his Affidavit of 7 March 2005. Having taken their oath of allegiance as Philippine citizens, petitioners, however, failed to have the necessary documents registered in the civil registry as required under Section 1 of Commonwealth Act No. 625 (An Act Providing the Manner in which the Option to Elect Philippine Citizenship shall be Declared by a Person whose Mother is a Filipino Citizen). It was only on 27 July 2005 or more than thirty (30) years after they elected Philippine citizenship that 9 Balgamelo and Felix, Jr. did so. On the other hand, there is no showing that Valeriano complied with the registration requirement. Individual certifications all dated 3 January 2005 issued by the Office of the City Election Officer, Commission on Elections, Surigao City, show that all of them are registered voters of Barangay Washington, Precinct No. 0015A since June 1997, and that records on previous registrations are no longer available because of the mandatory general registration every ten (10) years. Moreover, aside from exercising their right of suffrage, Balgamelo is one of the incumbent 11 Barangay Kagawads in Barangay Washington, Surigao City. Records further reveal that Lechi Ann and Arceli were born also in Surigao City 12 13 in 1953 and 1959, respectively. The Office of the City Civil Registrar issued a Certification to the effect that the documents showing that Arceli elected Philippine citizenship on 27 January 1986 were registered in its Office on 4 February 1986. However, no other supporting documents appear to show that Lechi Ann initially obtained an ACR nor that she subsequently elected Philippine citizenship upon reaching the age of majority. Likewise, no document exists that will provide information on the citizenship of Nicolas and Isidro. The Complaint
10

On 16 February 2004, the Bureau of Immigration received the Complaint14 Affidavit of a certain Mat G. Catral (Mr. Catral), alleging that Felix (Yao Kong) Ma and his seven (7) children are undesirable and overstaying aliens. Mr. Catral, however, did not participate in the proceedings, and the Ma family could not but believe that the complaint against them was politically motivated because they strongly supported a candidate in Surigao City in the 2004 15 National and Local Elections. On 9 November 2004, the Legal Department of the Bureau of Immigration 16 17 charged them for violation of Sections 37(a)(7) and 45(e) of Commonwealth Act No. 613, otherwise known as the Philippine Immigration Act of 1940, as 18 amended. The Charge Sheet docketed as BSI-D.C. No. AFF-04-574 (OC-STF04-09/23-1416) reads, in part: That Respondents x x x, all Chinese nationals, failed and continuously failed to present any valid document to show their respective status in the Philippines. They likewise failed to produce documents to show their election of Philippines (sic) citizenship, hence, undocumented and overstaying foreign nationals in the country. That respondents, being aliens, misrepresent themselves as Philippine citizens in order to evade the requirements of the immigration laws. Ruling of the Board of Commissioners, Bureau of Immigration After Felix Ma and his seven (7) children were afforded the opportunity to refute the allegations, the Board of Commissioners (Board) of the Bureau of Immigration (BI), composed of the public respondents, rendered a Judgment dated 2 February 2005 finding that Felix Ma and his children violated Commonwealth Act No. 613, Sections 37(a)(7) and 45(e) in relation to BI Memorandum Order Nos. ADD-01-031 and ADD-01-035 dated 6 and 22 August 19 2001, respectively. The Board ruled that since they elected Philippine citizenship after the enactment of Commonwealth Act No. 625, which was approved on 7 June 1941, they were governed by the following rules and regulations:
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1. Section 1 of Commonwealth Act No. 625, providing that the election of Philippine citizenship embodied in a statement sworn before any officer authorized to administer oaths and the oath of allegiance shall be 20 filed with the nearest civil registry; and Commission of Immigration and Deportation (CID, now Bureau of Immigration [BI]) Circular dated 12 21 April 1954, detailing the procedural requirements in the registration of the election of Philippine citizenship. 2. Memorandum Order dated 18 August 1956 of the CID, requiring the filing of a petition for the cancellation of their alien certificate of registration with the CID, in view of their election of Philippine citizenship; 3. Department of Justice (DOJ) Opinion No. 182, 19 August 1982; and DOJ Guidelines, 27 March 1985, requiring that the records of the proceedings be forwarded to the Ministry (now the Department) of 23 Justice for final determination and review. As regards the documentation of aliens in the Philippines, Administrative Order 24 No. 1-93 of the Bureau of Immigration requires that ACR, E-series, be issued to foreign nationals who apply for initial registration, finger printing and issuance 25 of an ACR in accordance with the Alien Registration Act of 1950. According to public respondents, any foreign national found in possession of an ACR other than the E-series shall be considered improperly documented aliens and may be proceeded against in accordance with the Immigration Act of 1940 or the Alien 26 Registration Act of 1950, as amended. Supposedly for failure to comply with the procedure to prove a valid claim to Philippine citizenship via election proceedings, public respondents concluded that Felix, Jr. Balgamelo, Arceli, Valeriano and Lechi Ann are undocumented 27 and/or improperly documented aliens. Nicolas and Isidro, on the other hand, did not submit any document to support their claim that they are Philippine citizens. Neither did they present any evidence to show that they are properly documented aliens. For these reasons, public respondents likewise deemed them undocumented and/or improperly 28 documented aliens.
22

The dispositive portion

29

of the Judgment of 2 February 2005 reads:

1. Subject to the submission of appropriate clearances, summary deportation of Felix (Yao Kong) Ma, Felix Ma, Jr., Balgamelo Ma, Valeriano Ma, Lechi Ann Ma, Nicolas Ma, Arceli Ma and Isidro Ma, Taiwanese [Chinese], under C.A. No. 613, Sections 37(a)(7), 45(e) and 38 in relation to BI M.O. Nos. ADD-01-031 and ADD-01-035 dated 6 and 22 August 2001, respectively; 2. Issuance of a warrant of deportation against Felix (Yao Kong) Ma, Felix Ma, Jr., Balgamelo Ma, Valeriano Ma, Lechi Ann Ma, Nicolas Ma, Arceli Ma and Isidro Ma under C.A. No. 613, Section 37(a); 3. Inclusion of the names of Felix (Yao Kong) Ma, Felix Ma, Jr., Balgamelo Ma, Valeriano Ma, Lechi Ann Ma, Nicolas Ma, Arceli Ma and Isidro Ma in the Immigration Blacklist; and 4. Exclusion from the Philippines of Felix (Yao Kong) Ma, Felix Ma, Jr., Balgamelo Ma, Valeriano Ma, Lechi Ann Ma, Nicolas Ma, Arceli Ma and Isidro Ma under C.A. No. 613, Section 29(a)(15). (Emphasis supplied.) In its Resolution of 8 April 2005, public respondents partially reconsidered their Judgment of 2 February 2005. They were convinced that Arceli is an immigrant 31 under Commonwealth Act No. 613, Section 13(g). However, they denied the Motion for Reconsideration with respect to Felix Ma and the rest of his 32 children. Ruling of the Court of Appeals On 3 May 2005, only Balgamelo, Felix, Jr., and Valeriano filed the Petition for Certiorari under Rule 65 of the 1997 Rules of Civil Procedure before the Court of Appeals, which was docketed as CA-G.R. SP No. 89532. They sought the nullification of the issuances of the public respondents, to wit: (1) the Judgment dated 2 February 2005, ordering the summary deportation of the petitioners, issuance of a warrant of deportation against them, inclusion of their names in the Immigration Blacklist, and exclusion of the petitioners from the Philippines; and
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30

(2) the Resolution dated 8 April 2005, denying the petitioners Motion for Reconsideration. On 29 August 2007, the Court of Appeals dismissed the petition after finding that the petitioners "failed to comply with the exacting standards of the law providing for the procedure and conditions for their continued stay in the 34 Philippines either as aliens or as its nationals." On 29 May 2008, it issued a Resolution denying the petitioners Motion for Reconsideration dated 20 September 2007. To reiterate, a persons continued and uninterrupted stay in the Philippines, his being a registered voter or an elected public official cannot vest in him Philippine citizenship as the law specifically lays down the requirements for acquisition of Philippine citizenship by election. The prescribed procedure in electing Philippine citizenship is certainly not a tedious and painstaking process. All that is required of the elector is to execute an affidavit of election of Philippine citizenship and, thereafter, file the same with the nearest civil registry. The constitutional mandate concerning citizenship must be adhered to strictly. Philippine citizenship can never be treated like a commodity that can be claimed when needed and suppressed when convenient. One who is privileged to elect Philippine citizenship has only an inchoate right to such citizenship. As such, he 36 should avail of the right with fervor, enthusiasm and promptitude. Our Ruling The 1935 Constitution declares as citizens of the Philippines those whose mothers are citizens of the Philippines and elect Philippine citizenship upon reaching the age of majority. The mandate states: Section 1. The following are citizens of the Philippines: (1) xxx; xxxx
35 33

