G.R. No.

L-45425

April 29, 1939

JOSE
GATCHALIAN,
ET
AL., plaintiffsappellants,
vs.
THE
COLLECTOR
OF
INTERNAL
REVENUE, defendant-appellee.
Guillermo
B.
Reyes
for
appellants.
Office of the Solicitor-General Tuason for
appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover
from the defendant Collector of Internal
Revenue the sum of P1,863.44, with legal
interest thereon, which they paid under
protest by way of income tax. They appealed
from the decision rendered in the case on
October 23, 1936 by the Court of First
Instance of the City of Manila, which
dismissed the action with the costs against
them.
The case was submitted for decision upon the
following stipulation of facts:

5.
Jesus
Legaspi ..........................................
.15
.......................................................
.....
6.
Jose
Silva ...............................................
.07
.......................................................
.......
7.
Tomasa
Mercado ......................................... .08
.......................................................
8.
Julio
Gatchalian .....................................
.13
.......................................................
.......
9.
Emiliana
Santiago ........................................
.13
.......................................................
.
10.
Maria
C.
Legaspi .......................................... .16
.....................................................

Come now the parties to the abovementioned

case,
through
their
respective undersigned attorneys, and
hereby agree to respectfully submit to
this Honorable Court the case upon the
following statement of facts:

11.
Francisco
Cabral ............................................ .13
...................................................

1. That plaintiff are all residents of the

municipality of Pulilan, Bulacan, and
that defendant is the Collector of
Internal Revenue of the Philippines;

13.
Maria
Santiago ........................................
.17
.......................................................
....

2. That prior to December 15, 1934

plaintiffs, in order to enable them to
purchase one sweepstakes ticket
valued at two pesos (P2), subscribed
and paid therefor the amounts as
follows:
1.
Jose
Gatchalian ..................................... P0.
....................................................... 18
........
2.
Gregoria
Cristobal ........................................ .18
.......................................................
3.
Saturnina
Silva ............................................... .08
.....................................................
4.

Tapia ..............................................
.....................................................

Guillermo .13

12.
Gonzalo
Javier .............................................. .14
......................................................

14.
Buenaventura
Guzman ......................................... .13
.............................................
15.
Mariano
Santos ............................................ .14
.....................................................
Total ...............................................
....................................................... 2.0
..
0
3. That immediately thereafter but
prior to December 15, 1934, plaintiffs
purchased, in the ordinary course of
business, from one of the duly
authorized agents of the National
Charity Sweepstakes Office one ticket
bearing No. 178637 for the sum of two
pesos (P2) and that the said ticket was
registered in the name of Jose
Gatchalian and Company;

4. That as a result of the drawing of

the sweepstakes on December 15,
1934, the above-mentioned ticket
bearing No. 178637 won one of the
third prizes in the amount of P50,000
and that the corresponding check
covering the above-mentioned prize of
P50,000 was drawn by the National
Charity Sweepstakes Office in favor of
Jose Gatchalian & Company against
the Philippine National Bank, which
check was cashed during the latter
part of December, 1934 by Jose
Gatchalian & Company;
5. That on December 29, 1934, Jose
Gatchalian was required by income tax
examiner Alfredo David to file the
corresponding income tax return
covering the prize won by Jose
Gatchalian & Company and that on
December 29, 1934, the said return
was signed by Jose Gatchalian, a copy
of which return is enclosed as Exhibit A
and made a part hereof;
6. That on January 8, 1935, the
defendant
made
an
assessment
against Jose Gatchalian & Company
requesting the payment of the sum of
P1,499.94 to the deputy provincial
treasurer of Pulilan, Bulacan, giving to
said Jose Gatchalian & Company until
January 20, 1935 within which to pay
the said amount of P1,499.94, a copy
of which letter marked Exhibit B is
enclosed and made a part hereof;
7. That on January 20, 1935, the
plaintiffs, through their attorney, sent
to defendant a reply, a copy of which
marked Exhibit C is attached and made
a part hereof, requesting exemption
from payment of the income tax to
which reply there were enclosed fifteen
(15) separate individual income tax
returns filed separately by each one of
the plaintiffs, copies of which returns
are attached and marked Exhibit D-1 to
D-15, respectively, in order of their
names listed in the caption of this case
and made parts hereof; a statement of
sale signed by Jose Gatchalian showing
the amount put up by each of the
plaintiffs to cover up the attached and
marked as Exhibit E and made a part
hereof; and a copy of the affidavit
signed by Jose Gatchalian dated
December 29, 1934 is attached and
marked Exhibit F and made part
thereof;

