[G.R. No. 136448.

November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR IN!STRIES, IN"., respondent.
E " I S I O N
PANGANI#AN, J.$
A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that they have
not contributed any capital of their own to a "common fund." Their contribution may be in the form of
credit or industry, not necessarily cash or fixed assets. Being partners, they are all liable for debts
incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of an
unincorporated association or ostensible corporation may lie in a person who may not have directly
transacted on its behalf, but reaped benefits from that contract.
T%e "&'e
In the Petition for eview on Certiorari before us, !im Tong !im assails the "ovember #$, %&&'
(ecision of the )ourt of Appeals in )A*+ ), -%-..,
/%0
which disposed as follows1
23455675, /there being0 no reversible error in the appealed decision, the same is hereby
affirmed.8
/#0
The decretal portion of the 9ue:on )ity egional Trial )ourt ;T)< ruling, which was affirmed
by the )A, reads as follows1
23455675, the )ourt rules1
%. That plaintiff is entitled to the writ of preliminary attachment issued by this )ourt on =eptember #>,
%&&>?
#. That defendants are @ointly liable to plaintiff for the following amounts, sub@ect to the modifications
as hereinafter made by reason of the special and uniAue facts and circumstances and the proceedings
that transpired during the trial of this case?
a. PBC#,>-B.>> representing /the0 unpaid purchase price of the fishing nets covered by the Agreement
plus P$',>>>.>> representing the unpaid price of the floats not covered by said Agreement?
b. %#D interest per annum counted from date of plaintiffEs invoices and computed on their respective
amounts as follows1
i. Accrued interest of P.C,##%.>> on Invoice "o. %-->. for PC'B,C...'> dated 6ebruary &, %&&>?
ii. Accrued interest of P#.,&>-.># on Invoice "o. %--%C for P%-$,'$'.>> dated 6ebruary %C, %&&>?
iii. Accrued interest of P%#,&#>.>> on Invoice "o. %--#$ for P$',>>>.>> dated 6ebruary %&, %&&>?
c. PB>,>>>.>> as and for attorneyEs fees, plus P',B>>.>> representing PB>>.>> per appearance in court?
d. P$B,>>>.>> representing PB,>>>.>> monthly rental for storage charges on the nets counted from
=eptember #>, %&&> ;date of attachment< to =eptember %#, %&&% ;date of auction sale<?
e. )ost of suit.
23ith respect to the @oint liability of defendants for the principal obligation or for the unpaid price of
nets and floats in the amount of PBC#,>-B.>> and P$',>>>.>>, respectively, or for the total amount
of P$>>,>-B.>>, this )ourt noted that these items were attached to guarantee any @udgment that may be
rendered in favor of the plaintiff but, upon agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered sold at public auction for not less
thanP&>>,>>>.>> for which the plaintiff was the sole and winning bidder. The proceeds of the sale paid
for by plaintiff was deposited in court. In effect, the amount of P&>>,>>>.>> replaced the attached
property as a guaranty for any @udgment that plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the
highest bidder in the public auction sale. It has also been noted that ownership of the nets /was0
retained by the plaintiff until full payment /was0 made as stipulated in the invoices? hence, in effect, the
plaintiff attached its own properties. It /was0 for this reason also that this )ourt earlier ordered the
attachment bond filed by plaintiff to guaranty damages to defendants to be cancelled and for
the P&>>,>>>.>> cash bidded and paid for by plaintiff to serve as its bond in favor of defendants.
26rom the foregoing, it would appear therefore that whatever @udgment the plaintiff may be entitled to
in this case will have to be satisfied from the amount of P&>>,>>>.>> as this amount replaced the
attached nets and floats. )onsidering, however, that the total @udgment obligation as computed above
would amount to only P'->,#%$.&#, it would be ineAuitable, unfair and un@ust to award the excess to the
defendants who are not entitled to damages and who did not put up a single centavo to raise the amount
ofP&>>,>>>.>> aside from the fact that they are not the owners of the nets and floats. 6or this reason,
the defendants are hereby relieved from any and all liabilities arising from the monetary @udgment
obligation enumerated above and for plaintiff to retain possession and ownership of the nets and floats
and for the reimbursement of the P&>>,>>>.>> deposited by it with the )lerF of )ourt.
=7 7(55(.8
/C0
T%e F&()'
7n behalf of "7cean 9uest 6ishing )orporation," Antonio )hua and Peter Gao entered into a
)ontract dated 6ebruary ., %&&>, for the purchase of fishing nets of various si:es from the Philippine
6ishing +ear Industries, Inc. ;herein respondent<. They claimed that they were engaged in a business
venture with Petitioner !im Tong !im, who however was not a signatory to the agreement. The total
price of the nets amounted to PBC#,>-B. 6our hundred pieces of floats worth P$',>>> were also sold to
the )orporation.
/-0
Page 1 of 33
The buyers, however, failed to pay for the fishing nets and the floats? hence, private respondent
filed a collection suit against )hua, Gao and Petitioner !im Tong !im with a prayer for a writ of
preliminary attachment. The suit was brought against the three in their capacities as general partners,
on the allegation that 27cean 9uest 6ishing )orporation8 was a nonexistent corporation as shown by a
)ertification from the =ecurities and 5xchange )ommission.
/B0
7n =eptember #>, %&&>, the lower court
issued a 3rit of Preliminary Attachment, which the sheriff enforced by attaching the fishing nets on
board F/B Lourdes which was then docFed at the 6isheries Port, "avotas, Hetro Hanila.
Instead of answering the )omplaint, )hua filed a Hanifestation admitting his liability and
reAuesting a reasonable time within which to pay. 4e also turned over to respondent some of the nets
which were in his possession. Peter Gao filed an Answer, after which he was deemed to have waived
his right to cross*examine witnesses and to present evidence on his behalf, because of his failure to
appear in subseAuent hearings. !im Tong !im, on the other hand, filed an Answer with )ounterclaim
and )rossclaim and moved for the lifting of the 3rit of Attachment .
/$0
The trial court maintained the
3rit, and upon motion of private respondent, ordered the sale of the fishing nets at a public
auction. Philippine 6ishing +ear Industries won the bidding and deposited with the said court the sales
proceeds of P&>>,>>>.
/.0
7n "ovember %', %&&#, the trial court rendered its (ecision, ruling that Philippine 6ishing +ear
Industries was entitled to the 3rit of Attachment and that )hua, Gao and !im, as general partners, were
@ointly liable to pay respondent.
/'0
The trial court ruled that a partnership among !im, )hua and Gao existed based ;%< on the
testimonies of the witnesses presented and ;#< on a )ompromise Agreement executed by the three
/&0
in
)ivil )ase "o. %-&#*H" which )hua and Gao had brought against !im in the T) of Halabon,
Branch .#, for ;a< a declaration of nullity of commercial documents? ;b< a reformation of contracts? ;c<
a declaration of ownership of fishing boats? ;d< an in@unction and ;e< damages.
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The )ompromise
Agreement provided1
2a< That the parties plaintiffs I !im Tong !im agree to have the four ;-< vessels sold in the
amount of PB,.B>,>>>.>> including the fishing net. This PB,.B>,>>>.>> shall be applied as full payment
for PC,#B>,>>>.>> in favor of J! 4oldings )orporation andKor !im Tong !im?
2b< If the four ;-< vessel/s0 and the fishing net will be sold at a higher price than PB,.B>,>>>.>>
whatever will be the excess will be divided into C1 %KC !im Tong !im? %KC Antonio )hua? %KC Peter
Gao?
2c< If the proceeds of the sale the vessels will be less than PB,.B>,>>>.>> whatever the deficiency
shall be shouldered and paid to J! 4olding )orporation by %KC !im Tong !im? %KC Antonio )hua? %KC
Peter Gao.8
/%%0
The trial court noted that the )ompromise Agreement was silent as to the nature of their
obligations, but that @oint liability could be presumed from the eAual distribution of the profit and loss.
/%#0
!im appealed to the )ourt of Appeals ;)A< which, as already stated, affirmed the T).
uling of the )ourt of Appeals
In affirming the trial court, the )A held that petitioner was a partner of )hua and Gao in a fishing
business and may thus be held liable as a such for the fishing nets and floats purchased by and for the
use of the partnership. The appellate court ruled1
2The evidence establishes that all the defendants including herein appellant !im Tong !im undertooF a
partnership for a specific undertaFing, that is for commercial fishing x x x. 7bviously, the ultimate
undertaFing of the defendants was to divide the profits among themselves which is what a partnership
essentially is x x x. #* & (o+)r&() o, -&r)+er'%.-, )/o or more -er'o+' b.+0 )%em'e1ve' )o
(o+)r.b2)e mo+e*, -ro-er)* or .+02')r* )o & (ommo+ ,2+0 /.)% )%e .+)e+).o+ o, 0.v.0.+3 )%e
-ro,.)' &mo+3 )%em'e1ve' 4Ar).(1e 1565, Ne/ ".v.1 "o0e6.7
[13]
4ence, petitioner brought this recourse before this )ourt.
/%-0
T%e I''2e'
In his Petition and Hemorandum, !im asFs this )ourt to reverse the assailed (ecision on the
following grounds1
2I T45 )7LT 76 APP5A!= 55( I" 47!(I"+, BA=5( 7" A )7HP7HI=5
A+55H5"T T4AT )4LA, GA7 A"( P5TITI7"5 !IH 5"T55( I"T7 I" A =5PAAT5
)A=5, T4AT A PAT"5=4IP A+55H5"T 5MI=T5( AH7"+ T45H.
2II =I")5 IT 3A= 7"!G )4LA 347 5P5=5"T5( T4AT 45 3A= A)TI"+ 67
7)5A" 9L5=T 6I=4I"+ )7P7ATI7" 345" 45 B7L+4T T45 "5T= 67H P4I!IPPI"5
6I=4I"+, T45 )7LT 76 APP5A!= 3A= L"JL=TI6I5( I" IHPLTI"+ !IABI!ITG T7
P5TITI7"5 !IH A= 35!!.
2III T45 TIA! )7LT IHP7P5!G 7(55( T45 =5INL5 A"( ATTA)4H5"T 76
P5TITI7"5 !IHE= +77(=.8
In determining whether petitioner may be held liable for the fishing nets and floats purchased
from respondent, the )ourt must resolve this Fey issue1 whether by their acts, !im, )hua and Gao
could be deemed to have entered into a partnership.
T%.' "o2r)8' R21.+3
The Petition is devoid of merit.
F.r') &+0 Se(o+0 I''2e'$ Existence of a Partnership and Petitioner's Liability
In arguing that he should not be held liable for the eAuipment purchased from respondent,
petitioner controverts the )A finding that a partnership existed between him, Peter Gao and Antonio
)hua. 4e asserts that the )A based its finding on the )ompromise Agreement alone. 6urthermore, he
Page 2 of 33
disclaims any direct participation in the purchase of the nets, alleging that the negotiations were
conducted by )hua and Gao only, and that he has not even met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a partner, of )hua and Gao, for the
")ontract of !ease" dated 6ebruary %, %&&>, showed that he had merely leased to the two the main asset
of the purported partnership ** the fishing boat F/B Lourdes. The lease was for six months, with a
monthly rental of PC.,B>> plus #B percent of the gross catch of the boat.
3e are not persuaded by the arguments of petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership among )hua, Gao and him, pursuant to Article %.$. of
the )ivil )ode which provides1
2Article %.$. * By the contract of partnership, two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the profits among
themselves.8
=pecifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings1
/%B0
;%< That Petitioner !im Tong !im reAuested Peter Gao who was engaged in commercial fishing to @oin
him, while Antonio )hua was already GaoEs partner?
;#< That after convening for a few times, !im )hua, and Gao verbally agreed to acAuire two fishing
boats, the FB Lourdes and the FB Nelson for the sum of PC.CB million?
;C< That they borrowed PC.#B million from Jesus !im, brother of Petitioner !im Tong !im, to finance
the venture.
;-< That they bought the boats from )H6 6ishing )orporation, which executed a (eed of =ale over
these two ;#< boats in favor of Petitioner !im Tong !im only to serve as security for the loan extended
by Jesus !im?
;B< That !im, )hua and Gao agreed that the refurbishing , re*eAuipping, repairing, dry docFing and
other expenses for the boats would be shouldered by )hua and Gao?
;$< That because of the 2unavailability of funds,8 Jesus !im again extended a loan to the partnership in
the amount of P% million secured by a checF, because of which, Gao and )hua entrusted the ownership
papers of two other boats, )huaEs FB Lady Anne Mel and GaoEs FB Tracy to !im Tong !im.
;.< That in pursuance of the business agreement, Peter Gao and Antonio )hua bought nets from
espondent Philippine 6ishing +ear, in behalf of "7cean 9uest 6ishing )orporation," their purported
business name.
;'< That subseAuently, )ivil )ase "o. %-&#*H" was filed in the Halabon T), Branch .# by Antonio
)hua and Peter Gao against !im Tong !im for ;a< declaration of nullity of commercial documents? ;b<
reformation of contracts? ;c< declaration of ownership of fishing boats? ;-< in@unction? and ;e< damages.
;&< That the case was amicably settled through a )ompromise Agreement executed between the
parties*litigants the terms of which are already enumerated above.
6rom the factual findings of both lower courts, it is clear that )hua, Gao and !im had decided to
engage in a fishing business, which they started by buying boats worth PC.CB million, financed by a
loan secured from Jesus !im who was petitionerEs brother. I+ )%e.r "om-rom.'e A3reeme+), )%e*
'2b'e92e+)1* reve&1e0 )%e.r .+)e+).o+ )o -&* )%e 1o&+ /.)% )%e -ro(ee0' o, )%e '&1e o, )%e bo&)',
&+0 )o 0.v.0e e92&11* &mo+3 )%em )%e e:(e'' or 1o''. These boats, the purchase and the repair of
which were financed with borrowed money, fell under the term 2common fund8 under Article
%.$.. T%e (o+)r.b2).o+ )o '2(% ,2+0 +ee0 +o) be (&'% or ,.:e0 &''e)'; .) (o210 be &+ .+)&+3.b1e 1.<e
(re0.) or .+02')r*. T%&) )%e -&r).e' &3ree0 )%&) &+* 1o'' or -ro,.) ,rom )%e '&1e &+0 o-er&).o+ o,
)%e bo&)' /o210 be 0.v.0e0 e92&11* &mo+3 )%em &1'o '%o/' )%&) )%e* %&0 .+0ee0 ,orme0 &
-&r)+er'%.-.
Horeover, it is clear that the partnership extended not only to the purchase of the boat, but also to
that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously
acAuired in furtherance of their business. It would have been inconceivable for !im to involve himself
so much in buying the boat but not in the acAuisition of the aforesaid eAuipment, without which the
business could not have proceeded.
+iven the preceding facts, it is clear that there was, among petitioner, )hua and Gao, a
partnership engaged in the fishing business. They purchased the boats, which constituted the main
assets of the partnership, and they agreed that the proceeds from the sales and operations thereof would
be divided among them.
3e stress that under ule -B, a petition for review liFe the present case should involve only
Auestions of law. Thus, the foregoing factual findings of the T) and the )A are binding on this )ourt,
absent any cogent proof that the present action is embraced by one of the exceptions to the rule.
/%$0
In
assailing the factual findings of the two lower courts, petitioner effectively goes beyond the bounds of a
petition for review under ule -B.
Compromise Agreement Not the ole !asis of Partnership
Petitioner argues that the appellate courtEs sole basis for assuming the existence of a partnership
was the )ompromise Agreement. 4e also claims that the settlement was entered into only to end the
dispute among them, but not to ad@udicate their preexisting rights and obligations. 4is arguments are
baseless. "he Agreement #as b$t an embodiment of the relationship extant among the parties prior
to its exec$tion.
A proper ad@udication of claimantsE rights mandates that courts must review and thoroughly
appraise all relevant facts. Both lower courts have done so and have found, correctly, a preexisting
partnership among the parties. In implying that the lower courts have decided on the basis of one piece
of document alone, petitioner fails to appreciate that the )A and the T) delved into the history of the
document and explored all the possible conseAuential combinations in harmony with law, logic and
fairness. ,erily, the two lower courtsE factual findings mentioned above nullified petitionerEs argument
that the existence of a partnership was based only on the )ompromise Agreement.
Page 3 of 33
Petitioner %as a Partner, Not a Lessor
3e are not convinced by petitionerEs argument that he was merely the lessor of the boats to )hua
and Gao, not a partner in the fishing venture. 4is argument allegedly finds support in the )ontract of
!ease and the registration papers showing that he was the owner of the boats, including F/B
Lourdes where the nets were found.
4is allegation defies logic. In effect, he would liFe this )ourt to believe that he consented to the
sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided
among the three of them. "o lessor would do what petitioner did. Indeed, his consent to the sale
proved that there was a preexisting partnership among all three.
,erily, as found by the lower courts, petitioner entered into a business agreement with )hua and
Gao, in which debts were undertaFen in order to finance the acAuisition and the upgrading of the vessels
which would be used in their fishing business. The sale of the boats, as well as the division among the
three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes,
though registered in his name, was not his own property but an asset of the partnership. It is not
uncommon to register the properties acAuired from a loan in the name of the person the lender trusts,
who in this case is the petitioner himself. After all, he is the brother of the creditor, Jesus !im.
=e ')re'' )%&) .) .' 2+re&'o+&b1e > .+0ee0, .) .' &b'2r0 ?? ,or -e).).o+er )o 'e11 %.' -ro-er)* )o
-&* & 0eb) %e 0.0 +o) .+(2r, ., )%e re1&).o+'%.- &mo+3 )%e )%ree o, )%em /&' mere1* )%&) o, 1e''or?
1e''ee, .+')e&0 o, -&r)+er'.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only
to )hua and Gao, and not to him. Again, we disagree.
=ection #% of the )orporation )ode of the Philippines provides1
2=ec. #%. Corporation by estoppel. * All persons who assume to act as a corporation Fnowing it to be
without authority to do so shall be liable as general partners for all debts, liabilities and damages
incurred or arising as a result thereof1 ro!ided howe!er"That when any such ostensible corporation is
sued on any transaction entered by it as a corporation or on any tort committed by it as such, it shall not
be allowed to use as a defense its lacF of corporate personality.
27ne who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof
on the ground that there was in fact no corporation.8
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. 2T%e re&'o+ be%.+0 )%.' 0o()r.+e .' obv.o2' ? &+
2+.+(or-or&)e0 &''o(.&).o+ %&' +o -er'o+&1.)* &+0 /o210 be .+(om-e)e+) )o &() &+0 &--ro-r.&)e
,or .)'e1, )%e -o/er &+0 &))r.b2)e' o, & (or-or&).o+ &' -rov.0e0 b* 1&/; .) (&++o) (re&)e &3e+)' or
(o+,er &2)%or.)* o+ &+o)%er )o &() .+ .)' be%&1,; )%2', )%o'e /%o &() or -2r-or) )o &() &' .)'
re-re'e+)&).ve' or &3e+)' 0o 'o /.)%o2) &2)%or.)* &+0 &) )%e.r o/+ r.'<. And as it is an elementary
principle of law that a person who acts as an agent without authority or without a principal is himself
regarded as the principal, possessed of all the right and sub@ect to all the liabilities of a principal, a
person acting or purporting to act on behalf of a corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for contracts entered into or for other acts
performed as such agent.8
/%.0
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third
party. In the first instance, an unincorporated association, which represented itself to be a corporation,
will be estopped from denying its corporate capacity in a suit against it by a third person who relied in
good faith on such representation. It cannot allege lacF of personality to be sued to evade its
responsibility for a contract it entered into and by virtue of which it received advantages and benefits.
7n the other hand, a third party who" #nowin$ an association to be unincorporated" nonetheless
treated it as a corporation and recei!ed benefits from it" may be barred from denyin$ its corporate
e%istence in a suit brou$ht a$ainst the alle$ed corporation. In such case, all those who benefited from
the transaction made by the ostensible corporation, despite Fnowledge of its legal defects, may be held
liable for contracts they impliedly assented to or tooF advantage of.
There is no dispute that the respondent, Philippine 6ishing +ear Industries, is entitled to be paid
for the nets it sold. The only Auestion here is whether petitioner should be held @ointly
/%'0
liable with
)hua and Gao. Petitioner contests such liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. =ince his name does not appear on any of the contracts
and since he never directly transacted with the respondent corporation, ergo, he cannot be held liable.
LnAuestionably, petitioner benefited from the use of the nets found inside F/B Lourdes" the boat
which has earlier been proven to be an asset of the partnership. 4e in fact Auestions the attachment of
the nets, because the 3rit has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the T) and the )A that !im, )hua and Gao decided to form a
corporation. Although it was never legally formed for unFnown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in representation of it. )learly, under the law
on estoppel, those acting on behalf of a corporation and those benefited by it, Fnowing it to be without
valid existence, are held liable as general partners.
Te(%+.(&11*, .) .' )r2e )%&) -e).).o+er 0.0 +o) directly act o+ be%&1, o, )%e
(or-or&).o+. &o#ever, having reaped the benefits of the contract entered into by persons #ith #hom
he previo$sly had an existing relationship, he is deemed to be part of said association and is covered
by the scope of the doctrine of corporation by estoppel. 3e reiterate the ruling of the )ourt in Alonso
!. &illamor1
/%&0
2A litigation is not a game of technicalities in which one, more deeply schooled and sFilled in the subtle
art of movement and position , entraps and destroys the other. It is, rather, a contest in which each
contending party fully and fairly lays before the court the facts in issue and then, brushing aside as
wholly trivial and indecisive all imperfections of form and technicalities of procedure, asFs that @ustice
be done upon the merits. !awsuits, unliFe duels, are not to be won by a rapierEs thrust. Technicality,
when it deserts its proper office as an aid to @ustice and becomes its great hindrance and chief enemy,
deserves scant consideration from courts. There should be no vested rights in technicalities.8
T%.r0 I''2e$ 'alidity of Attachment
Page 4 of 33
6inally, petitioner claims that the 3rit of Attachment was improperly issued against the nets. 3e
agree with the )ourt of Appeals that this issue is now moot and academic. As previously
discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of petitioner,
only to assure payment of the debt he and his partners owed. The nets and the floats were specifically
manufactured and tailor*made according to their own design, and were bought and used in the fishing
venture they agreed upon. 4ence, the issuance of the 3rit to assure the payment of the price stipulated
in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with
espondent Philippine 6ishing +ear, until full payment thereof.
=HEREFORE, the Petition is '(N)(' and the assailed (ecision AFF)*M('. )osts against
petitioner.
SO ORERE
[G.R. No. 134@@9. e(ember 9, 1999]
ANTONIA TORRES, &''.')e0 b* %er %2'b&+0, ANGELO TORRES; &+0 EMETERIA
#ARING, petitioners, vs. "O!RT OF APPEALS &+0 MAN!EL TORRES, respondents.
E " I S I O N
PANGANI#AN, J.(
)ourts may not extricate parties from the necessary conseAuences of their acts. That the terms of
a contract turn out to be financially disadvantageous to them will not relieve them of their obligations
therein. The lacF of an inventory of real property will not ipso facto release the contracting partners
from their respective obligations to each other arising from acts executed in accordance with their
agreement.
T%e "&'e
The Petition for eview on )ertiorari before us assails the Harch B, %&&' (ecision
/%0
=econd
(ivision of the )ourt of Appeals
/#0
;)A< in )A*+ ), "o. -#C.' and its June #B, %&&' esolution
denying reconsideration. The assailed (ecision affirmed the ruling of the egional Trial )ourt ;T)<
of )ebu )ity in )ivil )ase "o. *#%#>', which disposed as follows1
23455675, for all the foregoing considerations, the )ourt, finding for the defendant and against
the plaintiffs, orders the dismissal of the plaintiffEs complaint. The counterclaims of the defendant are
liFewise ordered dismissed. "o pronouncement as to costs.8
/C0
T%e F&()'
=isters Antonia Torres and 5meteria Baring, herein petitioners, entered into a "@oint venture
agreement" with espondent Hanuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a (eed of =ale covering the said parcel of land in
favor of respondent, who then had it registered in his name. By mortgaging the property, respondent
obtained from 5Auitable BanF a loan of P->,>>> which, under the Joint ,enture Agreement, was to be
used for the development of the subdivision.
/-0
All three of them also agreed to share the proceeds from
the sale of the subdivided lots.
The pro@ect did not push through, and the land was subseAuently foreclosed by the banF.
According to petitioners, the pro@ect failed because of 2respondentEs lacF of funds or means and
sFills.8 They add that respondent used the loan not for the development of the subdivision, but in
furtherance of his own company, Lniversal Lmbrella )ompany.
7n the other hand, respondent alleged that he used the loan to implement the Agreement. 3ith
the said amount, he was able to effect the survey and the subdivision of the lots. 4e secured the !apu
!apu )ity )ouncilEs approval of the subdivision pro@ect which he advertised in a local newspaper. 4e
also caused the construction of roads, curbs and gutters. !iFewise, he entered into a contract with an
engineering firm for the building of sixty low*cost housing units and actually even set up a model house
on one of the subdivision lots. 4e did all of these for a total expense of P'B,>>>.
espondent claimed that the subdivision pro@ect failed, however, because petitioners and their
relatives had separately caused the annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. (espite his reAuests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the pro@ect.
/B0
=ubseAuently, petitioners filed a criminal case for estafa against respondent and his wife, who
were however acAuitted. Thereafter, they filed the present civil case which, upon respondentOs motion,
was later dismissed by the trial court in an 7rder dated =eptember $, %&'#. 7n appeal, however, the
appellate court remanded the case for further proceedings. Thereafter, the T) issued its assailed
(ecision, which, as earlier stated, was affirmed by the )A.
4ence, this Petition.
/$0
R21.+3 o, )%e "o2r) o, A--e&1'
In affirming the trial court, the )ourt of Appeals held that petitioners and respondent had formed
a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the
partnership in the same proportion as their share in the profits stipulated in the contract. (isagreeing
with the trial courtEs pronouncement that losses as well as profits in a @oint venture should be distributed
eAually,
/.0
the )A invoFed Article %.&. of the )ivil )ode which provides1
2Article %.&. * The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in the
same proportion.8
Page 5 of 33
The )A elucidated further1
2 In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be @ust and eAuitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital.8
T%e I''2e
Petitioners impute to the )ourt of Appeals the following error1
2x x x /The0 )ourt of Appeals erred in concluding that the transaction x x x between the petitioners and
respondent was that of a @oint ventureKpartnership, ignoring outright the provision of Article %.$&, and
other related provisions of the )ivil )ode of the Philippines.8
/'0
T%e "o2r)8' R21.+3
The Petition is bereft of merit.
M&.+ I''2e$ Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend that the Joint
,enture Agreement and the earlier (eed of =ale, both of which were the bases of the appellate courtEs
finding of a partnership, were void.
In the same breath, however, they assert that under those very same contracts, respondent is liable
for his failure to implement the pro@ect. Because the agreement entitled them to receive $> percent of
the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages
eAuivalent to $> percent of the value of the property.
/&0
The pertinent portions of the Joint ,enture Agreement read as follows1
2P"73 A!! H5" BG T45=5 P5=5"T=1
2This A+55H5"T, is made and entered into at )ebu )ity, Philippines, this Bth day of Harch, %&$&,
by and between H. HA"L5! . T75=, x x x the 6I=T PATG, liFewise, H=. A"T7"IA B.
T75=, and HI== 5H5T5IA BAI"+, x x x the =5)7"( PATG1
3 I T " 5 = = 5 T 41
2That, whereas, the =5)7"( PATG, voluntarily offered the 6I=T PATG, this property located at
!apu*!apu )ity, Island of Hactan, under !ot "o. %C$' covering T)T "o. T*>%'- with a total area of
%.,>>& sAuare meters, to be sub*divided by the 6I=T PATG?
23hereas, the 6I=T PATG had given the =5)7"( PATG, the sum of1 T35"TG T47L=A"(
;P#>,>>>.>>< Pesos, Philippine )urrency, upon the execution of this contract for the property entrusted
by the =5)7"( PATG, for sub*division pro@ects and development purposes?
2"73 T455675, for and in consideration of the above covenants and promises herein contained
the respective parties hereto do hereby stipulate and agree as follows1
27"51 That the =5)7"( PATG signed an absolute (eed of =ale x x x dated Harch B, %&$&, in the
amount of T35"TG 6I,5 T47L=A"( 6I,5 4L"(5( T4IT55" I 6I6TG )T,=.
;P#B,B%C.B>< Philippine )urrency, for %,.>> sAuare meters at 7"5 /P5=70 I 6I6TG )T,=. ;P%.B><
Philippine )urrency, in favor of the 6I=T PATG, but the =5)7"( PATG did not actually receive
the payment.
2=5)7"(1 That the =5)7"( PATG, had received from the 6I=T PATG, the necessary amount
of T35"TG T47L=A"( ;P#>,>>>.>>< pesos, Philippine currency, for their personal obligations and
this particular amount will serve as an advance payment from the 6I=T PATG for the property
mentioned to be sub*divided and to be deducted from the sales.
2T4I(1 That the 6I=T PATG, will not collect from the =5)7"( PATG, the interest and the
principal amount involving the amount of T35"TG T47L=A"( ;P#>,>>>.>>< Pesos, Philippine
)urrency, until the sub*division pro@ect is terminated and ready for sale to any interested parties, and
the amount of T35"TG T47L=A"( ;P#>,>>>.>>< pesos, Philippine currency, will be deducted
accordingly.
267LT41 That all general expense/s0 and all cost/s0 involved in the sub*division pro@ect should be
paid by the 6I=T PATG, exclusively and all the expenses will not be deducted from the sales after
the development of the sub*division pro@ect.
26I6T41 That the sales of the sub*divided lots will be divided into =IMTG P5)5"TLH $>D for the
=5)7"( PATG and 67TG P5)5"TLH ->D for the 6I=T PATG, and additional profits or
whatever income deriving from the sales will be divided eAually according to the x x x percentage
/agreed upon0 by both parties.
2=IMT41 That the intended sub*division pro@ect of the property involved will start the worF and all
improvements upon the ad@acent lots will be negotiated in both parties/O0 favor and all sales shall /be0
decided by both parties.
Page 6 of 33
2=5,5"T41 That the =5)7"( PATI5=, should be given an option to get bacF the property
mentioned provided the amount of T35"TG T47L=A"( ;P#>,>>>.>>< Pesos, Philippine )urrency,
borrowed by the =5)7"( PATG, will be paid in full to the 6I=T PATG, including all necessary
improvements spent by the 6I=T PATG, and the 6I=T PATG will be given a grace period to
turnover the property mentioned above.
2That this A+55H5"T shall be binding and obligatory to the parties who executed same freely and
voluntarily for the uses and purposes therein stated.8
/%>0
A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article %.$. of the )ivil )ode, which provides1
2AT. %.$.. By the contract of partnership two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profits among themselves.8
Lnder the above*Auoted Agreement, petitioners would contribute property to the partnership in
the form of land which was to be developed into a subdivision? while respondent would give, in
addition to his industry, the amount needed for general expenses and other costs. 6urthermore, the
income from the said pro@ect would be divided according to the stipulated percentage. )learly, the
contract manifested the intention of the parties to form a partnership.
/%%0
It should be stressed that the parties implemented the contract. Thus, petitioners transferred the
title to the land to facilitate its use in the name of the respondent. 7n the other hand, respondent caused
the sub@ect land to be mortgaged, the proceeds of which were used for the survey and the subdivision of
the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low*cost housing units on the property.
espondentEs actions clearly belie petitionersE contention that he made no contribution to the
partnership. Lnder Article %.$. of the )ivil )ode, a partner may contribute not only money or
property, but also industry.
Petitioners !o$nd by "erms of Contract
Lnder Article %C%B of the )ivil )ode, contracts bind the parties not only to what has been
expressly stipulated, but also to all necessary conseAuences thereof, as follows1
2AT. %C%B. )ontracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the conseAuences which,
according to their nature, may be in Feeping with good faith, usage and law.8
It is undisputed that petitioners are educated and are thus presumed to have understood the terms
of the contract they voluntarily signed. If it was not in consonance with their expectations, they should
have ob@ected to it and insisted on the provisions they wanted.
)ourts are not authori:ed to extricate parties from the necessary conseAuences of their acts, and
the fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve
parties thereto of their obligations. They cannot now disavow the relationship formed from such
agreement due to their supposed misunderstanding of its terms.
Alleged N$llity of the Partnership Agreement
Petitioners argue that the Joint ,enture Agreement is void under Article %..C of the )ivil )ode,
which provides1
2AT. %..C. A contract of partnership is void, whenever immovable property is contributed thereto, if
an inventory of said property is not made, signed by the parties, and attached to the public instrument.8
They contend that since the parties did not maFe, sign or attach to the public instrument an
inventory of the real property contributed, the partnership is void.
3e clarify. First, Article %..C was intended primarily to protect third persons. Thus, the
eminent Arturo H. Tolentino states that under the aforecited provision which is a complement of
Article %..%,
/%#0
2the execution of a public instrument would be useless if there is no inventory of the
property contributed, because without its designation and description, they cannot be sub@ect to
inscription in the egistry of Property, and their contribution cannot pre@udice third persons. This will
result in fraud to those who contract with the partnership in the belief /in0 the efficacy of the guaranty in
which the immovables may consist. Thus, the contract is declared void by the law when no such
inventory is made.8 The case at bar does not involve third parties who may be pre@udiced.
+econd, petitioners themselves invoFe the allegedly void contract as basis for their claim that
respondent should pay them $> percent of the value of the property.
/%C0
They cannot in one breath deny
the contract and in another recogni:e it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less
approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from considering the Joint
,enture Agreement an ordinary contract from which the partiesE rights and obligations to each other
may be inferred and enforced.
Partnership Agreement Not the )es$lt of an Earlier *llegal Contract
Petitioners also contend that the Joint ,enture Agreement is void under Article %-##
/%-0
of the
)ivil )ode, because it is the direct result of an earlier illegal contract, which was for the sale of the land
without valid consideration.
This argument is puerile. The Joint ,enture Agreement clearly states that the consideration for
the sale was the expectation of profits from the subdivision pro@ect. Its first stipulation states that
Page 7 of 33
petitioners did not actually receive payment for the parcel of land sold to respondent. )onsideration,
more properly denominated as cause, can taFe different forms, such as the prestation or promise of a
thing or service by another.
/%B0
In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but
in the expectation of profits from the subdivision pro@ect, for which the land was intended to be
used. As explained by the trial court, 2the land was in effect given to the partnership as /petitionerEs0
participation therein. x x x There was therefore a consideration for the sale, the /petitioners0 acting
in the expectation that, should the venture come into fruition, they /would0 get sixty percent of the net
profits.8
Liability of the Parties
)laiming that respondent was solely responsible for the failure of the subdivision pro@ect,
petitioners maintain that he should be made to pay damages eAuivalent to $> percent of the value of the
property, which was their share in the profits under the Joint ,enture Agreement.
3e are not persuaded. True, the )ourt of Appeals held that petitionersE acts were not the cause of
the failure of the pro@ect.
/%$0
But it also ruled that neither was respondent responsible therefor.
/%.0
In
imputing the blame solely to him, petitioners failed to give any reason why we should disregard the
factual findings of the appellate court relieving him of fault. ,erily, factual issues cannot be resolved in
a petition for review under ule -B, as in this case. Petitioners have not alleged, not to say shown, that
their Petition constitutes one of the exceptions to this doctrine.
/%'0
Accordingly, we find no reversible
error in the )AOs ruling that petitioners are not entitled to damages.
=HEREFORE, the Petition is hereby '(N)(' and the challenged (ecision AFF)*M('. )osts
against petitioners.
SO ORERE
SE"ON IAISION