(4) Those whose mothers are citizens of the Philippines and, 37 upon reaching the age of majority, elect Philippine citizenship. In 1941, Commonwealth Act No. 625 was enacted. It laid down the manner of electing Philippine citizenship, to wit: Section 1. The option to elect Philippine citizenship in accordance with subsection (4), Section 1, Article IV, of the Constitution shall be expressed in a statement to be signed and sworn to by the party concerned before any officer authorized to administer oaths, and shall be filed with the nearest civil registry. The said party shall accompany the aforesaid statement with the oath of allegiance to the Constitution and the Government of the Philippines. The statutory formalities of electing Philippine citizenship are: (1) a statement of election under oath; (2) an oath of allegiance to the Constitution and Government of the Philippines; and (3) registration of the statement of election and of the oath with the nearest civil registry. In Re:Application for Admission to the Philippine Bar, Vicente D. Ching, we determined the meaning of the period of election described by phrase "upon reaching the age of majority." Our references were the Civil Code of the Philippines, the opinions of the Secretary of Justice, and the case of Cueco v. 39 Secretary of Justice. We pronounced: x x x [T]he 1935 Constitution and C.A. No. 625 did not prescribe a time period within which the election of Philippine citizenship should be made. The 1935 Charter only provides that the election should be made "upon reaching the age of majority." The age of majority then commenced upon reaching twenty-one 40 (21) years. In the opinions of the Secretary of Justice on cases involving the validity of election of Philippine citizenship, this dilemma was resolved by basing the time period on the decisions of this Court prior to the effectivity of the 1935 Constitution. In these decisions, the proper period for electing Philippine citizenship was, in turn, based on the pronouncements of the Department of State of the United States Government to the effect that the election should be 41 made within a reasonable time after attaining the age of majority. The phrase "reasonable time" has been interpreted to mean that the elections should be 42 made within three (3) years from reaching the age of majority. However, we
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38

held in Cue[n]co vs. Secretary of Justice, an inflexible rule. We said:

43

that the three (3) year period is not

We rule that under the facts peculiar to the petitioners, the right to elect Philippine citizenship has not been lost and they should be allowed to complete the statutory requirements for such election. Such conclusion, contrary to the finding of the Court of Appeals, is in line with 47 our decisions in In Re:Florencio Mallare, Co v. Electoral Tribunal of the House 48 of Representatives, and Re:Application for Admission to the Philippine Bar, 49 Vicente D. Ching. In Mallare, Estebans exercise of the right of suffrage when he came of age was 50 deemed to be a positive act of election of Philippine citizenship. The Court of Appeals, however, said that the case cannot support herein petitioners cause, pointing out that, unlike petitioner, Esteban is a natural child of a Filipina, hence, no other act would be necessary to confer on him the rights and privileges of a 51 52 Filipino citizen, and that Esteban was born in 1929 prior to the adoption of the 53 1935 Constitution and the enactment of Commonwealth Act No. 625. In the Co case, Jose Ong, Jr. did more than exercise his right of suffrage, as he 54 established his life here in the Philippines. Again, such circumstance, while similar to that of herein petitioners, was not appreciated because it was ruled that any election of Philippine citizenship on the part of Ong would have resulted in absurdity, because the law itself had already elected Philippine citizenship for 55 him as, apparently, while he was still a minor, a certificate of naturalization was 56 issued to his father. In Ching, it may be recalled that we denied his application for admission to the Philippine Bar because, in his case, all the requirements, to wit: (1) a statement of election under oath; (2) an oath of allegiance to the Constitution and Government of the Philippines; and (3) registration of the statement of election and of the oath with the nearest civil registry were complied with only fourteen (14) years after he reached the age of majority. Ching offered no reason for the 57 late election of Philippine citizenship. In all, the Court of Appeals found the petitioners argument of good faith and "informal election" unacceptable and held:

It is true that this clause has been construed to mean a reasonable time after reaching the age of majority, and that the Secretary of Justice has ruled that three (3) years is the reasonable time to elect Philippine citizenship under the constitutional provision adverted to above, which period may be extended under certain circumstances, as when the person concerned has always considered himself a Filipino. However, we cautioned in Cue[n]co that the extension of the option to elect Philippine citizenship is not indefinite. Regardless of the foregoing, petitioner was born on February 16, 1923. He became of age on February 16, 1944. His election of citizenship was made on May 15, 1951, when he was over twenty-eight (28) years of age, or over seven (7) years after he had reached the age of majority. It is clear that said election 44 has not been made "upon reaching the age of majority. We reiterated the above ruling in Go, Sr. v. Ramos, a case in which we adopted the findings of the appellate court that the father of the petitioner, whose citizenship was in question, failed to elect Philippine citizenship within the reasonable period of three (3) years upon reaching the age of majority; and that "the belated submission to the local civil registry of the affidavit of election and oath of allegiance x x x was defective because the affidavit of election was executed after the oath of allegiance, and the delay of several years before their 46 filing with the proper office was not satisfactorily explained." In both cases, we ruled against the petitioners because they belatedly complied with all the requirements. The acts of election and their registration with the nearest civil registry were all done beyond the reasonable period of three years upon reaching the age of majority. The instant case presents a different factual setting. Petitioners complied with the first and second requirements upon reaching the age of majority. It was only the registration of the documents of election with the civil registry that was belatedly done.
45

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Their reliance in the ruling contained in Re:Application for Admission to the Philippine Bar, Vicente D. Ching, [which was decided on 1 October 1999], is obviously flawed. It bears emphasis that the Supreme Court, in said case, did not adopt the doctrine laid down in In Re: Florencio Mallare. On the contrary, the Supreme Court was emphatic in pronouncing that "the special circumstances invoked by Ching, i.e., his continuous and uninterrupted stay in the Philippines and his being a certified public accountant, a registered voter and a former elected public official, cannot vest in him Philippine citizenship as the law specifically lays down the requirements for acquisition of Philippine citizenship 58 by election. We are not prepared to state that the mere exercise of suffrage, being elected public official, continuous and uninterrupted stay in the Philippines, and other similar acts showing exercise of Philippine citizenship can take the place of election of citizenship. What we now say is that where, as in petitioners case, the election of citizenship has in fact been done and documented within the constitutional and statutory timeframe, the registration of the documents of election beyond the frame should be allowed if in the meanwhile positive acts of citizenship have publicly, consistently, and continuously been done. The actual exercise of Philippine citizenship, for over half a century by the herein petitioners, is actual notice to the Philippine public which is equivalent to formal registration of the election of Philippine citizenship. For what purpose is registration? In Pascua v. Court of Appeals, registration:
59

Actual knowledge may even have the effect of registration as to the person who has knowledge thereof. Thus, "[i]ts purpose is to give notice thereof to all persons (and it) operates as a notice of the deed, contract, or instrument to 63 others." As pertinent is the holding that registration "neither adds to its validity 64 nor converts an invalid instrument into a valid one between the parties." It lays emphasis on the validity of an unregistered document. Comparable jurisprudence may be consulted. In a contract of partnership, we said that the purpose of registration is to give notice to third parties; that failure to register the contract does not affect the liability of the partnership and of the partners to third persons; and that neither 65 does such failure affect the partnerships juridical personality. An unregistered contract of partnership is valid as among the partners, so long as it has the essential requisites, because the main purpose of registration is to give notice to third parties, and it can be assumed that the members themselves knew of the 66 contents of their contract. The non-registration of a deed of donation does not also affect its validity. Registration is not a requirement for the validity of the contract as between the parties, for the effect of registration serves chiefly to 67 bind third persons. Likewise relevant is the pronouncement that registration is not a mode of acquiring a right. In an analogous case involving an unrecorded deed of sale, we reiterated the settled rule that registration is not a mode of acquiring ownership. Registration does not confer ownership. It is not a mode of acquiring dominion, but only a means of confirming the fact of its existence with notice to the world at 68 large. Registration, then, is the confirmation of the existence of a fact. In the instant case, registration is the confirmation of election as such election. It is not the registration of the act of election, although a valid requirement under Commonwealth Act No. 625, that will confer Philippine citizenship on the petitioners. It is only a means of confirming the fact that citizenship has been claimed.

we elucidated the principles of civil law on

To register is to record or annotate. American and Spanish authorities are unanimous on the meaning of the term "to register" as "to enter in a register; to 60 record formally and distinctly; to enroll; to enter in a list." In general, registration refers to any entry made in the books of the registry, including both registration in its ordinary and strict sense, and cancellation, annotation, and even the marginal notes. In strict acceptation, it pertains to the entry made in the registry which records solemnly and permanently the right of ownership and other real 61 62 rights. Simply stated, registration is made for the purpose of notification.

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Indeed, we even allow the late registration of the fact of birth and of marriage. Thus, has it been admitted through existing rules that the late registration of the fact of birth of a child does not erase the fact of birth. Also, the fact of marriage cannot be declared void solely because of the failure to have the marriage certificate registered with the designated government agency. Notably, the petitioners timely took their oath of allegiance to the Philippines. This was a serious undertaking. It was commitment and fidelity to the state coupled with a pledge "to renounce absolutely and forever all allegiance" to any other state. This was unqualified acceptance of their identity as a Filipino and the complete disavowal of any other nationality. Petitioners have passed decades of their lives in the Philippines as Filipinos. Their present status having been formed by their past, petitioners can no longer have any national identity except that which they chose upon reaching the age of reason.