8. That the defendant in his letter

dated January 28, 1935, a copy of
which marked Exhibit G is enclosed,
denied plaintiffs' request of January 20,
1935, for exemption from the payment
of tax and reiterated his demand for
the payment of the sum of P1,499.94
as income tax and gave plaintiffs until
February 10, 1935 within which to pay
the said tax;
9. That in view of the failure of the
plaintiffs to pay the amount of tax
demanded
by
the
defendant,
notwithstanding subsequent demand
made by defendant upon the plaintiffs
through their attorney on March 23,
1935, a copy of which marked Exhibit
H is enclosed, defendant on May 13,
1935 issued a warrant of distraint and
levy against the property of the
plaintiffs, a copy of which warrant
marked Exhibit I is enclosed and made
a part hereof;
10. That to avoid embarrassment
arising from the embargo of the
property of the plaintiffs, the said
plaintiffs on June 15, 1935, through
Gregoria Cristobal, Maria C. Legaspi
and Jesus Legaspi, paid under protest
the sum of P601.51 as part of the tax
and penalties to the municipal
treasurer of Pulilan, Bulacan, as
evidenced by official receipt No.
7454879 which is attached and
marked Exhibit J and made a part
hereof, and requested defendant that
plaintiffs be allowed to pay under
protest the balance of the tax and
penalties by monthly installments;
11. That plaintiff's request to pay the
balance of the tax and penalties was
granted by defendant subject to the
condition that plaintiffs file the usual
bond secured by two solvent persons
to guarantee prompt payment of each
installments as it becomes due;
12. That on July 16, 1935, plaintiff filed
a bond, a copy of which marked Exhibit
K is enclosed and made a part hereof,
to guarantee the payment of the
balance of the alleged tax liability by
monthly installments at the rate of
P118.70 a month, the first payment
under protest to be effected on or
before July 31, 1935;

13. That on July 16, 1935 the said

plaintiffs formally protested against the
payment of the sum of P602.51, a copy
of which protest is attached and
marked Exhibit L, but that defendant in
his letter dated August 1, 1935
overruled the protest and denied the
request for refund of the plaintiffs;
14. That, in view of the failure of the
plaintiffs
to
pay
the
monthly
installments in accordance with the
terms and conditions of bond filed by
them, the defendant in his letter dated
July 23, 1935, copy of which is
attached and marked Exhibit M,
ordered the municipal treasurer of
Pulilan, Bulacan to execute within five
days the warrant of distraint and levy
issued against the plaintiffs on May 13,
1935;
15. That in order to avoid annoyance
and embarrassment arising from the
levy of their property, the plaintiffs on
August 28, 1936, through Jose
Gatchalian, Guillermo Tapia, Maria
Santiago and Emiliano Santiago, paid
under protest to the municipal
treasurer of Pulilan, Bulacan the sum of
P1,260.93 representing the unpaid
balance of the income tax and
penalties demanded by defendant as
evidenced by income tax receipt No.
35811 which is attached and marked
Exhibit N and made a part hereof; and
that on September 3, 1936, the
plaintiffs formally protested to the
defendant against the payment of said
amount and requested the refund
thereof, copy of which is attached and
marked Exhibit O and made part
hereof; but that on September 4, 1936,
the defendant overruled the protest
and denied the refund thereof; copy of
which is attached and marked Exhibit P
and made a part hereof; and
16. That plaintiffs demanded upon
defendant the refund of the total sum
of one thousand eight hundred and
sixty three pesos and forty-four
centavos (P1,863.44) paid under
protest by them but that defendant
refused and still refuses to refund the
said amount notwithstanding the
plaintiffs' demands.
17. The parties hereto reserve the right
to present other and additional
evidence if necessary.

Exhibit E referred to in the stipulation is of the

following tenor:
To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan,
Bulacan, married, of age, hereby
certify, that on the 11th day of August,
1934, I sold parts of my shares on
ticket No. 178637 to the persons and
for the amount indicated below and
the part of may share remaining is also
shown to wit:
Purchaser

Amou Addre
nt
ss

Pulila
1.
Mariano
n,
Santos ........................... P0.14
Bulac
................
an.
2.
Buenaventura
Guzman ........................ .13
.......