ARSENIO T. MENIOLA,
Petitioner,


* versus *


"O!RT OF APPEALS, NATIONAL LA#OR
RELATIONS "OMMISSION,
PA"IFI" FOREST RESO!R"ES, PHILS., IN".
&+0Bor "ELLMARC A#,
espondents.
G.R. No. 1@9333
Present1
PL"7, ,.,
)hairperson,
=A"(7,A!*
+LTI55N,
)77"A,
AN)L"A, and
+A)IA, ,,.

Promulgated1
July C%, #>>$

x * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * x

( 5 ) I = I 7 "
PL"7, ,.1
7n appeal are the (ecision
/%0
and esolution
/#0
of the )ourt of Appeals, dated January C>,
#>>C and July C>, #>>C, respectively, in )A*+.. =P "o. .%>#', affirming the ruling
/C0
of the "ational
!abor elations )ommission ;"!)<, which in turn set aside the July C>, #>>% (ecision
/-0
of the labor
arbiter. The labor arbiter declared illegal the dismissal of petitioner from employment and awarded
separation pay, moral and exemplary damages, and attorneyEs fees.
The facts are as follows1
Private respondent P&(.,.( Fore') Re'o2r(e', P%.1'., I+(. 4P&(,or6 is a corporation organi:ed
and existing under the laws of )alifornia, L=A. It is a subsidiary of )ellulose HarFeting International,
a corporation duly organi:ed under the laws of =weden, with principal office in +othenburg, =weden.
Private respondent Pacfor entered into a 2=ide Agreement on epresentative 7ffice Fnown as
Pacific 6orest esources ;Phils.<, Inc.8
/B0
with petitioner Arsenio T. Hendiola ;ATH<, effective Hay %,
%&&B, 2assuming that Pacfor*Phils. is already approved by the =ecurities and 5xchange )ommission
/=5)0 on the said date.8
/$0
The =ide Agreement outlines the business relationship of the parties with
regard to the Philippine operations of Pacfor. Private respondent will establish a Pacfor representative
office in the Philippines, to be Fnown as Pacfor Phils, and petitioner ATH will be its
President. PetitionerEs base salary and the overhead expenditures of the company shall be borne by the
representative office and funded by PacforKATH, since Pacfor Phils. is eAually owned on a B>*B> eAuity
by ATH and Pacfor*L=A.
7n July %-, %&&B, the =5) granted the application of private respondent Pacfor for a license
to transact business in the Philippines under the name of Pacfor or Pacfor Phils.
/.0
In its application,
private respondent Pacfor proposed to establish its representative office in the Philippines with the
purpose of monitoring and coordinating the marFet activities for paper products. It also designated
petitioner as its resident agent in the Philippines, authori:ed to accept summons and processes in all
legal proceedings, and all notices affecting the corporation.
/'0
In Harch %&&., the =ide Agreement was amended through a 2evised 7perating and Profit
=haring Agreement for the epresentative 7ffice Pnown as Pacific 6orest esources
;Philippines<,8
/&0
where the salary of petitioner was increased to Q.',>>> per annum. Both agreements
show that the operational expenses will be borne by the representative office and funded by all parties
2as eAual partners,8 while the profits and commissions will be shared among them.
Page 8 of 33
In July #>>>, petitioner wrote Pevin (aley, ,ice President for Asia of Pacfor, seeFing
confirmation of his B>D eAuity of Pacfor Phils.
/%>0
Private respondent Pacfor, through 3illiam +leason,
its President, replied that petitioner is not a part*owner of Pacfor Phils. because the latter is merely
Pacfor*L=AEs representative office and not an entity separate and distinct from Pacfor*L=A. 2ItEs
simply a Rtheoretical companyE with the purpose of dividing the income B>*B>.8
/%%0
Petitioner
presumably Fnew of this arrangement from the start, having been the one to propose to private
respondent Pacfor the setting up of a representative office, and 2not a branch office8 in the Philippines
to save on taxes.
/%#0

Petitioner claimed that he was all along made to believe that he was in a @oint venture with
them. 4e alleged he would have been better off remaining as an independent agent or representative of
Pacfor*L=A as ATH HarFeting )orp.
/%C0
4ad he Fnown that no @oint venture existed, he would not
have allowed Pacfor to taFe the profitable business of his own company, ATH HarFeting )orp.
/%-0
Petitioner raised other issues, such as the rentals of office furniture, salary of the employees,
company car, as well as commissions allegedly due him. The issues were not resolved, hence, in
7ctober #>>>, petitioner wrote Pacfor*L=A demanding payment of unpaid commissions and office
furniture and eAuipment rentals, amounting to more than one million dollars.
/%B0

7n "ovember #., #>>>, private respondent Pacfor, through counsel, ordered petitioner to turn
over to it all papers, documents, files, records, and other materials in his or ATH HarFeting
)orporationEs possession that belong to Pacfor or Pacfor Phils.
/%$0
7n (ecember %', #>>>, private
respondent Pacfor also reAuired petitioner to remit more than three hundred thousand*peso )hristmas
giveaway fund for clients of Pacfor Phils.
/%.0
!astly, private respondent Pacfor withdrew all its offers of
settlement and ordered petitioner to transfer title and turn over to it possession of the service car.
/%'0

Private respondent Pacfor liFewise sent letters to its clients in the Philippines, advising them
not to deal with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated "ovember #%,
#>>>, private respondent Pacfor stated1
Lntil further notice, please course all inAuiries and communications for Pacific
6orest esources ;Philippines< to1
Pacific 6orest esources
#>> Tamal Pla:a, =uite #>>
)orte Hadera, )A, L=A &-&#B
;-%B< &#. %.>> phone
;-%B< C'% -CB' fax
Please do not send any communication to Hr. Arsenio 2Boy8 T. Hendiola or to the
offices of ATH HarFeting )orporation at oom
B>-, )oncorde Building, !egaspi ,illage, HaFati )ity, Philippines.
/%&0


In another letter addressed to (avao )orrugated )arton )orp. ;(A,)7<, dated (ecember #>>>,
private respondent directed said client 2to please communicate directly with us on any further Auestions
associated with these payments or any future business. (o not communicate with /Pacfor0 andKor
/ATH0.8
/#>0
Petitioner construed these directives as a severance of the 2unregistered partnership8 between
him and Pacfor, and the termination of his employment as resident manager of Pacfor Phils.
/#%0
In a
memorandum to the employees of Pacfor Phils., dated January #&, #>>%, he stated1
I received a letter from Pacific 6orest esources, Inc. demanding the turnover of all
records to them effective (ecember %&, #>>>. The company records were turned
over only on January #$, #>>%. This means our @obs with Pacific 6orestwere
terminated effective (ecember %&, #>>>. I am concerned about your welfare. I
would liFe to help you by offering you to worF with ATH HarFeting )orporation.
Please let me Fnow if you are interested.
/##0

7n the basis of the 2=ide Agreement,8 petitioner insisted that he and Pacfor eAually own
Pacfor Phils. Thus, it follows that he and Pacfor liFewise own, on a B>KB> basis, Pacfor Phils.E office
furniture and eAuipment and the service car. 4e also reiterated his demand for unpaid commissions,
and proposed to offset these with the remaining )hristmas giveaway fund in his possession.
/#C0
6urthermore, he did not renew the lease contract with Pulp and Paper, Inc., the lessor of the office
premises of Pacfor Phils., wherein he was the signatory to the lease agreement.
/#-0

7n 6ebruary #, #>>%, private respondent Pacfor placed petitioner on preventive suspension
and ordered him to show cause why no disciplinary action should be taFen against him. Private
respondent Pacfor charged petitioner with willful disobedience and serious misconduct for his refusal to
turn over the service car and the )hristmas giveaway fund which he applied to his alleged unpaid
commissions. Private respondent also alleged loss of confidence and gross neglect of duty on the part of
petitioner for allegedly allowing another corporation owned by petitionerEs relatives, 4igh 5nd
Products, Inc. ;45PI<, to use the same telephone and facsimile numbers of Pacfor, to possibly steal and
divert the sales and business of private respondent for 45PIEs principal, International 6orest Products, a
competitor of private respondent.
/#B0


Petitioner denied the charges. 4e reiterated that he considered the import of Pacfor President
3illiam +leasonEs letters as a 2cessation of his position and of the existence of Pacfor Phils.8 4e
liFewise informed private respondent Pacfor that ATH HarFeting )orp. now occupies Pacfor Phils.E
office premises,
/#$0
and demanded payment of his separation pay.
/#.0
7n 6ebruary %B, #>>%, petitioner
filed his complaint for illegal dismissal, recovery of separation pay, and payment of attorneyEs fees with
the "!).
/#'0