69

the 1973 Constitution, they automatically become Filipinos and need not elect Philippine citizenship upon reaching the age of majority. The 1973 provision reads: Section 1. The following are citizens of the Philippines: (1) xxx. 73 (2) Those whose fathers and mothers are citizens of the Philippines. Better than the relaxation of the requirement, the 1987 Constitution now classifies them as natural-born citizens upon election of Philippine citizenship. Thus, Sec. 2, Article IV thereof provides: Section 2. Natural-born citizens are those who are citizens of the Philippines from birth without having to perform any act to acquire or perfect their Philippine citizenship. Those who elect Philippine citizenship in accordance with paragraph 74 (3), Section 1 hereof shall be deemed natural-born citizens. (Emphasis supplied.) The constitutional bias is reflected in the deliberations of the 1986 Constitutional Commission. MR. CONCEPCION. x x x. xxxx x x x x As regards those born of Filipino mothers, the 1935 Constitution merely gave them the option to choose Philippine citizenship upon reaching the age of majority, even, apparently, if the father were an alien or unknown. Upon the other hand, under the 1973 Constitution, children of mixed marriages involving an alien father and a Filipino mother are Filipino citizens, thus liberalizing the counterpart provision in the 1935 Constitution by dispensing with the need to make a declaration of intention upon reaching the age of majority. I understand that the committee would further liberalize this provision of the 1935 Constitution. The Committee seemingly proposes to further liberalize the policy of the 1935 Constitution by making those who became citizens of the Philippines
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72

Corollary to this fact, we cannot agree with the view of the Court of Appeals that since the ACR presented by the petitioners are no longer valid on account of the new requirement to present an E-series ACR, they are deemed not properly 70 documented. On the contrary, petitioners should not be expected to secure Eseries ACR because it would be inconsistent with the election of citizenship and its constructive registration through their acts made public, among others, their exercise of suffrage, election as public official, and continued and uninterrupted stay in the Philippines since birth. The failure to register as aliens is, obviously, consistent with petitioners election of Philippine citizenship. The leanings towards recognition of the citizenship of children of Filipino mothers have been indicated not alone by the jurisprudence that liberalized the requirement on time of election, and recognized positive acts of Philippine citizenship. The favor that is given to such children is likewise evident in the evolution of the constitutional provision on Philippine citizenship. Thus, while the 1935 Constitution requires that children of Filipino mothers elect 71 Philippine citizenship upon reaching their age of majority, upon the effectivity of

through a declaration of intention to choose their mothers citizenship upon reaching the majority age by declaring that such children are natural-born 75 citizens of the Philippines. xxxx

FR. BERNAS. But the difference between him and the natural-born who lost his status is that the natural-born who lost his status, lost it voluntarily; whereas, this individual in the situation contemplated in Section 1, paragraph 3 never had the 79 chance to choose. xxxx

xxx Why does the draft resolution adopt the provision of the 1973 Constitution 76 and not that of the 1935? xxxx FR. BERNAS. x x x Precisely, the reason behind the modification of the 1935 rule on citizenship was a recognition of the fact that it reflected a certain male chauvinism, and it was for the purpose of remedying that this proposed provision was put in. The idea was that we should not penalize the mother of a child simply because she fell in love with a foreigner. Now, the question on what citizenship the child would prefer arises. We really have no way of guessing the preference of the infant. But if we recognize the right of the child to choose, then let him choose when he reaches the age of majority. I think dual citizenship is just a reality imposed on us because we have no control of the laws on citizenship of other countries. We recognize a child of a Filipino mother. But whether or not she is considered a citizen of another country is something completely beyond our control. But certainly it is within the jurisdiction of the Philippine government to require that [at] a certain point, a child be made to choose. But I do not think we should penalize the child before he is even able to choose. I would, therefore, support the retention of the modification made in 77 1973 of the male chauvinistic rule of the 1935 Constitution. xxxx MR. REGALADO. With respect to a child who became a Filipino citizen by election, which the Committee is now planning to consider a natural-born citizen, he will be so the moment he opts for Philippine citizenship. Did the Committee take into account the fact that at the time of birth, all he had was just an inchoate right to choose Philippine citizenship, and yet, by subsequently choosing Philippine citizenship, it would appear that his choice retroacted to the date of his birth so much so that under the Gentlemans proposed amendment, he 78 would be a natural-born citizen?

[on the period within which to elect Philippine citizenship] MR. RODRIGO. [T]his provision becomes very, very important because his election of Philippine citizenship makes him not only a Filipino citizen but a natural-born Filipino citizen, entitling him to run for Congress, to be a Justice of 80 the Supreme Court x x x. We are guided by this evolvement from election of Philippine citizenship upon reaching the age of majority under the 1935 Philippine Constitution to dispensing with the election requirement under the 1973 Philippine Constitution to express classification of these children as natural-born citizens under the 1987 Constitution towards the conclusion that the omission of the 1941 statutory requirement of registration of the documents of election should not result in the obliteration of the right to Philippine citizenship. 1avvphi1 Having a Filipino mother is permanent. It is the basis of the right of the petitioners to elect Philippine citizenship. Petitioners elected Philippine citizenship in form and substance. The failure to register the election in the civil registry should not defeat the election and resultingly negate the permanent fact that they have a Filipino mother. The lacking requirements may still be complied with subject to the imposition of appropriate administrative penalties, if any. The documents they submitted supporting their allegations that they have already registered with the civil registry, although belatedly, should be examined for validation purposes by the appropriate agency, in this case, the Bureau of Immigration. Other requirements embodied in the administrative orders and other issuances of the Bureau of Immigration and the Department of Justice shall be complied with within a reasonable time. WHEREFORE, the Decision dated 29 August 2007, and the Resolution dated 29 May 2008 of the Court of Appeals in CA-G.R. SP No. 89532 affirming the
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Judgment dated 2 February 2005, and the Resolution dated 8 April 2005 of the Bureau of Immigration in BSI-D.C. No. AFF-04-574 OC-STF-04-09/23-1416 are hereby SET ASIDE with respect to petitioners Balgamelo Cabiling Ma, Felix Cabiling Ma, Jr., and Valeriano Cabiling Ma. Petitioners are given ninety (90) days from notice within which to COMPLY with the requirements of the Bureau of Immigration embodied in its Judgment of 2 February 2005. The Bureau of Immigration shall ENSURE that all requirements, including the payment of their financial obligations to the state, if any, have been complied with subject to the imposition of appropriate administrative fines; REVIEW the documents submitted by the petitioners; and ACT thereon in accordance with the decision of this Court. SO ORDERED. JOSE PORTUGAL PEREZ Associate Justice WE CONCUR: RENATO C. CORONA Chief Justice Chairperson ANTONIO EDUARDO B. PRESBITERO J. VELASCO, JR. * NACHURA Associate Justice Associate Justice

RENATO C. CORONA Chief Justice

Footnotes
*

TERESITA J. LEONARDO-DE CASTRO Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Courts Division.

Per raffle dated 5 October 2009, Associate Justice Antonio Eduardo B. Nachura is designated as additional member in place of Associate Justice Mariano C. Del Castillo. 1 Deceased. CA rollo, p. 70. 2 Rollo, p. 18. 3 CA rollo, pp. 56, 61, and 66. 4 Rollo, p. 41. 5 CA rollo, pp. 99-101. 6 Id. at 57-59. 7 Id. at 62-64. 8 Id. at 71. 9 Rollo, pp. 85-86. 10 CA rollo, pp. 72 and 76. 11 Rollo, p. 220. 12 Id. at 226. 13 Id. at 119. 14 CA rollo, back of pp. 37-38. 15 Rollo, p. 42. 16 Sec. 37. (a) The following aliens shall be arrested upon the warrant of the Commissioner of Immigration or any other officer designated by him for the purpose and deported upon the warrant of the Commissioner of Immigration after a determination by the Board of Commissioners of the existence of the ground for deportation as charged against the alien: (1) xxx xxxx (7) Any alien who remains in the Philippines in violation of any limitation or condition under which he was admitted as a non-immigrant. 17 Sec. 45. Any individual who: (a) xxx xxxx (e) Being an alien shall, for any fraudulent purpose, represent himself to be a Philippine citizen in order to evade any requirement of the immigration laws. 18 CA rollo, pp. 39-40. CASES partnership Page 48 of 63

19 20

Id. at 29-33. Id. at 31. 21 Ronaldo P. Ledesma, An Outline of Philippine Immigration and Citizenship Laws, 1999, Rex Printing Company, Inc., p. 360. 22 CA rollo, p. 31. 23 Id. 24 Id. at 32. 25 The Bureau of Immigration Official Website, www.immigration.gov.ph. 26 CA rollo, p. 32. 27 Id. 28 Id. 29 Id. at 32-33. 30 Id. at 34-37. 31 Id. at 35. 32 Id. 33 Penned by Associate Justice Josefina Guevara-Salonga with Associate Justices Mariano C. del Castillo (now a member of this Court) and Fernanda Lampas-Peralta, concurring. Rollo, pp. 10-23. 34 Id. at 22. 35 Id. at 25-26. 36 Id. 37 Section 1(4), Article IV, 1935 Philippine Constitution. 38 374 Phil. 342, 354 (1999). 39 115 Phil. 90 (1962). 40 Re: Application for Admission to the Philippine Bar, Vicente D. Ching, supra note 38 at 350 citing Art. 402, Civil Code. 41 Id. 42 Id. 43 Id. citing Cueco, supra note 39. 44 Id. 45 G.R. No. 167569, 4 September 2009, 598 SCRA 266. 46 Id. at 280. 47 158 Phil. 50 (1974). 48 G.R. Nos. 92191-92, 30 July 1991, 199 SCRA 692. 49 Supra note 38. 50 In Re: Florencio Mallare, supra note 47 at 58. 51 Id. at 57-58. 52 Id. at 53. 53 Rollo, p. 20. 54 Co v. Electoral Tribunal of the House of Representatives, supra note 48 at 708. 55 Id. at 709.