- Do -

3.
Maria
Santiago ....................... .17
.....................

- Do -

4.
Gonzalo
Javier ............................. .14
.................

- Do -

5.
Francisco
Cabral ........................... .13
...............

- Do -

6.
Maria
C.
Legaspi ......................... .16
.................

- Do -

7.
Emiliana
Santiago ....................... .13
..................

- Do -

8.
Julio
Gatchalian .................... .13
........................

- Do -

9.
Jose
Silva .............................. .07
........................

- Do -

10.
Tomasa
Mercado ........................ .08
...............

- Do -

11.
Jesus
Legaspi ......................... .15
....................

- Do -

12.
Guillermo
Tapia ............................. .13
..............

- Do -

13.
Saturnina
Silva .............................. .08
..............

- Do -

14.
Gregoria
Cristobal ....................... .18
................

- Do -

15.
Jose
Gatchalian .................... .18
........................

- Do -

Maria
Cristobal .......
..

6.
Jose
Silva .............. D...................... 6
................

.08

1,
1,8
360 51
75
5

7.
Tomasa
Mercado ........ D...................... 7
.........

.07

1,
1,8
360 51
75
5

8.
Julio
Gatchalian by DBeatriz
8
Guzman .......

.13

2,
3,1
240 91
50
0

9.
Emiliana
Santiago ....... D...................... 9
.........

.13

2,
3,3
360 96
25
5

10. Maria C.
Legaspi ......... D...................... 10
.......

.16

3,
4,1
960 14
00
0

11. Francisco
Cabral ........... D...................... 11
.....

.13

2,
3,3
360 96
25
5

12.
Gonzalo
Javier ............ D...................... 12
........

.14

2,
3,3
360 96
25
5

N
et
pri
ze

13.
Maria
Santiago ....... D...................... 13
.............

.17

3,
4,3
360 99
50
0

1.
Jose
Gatchalian .... D...................... 1
................

P4,
3,
P0.1
P
42
94
8
480
5
5

14.
Buenaventura DGuzman ........ 14
...................

.13

2,
3,3
360 96
25
5

2.
Gregoria
Cristobal ....... D...................... 2
.........

.18

4,5 2,0
75 00

2,
57
5

15.
Mariano
Santos ........... D...................... 15
.......

.14

2,
3,3
360 96
25
5

3. Saturnina
Silva .............. D...................... 3
.........

.08

1,
1,8
360 51
75
5

4. Guillermo
Tapia ............. D...................... 4
.......

.13

2,
3,3
360 96
25
5

2.00

Total
cost
of
said

ticket; and that, therefore, the persons

named above are entitled to the parts
of whatever prize that might be won by
said ticket.
Pulilan, Bulacan, P.I.
(Sgd.) JOSE GATCHALIAN
And a summary of Exhibits D-1 to D-15 is
inserted in the bill of exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL
INCOME TAX RETURNS FOR 1934 ALL
DATED JANUARY 19, 1935 SUBMITTED
TO THE COLLECTOR OF INTERNAL
REVENUE.

Name

Ex
hib
it
No
.

5.
Jesus DLegaspi
by 5

Pur
cha
se
Pric
e

.15

Pri
ce
W
on

Exp
ens
es

3,8 720 3,
25
10

50,
2.00 00
0
The legal questions raised in plaintiffsappellants' five assigned errors may properly
be reduced to the two following: (1) Whether
the plaintiffs formed a partnership, or merely
a community of property without a personality
of its own; in the first case it is admitted that
the partnership thus formed is liable for the

payment of income tax, whereas if there was

merely a community of property, they are
exempt from such payment; and (2) whether
they should pay the tax collectively or
whether the latter should be prorated among
them and paid individually.

taxable
corporation,
joint-stock
company, partnership, joint account
(cuenta en participacion), association,
or insurance company in the calendar
year nineteen hundred and twenty and
in each year thereafter.

The Collector of Internal Revenue collected

the tax under section 10 of Act No. 2833, as
last amended by section 2 of Act No. 3761,
reading as follows:

There is no doubt that if the plaintiffs merely

formed a community of property the latter is
exempt from the payment of income tax
under the law. But according to the stipulation
facts the plaintiffs organized a partnership of
a civil nature because each of them put up
money to buy a sweepstakes ticket for the
sole purpose of dividing equally the prize
which they may win, as they did in fact in the
amount of P50,000 (article 1665, Civil Code).
The partnership was not only formed, but
upon the organization thereof and the winning
of the prize, Jose Gatchalian personally
appeared in the office of the Philippines
Charity Sweepstakes, in his capacity as copartner, as such collection the prize, the office
issued the check for P50,000 in favor of Jose
Gatchalian and company, and the said
partner, in the same capacity, collected the
said check. All these circumstances repel the
idea that the plaintiffs organized and formed a
community of property only.