In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a
memorandum dated Harch B, #>>%, private respondent directed petitioner to explain why he should not
be disciplined for serious misconduct and conflict of interest. Private respondent charged petitioner
anew with serious misconduct for the latterEs alleged act of fraud and misrepresentation in authori:ing
the release of an additional peso salary for himself, besides the dollar salary agreed upon by the
parties. Private respondent also accused petitioner of disloyalty and representation of conflicting
interests for having continued using the Pacfor Phils.E office for operations of 45PI. In addition,
petitioner allegedly solicited business for 45PI from a competitor company of private respondent
Pacfor.
/#&0

!abor Arbiter 6elipe Pati ruled in favor of petitioner, finding there was constructive
dismissal. By directing petitioner to turn over all office records and materials, regardless of whether he
Page 9 of 33
may have retained copies, private respondent Pacfor virtually deprived petitioner of his @ob by the
gradual diminution of his authority as resident manager. PetitionerEs position as resident manager
whose duty, among others, was to maintain the security of its business transactions and communications
was rendered meaningless. The dispositive portion of the decision of the !abor Arbiter reads1
3455675, premises considered, @udgment is hereby rendered
ordering herein respondents )ellmarF AB and Pacific 6orest esources, Inc., @ointly
and severally to compensate complainant Arsenio T. Hendiola separation pay
eAuivalent to at least one month for every year of service, whichever is higher -sic.,
as reinstatement is no longer feasible by reason of the strained relations of the
parties eAuivalent to five ;B< months in the amount of QC#,>>>.>> plus the sum
ofP#B>,>>>.>>? pay complainant the sum of PB>>,>>>.>> as moral and exemplary
damages and ten percent ;%>D< of the amounts awarded as and for attorneyEs fees.
All other claims are dismissed for lacF of basis.
=7 7(55(.
/C>0

Private respondent Pacfor appealed to the "!) which ruled in its favor. 7n (ecember #>,
#>>%, the "!) set aside the July C>, #>>% decision of the labor arbiter, for lacF of @urisdiction and
lacF of merit.
/C%0
It held there was no employer*employee relationship between the parties. Based on
the two agreements between the parties, it concluded that petitioner is not an employee of private
respondent Pacfor, but a full co*owner ;B>KB> eAuity<.
The "!) denied petitionerEs Hotion for econsideration.
/C#0
Petitioner was not successful on his appeal to the )ourt of Appeals. The appellate court
upheld the ruling of the "!).
PetitionerEs Hotion for econsideration
/CC0
of the decision of the )ourt of Appeals was denied.
4ence, this appeal.
/C-0
Petitioner assigns the following errors1
A. T45 5=P7"(5"T )7LT 76 APP5A!= )7HHITT5(
5,5=IB!5 57 A"( ABL=5( IT= (I=)5TI7" I"
5"(5I"+ JL(+H5"T A+AI"=T P5TITI7"5 =I")5
JLI=(I)TI7" 4A= B55" A)9LI5( 7,5 T45 =LBJ5)T
HATT5 76 T45 )A=5 A= T455 5MI=T= 5HP!7G5*5HP!7G55
5!ATI7"=4IP B5T355" T45 PATI5=.
B. T45 5=P7"(5"T )7LT 76 APP5A!= )7HHITT5(
5,5=IB!5 57 A"( ABL=5( IT= (I=)5TI7" I" L!I"+
T4AT JLI=(I)TI7" 7,5 T45 =LBJ5)T HATT5 )A""7T B5
3AI,5( A"( HAG B5 A!!5+5( 5,5" 67 T45 6I=T TIH5 7"
APP5A! 7 )7"=I(55( BG T45 )7LT H7TL P7P/0I7.
/CB0
The first issue is whether an employer*employee relationship exists between petitioner and
private respondent Pacfor.

Petitioner argues that he is an industrial partner of the partnership he formed with private
respondent Pacfor, and also an employee of the partnership. Petitioner insists that an industrial partner
may at the same time be an employee of the partnership, provided there is such an agreement, which, in
this case, is the 2=ide Agreement8 and the 2evised 7perating and Profit =haring Agreement.8 The
)ourt of Appeals denied the appeal of petitioner, holding that 2the legal basis of the complaint is not
employment but perhaps partnership, co*ownership, or independent contractorship.8 4ence, the !abor
)ode cannot apply.

3e hold that petitioner is an employee of private respondent Pacfor and that no partnership or
co*ownership exists between the parties.

In a partnership, the members become co*owners of what is contributed to the firm capital
and of all property that may be acAuired thereby and through the efforts of the members.
/C$0
The
property or stocF of the partnership forms a community of goods, a common fund, in which each party
has a proprietary interest.
/C.0
In fact, the "ew )ivil )ode regards a partner as a co*owner of specific
partnership property.
/C'0
5ach partner possesses a @oint interest in the whole of partnership property. If
the relation does not have this feature, it is not one of partnership.
/C&0
This essential element, the
community of interest, or co*ownership of, or @oint interest in partnership property is absent in the
relations between petitioner and private respondent Pacfor. Petitioner is not a part*owner of Pacfor
Phils. 3illiam +leason, private respondent PacforEs President established this fact when he said that
Pacfor Phils. is simply a 2theoretical company8 for the purpose of dividing the income B>*B>. 4e
stressed that petitioner Fnew of this arrangement from the very start, having been the one to propose to
private respondent Pacfor the setting up of a representative office, and 2not a branch office8 in the
Philippines to save on taxes. Thus, the parties in this case, merely shared profits. This alone does not
maFe a partnership.
/->0

Besides, a corporation cannot become a member of a partnership in the absence of express
authori:ation by statute or charter.
/-%0
This doctrine is based on the following considerations1 ;%< that
the mutual agency between the partners, whereby the corporation would be bound by the acts of persons
who are not its duly appointed and authori:ed agents and officers, would be inconsistent with the policy
of the law that the corporation shall manage its own affairs separately and exclusively? and, ;#< that
such an arrangement would improperly allow corporate property to become sub@ect to risFs not
contemplated by the stocFholders when they originally invested in the corporation.
/-#0
"o such
authori:ation has been proved in the case at bar.

Page 10 of 33
Be that as it may, we hold that on the basis of the evidence, an employer*employee
relationship is present in the case at bar. The elements to determine the existence of an employment
relationship are1 ;a< the selection and engagement of the employee? ;b< the payment of wages? ;c< the
power of dismissal? and ;d< the employerEs power to control the employeeEs conduct. The most
important element is the employerEs control of the employeeEs conduct, not only as to the result of the
worF to be done, but also as to the means and methods to accomplish it.
/-C0

In the instant case, all the foregoing elements are present. 6irst, it was private respondent
Pacfor which selected and engaged the services of petitioner as its resident agent in
the Philippines. =econd, as stipulated in their =ide Agreement, private respondent Pacfor pays
petitioner his salary amounting to Q$B,>>> per annum which was later increased to Q.',>>>. Third,
private respondent Pacfor holds the power of dismissal, as may be gleaned through the various
memoranda it issued against petitioner, placing the latter on preventive suspension while charging him
with various offenses, including willful disobedience, serious misconduct, and gross neglect of duty,
and ordering him to show cause why no disciplinary action should be taFen against him.

!astly and most important, private respondent Pacfor has the power of control over the means
and method of petitioner in accomplishing his worF.

The power of control refers merely to the existence of the power, and not to the actual
exercise thereof. The principal consideration is whether the employer has the right to control the
manner of doing the worF, and it is not the actual exercise of the right by interfering with the worF, but
the right to control, which constitutes the test of the existence of an employer*employee relationship.
/--0
In the case at bar, private respondent Pacfor, as employer, clearly possesses such right of
control. Petitioner, as private respondent PacforEs resident agent in the Philippines, is, exactly so, only
an agent of the corporation, a representative of Pacfor, who transacts business, and accepts service on
its behalf.

This right of control was exercised by private respondent Pacfor during the period of
"ovember to (ecember #>>>, when it directed petitioner to turn over to it all records of Pacfor Phils.?
when it ordered petitioner to remit the )hristmas giveaway fund intended for clients of Pacfor Phils.?
and, when it withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to
it the possession of the service car. It was also during this period when private respondent Pacfor sent
letters to its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and (A,)7,
advising them not to deal with petitioner andKor Pacfor Phils. In its letter to (A,)7, private
respondent Pacfor replied to the clientEs reAuest for an invoice payment extension, and formulated a
revised payment program for (A,)7. This is one unmistaFable proof that private respondent Pacfor
exercises control over the petitioner.

"ext, we shall determine if petitioner was constructively dismissed from employment.

The evidence shows that when petitioner insisted on his B>D eAuity in Pacfor Phils., and
would not Auit however, private respondent Pacfor began to systematically deprive petitioner of his
duties and benefits to maFe him feel that his presence in the company was no longer wanted. 6irst,
private respondent Pacfor directed petitioner to turn over to it all records of Pacfor Phils. This would
certainly maFe the worF of petitioner very difficult, if not impossible. =econd, private respondent
Pacfor ordered petitioner to remit the )hristmas giveaway fund intended for clients of Pacfor
Phils. Then it ordered petitioner to transfer title and turn over to it the possession of the service car. It
also advised its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and
(A,)7, not to deal with petitioner andKor Pacfor Phils. !astly, private respondent Pacfor appointed
a new resident agent for Pacfor Phils.
/-B0

Although there is no reduction of the salary of petitioner, constructive dismissal is still present
because continued employment of petitioner is rendered, at the very least, unreasonable.
/-$0
There is an
act of clear discrimination, insensibility or disdain by the employer that continued employment may
become so unbearable on the part of the employee so as to foreclose any choice on his part except to
resign from such employment.
/-.0

The harassing acts of the private respondent are un@ustified. They were undertaFen when
petitioner sought clarification from the private respondent about his supposed B>D eAuity on Pacfor
Phils. Private respondent Pacfor invoFes its rights as an owner. Allegedly, its issuance of the foregoing
directives against petitioner was a valid exercise of management prerogative. 3e remind private
respondent Pacfor that the exercise of management prerogative is not absolute. 2By its very nature,
encompassing as it could be, management prerogative must be exercised in good faith and with due
regard to the rights of labor S verily, with the principles of fair play at heart and @ustice in mind.8 The
exercise of management prerogative cannot be utili:ed as an implement to circumvent our laws and
oppress employees.
/-'0

As resident agent of private respondent corporation, petitioner occupied a position involving
trust and confidence. In the light of the strained relations between the parties, the full restoration of an
employment relationship based on trust and confidence is no longer possible. 4e should be awarded
separation pay, in lieu of reinstatement.