56 57

Id. Supra note 38 at 354. 58 Rollo, pp. 19-20. 59 401 Phil. 350, 366-367 (2000). 60 Id. citing Po Sun Tun v. Prize and Provincial Government of Leyte, 54 Phil. 192, 195 (1929). 61 Id. 62 Id. citing Paras, Civil Code of the Philippines, Vol. II, 1989 ed., p. 653 citing Bautista v. Dy Bun Chin, 49 Official Gazette 179, 183 (1952). 63 Id. 64 Id. 65 Angeles, v. The Hon. Secretary of Justice, G.R. No. 142612, 29 July 2005, 465 SCRA 106, 115. 66 Sunga-Chan v. Chua, 415 Phil. 477, 491 (2001). 67 Gutierrez v. Mendoza-Plaza, G.R. No. 185477, 4 December 2009, 607 SCRA 807, 817. 68 Bollozos v. Yu Tieng Su, 239 Phil. 475, 485 (1987) citing Bautista v. Dy Bun Chin, supra note 62. 69 Delayed Registration Birth, Death, and Marriage x x x. http://www.census.gov.ph/data/civilreg/delayedreg_primer.html. 70 Rollo, pp. 21-22. 71 Section 1(4), Article IV, 1935 Philippine Constitution. 72 Records of the 1986 Constitutional Commission, Volume 1, p. 185. 73 Article IV, 1973 Constitution of the Philippines. 74 Section 1. The following are citizens of the Philippines: (1) xxx; xxxx (3) Those born before January 17, 1973, of Filipino mothers, who elect Philippine citizenship upon reaching the age of majority. 75 Records of the 1986 Constitutional Commission, Volume 1, 23 June 1986, p. 202. 76 Id. 77 Id. at 203. 78 Id. at 206. 79 Id. 80 Records of the 1986 Constitutional Commission, Volume 1, 25 June 1986, p. 231.
The Lawphil Project - Arellano Law Foundation

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Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 84197 July 28, 1989 PIONEER INSURANCE & SURETY CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS, BORDER MACHINERY & HEAVY EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M. MAGLANA and JACOB S. LIM, respondents. G.R. No. 84157 July 28, 1989 JACOB S. LIM, petitioner, vs. COURT OF APPEALS, PIONEER INSURANCE AND SURETY CORPORATION, BORDER MACHINERY and HEAVY EQUIPMENT CO., INC,, FRANCISCO and MODESTO CERVANTES and CONSTANCIO MAGLANA, respondents. Eriberto D. Ignacio for Pioneer Insurance & Surety Corporation. Sycip, Salazar, Hernandez & Gatmaitan for Jacob S. Lim. Renato J. Robles for BORMAHECO, Inc. and Cervanteses. Leonardo B. Lucena for Constancio Maglana. GUTIERREZ, JR., J.: The subject matter of these consolidated petitions is the decision of the Court of Appeals in CA-G.R. CV No. 66195 which modified the decision of the then Court of First Instance of Manila in Civil Case No. 66135. The plaintiffs complaint (petitioner in G.R. No. 84197) against all defendants (respondents in G.R. No. 84197) was dismissed but in all other respects the trial court's decision was affirmed. The dispositive portion of the trial court's decision reads as follows:

WHEREFORE, judgment is rendered against defendant Jacob S. Lim requiring Lim to pay plaintiff the amount of P311,056.02, with interest at the rate of 12% per annum compounded monthly; plus 15% of the amount awarded to plaintiff as attorney's fees from July 2,1966, until full payment is made; plus P70,000.00 moral and exemplary damages. It is found in the records that the cross party plaintiffs incurred additional miscellaneous expenses aside from Pl51,000.00,,making a total of P184,878.74. Defendant Jacob S. Lim is further required to pay cross party plaintiff, Bormaheco, the Cervanteses one-half and Maglana the other half, the amount of Pl84,878.74 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P184,878.84 with interest from the filing of the cross-complaints until the amount is fully paid; plus moral and exemplary damages in the amount of P50,000.00 for each of the two Cervanteses. Furthermore, he is required to pay P20,000.00 to Bormaheco and the Cervanteses, and another P20,000.00 to Constancio B. Maglana as attorney's fees. xxx xxx xxx WHEREFORE, in view of all above, the complaint of plaintiff Pioneer against defendants Bormaheco, the Cervanteses and Constancio B. Maglana, is dismissed. Instead, plaintiff is required to indemnify the defendants Bormaheco and the Cervanteses the amount of P20,000.00 as attorney's fees and the amount of P4,379.21, per year from 1966 with legal rate of interest up to the time it is paid. Furthermore, the plaintiff is required to pay Constancio B. Maglana the amount of P20,000.00 as attorney's fees and costs. No moral or exemplary damages are awarded against plaintiff for this action was filed in good faith. The fact that the properties of the Bormaheco and the Cervanteses were attached and that they were required to file a counterbond in order to dissolve the attachment, is not an act of bad faith. When a man tries to protect his rights, he should not be saddled with moral or exemplary damages. Furthermore, the rights exercised were provided for in the Rules of Court, and it was the court that ordered it, in the exercise of its discretion. No damage is decided against Malayan Insurance Company, Inc., the third-party defendant, for it only secured the attachment prayed for by the plaintiff Pioneer. If an insurance company would be liable for damages in performing an act which CASES partnership Page 50 of 63

is clearly within its power and which is the reason for its being, then nobody would engage in the insurance business. No further claim or counter-claim for or against anybody is declared by this Court. (Rollo - G.R. No. 24197, pp. 15-16)

In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was engaged in the airline business as owner-operator of Southern Air Lines (SAL) a single proprietorship. On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines (JDA) and Lim entered into and executed a sales contract (Exhibit A) for the sale and purchase of two (2) DC-3A Type aircrafts and one (1) set of necessary spare parts for the total agreed price of US $109,000.00 to be paid in installments. One DC-3 Aircraft with Registry No. PIC-718, arrived in Manila on June 7,1965 while the other aircraft, arrived in Manila on July 18,1965. On May 22, 1965, Pioneer Insurance and Surety Corporation (Pioneer, petitioner in G.R. No. 84197) as surety executed and issued its Surety Bond No. 6639 (Exhibit C) in favor of JDA, in behalf of its principal, Lim, for the balance price of the aircrafts and spare parts. It appears that Border Machinery and Heavy Equipment Company, Inc. (Bormaheco), Francisco and Modesto Cervantes (Cervanteses) and Constancio Maglana (respondents in both petitions) contributed some funds used in the purchase of the above aircrafts and spare parts. The funds were supposed to be their contributions to a new corporation proposed by Lim to expand his airline business. They executed two (2) separate indemnity agreements (Exhibits D-1 and D-2) in favor of Pioneer, one signed by Maglana and the other jointly signed by Lim for SAL, Bormaheco and the Cervanteses. The indemnity agreements stipulated that the indemnitors principally agree and bind themselves jointly and severally to indemnify and hold and save harmless Pioneer from and against any/all damages, losses, costs, damages, taxes, penalties, charges and expenses of whatever kind and nature which Pioneer may incur in consequence of having become surety upon the bond/note and to pay, reimburse and make good to Pioneer, its successors and assigns, all sums and amounts of money which it or its representatives should or may pay or cause to be paid or become liable to pay on them of whatever kind and nature. On June 10, 1965, Lim doing business under the name and style of SAL executed in favor of Pioneer as deed of chattel mortgage as security for the latter's suretyship in favor of the former. It was stipulated therein that Lim

transfer and convey to the surety the two aircrafts. The deed (Exhibit D) was duly registered with the Office of the Register of Deeds of the City of Manila and with the Civil Aeronautics Administration pursuant to the Chattel Mortgage Law and the Civil Aeronautics Law (Republic Act No. 776), respectively. Lim defaulted on his subsequent installment payments prompting JDA to request payments from the surety. Pioneer paid a total sum of P298,626.12. Pioneer then filed a petition for the extrajudicial foreclosure of the said chattel mortgage before the Sheriff of Davao City. The Cervanteses and Maglana, however, filed a third party claim alleging that they are co-owners of the aircrafts, On July 19, 1966, Pioneer filed an action for judicial foreclosure with an application for a writ of preliminary attachment against Lim and respondents, the Cervanteses, Bormaheco and Maglana. In their Answers, Maglana, Bormaheco and the Cervanteses filed cross-claims against Lim alleging that they were not privies to the contracts signed by Lim and, by way of counterclaim, sought for damages for being exposed to litigation and for recovery of the sums of money they advanced to Lim for the purchase of the aircrafts in question. After trial on the merits, a decision was rendered holding Lim liable to pay Pioneer but dismissed Pioneer's complaint against all other defendants. As stated earlier, the appellate court modified the trial court's decision in that the plaintiffs complaint against all the defendants was dismissed. In all other respects the trial court's decision was affirmed. We first resolve G.R. No. 84197. Petitioner Pioneer Insurance and Surety Corporation avers that: RESPONDENT COURT OF APPEALS GRIEVOUSLY ERRED WHEN IT DISMISSED THE APPEAL OF PETITIONER ON THE SOLE GROUND THAT PETITIONER HAD ALREADY COLLECTED THE PROCEEDS OF THE REINSURANCE ON ITS BOND IN FAVOR OF THE JDA AND THAT IT CANNOT REPRESENT A REINSURER TO RECOVER THE AMOUNT
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FROM HEREIN PRIVATE RESPONDENTS AS DEFENDANTS IN THE TRIAL COURT. (Rollo - G. R. No. 84197, p. 10) The petitioner questions the following findings of the appellate court:
We find no merit in plaintiffs appeal. It is undisputed that plaintiff Pioneer had reinsured its risk of liability under the surety bond in favor of JDA and subsequently collected the proceeds of such reinsurance in the sum of P295,000.00. Defendants' alleged obligation to Pioneer amounts to P295,000.00, hence, plaintiffs instant action for the recovery of the amount of P298,666.28 from defendants will no longer prosper. Plaintiff Pioneer is not the real party in interest to institute the instant action as it does not stand to be benefited or injured by the judgment. Plaintiff Pioneer's contention that it is representing the reinsurer to recover the amount from defendants, hence, it instituted the action is utterly devoid of merit. Plaintiff did not even present any evidence that it is the attorney-in-fact of the reinsurance company, authorized to institute an action for and in behalf of the latter. To qualify a person to be a real party in interest in whose name an action must be prosecuted, he must appear to be the present real owner of the right sought to be enforced (Moran, Vol. I, Comments on the Rules of Court, 1979 ed., p. 155). It has been held that the real party in interest is the party who would be benefited or injured by the judgment or the party entitled to the avails of the suit (Salonga v. Warner Barnes & Co., Ltd., 88 Phil. 125, 131). By real party in interest is meant a present substantial interest as distinguished from a mere expectancy or a future, contingent, subordinate or consequential interest (Garcia v. David, 67 Phil. 27; Oglleaby v. Springfield Marine Bank, 52 N.E. 2d 1600, 385 III, 414; Flowers v. Germans, 1 NW 2d 424; Weber v. City of Cheye, 97 P. 2d 667, 669, quoting 47 C.V. 35). Based on the foregoing premises, plaintiff Pioneer cannot be considered as the real party in interest as it has already been paid by the reinsurer the sum of P295,000.00 the bulk of defendants' alleged obligation to Pioneer. In addition to the said proceeds of the reinsurance received by plaintiff Pioneer from its reinsurer, the former was able to foreclose extra-judicially one of the subject airplanes and its spare engine, realizing the total amount of P37,050.00 from the sale of the mortgaged chattels. Adding the sum of P37,050.00, to the proceeds of the reinsurance amounting to P295,000.00, it is patent that plaintiff has been overpaid in the amount of P33,383.72 considering that the total amount it had paid to JDA totals to only P298,666.28. To allow plaintiff Pioneer to recover from defendants the amount in excess of P298,666.28 would be