SEC. 10. (a) There shall be levied,

assessed, collected, and paid annually
upon the total net income received in
the preceding calendar year from all
sources by every corporation, jointstock company, partnership, joint
account (cuenta en participacion),
association or insurance company,
organized in the Philippine Islands, no
matter how created or organized, but
not including duly registered general
copartnership (compaias colectivas),
a tax of three per centum upon such
income; and a like tax shall be levied,
assessed, collected, and paid annually
upon the total net income received in
the preceding calendar year from all
sources within the Philippine Islands by
every
corporation,
joint-stock
company, partnership, joint account
(cuenta en participacion), association,
or insurance company organized,
authorized, or existing under the laws
of any foreign country, including
interest on bonds, notes, or other
interest-bearing
obligations
of
residents,
corporate
or
otherwise: Provided,
however, That
nothing in this section shall be
construed as permitting the taxation of
the income derived from dividends or
net profits on which the normal tax has
been paid.
The gain derived or loss sustained from
the sale or other disposition by a
corporation,
joint-stock
company,
partnership, joint account (cuenta en
participacion),
association,
or
insurance company, or property, real,
personal,
or
mixed,
shall
be
ascertained
in
accordance
with
subsections (c) and (d) of section two
of Act Numbered Two thousand eight
hundred and thirty-three, as amended
by Act Numbered Twenty-nine hundred
and twenty-six.
The foregoing tax rate shall apply to
the net income received by every

Having
organized
and
constituted
a
partnership of a civil nature, the said entity is
the one bound to pay the income tax which
the defendant collected under the aforesaid
section 10 (a) of Act No. 2833, as amended by
section 2 of Act No. 3761. There is no merit in
plaintiff's contention that the tax should be
prorated among them and paid individually,
resulting in their exemption from the tax.
In view of the foregoing, the appealed
decision is affirmed, with the costs of this
instance to the plaintiffs appellants. So
ordered.
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS,
ROMEO P. OBILLOS and REMEDIOS P.
OBILLOS, brothers and sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE
and COURT OF TAX APPEALS, respondents.
AQUINO, J.:
This case is about the income tax liability of
four brothers and sisters who sold two parcels
of land which they had acquired from their
father.

On March 2, 1973 Jose Obillos, Sr. completed

payment to Ortigas & Co., Ltd. on two lots
with areas of 1,124 and 963 square meters
located at Greenhills, San Juan, Rizal. The next
day he transferred his rights to his four
children, the petitioners, to enable them to
build their residences. The company sold the
two lots to petitioners for P178,708.12 on
March 13 (Exh. A and B, p. 44, Rollo).
Presumably, the Torrens titles issued to them
would show that they were co-owners of the
two lots.
In 1974, or after having held the two lots for
more than a year, the petitioners resold them
to the Walled City Securities Corporation and
Olga Cruz Canda for the total sum of P313,050
(Exh. C and D). They derived from the sale a
total profit of P134,341.88 or P33,584 for each
of them. They treated the profit as a capital
gain and paid an income tax on one-half
thereof or of P16,792.
In April, 1980, or one day before the
expiration of the five-year prescriptive period,
the Commissioner of Internal Revenue
required the four petitioners to pay corporate
income tax on the total profit of P134,336 in
addition to individual income tax on their
shares thereof He assessed P37,018 as
corporate income tax, P18,509 as 50% fraud
surcharge
and
P15,547.56
as
42%
accumulated interest, or a total of P71,074.56.
Not only that. He considered the share of the
profits of each petitioner in the sum of
P33,584 as a " taxable in full (not a mere
capital gain of which is taxable) and
required them to pay deficiency income taxes
aggregating P56,707.20 including the 50%
fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for
deficiency income taxes and penalties
totalling P127,781.76 on their profit of
P134,336, in addition to the tax on capital
gains already paid by them.
The Commissioner acted on the theory that
the
four
petitioners
had
formed
an
unregistered partnership or joint venture
within the meaning of sections 24(a) and
84(b) of the Tax Code (Collector of Internal
Revenue vs. Batangas Trans. Co., 102 Phil.
822).
The petitioners contested the assessments.
Two Judges of the Tax Court sustained the
same. Judge Roaquin dissented. Hence, the
instant appeal.