IN AIE= =HEREOF, the petition is GRANTE. The )ourt of AppealsE January C>,
#>>C (ecision in )A*+.. =P "o. .%>#' and July C>, #>>C esolution, affirming the (ecember #>,
#>>% (ecision of the "ational !abor elations )ommission, are ANN!LE and SET ASIE. The
July C>, #>>% (ecision of the !abor Arbiter is REINSTATE with the MOIFI"ATION that the
amount ofP#B>,>>>.>> representing an alleged increase in petitionerEs salary shall be deducted from the
grant of separation pay for lacF of evidence.
SO ORERE.
[G.R. No. 1D54E@. O()ober 4, DEEE]
MARFORIE TO"AO &+0 =ILLIAM T. #ELO, petitioners, vs. "O!RT OF APPEALS &+0
NENITA A. ANAG, respondents.
E " I S I O N
GNARES?SANTIAGO, J.$
This is a petition for review of the (ecision of the )ourt of Appeals in )A*+.. ), "o. -%$%$,
/%0
affirming the (ecision of the egional Trial )ourt of HaFati, Branch %->, in )ivil )ase "o. ''*B>&.
/#0
Page 11 of 33
6resh from her stint as marFeting adviser of Technolux in BangFoF, Thailand, private respondent
"enita A. Anay met petitioner 3illiam T. Belo, then the vice*president for operations of Lltra )lean
3ater Purifier, through her former employer in BangFoF. Belo introduced Anay to petitioner Har@orie
Tocao, who conveyed her desire to enter into a @oint venture with her for the importation and local
distribution of Fitchen cooFwares. Belo volunteered to finance the @oint venture and assigned to Anay
the @ob of marFeting the product considering her experience and established relationship with 3est
Bend )ompany, a manufacturer of Fitchen wares in 3isconsin, L.=.A. Lnder the @oint venture, Belo
acted as capitalist, Tocao as president and general manager, and Anay as head of the marFeting
department and later, vice*president for sales. Anay organi:ed the administrative staff and sales force
while Tocao hired and fired employees, determined commissions andKor salaries of the employees, and
assigned them to different branches. The parties agreed that BeloEs name should not appear in any
documents relating to their transactions with 3est Bend )ompany. Instead, they agreed to use AnayEs
name in securing distributorship of cooFware from that company. The parties agreed further that Anay
would be entitled to1 ;%< ten percent ;%>D< of the annual net profits of the business? ;#< overriding
commission of six percent ;$D< of the overall weeFly production? ;C< thirty percent ;C>D< of the sales
she would maFe? and ;-< two percent ;#D< for her demonstration services. The agreement was not
reduced to writing on the strength of BeloEs assurances that he was sincere, dependable and honest
when it came to financial commitments.
Anay having secured the distributorship of cooFware products from the 3est Bend )ompany and
organi:ed the administrative staff and the sales force, the cooFware business tooF off successfully. They
operated under the name of +eminesse 5nterprise, a sole proprietorship registered in Har@orie TocaoEs
name, with office at .%# ufino Building, Ayala Avenue, HaFati )ity. Belo made good his monetary
commitments to Anay. Thereafter, oger Huencheberg of 3est Bend )ompany invited Anay to the
distributorKdealer meeting in 3est Bend, 3isconsin, L.=.A., from July %& to #%, %&'. and to the
southwestern regional convention in Pismo Beach, )alifornia, L.=.A., from July #B*#$, %&'.. Anay
accepted the invitation with the consent of Har@orie Tocao who, as president and general manager of
+eminesse 5nterprise, even wrote a letter to the ,isa =ection of the L.=. 5mbassy in Hanila on July %C,
%&'.. A portion of the letter reads1
2Hs. "enita (. Anay ;sic<, who has been patroni:ing and supporting 3est Bend )o. for twenty ;#><
years now, acAuired the distributorship of oyal 9ueen cooFware for +eminesse 5nterprise, is the ,ice
President =ales HarFeting and a business partner of our company, will attend in response to the
invitation.8 ;Italics supplied.<
/C0
Anay arrived from the L.=.A. in mid*August %&'., and immediately undertooF the tasF of saving
the business on account of the unsatisfactory sales record in the HaFati and )ubao offices. 7n August
C%, %&'., she received a plaAue of appreciation from the administrative and sales people through
Har@orie Tocao
/-0
for her excellent @ob performance. 7n 7ctober ., %&'., in the presence of Anay, Belo
signed a memo
/B0
entitling her to a thirty*seven percent ;C.D< commission for her personal sales "up
(ec C%K'..8 Belo explained to her that said commission was apart from her ten percent ;%>D< share in
the profits. 7n 7ctober &, %&'., Anay learned that Har@orie Tocao had signed a letter
/$0
addressed to the
)ubao sales office to the effect that she was no longer the vice*president of +eminesse 5nterprise. The
following day, 7ctober %>, she received a note from !ina T. )ru:, marFeting manager, that Har@orie
Tocao had barred her from holding office and conducting demonstrations in both HaFati and )ubao
offices.
/.0
Anay attempted to contact Belo. =he wrote him twice to demand her overriding commission
for the period of January ', %&'' to 6ebruary B, %&'' and the audit of the company to determine her
share in the net profits. 3hen her letters were not answered, Anay consulted her lawyer, who, in turn,
wrote Belo a letter. =till, that letter was not answered.
Anay still received her five percent ;BD< overriding commission up to (ecember %&'.. The
following year, %&'', she did not receive the same commission although the company netted a gross
sales of P%C,C>>,C$>.>>.
7n April B, %&'', "enita A. Anay filed )ivil )ase "o. ''*B>&, a complaint for sum of money
with damages
/'0
against Har@orie (. Tocao and 3illiam Belo before the egional Trial )ourt of HaFati,
Branch %->.
In her complaint, Anay prayed that defendants be ordered to pay her, @ointly and severally, the
following1 ;%< PC#,>>.>> as unpaid overriding commission from January ', %&'' to 6ebruary B, %&''?
;#< P%>>,>>>.>> as moral damages, and ;C< P%>>,>>>.>> as exemplary damages. The plaintiff also
prayed for an audit of the finances of +eminesse 5nterprise from the inception of its business operation
until she was 2illegally dismissed8 to determine her ten percent ;%>D< share in the net profits. =he
further prayed that she be paid the five percent ;BD< 2overriding commission2 on the remaining %B>
3est Bend cooFware sets before her 2dismissal.8
In their answer,
/&0
Har@orie Tocao and Belo asserted that the 2alleged agreement8 with Anay that
was 2neither reduced in writing, nor ratified,8 was 2either unenforceable or void or inexistent.8 As far
as Belo was concerned, his only role was to introduce Anay to Har@orie Tocao. There could not have
been a partnership because, as Anay herself admitted, +eminesse 5nterprise was the sole proprietorship
of Har@orie Tocao. Because Anay merely acted as marFeting demonstrator of +eminesse 5nterprise for
an agreed remuneration, and her complaint referred to either her compensation or dismissal, such
complaint should have been lodged with the (epartment of !abor and not with the regular court.
Petitioners ;defendants therein< further alleged that Anay filed the complaint on account of 2ill*
will and resentment8 because Har@orie Tocao did not allow her to 2lord it over in the +eminesse
5nterprise.8 Anay had acted liFe she owned the enterprise because of her experience and expertise.
4ence, petitioners were the ones who suffered actual damages 2including unreturned and unaccounted
stocFs of +eminesse 5nterprise,8 and 2serious anxiety, besmirched reputation in the business world,
and various damages not less than PB>>,>>>.>>.8 They also alleged that, to 2vindicate their names,8
they had to hire counsel for a fee of P#C,>>>.>>.
At the pre*trial conference, the issues were limited to1 ;a< whether or not the plaintiff was an
employee or partner of Har@orie Tocao and Belo, and ;b< whether or not the parties are entitled to
damages.
/%>0
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the
business. 4e, however, admitted that the two had agreed that Anay would receive a three to four percent
;C*-D< share in the gross sales of the cooFware. 4e denied contributing capital to the business or
receiving a share in its profits as he merely served as a guarantor of Har@orie Tocao, who was new in
the business. 4e attended andKor presided over business meetings of the venture in his capacity as a
guarantor but he never participated in decision*maFing. 4e claimed that he wrote the memo granting
the plaintiff thirty*seven percent ;C.D< commission upon her dismissal from the business venture at the
reAuest of Tocao, because Anay had no other income.
6or her part, Har@orie Tocao denied having entered into an oral partnership agreement with
Anay. 4owever, she admitted that Anay was an expert in the cooFware business and hence, they agreed
Page 12 of 33
to grant her the following commissions1 thirty*seven percent ;C.D< on personal sales? five percent ;BD<
on gross sales? two percent ;#D< on product demonstrations, and two percent ;#D< for recruitment of
personnel. Har@orie denied that they agreed on a ten percent ;%>D< commission on the net profits.
Har@orie claimed that she got the capital for the business out of the sale of the sewing machines used in
her garments business and from Peter !o, a =ingaporean friend*financier who loaned her the funds with
interest. Because she treated Anay as her 2co*eAual,8 Har@orie received the same amounts of
commissions as her. 4owever, Anay failed to account for stocFs valued at P#>>,>>>.>>.
7n April ##, %&&C, the trial court rendered a decision the dispositive part of which is as follows1
23455675, in view of the foregoing, @udgment is hereby rendered1
%. 7rdering defendants to submit to the )ourt a formal account as to the partnership affairs
for the years %&'. and %&'' pursuant to Art. %'>& of the )ivil )ode in order to
determine the ten percent ;%>D< share of plaintiff in the net profits of the cooFware
business?
#. 7rdering defendants to pay five percent ;BD< overriding commission for the one hundred
and fifty ;%B>< cooFware sets available for disposition when plaintiff was wrongfully
excluded from the partnership by defendants?
C. 7rdering defendants to pay plaintiff overriding commission on the total production which
for the period covering January ', %&'' to 6ebruary B, %&'' amounted to PC#,>>>.>>?
-. 7rdering defendants to pay P%>>,>>>.>> as moral damages and P%>>,>>>.>> as
exemplary damages, and
B. 7rdering defendants to pay PB>,>>>.>> as attorneyEs fees and P#>,>>>.>> as costs of suit.
=7 7(55(.8
The trial court held that there was indeed an 2oral partnership agreement between the plaintiff and
the defendants,8 based on the following1 ;a< there was an intention to create a partnership? ;b< a
common fund was established through contributions consisting of money and industry, and ;c< there
was a @oint interest in the profits. The testimony of 5li:abeth Bantilan, AnayEs cousin and the
administrative officer of +eminesse 5nterprise from August #%, %&'$ until it was absorbed by oyal
International, Inc., buttressed the fact that a partnership existed between the parties. The letter of oger
Huencheberg of 3est Bend )ompany stating that he awarded the distributorship to Anay and Har@orie
Tocao because he was convinced that with Har@orieEs financial contribution and AnayEs experience, the
combination of the two would be invaluable to the partnership, also supported that conclusion. BeloEs
claim that he was merely a 2guarantor8 has no basis since there was no written evidence thereof as
reAuired by Article #>BB of the )ivil )ode. Horeover, his acts of attending andKor presiding over
meetings of +eminesse 5nterprise plus his issuance of a memo giving Anay C.D commission on
personal sales belied this. 7n the contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the
partnership inasmuch as such practice is often resorted to in business circles as an impetus to bigger
sales volume. It did not matter that the agreement was not in writing because Article %..% of the )ivil
)ode provides that a partnership may be 2constituted in any form.8 The fact that +eminesse 5nterprise
was registered in Har@orie TocaoEs name is not determinative of whether or not the business was
managed and operated by a sole proprietor or a partnership. 3hat was registered with the Bureau of
(omestic Trade was merely the business name or style of +eminesse 5nterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is an
innocent partner. 4ence, the guilty partner must give him his due upon the dissolution of the partnership
as well as damages or share in the profits 2reali:ed from the appropriation of the partnership business
and goodwill.8 An innocent partner thus possesses 2pecuniary interest in every existing contract that
was incomplete and in the trade name of the co*partnership and assets at the time he was wrongfully
expelled.8
PetitionersE appeal to the )ourt of Appeals
/%%0
was dismissed, but the amount of damages awarded
by the trial court were reduced to PB>,>>>.>> for moral damages and PB>,>>>.>> as exemplary
damages. Their Hotion for econsideration was denied by the )ourt of Appeals for lacF of merit.
/%#0
Petitioners Belo and Har@orie Tocao are now before this )ourt on a petition for review on certiorari,
asserting that there was no business partnership between them and herein private respondent "enita A.
Anay who is, therefore, not entitled to the damages awarded to her by the )ourt of Appeals.
Petitioners Tocao and Belo contend that the )ourt of Appeals erroneously held that a partnership
existed between them and private respondent Anay because +eminesse 5nterprise 2came into being8
exactly a year before the 2alleged partnership8 was formed, and that it was very unliFely that petitioner
Belo would invest the sum of P#,B>>,>>>.>> with petitioner Tocao contributing nothing, without any
2memorandum whatsoever regarding the alleged partnership.8
/%C0
The issue of whether or not a partnership exists is a factual matter which are within the exclusive
domain of both the trial and appellate courts. This )ourt cannot set aside factual findings of such courts
absent any showing that there is no evidence to support the conclusion drawn by the court a /uo.
/%-0
In
this case, both the trial court and the )ourt of Appeals are one in ruling that petitioners and private
respondent established a business partnership. This )ourt finds no reason to rule otherwise.
To be considered a @uridical personality, a partnership must fulfill these reAuisites1 ;%< two or
more persons bind themselves to contribute money, property or industry to a common fund? and ;#<
intention on the part of the partners to divide the profits among themselves.
/%B0
It may be constituted in
any form? a public instrument is necessary only where immovable property or real rights are contributed
thereto.
/%$0
This implies that since a contract of partnership is consensual, an oral contract of partnership
is as good as a written one. 3here no immovable property or real rights are involved, what matters is
that the parties have complied with the reAuisites of a partnership.The fact that there appears to be no
record in the =ecurities and 5xchange )ommission of a public instrument embodying the partnership
agreement pursuant to Article %..# of the )ivil )ode
/%.0
did not cause the nullification of the
partnership. The pertinent provision of the )ivil )ode on the matter states1
Art. %.$'. The partnership has a @uridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the reAuirements of article %..#, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cooFware. Private respondent contributed such expertise to the partnership and hence,
under the law, she was the industrial or managing partner. It was through her reputation with the 3est
Bend )ompany that the partnership was able to open the business of distributorship of that companyEs
Page 13 of 33
cooFware products? it was through the same efforts that the business was propelled to financial success.
Petitioner Tocao herself admitted private respondentEs indispensable role in putting up the business
when, upon being asFed if private respondent held the positions of marFeting manager and vice*
president for sales, she testified thus1
2A1 "o, sir at the start she was the marFeting manager because there were no one to sell yet,
itEs only me there then her and then two ;#< people, so about four ;-<. "ow, after that
when she recruited already 7scar Abella and !ina Torda*)ru: these two ;#< people
were given the designation of marFeting managers of which definitely "ita as superior
to them would be the ,ice President.8
/%'0
By the set*up of the business, third persons were made to believe that a partnership had indeed been
forged between petitioners and private respondents. Thus, the communication dated June -, %&'$ of
Hissy Jagler of 3est Bend )ompany to oger Huencheberg of the same company states1
2Harge Tocao is president of +eminesse 5nterprises. +eminesse will finance the operations. Harge
does not have cooFware experience. "ita Anay has started to gather former managers, !ina Torda and
(ory ,ista. =he has also gathered former demonstrators, Betty Bantilan, 5loisa !amela, Henchu Javier.
They will continue to gather other Fey people and build up the organi:ation. All they need is the finance
and the products to sell.8
/%&0
7n the other hand, petitioner BeloEs denial that he financed the partnership rings hollow in the
face of the established fact that he presided over meetings regarding matters affecting the operation of
the business. Horeover, his having authori:ed in writing on 7ctober ., %&'., on a stationery of his own
business firm, 3ilcon Builders =upply, that private respondent should receive thirty*seven ;C.D< of the
proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest
in the business. 4is claim that he was merely a guarantor is belied by that personal act of proprietorship
in the business. Horeover, if he was indeed a guarantor of future debts of petitioner Tocao under Article
#>BC of the )ivil )ode,
/#>0
he should have presented documentary evidence therefor. 3hile Article #>BB
of the )ivil )ode simply provides that guaranty must be 2express,8 Article %->C, the =tatute of 6rauds,
reAuires that 2a special promise to answer for the debt, default or miscarriage of another8 be in writing.
/#%0
Petitioner Tocao, a former ramp model,
/##0
was also a capitalist in the partnership. =he claimed
that she herself financed the business. 4er and petitioner BeloEs roles as both capitalists to the
partnership with private respondent are buttressed by petitioner TocaoEs admissions that petitioner Belo
was her boyfriend and that the partnership was not their only business venture together. They also
established a firm that they called 23i@i,8 the combination of petitioner BeloEs first name, 3illiam, and
her nicFname, Ji@i.
/#C0
The special relationship between them dovetails with petitioner BeloEs claim that
he was acting in behalf of petitioner Tocao. =ignificantly, in the early stage of the business operation,
petitioners reAuested 3est Bend )ompany to allow them to 2utili:e their banFing and trading facilities
in =ingapore8 in the matter of importation and payment of the cooFware products.
/#-0
The inevitable
conclusion, therefore, was that petitioners merged their respective capital and infused the amount into
the partnership of distributing cooFware with private respondent as the managing partner.
The business venture operated under +eminesse 5nterprise did not result in an employer*
employee relationship between petitioners and private respondent. 3hile it is true that the receipt of a
percentage of net profits constitutes only prima facie evidence that the recipient is a partner in the
business,
/#B0
the evidence in the case at bar controverts an employer*employee relationship between the
parties. In the first place, private respondent had a voice in the management of the affairs of the
cooFware distributorship,
/#$0
including selection of people who would constitute the administrative staff
and the sales force. =econdly, petitioner TocaoEs admissions militate against an employer*employee
relationship. =he admitted that, liFe her who owned +eminesse 5nterprise,
/#.0
private respondent
received only commissions and transportation and representation allowances
/#'0
and not a fixed salary.
/#&0
Petitioner Tocao testified1
291 7f course. "ow, I am showing to you certain documents already marFed as 5xhs. RME and RG.E
Please go over this. 5xh. RGE is denominated T)ubao overridesE '*#%*'. with ending August
#%, %&'., will you please go over this and tell the 4onorable )ourt whether you ever came
across this document and Fnow of your own Fnowledge the amount ***
A1 Ges, sir this is what I am talFing about earlier. ThatEs the one I am telling you earlier a certain
percentage for promotions, advertising, incentive.
91 I see. "ow, this promotion, advertising, incentive, there is a figure here and words which I
Auote1 R7verrides Har@orie Ann Tocao P#%,-%>.B>E this means that you have received this
amountU
A1 7h yes, sir.
91 I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotionU
A1 Ges, sir.
91 I see. Below your name is the words and figure and I Auote R"ita (. Anay P#%,-%>.B>E, what is
thisU
A1 ThatEs her overriding commission.
91 7verriding commission, I see. 7f course, you are telling this 4onorable )ourt that there being
the same P#%,-%>.B> is merely by coincidenceU
A1 No" sir" ) made it a point that we were e/ual because the way ) loo# at her Fasi" you #now in a
sense because of her e%pertise in the business she is !ital to my business. +o" as part of the
incenti!e ) offer her the same thin$.
91 =o, in short you are saying that this you have shared together, I mean having gotten from the
company P#%,%->.B> is your way of indicating that you were treatin$ her as an e/ualU
A1 As an e/ual.
91 As an eAual, I see. Gou were treating her as an eAualU
A1 Yes" sir.
91 I am calling again your attention to 5xh. RGE R7verrides HaFati the other one is ***
A1 That is the same thing, sir.
Page 14 of 33
91 3ith ending August #%, words and figure R7verrides Har@orie Ann Tocao P%B,C%-.#BE the
amount there you will acFnowledge you have received thatU
A1 Ges, sir.
91 Again in concept of commission, representation, promotion, etc.U
A1 Ges, sir.
91 7Fey. Below your name is the name of "ita Anay P%B,C%-.#B that is also an indication that she
received the same amountU
A1 Ges, sir.
91 And, as in your previous statement it is not by coincidence that these two ;#< are the sameU
A1 "o, sir.
91 It is again in concept of you treating Hiss Anay as your eAualU
A1 Ges, sir.8 ;Italics supplied.<
/C>0
If indeed petitioner Tocao was private respondentEs employer, it is difficult to believe that they
shall receive the same income in the business. In a partnership, each partner must share in the profits
and losses of the venture, except that the industrial partner shall not be liable for the losses.
/C%0
As an
industrial partner, private respondent had the right to demand for a formal accounting of the business
and to receive her share in the net profit.
/C#0
The fact that the cooFware distributorship was operated under the name of +eminesse 5nterprise,
a sole proprietorship, is of no moment. 3hat was registered with the Bureau of (omestic Trade on
August %&, %&'. was merely the name of that enterprise.
/CC0
3hile it is true that in her undated
application for renewal of registration of that firm name, petitioner Tocao indicated that it would be
engaged in retail of 2Fitchenwares, cooFwares, utensils, sFillet,8
/C-0
she also admitted that the enterprise
was only 2$>D to .>D for the cooFware business,8 while #>D to C>D of its business activity was
devoted to the sale of water sterili:er or purifier.
/CB0
Indubitably then, the business name +eminesse
5nterprise was used only for practical reasons * it was utili:ed as the common name for petitioner
TocaoEs various business activities, which included the distributorship of cooFware.
Petitioners underscore the fact that the )ourt of Appeals did not return the 2unaccounted and
unremitted stocFs of +eminesse 5nterprise amounting to P#>',#B>.>>.8
/C$0
7bviously a ploy to offset
the damages awarded to private respondent, that claim, more than anything else, proves the existence of
a partnership between them. In )dos !. Court of Appeals" this )ourt said1
2The best evidence of the existence of the partnership, which was not yet terminated ;though in the
winding up stage<, were the unsold goods and uncollected receivables, which were presented to the trial
court. =ince the partnership has not been terminated, the petitioner and private complainant remained as
co*partners. x x x.8
/C.0
It is not surprising then that, even after private respondent had been unceremoniously booted out of the
partnership in 7ctober %&'., she still received her overriding commission until (ecember %&'..
Lndoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to
reap for herself andKor for petitioner Belo financial gains resulting from private respondentEs efforts to
maFe the business venture a success. Thus, as petitioner Tocao became adept in the business operation,
she started to assert herself to the extent that she would even shout at private respondent in front of
other people.
/C'0
4er instruction to !ina Torda )ru:, marFeting manager, not to allow private respondent
to hold office in both the HaFati and )ubao sales offices concretely spoFe of her perception that private
respondent was no longer necessary in the business operation,
/C&0
and resulted in a falling out between
the two. 4owever, a mere falling out or misunderstanding between partners does not convert the
partnership into a sham organi:ation.
/->0
The partnership exists until dissolved under the law. =ince the
partnership created by petitioners and private respondent has no fixed term and is therefore a
partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a
partner. Thus1
2x x x. The right to choose with whom a person wishes to associate himself is the very foundation and
essence of that partnership. Its continued existence is, in turn, dependent on the constancy of that
mutual resolve, along with each partnerEs capability to give it, and the absence of cause for dissolution
provided by the law itself. ,erily, any one of the partners may, at his sole pleasure, dictate a dissolution
of the partnership at will. 4e must, however, act in good faith, not that the attendance of bad faith can
prevent the dissolution of the partnership but that it can result in a liability for damages.8
/-%0
An un@ustified dissolution by a partner can sub@ect him to action for damages because by the mutual
agency that arises in a partnership, the doctrine of delectus personae allows the partners to have
the power" although not necessarily the ri$ht to dissolve the partnership.
/-#0