tantamount to unjust enrichment as it has already been paid by the reinsurance company of the amount plaintiff has paid to JDA as surety of defendant Lim visa-vis defendant Lim's liability to JDA. Well settled is the rule that no person should unjustly enrich himself at the expense of another (Article 22, New Civil Code). (Rollo-84197, pp. 24-25).

The petitioner contends that-(1) it is at a loss where respondent court based its finding that petitioner was paid by its reinsurer in the aforesaid amount, as this matter has never been raised by any of the parties herein both in their answers in the court below and in their respective briefs with respondent court; (Rollo, p. 11) (2) even assuming hypothetically that it was paid by its reinsurer, still none of the respondents had any interest in the matter since the reinsurance is strictly between the petitioner and the re-insurer pursuant to section 91 of the Insurance Code; (3) pursuant to the indemnity agreements, the petitioner is entitled to recover from respondents Bormaheco and Maglana; and (4) the principle of unjust enrichment is not applicable considering that whatever amount he would recover from the co-indemnitor will be paid to the reinsurer. The records belie the petitioner's contention that the issue on the reinsurance money was never raised by the parties. A cursory reading of the trial court's lengthy decision shows that two of the issues threshed out were: xxx xxx xxx
1. 2. Has Pioneer a cause of action against defendants with respect to so much of its obligations to JDA as has been paid with reinsurance money? If the answer to the preceding question is in the negative, has Pioneer still any claim against defendants, considering the amount it has realized from the sale of the mortgaged properties? (Record on Appeal, p. 359, Annex B of G.R. No. 84157).

In resolving these issues, the trial court made the following findings:
It appearing that Pioneer reinsured its risk of liability under the surety bond it had executed in favor of JDA, collected the proceeds of such reinsurance in the sum of P295,000, and paid with the said amount the bulk of its alleged liability to JDA under the said surety bond, it is plain that on this score it no longer has any right to collect to the extent of the said amount. CASES partnership Page 52 of 63

On the question of why it is Pioneer, instead of the reinsurance (sic), that is suing defendants for the amount paid to it by the reinsurers, notwithstanding that the cause of action pertains to the latter, Pioneer says: The reinsurers opted instead that the Pioneer Insurance & Surety Corporation shall pursue alone the case.. . . . Pioneer Insurance & Surety Corporation is representing the reinsurers to recover the amount.' In other words, insofar as the amount paid to it by the reinsurers Pioneer is suing defendants as their attorney-in-fact. But in the first place, there is not the slightest indication in the complaint that Pioneer is suing as attorney-in- fact of the reinsurers for any amount. Lastly, and most important of all, Pioneer has no right to institute and maintain in its own name an action for the benefit of the reinsurers. It is well-settled that an action brought by an attorney-in-fact in his own name instead of that of the principal will not prosper, and this is so even where the name of the principal is disclosed in the complaint. Section 2 of Rule 3 of the Old Rules of Court provides that 'Every action must be prosecuted in the name of the real party in interest.' This provision is mandatory. The real party in interest is the party who would be benefitted or injured by the judgment or is the party entitled to the avails of the suit. This Court has held in various cases that an attorney-in-fact is not a real party in interest, that there is no law permitting an action to be brought by an attorney-in-fact. Arroyo v. Granada and Gentero, 18 Phil. Rep. 484; Luchauco v. Limjuco and Gonzalo, 19 Phil. Rep. 12; Filipinos Industrial Corporation v. San Diego G.R. No. L- 22347,1968, 23 SCRA 706, 710-714. The total amount paid by Pioneer to JDA is P299,666.29. Since Pioneer has collected P295,000.00 from the reinsurers, the uninsured portion of what it paid to JDA is the difference between the two amounts, or P3,666.28. This is the amount for which Pioneer may sue defendants, assuming that the indemnity agreement is still valid and effective. But since the amount realized from the sale of the mortgaged chattels are P35,000.00 for one of the airplanes and P2,050.00 for a spare engine, or a total of P37,050.00, Pioneer is still overpaid by P33,383.72. Therefore, Pioneer has no more claim against defendants. (Record on Appeal, pp. 360-363).

The payment to the petitioner made by the reinsurers was not disputed in the appellate court. Considering this admitted payment, the only issue that cropped up was the effect of payment made by the reinsurers to the petitioner. Therefore, the petitioner's argument that the respondents had no interest in the reinsurance contract as this is strictly between the petitioner as insured and the reinsuring company pursuant to Section 91 (should be Section 98) of the Insurance Code has no basis.
In general a reinsurer, on payment of a loss acquires the same rights by subrogation as are acquired in similar cases where the original insurer pays a loss (Universal Ins. Co. v. Old Time Molasses Co. C.C.A. La., 46 F 2nd 925). The rules of practice in actions on original insurance policies are in general applicable to actions or contracts of reinsurance. (Delaware, Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E. 330,126 GA. 380, 7 Ann. Con. 1134).

Hence the applicable law is Article 2207 of the new Civil Code, to wit:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

Interpreting the aforesaid provision, we ruled in the case of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031 [1957]) which we subsequently applied in Manila Mahogany Manufacturing Corporation v. Court of Appeals (154 SCRA 650 [1987]):
Note that if a property is insured and the owner receives the indemnity from the insurer, it is provided in said article that the insurer is deemed subrogated to the rights of the insured against the wrongdoer and if the amount paid by the insurer does not fully cover the loss, then the aggrieved party is the one entitled to recover the deficiency. Evidently, under this legal provision, the real party in interest with regard to the portion of the indemnity paid is the insurer and not the insured. (Emphasis supplied).

It is clear from the records that Pioneer sued in its own name and not as an attorney-in-fact of the reinsurer.
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Accordingly, the appellate court did not commit a reversible error in dismissing the petitioner's complaint as against the respondents for the reason that the petitioner was not the real party in interest in the complaint and, therefore, has no cause of action against the respondents. Nevertheless, the petitioner argues that the appeal as regards the counter indemnitors should not have been dismissed on the premise that the evidence on record shows that it is entitled to recover from the counter indemnitors. It does not, however, cite any grounds except its allegation that respondent "Maglanas defense and evidence are certainly incredible" (p. 12, Rollo) to back up its contention. On the other hand, we find the trial court's findings on the matter replete with evidence to substantiate its finding that the counter-indemnitors are not liable to the petitioner. The trial court stated:
Apart from the foregoing proposition, the indemnity agreement ceased to be valid and effective after the execution of the chattel mortgage. Testimonies of defendants Francisco Cervantes and Modesto Cervantes. Pioneer Insurance, knowing the value of the aircrafts and the spare parts involved, agreed to issue the bond provided that the same would be mortgaged to it, but this was not possible because the planes were still in Japan and could not be mortgaged here in the Philippines. As soon as the aircrafts were brought to the Philippines, they would be mortgaged to Pioneer Insurance to cover the bond, and this indemnity agreement would be cancelled. The following is averred under oath by Pioneer in the original complaint: The various conflicting claims over the mortgaged properties have impaired and rendered insufficient the security under the chattel mortgage and there is thus no other sufficient security for the claim sought to be enforced by this action. This is judicial admission and aside from the chattel mortgage there is no other security for the claim sought to be enforced by this action, which necessarily means that the indemnity agreement had ceased to have any force and effect at the time this action was instituted. Sec 2, Rule 129, Revised Rules of Court.