We hold that it is error to consider the

petitioners as having formed a partnership
under article 1767 of the Civil Code simply
because
they
allegedly
contributed
P178,708.12 to buy the two lots, resold the
same and divided the profit among
themselves.
To regard the petitioners as having formed a
taxable unregistered partnership would result
in oppressive taxation and confirm the dictum
that the power to tax involves the power to
destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no
such intention. They were co-owners pure and
simple. To consider them as partners would
obliterate the distinction between a coownership and a partnership. The petitioners
were not engaged in any joint venture by
reason of that isolated transaction.
Their original purpose was to divide the lots
for residential purposes. If later on they found
it not feasible to build their residences on the
lots because of the high cost of construction,
then they had no choice but to resell the same
to dissolve the co-ownership. The division of
the profit was merely incidental to the
dissolution of the co-ownership which was in
the nature of things a temporary state. It had
to be terminated sooner or later. Castan
Tobeas says:
Como establecer el deslinde
entre la comunidad ordinaria o
copropiedad y la sociedad?
El criterio diferencial-segun la
doctrina mas generalizada-esta:
por razon del origen, en que la
sociedad
presupone
necesariamente la convencion,
mentras que la comunidad
puede
existir
y
existe
ordinariamente sin ela; y por
razon del fin objecto, en que el
objeto de la sociedad es
obtener lucro, mientras que el
de
la
indivision
es
solo
mantener en su integridad la
cosa comun y favorecer su
conservacion.
Reflejo de este criterio es la
sentencia de 15 de Octubre de
1940, en la que se dice que si
en nuestro Derecho positive se
ofrecen a veces dificultades al
tratar de fijar la linea divisoria
entre comunidad de bienes y

contrato
de
sociedad,
la
moderna orientacion de la
doctrina cientifica seala como
nota
fundamental
de
diferenciacion aparte del origen
de fuente de que surgen, no
siempre uniforme, la finalidad
perseguida
por
los
interesados: lucro
comun
partible en la sociedad, y mera
conservacion y
aprovechamiento
en
la
comunidad.
(Derecho
Civil
Espanol, Vol. 2, Part 1, 10 Ed.,
1971, 328- 329).
Article 1769(3) of the Civil Code provides that
"the sharing of gross returns does not of itself
establish a partnership, whether or not the
persons sharing them have a joint or common
right or interest in any property from which
the returns are derived". There must be an
unmistakable intention to form a partnership
or joint venture.*
Such intent was present in Gatchalian vs.
Collector of Internal Revenue, 67 Phil. 666,
where 15 persons contributed small amounts
to purchase a two-peso sweepstakes ticket
with the agreement that they would divide the
prize The ticket won the third prize of
P50,000. The 15 persons were held liable for
income tax as an unregistered partnership.
The instant case is distinguishable from the
cases where the parties engaged in joint
ventures for profit. Thus, in Oa vs.
** This view is supported by the following
rulings of respondent Commissioner:
Co-owership distinguished from
partnership.We find that the
case at bar is fundamentally
similar to the De Leon case.
Thus, like the De Leon heirs, the
Longa
heirs
inherited
the
'hacienda'
in
questionproindiviso from their deceased
parents; they did not contribute
or invest additional ' capital to
increase
or
expand
the
inherited
properties;
they
merely continued dedicating
the property to the use to which
it had been put by their
forebears;
they
individually
reported in their tax returns
their corresponding shares in
the income and expenses of the
'hacienda', and they continued