In this case, petitioner TocaoEs unilateral exclusion of private respondent from the partnership is
shown by her memo to the )ubao office plainly stating that private respondent was, as of 7ctober &,
%&'., no longer the vice*president for sales of +eminesse 5nterprise.
/-C0
By that memo, petitioner Tocao
effected her own withdrawal from the partnership and considered herself as having ceased to be
associated with the partnership in the carrying on of the business. "evertheless, the partnership was not
terminated thereby? it continues until the winding up of the business.
/--0
The winding up of partnership affairs has not yet been undertaFen by the partnership. This is
manifest in petitionersE claim for stocFs that had been entrusted to private respondent in the pursuit of
the partnership business.
The determination of the amount of damages commensurate with the factual findings upon which
it is based is primarily the tasF of the trial court.
/-B0
The )ourt of Appeals may modify that amount only
when its factual findings are diametrically opposed to that of the lower court,
/-$0
or the award is palpably
or scandalously and unreasonably excessive.
/-.0
4owever, exemplary damages that are awarded 2by way
of example or correction for the public good,8
/-'0
should be reduced to PB>,>>>.>>, the amount correctly
awarded by the )ourt of Appeals. )oncomitantly, the award of moral damages of P%>>,>>>.>> was
excessive and should be liFewise reduced to PB>,>>>.>>.=imilarly, attorneyEs fees that should be
granted on account of the award of exemplary damages and petitionersE evident bad faith in refusing to
satisfy private respondentEs plainly valid, @ust and demandable claims,
/-&0
appear to have been
excessively granted by the trial court and should therefore be reduced to P#B,>>>.>>.
=HEREFORE, the instant petition for review on certiorari is (5"I5(. The partnership among
petitioners and private respondent is ordered dissolved, and the parties are ordered to effect the winding
Page 15 of 33
up and liAuidation of the partnership pursuant to the pertinent provisions of the )ivil )ode. This case is
remanded to the egional Trial )ourt for proper proceedings relative to said dissolution. The appealed
decisions of the egional Trial )ourt and the )ourt of Appeals are A66IH5( with
H7(I6I)ATI7"=, as follows ***
%. Petitioners are ordered to submit to the egional Trial )ourt a formal account of the partnership
affairs for the years %&'. and %&'', pursuant to Article %'>& of the )ivil )ode, in order to determine
private respondentEs ten percent ;%>D< share in the net profits of the partnership?
#. Petitioners are ordered, @ointly and severally, to pay private respondent five percent ;BD< overriding
commission for the one hundred and fifty ;%B>< cooFware sets available for disposition since the time
private respondent was wrongfully excluded from the partnership by petitioners?
C. Petitioners are ordered, @ointly and severally, to pay private respondent overriding commission on the
total production which, for the period covering January ', %&'' to 6ebruary B, %&'', amounted to
PC#,>>>.>>?
-. Petitioners are ordered, @ointly and severally, to pay private respondent moral damages in the amount
of PB>,>>>.>>, exemplary damages in the amount of PB>,>>>.>> and attorneyEs fees in the amount of
P#B,>>>.>>.
SO ORERE.
[G.R. No. 1@38ED. M&r(% 11, DEE@]
HOMEO=NERS SAAINGS H LOAN #ANC, petitioner, vs. MIG!ELA ". AILO, respondent.
E " I S I O N
TINGA, J.$
This is a petition for review on certiorari under ule -B of the evised ules of )ourt, assailing
the 'ecision
/%0
of the )ourt of Appeals in )A*+.. ), "o. B&&'$ rendered on June C, #>>#, which
affirmed with modification the 7ctober %', %&&. 'ecision
/#0
of the egional Trial )ourt, Branch #&,
=an Pablo )ity, !aguna in )ivil )ase "o. =P*-.-' ;&.<.
The following factual antecedents are undisputed.
espondent Higuela ). (ailo and Harcelino (ailo, Jr. were married on August ', %&$.. (uring
their marriage, the spouses purchased a house and lot situated at Barangay =an 6rancisco, =an Pablo
)ity from a certain =andra (alida. The sub@ect property was declared for tax assessment purposes under
Assessment of eal Property "o. &-*>B%*#'>#. The (eed of Absolute =ale, however, was executed
only in favor of the late Harcelino (ailo, Jr. as vendee thereof to the exclusion of his wife.
/C0
7n (ecember %, %&&C, Harcelino (ailo, Jr. executed a =pecial Power of Attorney ;=PA< in favor
of one !ilibeth +esmundo, authori:ing the latter to obtain a loan from petitioner 4omeowners =avings
and !oan BanF to be secured by the spouses (ailoEs house and lot in =an Pablo )ity. Pursuant to the
=PA, +esmundo obtained a loan in the amount of PC>>,>>>.>> from petitioner. As security therefor,
+esmundo executed on the same day a eal 5state Hortgage constituted on the sub@ect property in
favor of petitioner. The abovementioned transactions, including the execution of the =PA in favor of
+esmundo, tooF place without the Fnowledge and consent of respondent.
/-0
Lpon maturity, the loan remained outstanding. As a result, petitioner instituted extra@udicial
foreclosure proceedings on the mortgaged property. After the extra@udicial sale thereof, a )ertificate of
=ale was issued in favor of petitioner as the highest bidder. After the lapse of one year without the
property being redeemed, petitioner, through its vice*president, consolidated the ownership thereof by
executing on June $, %&&$ an Affidavit of )onsolidation of 7wnership and a (eed of Absolute =ale.
/B0
In the meantime, Harcelino (ailo, Jr. died on (ecember #>, %&&B. In one of her visits to the
sub@ect property, respondent learned that petitioner had already employed a certain oldan Brion to
clean its premises and that her car, a 6ord sedan, was ra:ed because Brion allowed a boy to play with
fire within the premises.
)laiming that she had no Fnowledge of the mortgage constituted on the sub@ect property, which
was con@ugal in nature, respondent instituted with the egional Trial )ourt, Branch #&, =an Pablo )ity,
)ivil )ase "o. =P*#### ;&.< for Nullity of *eal (state Mort$a$e and Certificate of +ale" Affida!it of
Consolidation of 0wnership" 'eed of +ale" *econ!eyance with rayer for reliminary )n1unction and
'ama$es against petitioner. In the latterEsAnswer with Counterclaim, petitioner prayed for the dismissal
of the complaint on the ground that the property in Auestion was the exclusive property of the late
Harcelino (ailo, Jr.
After trial on the merits, the trial court rendered a 'ecision on 7ctober %', %&&.. The dispositive
portion thereof reads as follows1
3455675, the plaintiff having proved by the preponderance of evidence the allegations of the
)omplaint, the )ourt finds for the plaintiff and hereby orders1
7" T45 6I=T )AL=5 76 A)TI7"1
%. The declaration of the following documents as null and void1
;a< The (eed of eal 5state Hortgage dated (ecember %, %&&C executed before
"otary Public omulo Lrrea and his notarial register entered as (oc. "o. #%#?
Page "o. --, BooF "o. MMI, =eries of %&&C.
;b< The )ertificate of =ale executed by "otary Public eynaldo Alcantara on April
#>, %&&B.
;c< The Affidavit of )onsolidation of 7wnership executed by the defendant
;c< The Affidavit of )onsolidation of 7wnership executed by the defendant over the
residential lot located at Brgy. =an 6rancisco, =an Pablo )ity, covered by AP
Page 16 of 33
"o. &B*>&%*%#C$ entered as (oc. "o. ->$? Page "o. 'C, BooF "o. III, =eries
of %&&$ of "otary Public 7ctavio H. Nayas.
;d< The assessment of real property "o. &B*>B%*%#C$.
#. The defendant is ordered to reconvey the property sub@ect of this complaint to the plaintiff.
7" T45 =5)7"( )AL=5 76 A)TI7"
%. The defendant to pay the plaintiff the sum of P->,>>>.>> representing the value of the car
which was burned.
7" B7T4 )AL=5= 76 A)TI7"
%. The defendant to pay the plaintiff the sum of P#B,>>>.>> as attorneyEs fees?
#. The defendant to pay plaintiff P#B,>>>.>> as moral damages?
C. The defendant to pay the plaintiff the sum of P%>,>>>.>> as exemplary damages?
-. To pay the cost of the suit.
The counterclaim is dismissed.
=7 7(55(.
/$0
Lpon elevation of the case to the )ourt of Appeals, the appellate court affirmed the trial courtEs
finding that the sub@ect property was con@ugal in nature, in the absence of clear and convincing evidence
to rebut the presumption that the sub@ect property acAuired during the marriage of spouses (ailo
belongs to their con@ugal partnership.
/.0
The appellate court declared as void the mortgage on the sub@ect
property because it was constituted without the Fnowledge and consent of respondent, in accordance
with Article %#- of the 6amily )ode. Thus, it upheld the trial courtEs order to reconvey the sub@ect
property to respondent.
/'0
3ith respect to the damage to respondentEs car, the appellate court found
petitioner to be liable therefor because it is responsible for the conseAuences of the acts or omissions of
the person it hired to accomplish the assigned tasF.
/&0
All told, the appellate court affirmed the trial
courtEs 'ecision, but deleted the award for damages and attorneyEs fees for lacF of basis.
/%>0
4ence, this petition, raising the following issues for this )ourtEs consideration1
%. 345T45 7 "7T T45 H7T+A+5 )7"=TITLT5( BG T45 !AT5 HA)5!I"7 (AI!7,
J. 7" T45 =LBJ5)T P7P5TG A= )7*73"5 T45576 I= ,A!I( A= T7 4I=
L"(I,I(5( =4A5.
#. 345T45 7 "7T T45 )7"JL+A! PAT"5=4IP I= !IAB!5 67 T45 PAGH5"T 76
T45 !7A" 7BTAI"5( BG T45 !AT5 HA)5!I"7 (AI!7, J. T45 =AH5 4A,I"+
5(7L"(5( T7 T45 B5"56IT 76 T45 6AHI!G.
/%%0
6irst, petitioner taFes issue with the legal provision applicable to the factual milieu of this case. It
contends that Article %#- of the 6amily )ode should be construed in relation to Article -&C of the )ivil
)ode, which states1
AT. -&C. 5ach co*owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute another
person in its en@oyment, except when personal rights are involved. But the effect of the alienation or the
mortgage, with respect to the co*owners, shall be limited to the portion which may be allotted to him in
the division upon the termination of the co*ownership.
Article %#- of the 6amily )ode provides in part1
AT. %#-. The administration and en@oyment of the con@ugal partnership property shall belong to both
spouses @ointly. . . .
In the event that one spouse is incapacitated or otherwise unable to participate in the administration of
the con@ugal properties, the other spouse may assume sole powers of administration. These powers do
not include the powers of disposition or encumbrance which must have the authority of the court or the
written consent of the other spouse. In the absence of such authority or consent, the disposition or
encumbrance shall be void. . . .
Petitioner argues that although Article %#- of the 6amily )ode reAuires the consent of the other
spouse to the mortgage of con@ugal properties, the framers of the law could not have intended to curtail
the right of a spouse from exercising full ownership over the portion of the con@ugal property pertaining
to him under the concept of co*ownership.
/%#0
Thus, petitioner would have this )ourt uphold the validity
of the mortgage to the extent of the late Harcelino (ailo, Jr.Es share in the con@ugal partnership.
In 2uian$ !. Court of Appeals,
/%C0
it was held that the sale of a con@ugal property reAuires the
consent of both the husband and wife.
/%-0
In applying Article %#- of the 6amily )ode, this )ourt
declared that the absence of the consent of one renders the entire sale null and void, including the
portion of the con@ugal property pertaining to the husband who contracted the sale. The same principle
in 2uian$ sAuarely applies to the instant case. As shall be discussed next, there is no legal basis to
construe Article -&C of the )ivil )ode as an exception to Article %#- of the 6amily )ode.
espondent and the late Harcelino (ailo, Jr. were married on August ', %&$.. In the absence of a
marriage settlement, the system of relative community or con@ugal partnership of gains governed the
property relations between respondent and her late husband.
/%B0
3ith the effectivity of the 6amily )ode
on August C, %&'', )hapter - on Con1u$al artnership of 2ains in the 6amily )ode was made
applicable to con@ugal partnership of gains already established before its effectivity unless vested rights
have already been acAuired under the )ivil )ode or other laws.
/%$0
The rules on co*ownership do not even apply to the property relations of respondent and the late
Harcelino (ailo, Jr. even in a suppletory manner. The regime of con@ugal partnership of gains is a
Page 17 of 33
special type of partnership, where the husband and wife place in a common fund the proceeds, products,
fruits and income from their separate properties and those acAuired by either or both spouses through
their efforts or by chance.
/%.0
LnliFe the absolute community of property wherein the rules on co*
ownership apply in a suppletory manner,
/%'0
the con@ugal partnership shall be governed by the rules on
contract of partnership in all that is not in conflict with what is expressly determined in the chapter ;on
con@ugal partnership of gains< or by the spouses in their marriage settlements.
/%&0
Thus, the property
relations of respondent and her late husband shall be governed, foremost, by )hapter - onCon1u$al
artnership of 2ains of the 6amily )ode and, suppletorily, by the rules on partnership under the )ivil
)ode. In case of conflict, the former prevails because the )ivil )ode provisions on partnership apply
only when the 6amily )ode is silent on the matter.
The basic and established fact is that during his lifetime, without the Fnowledge and consent of
his wife, Harcelino (ailo, Jr. constituted a real estate mortgage on the sub@ect property, which formed
part of their con@ugal partnership. By express provision of Article %#- of the 6amily )ode, in the
absence of ;court< authority or written consent of the other spouse, any disposition or encumbrance of
the con@ugal property shall be void.
The aforeAuoted provision does not Aualify with respect to the share of the spouse who maFes the
disposition or encumbrance in the same manner that the rule on co*ownership under Article -&C of the
)ivil )ode does. 3here the law does not distinguish, courts should not distinguish.
/#>0
Thus, both the
trial court and the appellate court are correct in declaring the nullity of the real estate mortgage on the
sub@ect property for lacF of respondentEs consent.
=econd, petitioner imposes the liability for the payment of the principal obligation obtained by the
late Harcelino (ailo, Jr. on the con@ugal partnership to the extent that it redounded to the benefit of the
family.
/#%0
Lnder Article %#% of the 6amily )ode, 2/T0he con@ugal partnership shall be liable for1 . . . ;C<
(ebts and obligations contracted by either spouse without the consent of the other to the extent that the
family may have been benefited? . . . .8 6or the sub@ect property to be held liable, the obligation
contracted by the late Harcelino (ailo, Jr. must have redounded to the benefit of the con@ugal
partnership. There must be the reAuisite showing then of some advantage which clearly accrued to the
welfare of the spouses. )ertainly, to maFe a con@ugal partnership respond for a liability that should
appertain to the husband alone is to defeat and frustrate the avowed ob@ective of the new )ivil )ode to
show the utmost concern for the solidarity and well*being of the family as a unit.
/##0
The burden of proof that the debt was contracted for the benefit of the con@ugal partnership of
gains lies with the creditor*party litigant claiming as such.
/#C0
(i incumbit probatio /ui dicit" non /ui
ne$at ;he who asserts, not he who denies, must prove<.
/#-0
PetitionerEs sweeping conclusion that the loan
obtained by the late Harcelino (ailo, Jr. to finance the construction of housing units without a doubt
redounded to the benefit of his family, without adducing adeAuate proof, does not persuade this )ourt.
7ther than petitionerEs bare allegation, there is nothing from the records of the case to compel a finding
that, indeed, the loan obtained by the late Harcelino (ailo, Jr. redounded to the benefit of the family.
)onseAuently, the con@ugal partnership cannot be held liable for the payment of the principal obligation.
In addition, a perusal of the records of the case reveals that during the trial, petitioner vigorously
asserted that the sub@ect property was the exclusive property of the late Harcelino (ailo, Jr. "owhere in
the answer filed with the trial court was it alleged that the proceeds of the loan redounded to the benefit
of the family. 5ven on appeal, petitioner never claimed that the family benefited from the proceeds of
the loan. 3hen a party adopts a certain theory in the court below, he will not be permitted to change his
theory on appeal, for to permit him to do so would not only be unfair to the other party but it would also
be offensive to the basic rules of fair play, @ustice and due process.
/#B0
A party may change his legal
theory on appeal only when the factual bases thereof would not reAuire presentation of any further
evidence by the adverse party in order to enable it to properly meet the issue raised in the new theory.
/#$0
=HEREFORE, the petition is (5"I5(. )osts against petitioner.
SO ORERE.
[G.R. No. 1D6881. O()ober 3, DEEE]
HEIRS OF TAN ENG CEE, petitioners, vs. "O!RT OF APPEALS &+0 #ENG!ET L!M#ER
"OMPANG, re-re'e+)e0 b* .)' Pre'.0e+) TAN ENG LAG, respondents.
E " I S I O N
E LEON, FR., J.$
In this petition for review on certiorari, petitioners pray for the reversal of the (ecision
/%0
dated
Harch %C, %&&$ of the former 6ifth (ivision
/#0
of the )ourt of Appeals in )A*+.. ), "o. -.&C., the
dispositive portion of which states1
T45 675+7I"+ )7"=I(55(, the appealed decision is hereby set aside, and the complaint
dismissed.
The facts are1
6ollowing the death of Tan 5ng Pee on =eptember %C, %&'-, Hatilde Abubo, the common*law
spouse of the decedent, @oined by their children Teresita, "ena, )larita, )arlos, )ora:on and 5lpidio,
collectively Fnown as herein petitioners 45I= 76 TA" 5"+ P55, filed suit against the decedentEs
brother TA" 5"+ !AG on 6ebruary %&, %&&>. The complaint,
/C0
docFeted as )ivil )ase "o. %&'C* in
the egional Trial )ourt of Baguio )ity was for accounting, liAuidation and winding up of the alleged
partnership formed after 3orld 3ar II between Tan 5ng Pee and Tan 5ng !ay. 7n Harch %', %&&%, the
petitioners filed an amended complaint
/-0
impleading private respondent herein B5"+L5T !LHB5
)7HPA"G, as represented by Tan 5ng !ay. The amended complaint was admitted by the trial court in
its 7rder dated Hay C, %&&%.
/B0
The amended complaint principally alleged that after the second 3orld 3ar, Tan 5ng Pee and
Tan 5ng !ay, pooling their resources and industry together, entered into a partnership engaged in the
business of selling lumber and hardware and construction supplies. They named their enterprise
2Benguet !umber8 which they @ointly managed until Tan 5ng PeeEs death. Petitioners herein averred
Page 18 of 33
that the business prospered due to the hard worF and thrift of the alleged partners. 4owever, they
claimed that in %&'%, Tan 5ng !ay and his children caused the conversion of the partnership 2Benguet
!umber8 into a corporation called 2Benguet !umber )ompany.8 The incorporation was purportedly a
ruse to deprive Tan 5ng Pee and his heirs of their rightful participation in the profits of the
business. Petitioners prayed for accounting of the partnership assets, and the dissolution, winding up
and liAuidation thereof, and the eAual division of the net assets of Benguet !umber.
After trial, egional Trial )ourt of Baguio )ity, Branch . rendered @udgment
/$0
on April %#, %&&B,
to wit1
3455675, in view of all the foregoing, @udgment is hereby rendered1
a< (eclaring that Benguet !umber is a @oint adventure which is aFin to a particular partnership?
b< (eclaring that the deceased Tan 5ng Pee and Tan 5ng !ay are @oint adventurers andKor partners in a
business venture andKor particular partnership called Benguet !umber and as such should share in the
profits andKor losses of the business venture or particular partnership?
c< (eclaring that the assets of Benguet !umber are the same assets turned over to Benguet !umber )o.
Inc. and as such the heirs or legal representatives of the deceased Tan 5ng Pee have a legal right to
share in said assets?
d< (eclaring that all the rights and obligations of Tan 5ng Pee as @oint adventurer andKor as partner in a
particular partnership have descended to the plaintiffs who are his legal heirs.
e< 7rdering the defendant Tan 5ng !ay andKor the President andKor +eneral Hanager of Benguet
!umber )ompany Inc. to render an accounting of all the assets of Benguet !umber )ompany, Inc. so
the plaintiffs Fnow their proper share in the business?
f< 7rdering the appointment of a receiver to preserve andKor administer the assets of Benguet !umber
)ompany, Inc. until such time that said corporation is finally liAuidated are directed to submit the name
of any person they want to be appointed as receiver failing in which this )ourt will appoint the Branch
)lerF of )ourt or another one who is Aualified to act as such.
g< (enying the award of damages to the plaintiffs for lacF of proof except the expenses in filing the
instant case.
h< (ismissing the counter*claim of the defendant for lacF of merit.
=7 7(55(.
Private respondent sought relief before the )ourt of Appeals which, on Harch %C, %&&$, rendered
the assailed decision reversing the @udgment of the trial court. PetitionersE motion for
reconsideration
/.0
was denied by the )ourt of Appeals in a esolution
/'0
dated 7ctober %%, %&&$.
4ence, the present petition.
As a side*bar to the proceedings, petitioners filed )riminal )ase "o. .''B$ against Tan 5ng !ay
and 3ilborn Tan for the use of allegedly falsified documents in a @udicial proceeding. Petitioners
complained that 5xhibits 2-8 to 2-*L8 offered by the defendants before the trial court, consisting of
payrolls indicating that Tan 5ng Pee was a mere employee of Benguet !umber, were faFe, based on the
discrepancy in the signatures of Tan 5ng Pee. They also filed )riminal )ases "os. .''B.*.''.>
against +loria, Julia, Juliano, 3illie, 3ilfredo, Jean, Hary and 3illy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. 7n Harch #>, %&&&, the Hunicipal Trial
)ourt of Baguio )ity, Branch %, wherein the charges were filed, rendered @udgment
/&0
dismissing the
cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that1
I
T45 47"7AB!5 )7LT 76 APP5A!= 55( I" 47!(I"+ T4AT T455 3A= "7
PAT"5=4IP B5T355" T45 !AT5 TA" 5"+ P55 A"( 4I= B7T45 TA" 5"+
!AG B5)AL=51 ;A< T455 3A= "7 6IH A))7L"T? ;B< T455 3A= "7 6IH
!5TT545A(= =LBHITT5( A= 5,I(5")5? ;)< T455 3A= "7 )5TI6I)AT5 76
PAT"5=4IP? ;(< T455 3A= "7 A+55H5"T A= T7 P76IT= A"( !7==5=? A"(
;5< T455 3A= "7 TIH5 6IM5( 67 T45 (LATI7" 76 T45 PAT"5=4IP ;PA+5
%C, (5)I=I7"<.
II
T45 47"7AB!5 )7LT 76 APP5A!= 55( I" 5!GI"+ =7!5!G 7" T45 =5!6*
=5,I"+ T5=TIH7"G 76 5=P7"(5"T TA" 5"+ !AG T4AT B5"+L5T !LHB5
3A= A =7!5 P7PI5T7=4IP A"( T4AT TA" 5"+ P55 3A= 7"!G A"
5HP!7G55 T45576.
III
T45 47"7AB!5 )7LT 76 APP5A!= 55( I" 47!(I"+ T4AT T45 67!!73I"+
6A)T= 34I)4 355 (L!G =LPP7T5( BG 5,I(5")5 76 B7T4 PATI5= (7 "7T
=LPP7T T45 5MI=T5")5 76 A PAT"5=4IP JL=T B5)AL=5 T455 3A= "7
ATI)!5= 76 PAT"5=4IP (L!G 5)7(5( B5675 T45 =5)LITI5= A"(
5M)4A"+5 )7HHI==I7"1
a. T4AT T45 6AHI!I5= 76 TA" 5"+ P55 A"( TA" 5"+ !AG 355 A!!
!I,I"+ AT T45 B5"+L5T !LHB5 )7HP7L"(?
b. T4AT B7T4 TA" 5"+ !AG A"( TA" 5"+ P55 355 )7HHA"(I"+ T45
5HP!7G55= 76 B5"+L5T !LHB5?
c. T4AT B7T4 TA" 5"+ P55 A"( TA" 5"+ !AG 355 =LP5,I=I"+ T45
5HP!7G55= T455I"?
Page 19 of 33
d. T4AT TA" 5"+ P55 A"( TA" 5"+ !AG 355 T45 7"5= (5T5HI"I"+
T45 PI)5= 76 =T7)P= T7 B5 =7!( T7 T45 PLB!I)? A"(
e. T4AT TA" 5"+ !AG A"( TA" 5"+ P55 355 T45 7"5= HAPI"+ 7(5=
T7 T45 =LPP!I5= ;PA+5 %', (5)I=I7"<.
IA
T45 47"7AB!5 )7LT 76 APP5A!= 55( I" 47!(I"+ T4AT T455 3A= "7
PAT"5=4IP JL=T B5)AL=5 T45 )4I!(5" 76 T45 !AT5 TA" 5"+ P551
5!PI(I7 TA" A"( ,57"I)A )47I, T7+5T45 3IT4 T45I 3IT"5== B5ATIN
TA"(7), A(HITT5( T4AT T45G (7 "7T P"73 345" T45 5=TAB!I=4H5"T
P"73" I" BAL+I7 )ITG A= B5"+L5T !LHB5 3A= =TAT5( A= A
PAT"5=4IP ;PA+5 %$*%., (5)I=I7"<.
A
T45 47"7AB!5 )7LT 76 APP5A!= 55( I" 47!(I"+ T4AT T455 3A= "7
PAT"5=4IP B5T355" T45 !AT5 TA" 5"+ P55 A"( 4I= B7T45 TA" 5"+
!AG B5)AL=5 T45 P5=5"T )APITA! 7 A==5T= 76 B5"+L5T !LHB5 I=
(56I"IT5!G H75 T4A" PC,>>>.>> A"( A= =L)4 T45 5M5)LTI7" 76 A PLB!I)
I"=TLH5"T )5ATI"+ A PAT"5=4IP =47L!( 4A,5 B55" HA(5 A"( "7
=L)4 PLB!I) I"=TLH5"T 5=TAB!I=45( BG T45 APP5!!55= ;PA+5 %.,
(5)I=I7"<.
As a premise, we reiterate the oft*repeated rule that findings of facts of the )ourt of Appeals will
not be disturbed on appeal if such are supported by the evidence.
/%>0
7ur @urisdiction, it must be
emphasi:ed, does not include review of factual issues. Thus1
Filin$ of petition with +upreme Court.*A party desiring to appeal by certiorari from a @udgment or final
order or resolution of the )ourt of Appeals, the =andiganbayan, the egional Trial )ourt or other courts
whenever authori:ed by law, may file with the =upreme )ourt a verified petition for review on
certiorari. The petition shall raise only /uestions of law which must be distinctly set forth.
/%%0
/italics
supplied0
Admitted exceptions have been recogni:ed, though, and when present, may compel us to analy:e
the evidentiary basis on which the lower court rendered @udgment. eview of factual issues is therefore
warranted1
;%< when the factual findings of the )ourt of Appeals and the trial court are contradictory?
;#< when the findings are grounded entirely on speculation, surmises, or con@ectures?
;C< when the inference made by the )ourt of Appeals from its findings of fact is manifestly mistaFen,
absurd, or impossible?
;-< when there is grave abuse of discretion in the appreciation of facts?
;B< when the appellate court, in maFing its findings, goes beyond the issues of the case, and such
findings are contrary to the admissions of both appellant and appellee?
;$< when the @udgment of the )ourt of Appeals is premised on a misapprehension of facts?
;.< when the )ourt of Appeals fails to notice certain relevant facts which, if properly considered, will
@ustify a different conclusion?
;'< when the findings of fact are themselves conflicting?
;&< when the findings of fact are conclusions without citation of the specific evidence on which they are
based? and
;%>< when the findings of fact of the )ourt of Appeals are premised on the absence of evidence but such
findings are contradicted by the evidence on record.
/%#0
In reversing the trial court, the )ourt of Appeals ruled, to wit1
3e note that the )ourt a Auo over extended the issue because while the plaintiffs mentioned only the