Prescinding from the foregoing, Pioneer, having foreclosed the chattel mortgage on the planes and spare parts, no longer has any further action against the defendants as indemnitors to recover any unpaid balance of the price. The indemnity agreement was ipso jure extinguished upon the foreclosure of the chattel mortgage. These defendants, as indemnitors, would be entitled to be subrogated to the right of Pioneer should they make payments to the latter. Articles 2067 and 2080 of the New Civil Code of the Philippines. Independently of the preceding proposition Pioneer's election of the remedy of foreclosure precludes any further action to recover any unpaid balance of the price. SAL or Lim, having failed to pay the second to the eight and last installments to JDA and Pioneer as surety having made of the payments to JDA, the alternative remedies open to Pioneer were as provided in Article 1484 of the New Civil Code, known as the Recto Law. Pioneer exercised the remedy of foreclosure of the chattel mortgage both by extrajudicial foreclosure and the instant suit. Such being the case, as provided by the aforementioned provisions, Pioneer shall have no further action against the purchaser to recover any unpaid balance and any agreement to the contrary is void.' Cruz, et al. v. Filipinas Investment & Finance Corp. No. L- 24772, May 27,1968, 23 SCRA 791, 795-6. The operation of the foregoing provision cannot be escaped from through the contention that Pioneer is not the vendor but JDA. The reason is that Pioneer is actually exercising the rights of JDA as vendor, having subrogated it in such rights. Nor may the application of the provision be validly opposed on the ground that these defendants and defendant Maglana are not the vendee but indemnitors. Pascual, et al. v. Universal Motors Corporation, G.R. No. L- 27862, Nov. 20,1974, 61 SCRA 124. The restructuring of the obligations of SAL or Lim, thru the change of their maturity dates discharged these defendants from any liability as alleged indemnitors. The change of the maturity dates of the obligations of Lim, or SAL extinguish the original obligations thru novations thus discharging the indemnitors. The principal hereof shall be paid in eight equal successive three months interval installments, the first of which shall be due and payable 25 August 1965, the remainder of which ... shall be due and payable on CASES partnership Page 54 of 63

the 26th day x x x of each succeeding three months and the last of which shall be due and payable 26th May 1967. However, at the trial of this case, Pioneer produced a memorandum executed by SAL or Lim and JDA, modifying the maturity dates of the obligations, as follows: The principal hereof shall be paid in eight equal successive three month interval installments the first of which shall be due and payable 4 September 1965, the remainder of which ... shall be due and payable on the 4th day ... of each succeeding months and the last of which shall be due and payable 4th June 1967. Not only that, Pioneer also produced eight purported promissory notes bearing maturity dates different from that fixed in the aforesaid memorandum; the due date of the first installment appears as October 15, 1965, and those of the rest of the installments, the 15th of each succeeding three months, that of the last installment being July 15, 1967. These restructuring of the obligations with regard to their maturity dates, effected twice, were done without the knowledge, much less, would have it believed that these defendants Maglana (sic). Pioneer's official Numeriano Carbonel would have it believed that these defendants and defendant Maglana knew of and consented to the modification of the obligations. But if that were so, there would have been the corresponding documents in the form of a written notice to as well as written conformity of these defendants, and there is no such document. The consequence of this was the extinguishment of the obligations and of the surety bond secured by the indemnity agreement which was thereby also extinguished. Applicable by analogy are the rulings of the Supreme Court in the case of Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553, 563, and the case of Asiatic Petroleum Co. v. Hizon David, 45 Phil. 532, 538. Art. 2079. An extension granted to the debtor by the creditor without the consent of the guarantor extinguishes the guaranty The mere failure on the part of the creditor to demand payment after the debt has become due does not of itself constitute any extension time referred to herein, (New Civil Code).'

recover from these defendants, as supposed indemnitors, what it has paid to JDA. By virtue of an express stipulation in the surety bond, the failure of JDA to present its claim to Pioneer within ten days from default of Lim or SAL on every installment, released Pioneer from liability from the claim. Therefore, Pioneer is not entitled to exact reimbursement from these defendants thru the indemnity.
Art. 1318. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or became illegal.

These defendants are entitled to recover damages and attorney's fees from Pioneer and its surety by reason of the filing of the instant case against them and the attachment and garnishment of their properties. The instant action is clearly unfounded insofar as plaintiff drags these defendants and defendant Maglana.' (Record on Appeal, pp. 363-369, Rollo of G.R. No. 84157). We find no cogent reason to reverse or modify these findings. Hence, it is our conclusion that the petition in G.R. No. 84197 is not meritorious. We now discuss the merits of G.R. No. 84157. Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship among co-investors whose agreement was to do business through the corporate vehicle but who failed to incorporate the entity in which they had chosen to invest? How are the losses to be treated in situations where their contributions to the intended 'corporation' were invested not through the corporate form? This Petition presents these fundamental questions which we believe were resolved erroneously by the Court of Appeals ('CA'). (Rollo, p. 6).

Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI, pp. 562-563, M.F. Stevenson & Co., Ltd., v. Climacom et al. (C.A.) 36 O.G. 1571. Pioneer's liability as surety to JDA had already prescribed when Pioneer paid the same. Consequently, Pioneer has no more cause of action to

These questions are premised on the petitioner's theory that as a result of the failure of respondents Bormaheco, Spouses Cervantes, Constancio Maglana and petitioner Lim to incorporate, a de facto partnership among them was created, and that as a consequence of such relationship all must share in the losses and/or gains of the venture in proportion to their contribution. The petitioner, therefore, questions the appellate court's findings ordering him to
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reimburse certain amounts given by the respondents to the petitioner as their contributions to the intended corporation, to wit:
However, defendant Lim should be held liable to pay his co-defendants' crossclaims in the total amount of P184,878.74 as correctly found by the trial court, with interest from the filing of the cross-complaints until the amount is fully paid. Defendant Lim should pay one-half of the said amount to Bormaheco and the Cervanteses and the other one-half to defendant Maglana. It is established in the records that defendant Lim had duly received the amount of Pl51,000.00 from defendants Bormaheco and Maglana representing the latter's participation in the ownership of the subject airplanes and spare parts (Exhibit 58). In addition, the cross-party plaintiffs incurred additional expenses, hence, the total sum of P 184,878.74.

to subscribe for stock in a proposed corporation which is never legally formed does not become a partner with other subscribers who engage in business under the name of the pretended corporation, so as to be liable as such in an action for settlement of the alleged partnership and contribution (Ward v. Brigham, 127 Mass. 24). A partnership relation between certain stockholders and other stockholders, who were also directors, will not be implied in the absence of an agreement, so as to make the former liable to contribute for payment of debts illegally contracted by the latter (Heald v. Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris Secundum, Vol. 68, p. 464). (Italics supplied).

We first state the principles.


While it has been held that as between themselves the rights of the stockholders in a defectively incorporated association should be governed by the supposed charter and the laws of the state relating thereto and not by the rules governing partners (Cannon v. Brush Electric Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584), it is ordinarily held that persons who attempt, but fail, to form a corporation and who carry on business under the corporate name occupy the position of partners inter se (Lynch v. Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas. 1913A 1065). Thus, where persons associate themselves together under articles to purchase property to carry on a business, and their organization is so defective as to come short of creating a corporation within the statute, they become in legal effect partners inter se, and their rights as members of the company to the property acquired by the company will be recognized (Smith v. Schoodoc Pond Packing Co., 84 A. 268,109 Me. 555; Whipple v. Parker, 29 Mich. 369). So, where certain persons associated themselves as a corporation for the development of land for irrigation purposes, and each conveyed land to the corporation, and two of them contracted to pay a third the difference in the proportionate value of the land conveyed by him, and no stock was ever issued in the corporation, it was treated as a trustee for the associates in an action between them for an accounting, and its capital stock was treated as partnership assets, sold, and the proceeds distributed among them in proportion to the value of the property contributed by each (Shorb v. Beaudry, 56 Cal. 446). However, such a relation does not necessarily exist, for ordinarily persons cannot be made to assume the relation of partners, as between themselves, when their purpose is that no partnership shall exist (London Assur. Corp. v. Drennen, Minn., 6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed. 688), and it should be implied only when necessary to do justice between the parties; thus, one who takes no part except

In the instant case, it is to be noted that the petitioner was declared non-suited for his failure to appear during the pre-trial despite notification. In his answer, the petitioner denied having received any amount from respondents Bormaheco, the Cervanteses and Maglana. The trial court and the appellate court, however, found through Exhibit 58, that the petitioner received the amount of P151,000.00 representing the participation of Bormaheco and Atty. Constancio B. Maglana in the ownership of the subject airplanes and spare parts. The record shows that defendant Maglana gave P75,000.00 to petitioner Jacob Lim thru the Cervanteses. It is therefore clear that the petitioner never had the intention to form a corporation with the respondents despite his representations to them. This gives credence to the cross-claims of the respondents to the effect that they were induced and lured by the petitioner to make contributions to a proposed corporation which was never formed because the petitioner reneged on their agreement. Maglana alleged in his cross-claim:
... that sometime in early 1965, Jacob Lim proposed to Francisco Cervantes and Maglana to expand his airline business. Lim was to procure two DC-3's from Japan and secure the necessary certificates of public convenience and necessity as well as the required permits for the operation thereof. Maglana sometime in May 1965, gave Cervantes his share of P75,000.00 for delivery to Lim which Cervantes did and Lim acknowledged receipt thereof. Cervantes, likewise, delivered his share of the undertaking. Lim in an undertaking sometime on or about August 9,1965, promised to incorporate his airline in accordance with their agreement and proceeded to acquire the planes on his own account. Since then up to the filing of this answer, Lim has refused, failed and still refuses to set up the corporation or return the money of Maglana. (Record on Appeal, pp. 337-338).

while respondents Bormaheco and the Cervanteses alleged in their answer, counterclaim, cross-claim and third party complaint:
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Sometime in April 1965, defendant Lim lured and induced the answering defendants to purchase two airplanes and spare parts from Japan which the latter considered as their lawful contribution and participation in the proposed corporation to be known as SAL. Arrangements and negotiations were undertaken by defendant Lim. Down payments were advanced by defendants Bormaheco and the Cervanteses and Constancio Maglana (Exh. E- 1). Contrary to the agreement among the defendants, defendant Lim in connivance with the plaintiff, signed and executed the alleged chattel mortgage and surety bond agreement in his personal capacity as the alleged proprietor of the SAL. The answering defendants learned for the first time of this trickery and misrepresentation of the other, Jacob Lim, when the herein plaintiff chattel mortgage (sic) allegedly executed by defendant Lim, thereby forcing them to file an adverse claim in the form of third party claim. Notwithstanding repeated oral demands made by defendants Bormaheco and Cervanteses, to defendant Lim, to surrender the possession of the two planes and their accessories and or return the amount advanced by the former amounting to an aggregate sum of P 178,997.14 as evidenced by a statement of accounts, the latter ignored, omitted and refused to comply with them. (Record on Appeal, pp. 341-342).

G.R. No. 84197 July 28, 1989


Lessons Applicable: Defective attempt to form a corp. does NOT result in at least a partnership absent intent to form one (Corporate Law) FACTS: 1965: Jacob S. Lim is an owner-operator of Southern Airlines (SAL), a single proprietorship May 17 1965: Japan Domestic Airlines (JDA) and Lim entered into a sales contract regarding: o 2 DC-#A type aircrafts o 1 set of necessary spare parts o Total: $ 190,000 in installments May 22 1965: Pioneer Insurance and Surety Corp. as surety executed its surety bond in favor of JDA on behalf of its principal Lim Border Machinery and Heavy Equipment Co, Inc. Francisco and Modesto Cervantes and Constancio Maglana contributed funds for the transaction based on the misrepresentation of Lim that they will form a new corp.. to expand his business Jun 10 1965: Lim as SAL executed in favor of Pioneer a deed of chattel mortgage as security o Restructuring of obligation to change the maturity was done 2x w/o the knowledge of other defendants made the surety of JDA prescribed so not entitled to reimbursement o Upon default on the 2/8 payments, Pioneer paid for him and filed a petition for the foreclosure of chattel mortgage as security CA affirmed Trial of Merits: Only Lim is liable to pay ISSUE: W/N failure of respondents to incorporate = de facto partnership. HELD: NO. CA affirmed. Partnership inter se does NOT necessarily exist, for ordinarily CANNOT be made to assume the relation of partners as between themselves, when their purpose is that no partnership shall exists Should be implied only when necessary to do justice bet. the parties (i.e. only pretend to make others liable)
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Applying therefore the principles of law earlier cited to the facts of the case, necessarily, no de facto partnership was created among the parties which would entitle the petitioner to a reimbursement of the supposed losses of the proposed corporation. The record shows that the petitioner was acting on his own and not in behalf of his other would-be incorporators in transacting the sale of the airplanes and spare parts. WHEREFORE, the instant petitions are DISMISSED. The questioned decision of the Court of Appeals is AFFIRMED. SO ORDERED. . Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur. Feliciano, J., took no part.
The Lawphil Project - Arellano Law Foundation

Lim never intended to form a corp.

SECOND DIVISION [G.R. No. 30616 : December 10, 1990.] 192 SCRA 110 EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA, Defendant-Appellee. DECISION PARAS, J.: This is a direct appeal to this Court from a decision ** of the then Court of First Instance of Davao, Seventh Judicial District, Branch III, in Civil Case No. 3518, dismissing appellant's complaint. As found by the trial court, the antecedent facts of the case are as follows: On January 14, 1955, Maglana and Rojas executed their Articles of Co-Partnership (Exhibit "A") called Eastcoast Development Enterprises (EDE) with only the two of them as partners. The partnership EDE with an indefinite term of existence was duly registered on January 21, 1955 with the Securities and Exchange Commission. One of the purposes of the duly-registered partnership was to "apply or secure timber and/or minor forests products licenses and concessions over public and/or private forest lands and to operate, develop and promote such forests rights and concessions." (Rollo, p. 114).

A duly registered Articles of Co-Partnership was filed together with an application for a timber concession covering the area located at Cateel and Baganga, Davao with the Bureau of Forestry which was approved and Timber License No. 35-56 was duly issued and became the basis of subsequent renewals made for and in behalf of the duly registered partnership EDE. Under the said Articles of Co-Partnership, appellee Maglana shall manage the business affairs of the partnership, including marketing and handling of cash and is authorized to sign all papers and instruments relating to the partnership, while appellant Rojas shall be the logging superintendent and shall manage the logging operations of the partnership. It is also provided in the said articles of copartnership that all profits and losses of the partnership shall be divided share and share alike between the partners. During the period from January 14, 1955 to April 30, 1956, there was no operation of said partnership (Record on Appeal [R.A.] p. 946). Because of the difficulties encountered, Rojas and Maglana decided to avail of the services of Pahamotang as industrial partner. On March 4, 1956, Maglana, Rojas and Agustin Pahamotang executed their Articles of Co-Partnership (Exhibit "B" and Exhibit "C") under the firm name EASTCOAST DEVELOPMENT ENTERPRISES (EDE). Aside from the slight difference in the purpose of the second partnership which is to hold and secure renewal of timber license instead of to secure the license as in the first partnership and the term of the second partnership is fixed to thirty (30) years, everything else is the same. The partnership formed by Maglana, Pahamotang and Rojas started operation on May 1, 1956, and was able to ship logs and realize profits. An income was derived from the proceeds of the logs in the sum of P643,633.07 (Decision, R.A. 919). On October 25, 1956, Pahamotang, Maglana and Rojas executed a document entitled "CONDITIONAL SALE OF INTEREST IN THE PARTNERSHIP, EASTCOAST DEVELOPMENT ENTERPRISE" (Exhibits "C"
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and "D") agreeing among themselves that Maglana and Rojas shall purchase the interest, share and participation in the Partnership of Pahamotang assessed in the amount of P31,501.12. It was also agreed in the said instrument that after payment of the sum of P31,501.12 to Pahamotang including the amount of loan secured by Pahamotang in favor of the partnership, the two (Maglana and Rojas) shall become the owners of all equipment contributed by Pahamotang and the EASTCOAST DEVELOPMENT ENTERPRISES, the name also given to the second partnership, be dissolved. Pahamotang was paid in fun on August 31, 1957. No other rights and obligations accrued in the name of the second partnership (R.A. 921). After the withdrawal of Pahamotang, the partnership was continued by Maglana and Rojas without the benefit of any written agreement or reconstitution of their written Articles of Partnership (Decision, R.A. 948). On January 28, 1957, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc. He left and abandoned the partnership (Decision, R.A. 947). On February 4, 1957, Rojas withdrew his equipment from the partnership for use in the newly acquired area (Decision, R.A. 948). The equipment withdrawn were his supposed contributions to the first partnership and was transferred to CMS Estate, Inc. by way of chattel mortgage (Decision, R.A. p. 948). On March 17, 1957, Maglana wrote Rojas reminding the latter of his obligation to contribute, either in cash or in equipment, to the capital investments of the partnership as well as his obligation to perform his duties as logging superintendent. Two weeks after March 17, 1957, Rojas told Maglana that he will not be able to comply with the promised contributions and he will not work as logging superintendent. Maglana then told Rojas that the latter's share will just be 20% of the net profits. Such was the sharing from 1957 to 1959 without complaint or dispute (Decision, R.A. 949).
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Meanwhile, Rojas took funds from the partnership more than his contribution. Thus, in a letter dated February 21, 1961 (Exhibit "10") Maglana notified Rojas that he dissolved the partnership (R.A. 949). On April 7, 1961, Rojas filed an action before the Court of First Instance of Davao against Maglana for the recovery of properties, accounting, receivership and damages, docketed as Civil Case No. 3518 (Record on Appeal, pp. 1-26). Rojas' petition for appointment of a receiver was denied (R.A. 894). Upon motion of Rojas on May 23, 1961, Judge Romero appointed commissioners to examine the long and voluminous accounts of the Eastcoast Development Enterprises (Ibid., pp. 894-895). The motion to dismiss the complaint filed by Maglana on June 21, 1961 (Ibid., pp. 102-114) was denied by Judge Romero for want of merit (Ibid., p. 125). Judge Romero also required the inclusion of the entire year 1961 in the report to be submitted by the commissioners (Ibid., pp. 138-143). Accordingly, the commissioners started examining the records and supporting papers of the partnership as well as the information furnished them by the parties, which were compiled in three (3) volumes. On May 11, 1964, Maglana filed his motion for leave of court to amend his answer with counterclaim, attaching thereto the amended answer (Ibid., pp. 26-336), which was granted on May 22, 1964 (Ibid., p. 336). On May 27, 1964, Judge M.G. Reyes approved the submitted Commissioners' Report (Ibid., p. 337). On June 29, 1965, Rojas filed his motion for reconsideration of the order dated May 27, 1964 approving the report of the commissioners which was opposed by the appellee. On September 19, 1964, appellant's motion for reconsideration was denied (Ibid., pp. 446-451).