existence of a partnership, the )ourt in turn went beyond that by @ustifying the existence of a @oint
adventure.
3hen mention is made of a @oint adventure, it would presuppose parity of standing between the parties,
eAual proprietary interest and the exercise by the parties eAually of the conduct of the business, thus1
xxx xxx xxx xxx
3e have the admission that the father of the plaintiffs was not a partner of the Benguet !umber before
the war. The appellees however argued that ;ollo, p. %>-? Brief, p. $< this is because during the war,
the entire stocFs of the pre*war Benguet !umber were confiscated if not burned by the Japanese. After
the war, because of the absence of capital to start a lumber and hardware business, !ay and Pee pooled
the proceeds of their individual businesses earned from buying and selling military supplies, so that the
common fund would be enough to form a partnership, both in the lumber and hardware business. That
!ay and Pee actually established the Benguet !umber in Baguio )ity, was even testified to by
witnesses. Because of the pooling of resources, the post*war Benguet !umber was eventually
established. That the father of the plaintiffs and !ay were partners, is obvious from the fact that1 ;%<
they conducted the affairs of the business during PeeEs lifetime, @ointly, ;#< they were the ones giving
orders to the employees, ;C< they were the ones preparing orders from the suppliers, ;-< their families
stayed together at the Benguet !umber compound, and ;B< all their children were employed in the
business in different capacities.
xxx xxx xxx xxx
Page 20 of 33
It is obvious that there was no partnership whatsoever. 5xcept for a firm name, there was no firm
account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to
profits and losses, and no time fixed for the duration of the partnership. There was even no attempt to
submit an accounting corresponding to the period after the war until PeeEs death in %&'-. It had no
business booF, no written account nor any memorandum for that matter and no license mentioning the
existence of a partnership /citation omitted0.
Also, the exhibits support the establishment of only a proprietorship. The certification dated Harch -,
%&.%, 5xhibit 2#8, mentioned co*defendant !ay as the only registered owner of the Benguet !umber
and 4ardware. 4is application for registration, effective %&B-, in fact mentioned that his business
started in %&-B until %&'B ;thereafter, the incorporation<. The deceased, Pee, on the other hand, was
merely an employee of the Benguet !umber )ompany, on the basis of his === coverage effective %&B',
5xhibit 2C8.In the Payrolls, 5xhibits 2-8 to 2-*L8, inclusive, for the years %&'# to %&'C, Pee was
similarly listed only as an employee? precisely, he was on the payroll listing. In the Termination "otice,
5xhibit 2B8, !ay was mentioned also as the proprietor.
xxx xxx xxx xxx
3e would liFe to refer to Arts. ..% and ..#, ")), that a partner /sic0 may be constituted in any form,
but when an immovable is constituted, the execution of a public instrument becomes necessary. This is
eAually true if the capitali:ation exceeds PC,>>>.>>, in which case a public instrument is also necessary,
and which is to be recorded with the =ecurities and 5xchange )ommission. In this case at bar, we can
easily assume that the business establishment, which from the language of the appellees, prospered
;pars. B I &, )omplaint<, definitely exceeded PC,>>>.>>, in addition to the accumulation of real
properties and to the fact that it is now a compound. The execution of a public instrument, on the other
hand, was never established by the appellees.
And then in %&'%, the business was incorporated and the incorporators were only !ay and the members
of his family. There is no proof either that the capital assets of the partnership, assuming them to be in
existence, were maliciously assigned or transferred by !ay, supposedly to the corporation and since
then have been treated as a part of the latterEs capital assets, contrary to the allegations in pars. $, . and
' of the complaint.
These are not evidences supporting the existence of a partnership1
%< That Pee was living in a bunF house @ust across the lumber store, and then in a room in the bunF
house in Trinidad, but within the compound of the lumber establishment, as testified to by Tandoc? #<
that both !ay and Pee were seated on a table and were 2commanding people8 as testified to by the son,
5lpidio Tan? C< that both were supervising the laborers, as testified to by ,ictoria )hoi? and -< that
(ionisio Peralta was supposedly being told by Pee that the proceeds of the '> pieces of the +.I. sheets
were added to the business.
Partnership presupposes the following elements /citation omitted01 %< a contract, either oral or
written. 4owever, if it involves real property or where the capital is PC,>>>.>> or more, the execution of
a contract is necessary? #< the capacity of the parties to execute the contract? C< money property or
industry contribution? -< community of funds and interest, mentioning eAuality of the partners or one
having a proportionate share in the benefits? and B< intention to divide the profits, being the true test of
the partnership.The intention to @oin in the business venture for the purpose of obtaining profits
thereafter to be divided, must be established. 3e cannot see these elements from the testimonial
evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which had ad@udged
that TA" 5"+ P55 and TA" 5"+ !AG had allegedly entered into a @oint adventure. In this
connection, we have held that whether a partnership exists is a factual matter? conseAuently, since the
appeal is brought to us under ule -B, we cannot entertain inAuiries relative to the correctness of the
assessment of the evidence by the court a /uo.
/%C0
Inasmuch as the )ourt of Appeals and the trial court
had reached conflicting conclusions, perforce we must examine the record to determine if the reversal
was @ustified.
The primordial issue here is whether Tan 5ng Pee and Tan 5ng !ay were partners in Benguet
!umber. A contract of partnership is defined by law as one where1
xxx two or more persons bind themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession.
/%-0
Thus, in order to constitute a partnership, it must be established that ;%< two or more persons bound
themselves to contribute money, property, or industry to a common fund, and ;#< they intend to divide
the profits among themselves.
/%B0
The agreement need not be formally reduced into writing, since statute
allows the oral constitution of a partnership, save in two instances1 ;%< when immovable property or real
rights are contributed,
/%$0
and ;#< when the partnership has a capital of three thousand pesos or more.
/%.0
In both cases, a public instrument is reAuired.
/%'0
An inventory to be signed by the parties and
attached to the public instrument is also indispensable to the validity of the partnership whenever
immovable property is contributed to the partnership.
/%&0
The trial court determined that Tan 5ng Pee and Tan 5ng !ay had entered into a @oint adventure,
which it said is aFin to a particular partnership.
/#>0
A particular partnership is distinguished from a @oint
adventure, to wit1
;a< A @oint adventure ;an American concept similar to our @oint accounts< is a sort of
informal partnership, with no firm name and no legal personality. In a @oint account, the
participating merchants can transact business under their own name, and can be
individually liable therefor.
;b< Lsually, but not necessarily a @oint adventure is limited to a =I"+!5 TA"=A)TI7",
although the business of pursuing to a successful termination may continue for a
number of years? a partnership generally relates to a continuing business of various
transactions of a certain Find.
/#%0
A @oint adventure 2presupposes generally a parity of standing between the @oint co*ventures or
partners, in which each party has an eAual proprietary interest in the capital or property contributed, and
where each party exercises eAual rights in the conduct of the business.8
/##0
"onetheless, in Aurbach, et.
Page 21 of 33
al. v. =anitary 3ares Hanufacturing )orporation, et. al.,
/#C0
we expressed the view that a @oint adventure
may be liFened to a particular partnership, thus1
The legal concept of a @oint adventure is of common law origin. It has no precise legal definition, but it
has been generally understood to mean an organi:ation formed for some temporary purpose. ;+ates v.
Hegargel, #$$ 6ed. '%% /%&#>0< It is hardly distinguishable from the partnership, since their elements
are similar*community of interest in the business, sharing of profits and losses, and a mutual right of
control. ;BlacFner v. Hc(ermott, %.$ 6. #d. -&', /%&-&0? )arboneau v. Peterson, &B P.#d., %>-C /%&C&0?
BucFley v. )hadwicF, -B )al. #d. %'C, #'' P.#d. %# #'& P.#d. #-# /%&BB0<. The main distinction cited
by most opinions in common law @urisdiction is that the partnership contemplates a general business
with some degree of continuity, while the @oint adventure is formed for the execution of a single
transaction, and is thus of a temporary nature. ;Tufts v. Hann. %%$ )al. App. %.>, # P. #d. B>> /%&C%0?
4armon v. Hartin, C&B Ill. B&B, .% "5 #d. .- /%&-.0? +ates v. Hegargel #$$ 6ed. '%% /%&#>0<. This
observation is not entirely accurate in this @urisdiction, since under the )ivil )ode, a partnership may be
particular or universal, and a particular partnership may have for its ob@ect a specific undertaFing. ;Art.
%.'C, )ivil )ode<. It would seem therefore that under Philippine law, a @oint adventure is a form of
partnership and should thus be governed by the law of partnerships. The =upreme )ourt has however
recogni:ed a distinction between these two business forms, and has held that although a corporation
cannot enter into a partnership contract, it may however engage in a @oint adventure with others. ;At p.
%#, Tua:on v. BolaVos, &B Phil. &>$ /%&B-0< ;)ampos and !ope:*)ampos )omments, "otes and
=elected )ases, )orporation )ode %&'%<.
Lndoubtedly, the best evidence would have been the contract of partnership itself, or the articles
of partnership but there is none. The alleged partnership, though, was never formally organi:ed. In
addition, petitioners point out that the "ew )ivil )ode was not yet in effect when the partnership was
allegedly formed sometime in %&-B, although the contrary may well be argued that nothing prevented
the parties from complying with the provisions of the "ew )ivil )ode when it tooF effect on August C>,
%&B>. But all that is in the past. The net effect, however, is that we are asFed to determine whether a
partnership existed based purely on circumstantial evidence. A review of the record persuades us that
the )ourt of Appeals correctly reversed the decision of the trial court. The evidence presented by
petitioners falls short of the Auantum of proof reAuired to establish a partnership.
Lnfortunately for petitioners, Tan 5ng Pee has passed away. 7nly he, aside from Tan 5ng !ay,
could have expounded on the precise nature of the business relationship between them. In the absence
of evidence, we cannot accept as an established fact that Tan 5ng Pee allegedly contributed his
resources to a common fund for the purpose of establishing a partnership. The testimonies to that effect
of petitionersE witnesses is directly controverted by Tan 5ng !ay. It should be noted that it is not with
the number of witnesses wherein preponderance lies?
/#-0
the Auality of their testimonies is to be
considered. "one of petitionersE witnesses could suitably account for the beginnings of Benguet
!umber )ompany, except perhaps for (ionisio Peralta whose deceased wife was related to Hatilde
Abubo.
/#B0
4e stated that when he met Tan 5ng Pee after the liberation, the latter asFed the former to
accompany him to get '> pieces of +.I. sheets supposedly owned by both brothers.
/#$0
Tan 5ng !ay,
however, denied Fnowledge of this meeting or of the conversation between Peralta and his brother.
/#.0
Tan 5ng !ay consistently testified that he had his business and his brother had his, that it was only
later on that his said brother, Tan 5ng Pee, came to worF for him. Be that as it may, co*ownership or
co*possession ;specifically here, of the +.I. sheets< is not anindicium of the existence of a partnership.
/#'0
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was
allegedly in existence, Tan 5ng Pee never asFed for an accounting. The essence of a partnership is that
the partners share in the profits and losses.
/#&0
5ach has the right to demand an accounting as long as the
partnership exists.
/C>0
3e have allowed a scenario wherein 2/i0f excellent relations exist among the
partners at the start of the business and all the partners are more interested in seeing the firm grow
rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible.8
/C%0
But in
the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person is
presumed to taFe ordinary care of his concerns.
/C#0
As we explained in another case1
In the first place, plaintiff did not furnish the supposed P#>,>>>.>> capital. In the second place, she did
not furnish any help or intervention in the management of the theatre. In the third place, it does not
appear that she has e!en demanded from defendant any accountin$ of the e%penses and earnin$s of the
business. 3ere she really a partner" her first concern should ha!e been to find out how the business
was pro$ressin$" whether the e%penses were le$itimate" whether the earnin$s were correct" etc. +he
was absolutely silent with respect to any of the acts that a partner should ha!e done? all that she did
was to receive her share of PC,>>>.>> a month, which cannot be interpreted in any manner than a
payment for the use of the premises which she had leased from the owners. )learly, plaintiff had always
acted in accordance with the original letter of defendant of June %., %&-B ;5xh. 2A8<, which shows that
both parties considered this offer as the real contract between them.
/CC0
/italics supplied0
A demand for periodic accounting is evidence of a partnership.
/C-0
(uring his lifetime, Tan 5ng Pee
appeared never to have made any such demand for accounting from his brother, Tang 5ng !ay.
This brings us to the matter of 5xhibits 2-8 to 2-*L8 for private respondents, consisting of
payrolls purporting to show that Tan 5ng Pee was an ordinary employee of Benguet !umber, as it was
then called. The authenticity of these documents was Auestioned by petitioners, to the extent that they
filed criminal charges against Tan 5ng !ay and his wife and children. As aforesaid, the criminal cases
were dismissed for insufficiency of evidence. 5xhibits 2-8 to 2-*L8 in fact shows that Tan 5ng Pee
received sums as wages of an employee. In connection therewith, Article %.$& of the )ivil )ode
provides1
In determining whether a partnership exists, these rules shall apply1
;%< 5xcept as provided by Article %'#B, persons who are not partners as to each other are not partners as
to third persons?
;#< )o*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?
;C< The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a @oint or common right or interest in any property which the returns are derived?
;-< The receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in payment1
Page 22 of 33
;a< As a debt by installment or otherwise?
;b< As wages of an employee or rent to a landlord?
;b< As an annuity to a widow or representative of a deceased partner?
;d< As interest on a loan, though the amount of payment vary with the profits of the
business?
;e< As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.
In the light of the aforeAuoted legal provision, we conclude that Tan 5ng Pee was only an employee,
not a partner. 5ven if the payrolls as evidence were discarded, petitioners would still be bacF to sAuare
one, so to speaF, since they did not present and offer evidence that would show that Tan 5ng Pee
received amounts of money allegedly representing his share in the profits of the enterprise. Petitioners
failed to show how much their father, Tan 5ng Pee, received, if any, as his share in the profits of
Benguet !umber )ompany for any particular period. 4ence, they failed to prove that Tan 5ng Pee and
Tan 5ng !ay intended to divide the profits of the business between themselves, which is one of the
essential features of a partnership.
"evertheless, petitioners would still want us to infer or believe the alleged existence of a
partnership from this set of circumstances1 that Tan 5ng !ay and Tan 5ng Pee were commanding the
employees? that both were supervising the employees? that both were the ones who determined the price
at which the stocFs were to be sold? and that both placed orders to the suppliers of the Benguet !umber
)ompany. They also point out that the families of the brothers Tan 5ng Pee and Tan 5ng !ay lived at
the Benguet !umber )ompany compound, a privilege not extended to its ordinary employees.
4owever, private respondent counters that1
Petitioners seem to have missed the point in asserting that the above enumerated powers and privileges
granted in favor of Tan 5ng Pee, were indicative of his being a partner in Benguet !umber for the
following reasons1
;i< even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. =o long, therefore, that an employeeEs position is higher in ranF, it is not unusual that he
orders around those lower in ranF.
;ii< even a messenger or other trusted employee, over whom confidence is reposed by the owner, can
order materials from suppliers for and in behalf of Benguet !umber. 6urthermore, even a partner does
not necessarily have to perform this particular tasF. It is, thus, not an indication that Tan 5ng Pee was a
partner.
;iii< although Tan 5ng Pee, together with his family, lived in the lumber compound and this privilege
was not accorded to other employees, the undisputed fact remains that Tan 5ng Pee is the brother of
Tan 5ng !ay. "aturally, close personal relations existed between them. 3hatever privileges Tan 5ng
!ay gave his brother, and which were not given the other employees, only proves the Findness and
generosity of Tan 5ng !ay towards a blood relative.
;iv< and even if it is assumed that Tan 5ng Pee was Auarrelling with Tan 5ng !ay in connection with
the pricing of stocFs, this does not adeAuately prove the existence of a partnership relation between
them. 5ven highly confidential employees and the owners of a company sometimes argue with respect
to certain matters which, in no way indicates that they are partners as to each other.
/CB0
In the instant case, we find private respondentEs arguments to be well*taFen. 3here circumstances
taFen singly may be inadeAuate to prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of the existence of the partiesE intent.
/C$0
Get, in the case at bench, even the aforesaid circumstances when taFen together are not
persuasive indicia of a partnership. They only tend to show that Tan 5ng Pee was involved in the
operations of Benguet !umber, but in what capacity is unclear. 3e cannot discount the liFelihood that
as a member of the family, he occupied a niche above the ranF*and*file employees. 4e would have
en@oyed liberties otherwise unavailable were he not Fin, such as his residence in the Benguet !umber
)ompany compound. 4e would have moral, if not actual, superiority over his fellow employees,
thereby entitling him to exercise powers of supervision. It may even be that among his duties is to place
orders with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus
to the conclusion desired? these are not inconsistent with the powers and duties of a manager, even in a
business organi:ed and run as informally as Benguet !umber )ompany.
There being no partnership, it follows that there is no dissolution, winding up or liAuidation to
speaF of. 4ence, the petition must fail.
=HEREFORE, the petition is hereby denied, and the appealed decision of the )ourt of Appeals
is hereby A66IH5( in toto. "o pronouncement as to costs.
SO ORERE.
G.R. No. L?D19E6 e(ember D4, 1968
INO"EN"IA EL!AO &+0 FELIPE EL!AO plaintiffs*appellees,
vs.
NI"ANOR "ASTEEL &+0 F!AN EPRA, defendants,
NI"ANOR "ASTEEL, defendant*appellant.
Aportadera and alabrica and elae4" ,alandoni and ,amir plaintiffs5appellees.
*ui4 Law 0ffices for defendant5appellant.
"ASTRO, J.(
This is an appeal from the order of Hay #, %&B$, the decision of Hay -, %&B$ and the order of Hay #%,
%&B$, all of the )ourt of 6irst Instance of (avao, in civil case $#&. The basic action is for specific
performance, and damages resulting from an alleged breach of contract.
Page 23 of 33
In %&-> "icanor )asteel filed a fishpond application for a big tract of swampy land in the then =itio of
Halalag ;now the Hunicipality of Halalag<, Hunicipality of Padada, (avao. "o action was taFen
thereon by the authorities concerned. (uring the Japanese occupation, he filed another fishpond
application for the same area, but because of the conditions then prevailing, it was not acted upon
either. 7n (ecember %#, %&-B he filed a third fishpond application for the same area, which, after a
survey, was found to contain %.'..$ hectares. Lpon investigation conducted by a representative of the
Bureau of 6orestry, it was discovered that the area applied for was still needed for firewood production.
4ence on Hay %C, %&-$ this third application was disapproved.
(espite the said re@ection, )asteel did not lose interest. 4e filed a motion for reconsideration. 3hile this
motion was pending resolution, he was advised by the district forester of (avao )ity that no further
action would be taFen on his motion, unless he filed a new application for the area concerned. =o he
filed on Hay #., %&-. his fishpond application %.%..
Heanwhile, several applications were submitted by other persons for portions of the area covered by
)asteelOs application.
7n Hay #>, %&-$ !eoncio Aradillos filed his fishpond application %#># covering %> hectares of land
found inside the area applied for by )asteel? he was later granted fishpond permit 6*#'&*) covering &.C
hectares certified as available for fishpond purposes by the Bureau of 6orestry.
,ictor (. )arpio filed on August ', %&-$ his fishpond application .$# over a portion of the land applied
for by )asteel. Ale@andro )acamOs fishpond application %#.$, filed on (ecember #$, %&-$, was given
due course on (ecember &, %&-. with the issuance to him of fishpond permit 6*BC&*) to develop C>
hectares of land comprising a portion of the area applied for by )asteel, upon certification of the Bureau
of 6orestry that the area was liFewise available for fishpond purposes. 7n "ovember %., %&-' 6elipe
(eluao filed his own fishpond application for the area covered by )asteelOs application.
Because of the threat poised upon his position by the above applicants who entered upon and spread
themselves within the area, )asteel reali:ed the urgent necessity of expanding his occupation thereof by
constructing diFes and cultivating marFetable fishes, in order to prevent old and new sAuatters from
usurping the land. But lacFing financial resources at that time, he sought financial aid from his uncle
6elipe (eluao who then extended loans totalling more or less P#.,>>> with which to finance the needed
improvements on the fishpond. 4ence, a wide productive fishpond was built.
Horeover, upon learning that portions of the area applied for by him were already occupied by rival
applicants, )asteel immediately filed the corresponding protests. )onseAuently, two administrative
cases ensued involving the area in Auestion, to wit1 (A" )ase CBC, entitled "6p. Ap. "o. $$% ;now
6p. A. "o. %.%.<, "icanor )asteel, applicant*appellant versus 6p. A. "o. .$C, ,ictorio (. )arpio,
applicant*appellant"? and (A" )ase CBC*B, entitled "6p. A. "o. $$% ;now 6p. A. "o. %.%.<, "icanor
)asteel, applicant*protestant versus 6p. Permit "o. #'&*), !eoncio Aradillos, 6p. Permit "o. BC&*),
Ale@andro )acam, Permittees*espondents."
4owever, despite the finding made in the investigation of the above administrative cases that )asteel
had already introduced improvements on portions of the area applied for by him in the form of diFes,
fishpond gates, clearings, etc., the (irector of 6isheries nevertheless re@ected )asteelOs application on
7ctober #B, %&-&, reAuired him to remove all the improvements which he had introduced on the land,
and ordered that the land be leased through public auction. 6ailing to secure a favorable resolution of
his motion for reconsideration of the (irectorOs order, )asteel appealed to the =ecretary of Agriculture
and "atural esources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taFen up in our
discussion of the appellantOs third assignment of error.
7n "ovember #B, %&-& Inocencia (eluao ;wife of 6elipe (eluao< as party of the first part, and "icanor
)asteel as party of the second part, executed a contract W denominated a "contract of service" W the
salient provisions of which are as follows1
That the Party of the 6irst Part in consideration of the mutual covenants and agreements made
herein to the Party of the =econd Part, hereby enter into a contract of service, whereby the
Party of the 6irst Part hires and employs the Party of the =econd Part on the following terms
and conditions, to wit1
That the Party of the 6irst Part will finance as she has hereby financed the sum of T35"TG
=5,5" T47L=A"( P5=7= ;P#.,>>>.>><, Philippine )urrency, to the Party of the =econd
Part who renders only his services for the construction and improvements of a fishpond at
Barrio Halalag, Hunicipality of Padada, Province of (avao, Philippines?
That the Party of the =econd Part will be the Hanager and sole buyer of all the produce of the
fish that will be produced from said fishpond?
That the Party of the 6irst Part will be the administrator of the same she having financed the
construction and improvement of said fishpond?
That this contract was the result of a verbal agreement entered into between the Parties
sometime in the month of "ovember, %&-., with all the above*mentioned conditions
enumerated? ...
7n the same date the above contract was entered into, Inocencia (eluao executed a special power of
attorney in favor of Jesus (onesa, extending to the latter the authority "To represent me in the
administration of the fishpond at Halalag, Hunicipality of Padada, Province of (avao, Philippines,
which has been applied for fishpond permit by "icanor )asteel, but re@ected by the Bureau of 6isheries,
and to supervise, demand, receive, and collect the value of the fish that is being periodically reali:ed
from it...."
7n "ovember #&, %&-& the (irector of 6isheries re@ected the application filed by 6elipe (eluao on
"ovember %., %&-'. Lnfa:ed by this re@ection, (eluao reiterated his claim over the same area in the
two administrative cases ;(A" )ases CBC and CBC*B< and asFed for reinvestigation of the application