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A mandatory pre-trial was conducted on September 8 and 9, 1964 and the following issues were agreed upon to be submitted to the trial court: (a) The nature of partnership and the legal relations of Maglana and Rojas after the dissolution of the second partnership; (b) Their sharing basis: whether in proportion to their contribution or share and share alike; (c) The ownership of properties bought by Maglana in his wife's name; (d) The damages suffered and who should be liable for them; and (e) The legal effect of the letter dated February 23, 1961 of Maglana dissolving the partnership (Decision, R.A. pp. 895896).
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defendant and 20% for the plaintiff of the profits, but from 1960 to the date of dissolution, February 23, 1961, the plaintiff's share will be on the basis of his actual contribution and, considering his indebtedness to the partnership, the plaintiff is not entitled to any share in the profits of the said partnership; "3. As to whether the properties which were bought by the defendant and placed in his or in his wife's name were acquired with partnership funds or with funds of the defendant and the Court declares that there is no evidence that these properties were acquired by the partnership funds, and therefore the same should not belong to the partnership; "4. As to whether damages were suffered and, if so, how much, and who caused them and who should be liable for them the Court declares that neither parties is entitled to damages, for as already stated above it is not a wise policy to place a price on the right of a person to litigate and/or to come to Court for the assertion of the rights they believe they are entitled to; "5. As to what is the legal effect of the letter of defendant to the plaintiff dated February 23, 1961; did it dissolve the partnership or not the Court declares that the letter of the defendant to the plaintiff dated February 23, 1961, in effect dissolved the partnership; "6. Further, the Court relative to the canteen, which sells foodstuffs, supplies, and other merchandise to the laborers and employees of the Eastcoast Development Enterprises, the COURT DECLARES THE SAME AS NOT BELONGING TO THE PARTNERSHIP; "7. That the alleged sale of forest concession Exhibit 9-B, executed by Pablo Angeles David is VALID AND BINDING UPON THE PARTIES AND SHOULD BE CONSIDERED AS PART OF MAGLANA'S CONTRIBUTION TO THE PARTNERSHIP;
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After trial, the lower court rendered its decision on March 11, 1968, the dispositive portion of which reads as follows: "WHEREFORE, the above facts and issues duly considered, judgment is hereby rendered by the Court declaring that: "1. The nature of the partnership and the legal relations of Maglana and Rojas after Pahamotang retired from the second partnership, that is, after August 31, 1957, when Pahamotang was finally paid his share the partnership of the defendant and the plaintiff is one of a de facto and at will; "2. Whether the sharing of partnership profits should be on the basis of computation, that is the ratio and proportion of their respective contributions, or on the basis of share and share alike this covered by actual contributions of the plaintiff and the defendant and by their verbal agreement; that the sharing of profits and losses is on the basis of actual contributions; that from 1957 to 1959, the sharing is on the basis of 80% for the

"8. Further, the Court orders and directs plaintiff Rojas to pay or turn over to the partnership the amount of P69,000.00 the profits he received from the CMS Estate, Inc. operated by him; "9. The claim that plaintiff Rojas should be ordered to pay the further sum of P85,000.00 which according to him he is still entitled to receive from the CMS Estate, Inc. is hereby denied considering that it has not yet been actually received, and further the receipt is merely based upon an expectancy and/or still speculative; "10. The Court also directs and orders plaintiff Rojas to pay the sum of P62,988.19 his personal account to the partnership; "11. The Court also credits the defendant the amount of P85,000.00 the amount he should have received as logging superintendent, and which was not paid to him, and this should be considered as part of Maglana's contribution likewise to the partnership; and "12. The complaint is hereby dismissed with costs against the plaintiff.
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"SO ORDERED." Decision, Record on Appeal, pp. 985-989). Rojas interposed the instant appeal. The main issue in this case is the nature of the partnership and legal relationship of the Maglana-Rojas after Pahamotang retired from the second partnership. The lower court is of the view that the second partnership superseded the first, so that when the second partnership was dissolved there was no written contract of co-partnership; there was no reconstitution as provided for in the Maglana, Rojas and Pahamotang partnership contract. Hence, the partnership which was carried on by Rojas and Maglana after the dissolution of the second partnership was a de facto partnership and at will. It was considered as a partnership at will because there was no term, express or implied; no period was fixed, expressly or impliedly (Decision, R.A. pp. 962-963).

On the other hand, Rojas insists that the registered partnership under the firm name of Eastcoast Development Enterprises (EDE) evidenced by the Articles of Co-Partnership dated January 14, 1955 (Exhibit "A") has not been novated, superseded and/or dissolved by the unregistered articles of co-partnership among appellant Rojas, appellee Maglana and Agustin Pahamotang, dated March 4, 1956 (Exhibit "C") and accordingly, the terms and stipulations of said registered Articles of Co-Partnership (Exhibit "A") should govern the relations between him and Maglana. Upon withdrawal of Agustin Pahamotang from the unregistered partnership (Exhibit "C"), the legally constituted partnership EDE (Exhibit "A") continues to govern the relations between them and it was legal error to consider a de facto partnership between said two partners or a partnership at will. Hence, the letter of appellee Maglana dated February 23, 1961, did not legally dissolve the registered partnership between them, being in contravention of the partnership agreement agreed upon and stipulated in their Articles of Co-Partnership (Exhibit "A"). Rather, appellant is entitled to the rights enumerated in Article 1837 of the Civil Code and to the sharing profits between them of "share and share alike" as stipulated in the registered Articles of Co-Partnership (Exhibit "A"). After a careful study of the records as against the conflicting claims of Rojas and Maglana, it appears evident that it was not the intention of the partners to dissolve the first partnership, upon the constitution of the second one, which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25). Except for the fact that they took in one industrial partner; gave him an equal share in the profits and fixed the term of the second partnership to thirty (30) years, everything else was the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT ENTERPRISES, they pursued the same purposes and the capital contributions of Rojas and Maglana as stipulated in both partnerships call for the same amounts. Just as important is the fact that all subsequent renewals of Timber License No. 35-36 were secured in favor of the First Partnership, the original licensee. To all intents and
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purposes therefore, the First Articles of Partnership were only amended, in the form of Supplementary Articles of Co-Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-Appellant, p. 5). Otherwise stated, even during the existence of the second partnership, all business transactions were carried out under the duly registered articles. As found by the trial court, it is an admitted fact that even up to now, there are still subsisting obligations and contracts of the latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in the name of the second partnership except in favor of Pahamotang which was fully paid by the duly registered partnership (Decision, R.A., pp. 919-921). On the other hand, there is no dispute that the second partnership was dissolved by common consent. Said dissolution did not affect the first partnership which continued to exist. Significantly, Maglana and Rojas agreed to purchase the interest, share and participation in the second partnership of Pahamotang and that thereafter, the two (Maglana and Rojas) became the owners of equipment contributed by Pahamotang. Even more convincing, is the fact that Maglana on March 17, 1957, wrote Rojas, reminding the latter of his obligation to contribute either in cash or in equipment, to the capital investment of the partnership as well as his obligation to perform his duties as logging superintendent. This reminder cannot refer to any other but to the provisions of the duly registered Articles of Co-Partnership. As earlier stated, Rojas replied that he will not be able to comply with the promised contributions and he will not work as logging superintendent. By such statements, it is obvious that Roxas understood what Maglana was referring to and left no room for doubt that both considered themselves governed by the articles of the duly registered partnership. Under the circumstances, the relationship of Rojas and Maglana after the withdrawal of Pahamotang can neither be considered as a De Facto Partnership, nor a Partnership at Will, for as stressed, there is an existing partnership, duly registered.

As to the question of whether or not Maglana can unilaterally dissolve the partnership in the case at bar, the answer is in the affirmative. Hence, as there are only two parties when Maglana notified Rojas that he dissolved the partnership, it is in effect a notice of withdrawal. Under Article 1830, par. 2 of the Civil Code, even if there is a specified term, one partner can cause its dissolution by expressly withdrawing even before the expiration of the period, with or without justifiable cause. Of course, if the cause is not justified or no cause was given, the withdrawing partner is liable for damages but in no case can he be compelled to remain in the firm. With his withdrawal, the number of members is decreased, hence, the dissolution. And in whatever way he may view the situation, the conclusion is inevitable that Rojas and Maglana shall be guided in the liquidation of the partnership by the provisions of its duly registered Articles of Co-Partnership; that is, all profits and losses of the partnership shall be divided "share and share alike" between the partners. But an accounting must first be made and which in fact was ordered by the trial court and accomplished by the commissioners appointed for the purpose. On the basis of the Commissioners' Report, the corresponding contribution of the partners from 1956-1961 are as follows: Eufracio Rojas who should have contributed P158,158.00, contributed only P18,750.00 while Maglana who should have contributed P160,984.00, contributed P267,541.44 (Decision, R.A. p. 976). It is a settled rule that when a partner who has undertaken to contribute a sum of money fails to do so, he becomes a debtor of the partnership for whatever he may have promised to contribute (Article 1786, Civil Code) and for interests and damages from the time he should have complied with his obligation (Article 1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133 SCRA 94 [1984]). Being a contract of partnership, each partner must share in the profits and losses of the venture. That is the essence of a partnership (Ibid., p. 95).

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Thus, as reported in the Commissioners' Report, Rojas is not entitled to any profits. In their voluminous reports which was approved by the trial court, they showed that on 50-50% basis, Rojas will be liable in the amount of P131,166.00; on 80-20%, he will be liable for P40,092.96 and finally on the basis of actual capital contribution, he will be liable for P52,040.31. Consequently, except as to the legal relationship of the partners after the withdrawal of Pahamotang which is unquestionably a continuation of the duly registered partnership and the sharing of profits and losses which should be on the basis of share and share alike as provided for in the duly registered Articles of Co-Partnership, no plausible reason could be found to disturb the findings and conclusions of the trial court.
: na d

SO ORDERED. Melencio-Herrera, Sarmiento and Regalado, JJ., concur. Padilla, J., took no part.

As to whether Maglana is liable for damages because of such withdrawal, it will be recalled that after the withdrawal of Pahamotang, Rojas entered into a management contract with another logging enterprise, the CMS Estate, Inc., a company engaged in the same business as the partnership. He withdrew his equipment, refused to contribute either in cash or in equipment to the capital investment and to perform his duties as logging superintendent, as stipulated in their partnership agreement. The records also show that Rojas not only abandoned the partnership but also took funds in an amount more than his contribution (Decision, R.A., p. 949). In the given situation Maglana cannot be said to be in bad faith nor can he be liable for damages. PREMISES CONSIDERED, the assailed decision of the Court of First Instance of Davao, Branch III, is hereby MODIFIED in the sense that the duly registered partnership of Eastcoast Development Enterprises continued to exist until liquidated and that the sharing basis of the partners should be on share and share alike as provided for in its Articles of Partnership, in accordance with the computation of the commissioners. We also hereby AFFIRM the decision of the trial court in all other respects.
: nad

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