of "icanor )asteel over the sub@ect fishpond. 4owever, by letter dated Harch %B, %&B> sent to the
Page 24 of 33
=ecretary of )ommerce and Agriculture and "atural esources ;now =ecretary of Agriculture and
"atural esources<, (eluao withdrew his petition for reinvestigation.
7n =eptember %B, %&B> the =ecretary of Agriculture and "atural esources issued a decision in (A"
)ase CBC, the dispositive portion of which reads as follows1
In view of all the foregoing considerations, 6p. A. "o. $$% ;now 6p. A. "o. %.%.< of "icanor
)asteel should be, as hereby it is, reinstated and given due course for the area indicated in the
sFetch drawn at the bacF of the last page hereof? and 6p. A. "o. .$# of ,ictorio (. )arpio
shall remain re@ected.
7n the same date, the same official issued a decision in (A" )ase CBC*B, the dispositive portion
stating as follows1
3455675, 6ishpond Permit "o. 6*#'&*) of !eoncio Aradillos and 6ishpond Permit "o.
6*BC&*) of Ale@andro )acam, should be, as they are hereby cancelled and revoFed? "icanor
)asteel is reAuired to pay the improvements introduced thereon by said permittees in
accordance with the terms and dispositions contained elsewhere in this decision....
=ometime in January %&B% "icanor )asteel forbade Inocencia (eluao from further administering the
fishpond, and e@ected the latterOs representative ;encar$ado<, Jesus (onesa, from the premises.
Alleging violation of the contract of service ;exhibit A< entered into between Inocencia (eluao and
"icanor )asteel, 6elipe (eluao and Inocencia (eluao on April C, %&B% filed an action in the )ourt of
6irst Instance of (avao for specific performance and damages against "icanor )asteel and Juan (epra
;who, they alleged, instigated )asteel to violate his contract<, praying inter alia, ;a< that )asteel be
ordered to respect and abide by the terms and conditions of said contract and that Inocencia (eluao be
allowed to continue administering the said fishpond and collecting the proceeds from the sale of the
fishes caught from time to time? and ;b< that the defendants be ordered to pay @ointly and severally to
plaintiffs the sum of P#>,>>> in damages.
7n April %', %&B% the plaintiffs filed an ex parte motion for the issuance of a preliminary in@unction,
praying among other things, that during the pendency of the case and upon their filling the reAuisite
bond as may be fixed by the court, a preliminary in@unction be issued to restrain )asteel from doing the
acts complained of, and that after trial the said in@unction be made permanent. The lower court on April
#$, %&B% granted the motion, and, two days later, it issued a preliminary mandatory in@unction
addressed to )asteel, the dispositive portion of which reads as follows1
P7 5! P5=5"T5, Aueda usted ordenado Aue, hasta nueva orden, usted, el demandado y
todos usu abogados, agentes, mandatarios y demas personas Aue obren en su ayuda, desista de
impedir a la demandante Inocencia . (eluao Aue continue administrando personalmente la
pesAueria ob@eto de esta causa y Aue la misma continue recibiendo los productos de la venta
de los pescados provenientes de dicha pesAueria, y Aue, asimismo, se prohibe a dicho
demandado "icanor )asteel a desahuciar mediante fuer:a al encargado de los demandantes
llamado Jesus (onesa de la pesAueria ob@eto de la demanda de autos.
7n Hay %>, %&B% )asteel filed a motion to dissolve the in@unction, alleging among others, that he was
the owner, lawful applicant and occupant of the fishpond in Auestion. This motion, opposed by the
plaintiffs on June %B, %&B%, was denied by the lower court in its order of June #$, %&$%.
The defendants on Hay %-, %&B% filed their answer with counterclaim, amended on January ', %&B#,
denying the material averments of the plaintiffsO complaint. A reply to the defendantsO amended answer
was filed by the plaintiffs on January C%, %&B#.
The defendant Juan (epra moved on Hay ##, %&B% to dismiss the complaint as to him. 7n June -, %&B%
the plaintiffs opposed his motion.
The defendants filed on 7ctober C, %&B% a @oint motion to dismiss on the ground that the plaintiffsO
complaint failed to state a claim upon which relief may be granted. The motion, opposed by the
plaintiffs on 7ctober %#, %&B%, was denied for lacF of merit by the lower court in its order of 7ctober
##, %&B%. The defendantsO motion for reconsideration filed on 7ctober C%, %&B% suffered the same fate
when it was liFewise denied by the lower court in its order of "ovember %#, %&B%.
After the issues were @oined, the case was set for trial. Then came a series of postponements. The lower
court ;Branch I, presided by Judge 5nriAue A. 6ernande:< finally issued on Harch #%, %&B$ an order in
open court, reading as follows1 .
Lpon petition of plaintiffs, without any ob@ection on the part of defendants, the hearing of this
case is hereby transferred to Hay # and C, %&B$ at '1C> oOclocF in the morning.
This case was filed on April C, %&B% and under any circumstance this Court will not entertain
any other transfer of hearin$ of this case and if the parties will not be ready on that day set
for hearing, the court will taFe the necessary steps for the final determination of this case.
;emphasis supplied<
7n April #B, %&B$ the defendantsO counsel received a notice of hearing dated April #%, %&B$, issued by
the office of the )lerF of )ourt ;thru the special deputy )lerF of )ourt< of the )ourt of 6irst Instance of
(avao, setting the hearing of the case for Hay # and C, %&B$ before Judge Amador +ome: of Branch II.
The defendants, thru counsel, on April #$, %&B$ filed a motion for postponement. Acting on this
motion, the lower court ;Branch II, presided by Judge +ome:< issued an order dated April #., %&B$,
Auoted as follows1
This is a motion for postponement of the hearing of this case set for Hay # and C, %&B$. The
motion is filed by the counsel for the defendants and has the conformity of the counsel for the
plaintiffs.
An examination of the records of this case shows that this case was initiated as early as April
%&B% and that the same has been under advisement of the 4onorable 5nriAue A. 6ernande:,
Presiding Judge of Branch "o. I, since =eptember #-, %&BC, and that various incidents have
already been considered and resolved by Judge 6ernande: on various occasions. The last
order issued by Judge 6ernande: on this case was issued on Harch #%, %&B$, wherein he
Page 25 of 33
definitely states that the )ourt will not entertain any further postponement of the hearing of
this case.
)7"=I(5I"+ A!! T45 675+7I"+, the )ourt believes that the consideration and
termination of any incident referring to this case should be referred bacF to Branch I, so that
the same may be disposed of therein. ;emphasis supplied<
A copy of the aboveAuoted order was served on the defendantsO counsel on Hay -, %&B$.
7n the scheduled date of hearing, that is, on Hay #, %&B$, the lower court ;Branch I, with Judge
6ernande: presiding<, when informed about the defendantsO motion for postponement filed on April #$,
%&B$, issued an order reiterating its previous order handed down in open court on Harch #%, %&B$ and
directing the plaintiffs to introduce their evidence ex parte, there being no appearance on the part of the
defendants or their counsel. 7n the basis of the plaintiffsO evidence, a decision was rendered on Hay -,
%&B$ the dispositive portion of which reads as follows1
5" =L ,ITL(, el Ju:gado dicta de decision a favor de los demandantes y en contra del
demandado "icanor )asteel1
;a< (eclara permanente el interdicto prohibitorio expedido contra el demandado?
;b< 7rdena al demandado entregue la demandante la posesion y administracion de la mitad
;X< del "fishpond" en cuestion con todas las me@oras existentes dentro de la misma?
;c< )ondena al demandado a pagar a la demandante la suma de P#>>.>> mensualmente en
concepto de danos a contar de la fecha de la expiracion de los C> dias de la promulgacion de
esta decision hasta Aue entregue la posesion y administracion de la porcion del "fishpond" en
conflicto?
;d< )ondena al demandado a pagar a la demandante la suma de P#,>>>.>> valor de los
pescado beneficiados, mas los intereses legales de la fecha de la incoacion de la demanda de
autos hasta el completo pago de la obligacion principal?
;e< )ondena al demandado a pagar a la demandante la suma de P#,>>>.>>, por gastos
incurridos por aAuella durante la pendencia de esta causa?
;f< )ondena al demandado a pagar a la demandante, en concepto de honorarios, la suma de
P#,>>>.>>?
;g< 7rdena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en
cuanto se refiere al demandado Juan (epra?
;h< 7rdena el sobreseimiento de la reconvencion de los demandados por falta de pruebas?
;i< )on las costas contra del demandado, )asteel.
The defendant )asteel filed a petition for relief from the foregoing decision, alleging, inter alia, lacF of
Fnowledge of the order of the court a /uo setting the case for trial. The petition, however, was denied
by the lower court in its order of Hay #%, %&B$, the pertinent portion of which reads as follows1
The duty of Atty. ui:, was not to inAuire from the )lerF of )ourt whether the trial of this
case has been transferred or not, but to inAuire from the presiding Judge, particularly because
his motion asFing the transfer of this case was not set for hearing and was not also acted upon.
Atty. ui: Fnows the nature of the order of this )ourt dated Harch #%, %&B$, which reads as
follows1
Lpon petition of the plaintiff without any ob@ection on the part of the defendants,
the hearing of this case is hereby transferred to Hay # and C, %&B$, at '1C> oOclocF
in the morning.
This case was filed on April C, %&B%, and under any circumstance this )ourt will not
entertain any other transfer of the hearing of this case, and if the parties will not be
ready on the day set for hearing, the )ourt will taFe necessary steps for the final
disposition of this case.
In view of the order above*Auoted, the )ourt will not accede to any transfer of this case and
the duty of Atty. ui: is no other than to be present in the =ala of this )ourt and to call the
attention of the same to the existence of his motion for transfer.
Petition for relief from @udgment filed by Atty. ui: in behalf of the defendant, not well
taFen, the same is hereby denied.
(issatisfied with the said ruling, )asteel appealed to the )ourt of Appeals which certified the case to us
for final determination on the ground that it involves only Auestions of law.
)asteel raises the following issues1
;%< 3hether the lower court committed gross abuse of discretion when it ordered reception of
the appelleesO evidence in the absence of the appellant at the trial on Hay #, %&B$, thus
depriving the appellant of his day in court and of his property without due process of law?
;#< 3hether the lower court committed grave abuse of discretion when it denied the verified
petition for relief from @udgment filed by the appellant on Hay %%, %&B$ in accordance with
ule C', ules of )ourt? and
;C< 3hether the lower court erred in ordering the issuance ex parte of a writ of preliminary
in@unction against defendant*appellant, and in not dismissing appelleesO complaint.
Page 26 of 33
%. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on Harch #%, %&B$, the lower court
set the case for hearing on Hay # and C, %&B$ at '1C> oOclocF in the morning and empathically stated
that, since the case had been pending since April C, %&B%, it would not entertain any further motion for
transfer of the scheduled hearing.
An order given in open court is presumed received by the parties on the very date and time of
promulgation,
%
and amounts to a legal notification for all legal purposes.
#
The order of Harch #%, %&B$,
given in open court, was a valid notice to the parties, and the notice of hearing dated April #%, %&B$ or
one month thereafter, was a superfluity. Horeover, as between the order of Harch #%, %&B$, duly
promulgated by the lower court, thru Judge 6ernande:, and the notice of hearing signed by a "special
deputy clerF of court" setting the hearing in another branch of the same court, the formerOs order was the
one legally binding. This is because the incidents of postponements and ad@ournments are controlled by
the court and not by the clerF of court, pursuant to section -, ule C% ;now sec. C, ule ##< of the ules
of )ourt.
Huch less had the clerF of court the authority to interfere with the order of the court or to transfer the
cage from one sala to another without authority or order from the court where the case originated and
was being tried. 4e had neither the duty nor prerogative to re*assign the trial of the case to a different
branch of the same court. 4is duty as such clerF of court, in so far as the incident in Auestion was
concerned, was simply to prepare the trial calendar. And this duty devolved upon the clerF of court and
not upon the "special deputy clerF of court" who purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of the appelleesO counsel. The
postponement of hearings does not depend upon agreement of the parties, but upon the courtOs
discretion.
C
The record further discloses that )asteel was represented by a total of %# lawyers, none of whom had
ever withdrawn as counsel. "otice to Atty. ui: of the order dated Harch #%, %&B$ intransferably
setting the case for hearing for Hay # and C, %&B$, was sufficient notice to all the appellantOs eleven
other counsel of record. This is a well*settled rule in our @urisdiction.
-
It was the duty of Atty. ui:, or of the other lawyers of record, not excluding the appellant himself, to
appear before Judge 6ernande: on the scheduled dates of hearing Parties and their lawyers have no right
to presume that their motions for postponement will be granted.
B
6or indeed, the appellant and his %#
lawyers cannot pretend ignorance of the recorded fact that since =eptember #-, %&BC until the trial held
on Hay #, %&B$, the case was under the advisement of Judge 6ernande: who presided over Branch I.
There was, therefore, no necessity to "re*assign" the same to Branch II because Judge 6ernande: had
exclusive control of said case, unless he was legally inhibited to try the case W and he was not.
There is truth in the appellantOs contention that it is the duty of the clerF of court W not of the )ourt W
to prepare the trial calendar. But the assignment or reassignment of cases already pending in one sala to
another sala, and the setting of the date of trial after the trial calendar has been prepared, fall within the
exclusive control of the presiding @udge.
The appellant does not deny the appelleesO claim that on Hay # and C, %&B$, the office of the clerF of
court of the )ourt of 6irst Instance of (avao was located directly below Branch I. If the appellant and
his counsel had exercised due diligence, there was no impediment to their going upstairs to the second
storey of the )ourt of 6irst Instance building in (avao on Hay #, %&B$ and checFing if the case was
scheduled for hearing in the said sala. The appellant after all admits that on Hay #, %&B$ his counsel
went to the office of the clerF of court.
The appellantOs statement that parties as a matter of right are entitled to notice of trial, is correct. But he
was properly accorded this right. 4e was notified in open court on Harch #%, %&B$ that the case was
definitely and intransferably set for hearing on Hay # and C, %&B$ before Branch I. 4e cannot argue
that, pursuant to the doctrine in +iochi !s. Tirona,
$
his counsel was entitled to a timely notice of the
denial of his motion for postponement. In the cited case the motion for postponement was the first one
filed by the defendant? in the case at bar, there had already been a series of postponements. LnliFe the
case at bar, the +iochi case was not intransferably set for hearing. 6inally, whereas the cited case did not
spend for a long time, the case at bar was only finally and intransferably set for hearing on Harch #%,
%&B$ W after almost five years had elapsed from the filing of the complaint on April C, %&B%.
The pretension of the appellant and his %# counsel of record that they lacFed ample time to prepare for
trial is unacceptable because between Harch #%, %&B$ and Hay #, %&B$, they had one month and ten
days to do so. In effect, the appellant had waived his right to appear at the trial and therefore he cannot
be heard to complain that he has been deprived of his property without due process of law.
.
,erily, the
constitutional reAuirements of due process have been fulfilled in this case1 the lower court is a
competent court? it lawfully acAuired @urisdiction over the person of the defendant ;appellant< and the
sub@ect matter of the action? the defendant ;appellant< was given an opportunity to be heard? and
@udgment was rendered upon lawful hearing.
'
#. 6inally, the appellant contends that the lower court incurred an error in ordering the issuance e%
parte of a writ of preliminary in@unction against him, and in not dismissing the appelleeOs complaint. 3e
find this contention meritorious.
Apparently, the court a /uo relied on exhibit A W the so*called "contract of service" W and the
appelleesO contention that it created a contract of co*ownership and partnership between Inocencia
(eluao and the appellant over the fishpond in Auestion.
Too well*settled to reAuire any citation of authority is the rule that everyone is conclusively presumed
to Fnow the law. It must be assumed, conformably to such rule, that the parties entered into the so*
called "contract of service" cogni:ant of the mandatory and prohibitory laws governing the filing of
applications for fishpond permits. And since they were aware of the said laws, it must liFewise be
assumed W in fairness to the parties W that they did not intend to violate them. This view must
perforce negate the appelleesO allegation that exhibit A created a contract of co*ownership between the
parties over the disputed fishpond. 3ere we to admit the establishment of a co*ownership violative of
the prohibitory laws which will hereafter be discussed, we shall be compelled to declare altogether the
nullity of the contract. This would certainly not serve the cause of eAuity and @ustice, considering that
rights and obligations have already arisen between the parties. 3e shall therefore construe the contract
as one of partnership, divided into two parts W namely, a contract of partnership to exploit the fishpond
Page 27 of 33
pending its award to either 6elipe (eluao or "icanor )asteel, and a contract of partnership to divide the
fishpond between them after such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia (eluao and the appellant entered into the so*called
"contract of service" on "ovember #B, %&-&, there were two pending applications over the fishpond.
7ne was )asteelOs which was appealed by him to the =ecretary of Agriculture and "atural esources
after it was disallowed by the (irector of 6isheries on 7ctober #B, %&-&. The other was 6elipe (eluaoOs
application over the same area which was liFewise re@ected by the (irector of 6isheries on "ovember
#&, %&-&, refiled by (eluao and later on withdrawn by him by letter dated Harch %B, %&B> to the
=ecretary of Agriculture and "atural esources. )learly, although the fishpond was then in the
possession of )asteel, neither he nor, 6elipe (eluao was the holder of a fishpond permit over the area.
But be that as it may, they were not however precluded from exploiting the fishpond pending resolution
of )asteelOs appeal or the approval of (eluaoOs application over the same area W whichever event
happened first. "o law, rule or regulation prohibited them from doing so. Thus, rather than let the
fishpond remain idle they cultivated it.
The evidence preponderates in favor of the view that the initial intention of the parties was not to form a
co*ownership but to establish a partnership W Inocencia (eluao as capitalist partner and )asteel as
industrial partner W the ultimate undertaFing of which was to divide into two eAual parts such portion
of the fishpond as might have been developed by the amount extended by the plaintiffs*appellees, with
the further provision that )asteel should reimburse the expenses incurred by the appellees over one*half
of the fishpond that would pertain to him. This can be gleaned, among others, from the letter of )asteel
to 6elipe (eluao on "ovember %B, %&-&, which states, inter alia1
... /30ith respect to your allowing me to use your money, same will redound to your benefit
because you are the ones interested in half of the wor# we ha!e done so far, besides ) did not
insist on our bein$ partners in my fishpond permit" but it was you 6Tatay6 (pin$ the one who
wanted that we be partners and it so happened that we became partners because ) am poor,
but in the midst of my poverty it never occurred to me to be unfair to you. Therefore so that
each of us may be secured" let us ha!e a document prepared to the effect that we are partners
in the fishpond that we caused to be made here in Balasinon" but it does not mean that you
will treat me as one of your 6Bantay6 -careta#er. on wa$e basis but not earnin$ wa$es at all"
while the truth is that we are partners. In the event that you are not amenable to my
proposition and consider me as "Bantay" ;caretaFer< instead, do not blame me if I withdraw
all my cases and be left without even a little and you liFewise.
;emphasis supplied<
&
Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their
partnership, the appellee Inocencia (eluao and the appellant executed exhibit A which, although
denominated a "contract of service," was actually the memorandum of their partnership agreement. That
it was not a contract of the services of the appellant, was admitted by the appellees themselves in their
letter
%>
to )asteel dated (ecember %&, %&-& wherein they stated that they did not employ him in his
;)asteelOs< claim but because he used their money in developing and improving the fishpond, his right
must be divided between them. 7f course, although exhibit A did not specify any wage or share
appertaining to the appellant as industrial partner, he was so entitled W this being one of the conditions
he specified for the execution of the document of partnership.
%%
6urther exchanges of letters between the parties reveal the continuing intent to divide the fishpond. In a
letter,
%#
dated Harch #-, %&B>, the appellant suggested that they divide the fishpond and the remaining
capital, and offered to pay the (eluaos a yearly installment of PC,>>> W presumably as reimbursement
for the expenses of the appellees for the development and improvement of the one*half that would
pertain to the appellant. Two days later, the appellee 6elipe (eluao replied,
%C
expressing his concurrence
in the appellantOs suggestion and advising the latter to asF for a reconsideration of the order of the
(irector of 6isheries disapproving his ;appellantOs< application, so that if a favorable decision was
secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee 6elipe (eluao saw no further need to
maintain his petition for the reinvestigation of )asteelOs application. Thus by letter
%-
dated Harch %B,
%&B> addressed to the =ecretary of Agriculture and "atural esources, he withdrew his petition on the
alleged ground that he was no longer interested in the area, but stated however that he wanted his
interest to be protected and his capital to be reimbursed by the highest bidder.
The arrangement under the so*called "contract of service" continued until the decisions both dated
=eptember %B, %&B> were issued by the =ecretary of Agriculture and "atural esources in (A" )ases
CBC and CBC*B. This development, by itself, brought about the dissolution of the partnership. Horeover,
subseAuent events liFewise reveal the intent of both parties to terminate the partnership because each
refused to share the fishpond with the other.
Art. %'C>;C< of the )ivil )ode enumerates, as one of the causes for the dissolution of a partnership, "...
any event which maFes it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership." The approval of the appellantOs fishpond application by the
decisions in (A" )ases CBC and CBC*B brought to the fore several provisions of law which made the
continuation of the partnership unlawful and therefore caused its ipso facto dissolution.
Act ->>C, Fnown as the 6isheries Act, prohibits the holder of a fishpond permit ;the permittee< from
transferring or subletting the fishpond granted to him, without the previous consent or approval of the
=ecretary of Agriculture and "atural esources.
%B
To the same effect is )ondition "o. C of the fishpond
permit which states that "The permittee shall not transfer or sublet all or any area herein granted or any
rights acAuired therein without the previous consent and approval of this 7ffice." Parenthetically, we
must observe that in (A" )ase CBC*B, the permit granted to one of the parties therein, !eoncio
Aradillos, was cancelled not solely for the reason that his permit covered a portion of the area included
in the appellantOs prior fishpond application, but also because, upon investigation, it was ascertained
thru the admission of Aradillos himself that due to lacF of capital, he allowed one !ino 5stepa to
develop with the latterOs capital the area covered by his fishpond permit 6*#'&*) with the understanding
that he ;Aradillos< would be given a share in the produce thereof.
%$
=ec. -> of )ommonwealth Act %-%, otherwise Fnown as the Public !and Act, liFewise provides that
The lessee shall not assign, encumber, or sublet his rights without the consent of the =ecretary
of Agriculture and )ommerce, and the violation of this condition shall avoid the
contract? ro!ided, That assignment, encumbrance, or subletting for purposes of speculation
shall not be permitted in any case1ro!ided" further, That nothing contained in this section
shall be understood or construed to permit the assignment, encumbrance, or subletting of
Page 28 of 33
lands leased under this Act, or under any previous Act, to persons, corporations, or
associations which under this Act, are not authori:ed to lease public lands.
6inally, section C. of Administrative 7rder "o. %- of the =ecretary of Agriculture and "atural
esources issued in August %&C., prohibits a transfer or sublease unless first approved by the (irector
of !ands and under such terms and conditions as he may prescribe. Thus, it states1
3hen a transfer or sub*lease of area and improvement may be allowed. W If the permittee or
lessee had, unless otherwise specifically provided, held the permit or lease and actually
operated and made improvements on the area for at least one year, heKshe may reAuest
permission to sub*lease or transfer the area and improvements under certain conditions.
;a< Transfer sub1ect to appro!al. W A sub*lease or transfer shall only be valid when first
approved by the (irector under such terms and conditions as may be prescribed, otherwise it
shall be null and void. A transfer not previously approved or reported shall be considered
sufficient cause for the cancellation of the permit or lease and forfeiture of the bond and for
granting the area to a Aualified applicant or bidder, as provided in subsection ;r< of =ec. CC of
this 7rder.
=ince the partnership had for its ob@ect the division into two eAual parts of the fishpond between the
appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged the
unauthori:ed transfer of one*half thereof to parties other than the applicant )asteel, it was dissolved by
the approval of his application and the award to him of the fishpond. The approval was an event which
made it unlawful for the business of the partnership to be carried on or for the members to carry it on in
partnership.
The appellees, however, argue that in approving the appellantOs application, the =ecretary of Agriculture
and "atural esources liFewise recogni:ed andKor confirmed their property right to one*half of the
fishpond by virtue of the contract of service, exhibit A. But the untenability of this argument would
readily surface if one were to consider that the =ecretary of Agriculture and "atural esources did not
do so for the simple reason that he does not possess the authority to violate the aforementioned
prohibitory laws nor to exempt anyone from their operation.
4owever, assuming in $ratia ar$umenti that the approval of )asteelOs application, coupled with the
foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership,
succeeding events reveal the intent of both parties to terminate the partnership by refusing to share the
fishpond with the other.
7n (ecember #., %&B> )asteel wrote
%.
the appellee Inocencia (eluao, expressing his desire to divide
the fishpond so that he could administer his own share, such division to be sub@ect to the approval of the
=ecretary of Agriculture and "atural esources. By letter dated (ecember #&, %&B>,
%'
the appellee
6elipe (eluao demurred to )asteelOs proposition because there were allegedly no appropriate grounds to
support the same and, moreover, the conflict over the fishpond had not been finally resolved.
The appellant wrote on January -, %&B% a last letter
%&
to the appellee 6elipe (eluao wherein the former
expressed his determination to administer the fishpond himself because the decision of the +overnment
was in his favor and the only reason why administration had been granted to the (eluaos was because
he was indebted to them. In the same letter, the appellant forbade 6elipe (eluao from sending the
coupleOs encar$ado, Jesus (onesa, to the fishpond. In reply thereto, 6elipe (eluao wrote a letter
#>
dated
January B, %&B% in which he reiterated his refusal to grant the administration of the fishpond to the
appellant, stating as a ground his belief "that only the competent agencies of the government are in a
better position to render any eAuitable arrangement relative to the present case? hence, any action we
may privately taFe may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to
share the fishpond with each other W in direct violation of the undertaFing for which they have
established their partnership W each must be deemed to have expressly withdrawn from the partnership,
thereby causing its dissolution pursuant to art. %'C>;#< of the )ivil )ode which provides, inter alia, that
dissolution is caused "by the express will of any partner at any time."
In this @urisdiction, the =ecretary of Agriculture and "atural esources possesses executive and
administrative powers with regard to the survey, classification, lease, sale or any other form of
concession or disposition and management of the lands of the public domain, and, more specifically,
with regard to the grant or withholding of licenses, permits, leases and contracts over portions of the
public domain to be utili:ed as fishponds.
#%
, Thus, we held in a1o" et al. !s. A$o" et al. ;!*%B-%-, June
C>, %&$><, and reiterated in 2anitano !s. +ecretary of A$riculture and Natural *esources" et al.
;!*#%%$., Harch C%, %&$$<, that
... /T0he powers granted to the =ecretary of Agriculture and )ommerce ;"atural esources<
by law regarding the disposition of public lands such as granting of licenses, permits, leases,
and contracts, or approving, re@ecting, reinstating, or cancelling applications, or deciding
conflicting applications, are all executive and administrative in nature. )t is a well5reco$ni4ed
principle that purely administrati!e and discretionary functions may not be interfered with by
the courts ;)oloso v. Board of Accountancy, +.. "o. !*B.B>, April #>, %&BC<. In general,
courts have no supervising power over the proceedings and action of the administrative
departments of the government. This is generally true with respect to acts involving the
exercise of @udgment or discretion, and findings of fact. ;B- Am. Jur. BB'*BB&< 6indings of
fact by an administrative board or official, following a hearing, are binding upon the courts
and will not be disturbed except where the board or official has gone beyond his statutory
authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to
his duty or with grave abuse of discretion... ;emphasis supplied<
In the case at bar, the =ecretary of Agriculture and "atural esources gave due course to the appellantOs
fishpond application %.%. and awarded to him the possession of the area in Auestion. In view of the
finality of the =ecretaryOs decision in (A" )ases CBC and CBC*B, and considering the absence of any
proof that the said official exceeded his statutory authority, exercised unconstitutional powers, or acted
with arbitrariness and in disregard of his duty, or with grave abuse of discretion, we can do no less than
respect and maintain unfettered his official acts in the premises. It is a salutary rule that the @udicial
department should not dictate to the executive department what to do with regard to the administration
and disposition of the public domain which the law has entrusted to its care and administration. Indeed,
Page 29 of 33
courts cannot superimpose their discretion on that of the land department and compel the latter to do an
act which involves the exercise of @udgment and discretion.
##
Therefore, with the view that we taFe of this case, and even assuming that the in@unction was properly
issued because present all the reAuisite grounds for its issuance, its continuation, and, worse, its
declaration as permanent, was improper in the face of the Fnowledge later acAuired by the lower court
that it was the appellantOs application over the fishpond which was given due course. After the =ecretary
of Agriculture and "atural esources approved the appellantOs application, he became to all intents and
purposes the legal permittee of the area with the corresponding right to possess, occupy and en@oy the
same. )onseAuently, the lower court erred in issuing the preliminary mandatory in@unction. 3e cannot
overemphasi:e that an in@unction should not be granted to taFe property out of the possession and
control of one party and place it in the hands of another whose title has not been clearly established by
law.
#C
4owever, pursuant to our holding that there was a partnership between the parties for the exploitation of
the fishpond before it was awarded to )asteel, this case should be remanded to the lower court for the
reception of evidence relative to an accounting from "ovember #B, %&-& to =eptember %B, %&B>, in
order for the court to determine ;a< the profits reali:ed by the partnership, ;b< the share ;in the profits<
of )asteel as industrial partner, ;e< the share ;in the profits< of (eluao as capitalist partner, and ;d<
whether the amounts totalling about P#.,>>> advanced by (eluao to )asteel for the development and
improvement of the fishpond have already been liAuidated. Besides, since the appellee Inocencia
(eluao continued in possession and en@oyment of the fishpond even after it was awarded to )asteel, she
did so no longer in the concept of a capitalist partner but merely as creditor of the appellant, and
therefore, she must liFewise submit in the lower court an accounting of the proceeds of the sales of all
the fishes harvested from the fishpond from =eptember %$, %&B> until )asteel shall have been finally
given the possession and en@oyment of the same. In the event that the appellee (eluao has received
more than her lawful credit of P#.,>>> ;or whatever amounts have been advanced to )asteel<, plus $D
interest thereon per annum, then she should reimburse the excess to the appellant.
A))7(I"+!G, the @udgment of the lower court is set aside. Another @udgment is hereby rendered1
;%< dissolving the in@unction issued against the appellant, ;#< placing the latter bacF in possession of the
fishpond in litigation, and ;C< remanding this case to the court of origin for the reception of evidence
relative to the accounting that the parties must perforce render in the premises, at the termination of
which the court shall render @udgment accordingly. The appellantOs counterclaim is dismissed. "o
pronouncement as to costs.
Concepcion" C.,." *eyes" ,.B.L." 'i4on" Ma#alintal" 7aldi!ar" +anche4" Fernando and Capistrano"
,,." concur.
G.R. No. L?15D9@ F21* 3E, 196D
ANG P!E H "OMPANG, ET AL., plaintiffs*appellants,
vs.
SE"RETARG OF "OMMER"E AN IN!STRG, defendant*appellee.
Felicisimo (. (scaran for plaintiffs5appellants.
0ffice of the +olicitor 2eneral for defendant5appellee.
IION, J.(
Action for declaratory relief filed in the )ourt of 6irst Instance of Iloilo by Ang Pue I )ompany, Ang
Pue and Tan =iong against the =ecretary of )ommerce and Industry to secure @udgment "declaring that
plaintiffs could extend for five years the term of the partnership pursuant to the provisions of plaintiffsO
Amendment to the Article of )o*partnership."
The answer filed by the defendant alleged, in substance, that the extension for another five years of the
term of the plaintiffsO partnership would be in violation of the provisions of epublic Act "o. %%'>.
It appears that on Hay %, %&BC, Ang Pue and Tan =iong, both )hinese citi:ens, organi:ed the
partnership Ang Pue I )ompany for a term of five years from Hay %, %&BC, extendible by their mutual
consent. The purpose of the partnership was "to maintain the business of general merchandising, buying
and selling at wholesale and retail, particularly of lumber, hardware and other construction materials for
commerce, either native or foreign." The corresponding articles of partnership ;5xhibit B< were
registered in the 7ffice of the =ecurities I 5xchange )ommission on June %$, %&BC.
7n June %&, %&B- epublic Act "o. %%'> was enacted to regulate the retail business. It provided, among
other things, that, after its enactment, a partnership not wholly formed by 6ilipinos could continue to
engage in the retail business until the expiration of its term.
7n April %B, %&B' W prior to the expiration of the five*year term of the partnership Ang Pue I
)ompany, but after the enactment of the epublic Act %%'>, the partners already mentioned amended
the original articles of part ownership ;5xhibit B< so as to extend the term of life of the partnership to
another five years. 3hen the amended articles were presented for registration in the 7ffice of the
=ecurities I 5xchange )ommission on April %$, %&B', registration was refused upon the ground that
the extension was in violation of the aforesaid Act.
6rom the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this
appeal.
The Auestion before us is too clear to reAuire an extended discussion. To organi:e a corporation or a
partnership that could claim a @uridical personality of its own and transact business as such, is not a
matter of absolute right but a privilege which may be en@oyed only under such terms as the =tate may
deem necessary to impose. That the =tate, through )ongress, and in the manner provided by law, had
the right to enact epublic Act "o. %%'> and to provide therein that only 6ilipinos and concerns wholly
owned by 6ilipinos may engage in the retail business can not be seriously disputed. That this provision
was clearly intended to apply to partnership already existing at the time of the enactment of the law is
clearly showing by its provision giving them the right to continue engaging in their retail business until
the expiration of their term or life.
Page 30 of 33
To argue that because the original articles of partnership provided that the partners could extend the
term of the partnership, the provisions of epublic Act %%'> cannot be adversely affect appellants
herein, is to erroneously assume that the aforesaid provision constitute a property right of which the
partners can not be deprived without due process or without their consent. The agreement contain
therein must be deemed sub@ect to the law existing at the time when the partners came to agree
regarding the extension. In the present case, as already stated, when the partners amended the articles of
partnership, the provisions of epublic Act %%'> were already in force, and there can be not the
slightest doubt that the right claimed by appellants to extend the original term of their partnership to
another five years would be in violation of the clear intent and purpose of the law aforesaid.
3455675, the @udgment appealed from is affirmed, with costs.
G.R. No. L?D@@3D Febr2&r* D8, 1969
"OMMISSIONER OF INTERNAL REAEN!E, petitioner,
vs.
=ILLIAM F. S!TER &+0 THE "O!RT OF TAJ APPEALS, respondents.
0ffice of the +olicitor 2eneral Antonio . Barredo" Assistant +olicitor 2eneral Felicisimo *. *osete
and +pecial Attorneys B. 2atdula" ,r. and T. Temprosa ,r. for petitioner.
A. +. Mon4on" 2utierre4" Farrales and 0n$ for respondents.
REGES, F.#.L., J.(
A limited partnership, named "3illiam J. =uter OHorcoinO )o., !td.," was formed on C> =eptember %&-.
by herein respondent 3illiam J. =uter as the general partner, and Julia =pirig and +ustav )arlson, as the
limited partners. The partners contributed, respectively, P#>,>>>.>>, P%',>>>.>> and P#,>>>.>> to the
partnership. 7n % 7ctober %&-., the limited partnership was registered with the =ecurities and
5xchange )ommission. The firm engaged, among other activities, in the importation, marFeting,
distribution and operation of automatic phonographs, radios, television sets and amusement machines,
their parts and accessories. It had an office and held itself out as a limited partnership, handling and
carrying merchandise, using invoices, bills and letterheads bearing its trade*name, maintaining its own
booFs of accounts and banF accounts, and had a Auota allocation with the )entral BanF.
In %&-', however, general partner =uter and limited partner =pirig got married and, thereafter, on %'
(ecember %&-', limited partner )arlson sold his share in the partnership to =uter and his wife. The sale
was duly recorded with the =ecurities and 5xchange )ommission on #> (ecember %&-'.
The limited partnership had been filing its income tax returns as a corporation, without ob@ection by the
herein petitioner, )ommissioner of Internal evenue, until in %&B& when the latter, in an assessment,
consolidated the income of the firm and the individual incomes of the partners*spouses =uter and =pirig
resulting in a determination of a deficiency income tax against respondent =uter in the amount of
P#,$.'.>$ for %&B- and P-,B$..>> for %&BB.
espondent =uter protested the assessment, and reAuested its cancellation and withdrawal, as not in
accordance with law, but his reAuest was denied. Lnable to secure a reconsideration, he appealed to the
)ourt of Tax Appeals, which court, after trial, rendered a decision, on %% "ovember %&$B, reversing
that of the )ommissioner of Internal evenue.
The present case is a petition for review, filed by the )ommissioner of Internal evenue, of the tax
courtOs aforesaid decision. It raises these issues1
;a< 3hether or not the corporate personality of the 3illiam J. =uter "Horcoin" )o., !td. should be
disregarded for income tax purposes, considering that respondent 3illiam J. =uter and his wife, Julia
=pirig =uter actually formed a single taxable unit? and
;b< 3hether or not the partnership was dissolved after the marriage of the partners, respondent 3illiam
J. =uter and Julia =pirig =uter and the subseAuent sale to them by the remaining partner, +ustav
)arlson, of his participation of P#,>>>.>> in the partnership for a nominal amount of P%.>>.
The theory of the petitioner, )ommissioner of Internal evenue, is that the marriage of =uter and =pirig
and their subseAuent acAuisition of the interests of remaining partner )arlson in the partnership
dissolved the limited partnership, and if they did not, the fiction of @uridical personality of the
partnership should be disregarded for income tax purposes because the spouses have exclusive
ownership and control of the business? conseAuently the income tax return of respondent =uter for the
years in Auestion should have included his and his wifeOs individual incomes and that of the limited
partnership, in accordance with =ection -B ;d< of the "ational Internal evenue )ode, which provides
as follows1
;d< 8usband and wife. W In the case of married persons, whether citi:ens, residents or non*
residents, only one consolidated return for the taxable year shall be filed by either spouse to
cover the income of both spouses? ....
In refutation of the foregoing, respondent =uter maintains, as the )ourt of Tax Appeals held, that his
marriage with limited partner =pirig and their acAuisition of )arlsonOs interests in the partnership in
%&-' is not a ground for dissolution of the partnership, either in the )ode of )ommerce or in the "ew
)ivil )ode, and that since its @uridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it is taxable on its
income similarly with corporations, =uter was not bound to include in his individual return the income
of the limited partnership.
3e find the )ommissionerOs appeal unmeritorious.
The thesis that the limited partnership, 3illiam J. =uter "Horcoin" )o., !td., has been dissolved by
operation of law because of the marriage of the only general partner, 3illiam J. =uter to the originally
limited partner, Julia =pirig one year after the partnership was organi:ed is rested by the appellant upon
the opinion of now =enator Tolentino in )ommentaries and Jurisprudence on )ommercial !aws of the
Philippines, ,ol. %, -th 5d., page B', that reads as follows1
Page 31 of 33
A husband and a wife may not enter into a contract of $eneral copartnership, because under
the )ivil )ode, which applies in the absence of express provision in the )ode of )ommerce,
persons prohibited from maFing donations to each other are prohibited from entering
into uni!ersal partnerships. ;# 5chaverri %&$< It follows that the marriage of partners
necessarily brings about the dissolution of a pre*existing partnership. ;% +uy de Hontella B'<
The petitioner*appellant has evidently failed to observe the fact that 3illiam J. =uter "Horcoin" )o.,
!td. was not a uni!ersal partnership, but a particular one. As appears from Articles %$.- and %$.B of
the =panish )ivil )ode, of %''& ;which was the law in force when the sub@ect firm was organi:ed in
%&-.<, a uni!ersal partnership reAuires either that the ob@ect of the association be all the present
property of the partners, as contributed by them to the common fund, or else "all that the partners may
acAuire by their industry or wor# during the existence of the partnership". 3illiam J. =uter "Horcoin"
)o., !td. was not such a universal partnership, since the contributions of the partners were fixed sums
of money, P#>,>>>.>> by 3illiam =uter and P%',>>>.>> by Julia =pirig and neither one of them was an
industrial partner. It follows that 3illiam J. =uter "Horcoin" )o., !td. was not a partnership that
spouses were forbidden to enter by Article %$.. of the )ivil )ode of %''&.
The former )hief Justice of the =panish =upreme )ourt, (. Jose )asan, in his (erecho )ivil, .th
5dition, %&B#, ,olume -, page B-$, footnote %, says with regard to the prohibition contained in the
aforesaid Article %$..1
!os conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero
o podran constituir sociedad particularU AunAue el punto ha sido muy debatido, nos
inclinamos a la tesis permisiva de los contratos de sociedad particular entre esposos, ya Aue
ningun precepto de nuestro )odigo los prohibe, y hay Aue estar a la norma general segun la
Aue toda persona es capa: para contratar mientras no sea declarado incapa: por la ley. !a
@urisprudencia de la (ireccion de los egistros fue favorable a esta misma tesis en su
resolution de C de febrero de %&C$, mas parece cambiar de rumbo en la de & de mar:o de
%&-C.
"or could the subseAuent marriage of the partners operate to dissolve it, such marriage not being one of
the causes provided for that purpose either by the =panish )ivil )ode or the )ode of )ommerce.
The appellantOs view, that by the marriage of both partners the company became a single proprietorship,
is eAually erroneous. The capital contributions of partners 3illiam J. =uter and Julia =pirig were
separately owned and contributed by them before their marriage? and after they were @oined in wedlocF,
such contributions remained their respective separate property under the =panish )ivil )ode ;Article
%C&$<1
The following shall be the e%clusi!e property of each spouse1
;a< That which is brought to the marriage as his or her own? ....
Thus, the individual interest of each consort in 3illiam J. =uter "Horcoin" )o., !td. did not become
common property of both after their marriage in %&-'.
It being a basic tenet of the =panish and Philippine law that the partnership has a @uridical personality of
its own, distinct and separate from that of its partners ;unliFe American and 5nglish law that does not
recogni:e such separate @uridical personality<, the bypassing of the existence of the limited partnership
as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and basic principles
of our law. The limited partnershipOs separate individuality maFes it impossible to eAuate its income
with that of the component members. True, section #- of the Internal evenue )ode merges registered
general co*partnerships ;compa9ias colecti!as< with the personality of the individual partners for
income tax purposes. But this rule is exceptional in its disregard of a cardinal tenet of our partnership
laws, and can not be extended by mere implication to limited partnerships.
The rulings cited by the petitioner ;)ollector of Internal evenue vs. Lniversity of the ,isayas, !*
%CBB-, esolution of C> 7ctober %&$-, and Poppel /Phil.0, Inc. vs. Gatco, .. Phil. B>-< as authority for
disregarding the fiction of legal personality of the corporations involved therein are not applicable to the
present case. In the cited cases, the corporations were already sub1ect to tax when the fiction of their
corporate personality was pierced? in the present case, to do so would e%empt the limited partnership
from income taxation but would throw the tax burden upon the partners*spouses in their individual
capacities. The corporations, in the cases cited, merely served as business conduits or alter e$os of the
stocFholders, a factor that @ustified a disregard of their corporate personalities for tax purposes. This is
not true in the present case. 4ere, the limited partnership is not a mere business conduit of the partner*
spouses? it was organi:ed for legitimate business purposes? it conducted its own dealings with its
customers prior to appelleeOs marriage, and had been filing its own income tax returns as such
independent entity. The change in its membership, brought about by the marriage of the partners and
their subseAuent acAuisition of all interest therein, is no ground for withdrawing the partnership from
the coverage of =ection #- of the tax code, reAuiring it to pay income tax. As far as the records show,
the partners did not enter into matrimony and thereafter buy the interests of the remaining partner with
the premeditated scheme or design to use the partnership as a business conduit to dodge the tax laws.
egularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to reAuire that income to be
included in the individual tax return of respondent =uter is to overstretch the letter and intent of the law.
In fact, it would even conflict with what it specifically provides in its =ection #-1 for the appellant
)ommissionerOs stand results in eAual treatment, tax wise, of a general copartnership ; compa9ia
colecti!a< and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes
the latter on its income, but not the former, because it is in the case of compa9ias colecti!as that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the
profit derived from the duly registered general partnership ;=ection #$, ".I..).? AraVas, Anno. I
Juris. on the ".I..)., As Amended, ,ol. %, pp. ''*'&<.lawphi:.n;t
But it is argued that the income of the limited partnership is actually or constructively the income of the
spouses and forms part of the con@ugal partnership of gains. This is not wholly correct. As pointed out
in Agapito vs. Holo B> Phil. ..&, and PeopleOs BanF vs. egister of (eeds of Hanila, $> Phil. %$., the
fruits of the wifeOs parapherna become con@ugal only when no longer needed to defray the expenses for
the administration and preservation of the paraphernal capital of the wife. Then again, the appellantOs
argument erroneously confines itself to the Auestion of the legal personality of the limited partnership,
which is not essential to the income taxability of the partnership since the law taxes the income of even
@oint accounts that have no personality of their own.
%
Appellant is, liFewise, mistaFen in that it assumes
that the con@ugal partnership of gains is a taxable unit, which it is not. 3hat is taxable is the "income of
Page 32 of 33
both spouses" ;=ection -B /d0 in their individual capacities. Though the amount of income ;income of
the con@ugal partnership !is5a5!is the @oint income of husband and wife< may be the same for a given
taxable year, their conseAuences would be different, as their contributions in the business partnership
are not the same.
The difference in tax rates between the income of the limited partnership being consolidated with, and
when split from the income of the spouses, is not a @ustification for reAuiring consolidation? the revenue
code, as it presently stands, does not authori:e it, and even bars it by reAuiring the limited partnership to
pay tax on its own income.
67 T45 675+7I"+ 5A=7"=, the decision under review is hereby affirmed. "o costs.
Concepcion" C.,." 'i4on" Ma#alintal" 7aldi!ar" +anche4" Castro" Fernando" Capistrano and Teehan#ee"
,,." concur.
Barredo" ,." too# no part.
Page 33 of 33