for many years the status of coownership

in
order,
as
conceded by respondent, 'to
preserve its (the 'hacienda')
value and to continue the
existing contractual relations
with the Central Azucarera de
Bais for milling purposes. Longa
vs. Aranas, CTA Case No. 653,
July 31, 1963).
All co-ownerships are not
deemed
unregistered
pratnership.Co-Ownership
who own properties which
produce income should not
automatically be considered
partners of an unregistered
partnership, or a corporation,
within the purview of the
income tax law. To hold
otherwise, would be to subject
the
income
of all
co-ownerships of
inherited
properties to the tax on
corporations, inasmuch as if a
property does not produce an
income at all, it is not subject to
any kind of income tax, whether
the income tax on individuals or
the income tax on corporation.
(De Leon vs. CI R, CTA Case No.
738, September 11, 1961, cited
in Araas, 1977 Tax Code
Annotated, Vol. 1, 1979 Ed., pp.
77-78).
Commissioner of Internal Revenue, L-19342,
May 25, 1972, 45 SCRA 74, where after an
extrajudicial settlement the co-heirs used the
inheritance or the incomes derived therefrom
as a common fund to produce profits for
themselves, it was held that they were
taxable as an unregistered partnership.
It is likewise different from Reyes vs.
Commissioner of Internal Revenue, 24 SCRA
198, where father and son purchased a lot
and building, entrusted the administration of
the building to an administrator and divided
equally the net income, and from Evangelista
vs. Collector of Internal Revenue, 102 Phil.
140, where the three Evangelista sisters
bought four pieces of real property which they
leased to various tenants and derived rentals
therefrom. Clearly, the petitioners in these
two cases had formed an unregistered
partnership.
In the instant case, what the Commissioner
should have investigated was whether the
father donated the two lots to the petitioners

and whether he paid the donor's tax (See Art.

1448, Civil Code). We are not prejudging this
matter. It might have already prescribed.
WHEREFORE, the judgment of the Tax Court is
reversed and set aside. The assessments are
cancelled. No costs.
SO ORDERED.
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P.
DRAGON, petitioners,
vs.
THE
COMMISSIONER
OF
INTERNAL
REVENUE
and
COURT
OF
TAX
APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law
Offices for petitioners.
The Solicitor General for respondents

GANCAYCO, J.:
The distinction between co-ownership and an
unregistered partnership or joint venture for
income tax purposes is the issue in this
petition.
On June 22, 1965, petitioners bought two (2)
parcels of land from Santiago Bernardino, et
al. and on May 28, 1966, they bought another
three (3) parcels of land from Juan Roque. The
first two parcels of land were sold by
petitioners in 1968 toMarenir Development
Corporation, while the three parcels of land
were sold by petitioners to Erlinda Reyes and
Maria Samson on March 19,1970. Petitioners
realized a net profit in the sale made in 1968
in the amount of P165,224.70, while they
realized a net profit of P60,000.00 in the sale
made in 1970. The corresponding capital
gains taxes were paid by petitioners in 1973
and 1974 by availing of the tax amnesties
granted in the said years.
However, in a letter dated March 31, 1979 of
then Acting BIR Commissioner Efren I. Plana,
petitioners were assessed and required to pay
a total amount of P107,101.70 as alleged
deficiency corporate income taxes for the
years 1968 and 1970.
Petitioners protested the said assessment in a
letter of June 26, 1979 asserting that they had
availed of tax amnesties way back in 1974.

In a reply of August 22, 1979, respondent

Commissioner informed petitioners that in the
years 1968 and 1970, petitioners as coowners in the real estate transactions formed
an unregistered partnership or joint venture
taxable as a corporation under Section 20(b)
and its income was subject to the taxes
prescribed under Section 24, both of the
National Internal Revenue Code 1 that the
unregistered partnership was subject to
corporate income tax as distinguished from
profits derived from the partnership by them
which is subject to individual income tax; and
that the availment of tax amnesty under P.D.
No. 23, as amended, by petitioners relieved
petitioners of their individual income tax
liabilities but did not relieve them from the tax
liability of the unregistered partnership.
Hence, the petitioners were required to pay
the deficiency income tax assessed.
Petitioners filed a petition for review with the
respondent Court of Tax Appeals docketed as
CTA Case No. 3045. In due course, the
respondent court by a majority decision of
March 30, 1987, 2 affirmed the decision and
action taken by respondent commissioner
with costs against petitioners.
It ruled that on the basis of the principle
enunciated in Evangelista 3 an unregistered
partnership was in fact formed by petitioners
which like a corporation was subject to
corporate income tax distinct from that
imposed on the partners.
In a separate dissenting opinion, Associate
Judge
Constante
Roaquin
stated
that
considering the circumstances of this case,
although there might in fact be a coownership between the petitioners, there was
no adequate basis for the conclusion that they
thereby formed an unregistered partnership
which made "hem liable for corporate income
tax under the Tax Code.
Hence, this petition wherein petitioners invoke
as basis thereof the following alleged errors of
the respondent court:
A.
IN
HOLDING
AS
PRESUMPTIVELY CORRECT THE
DETERMINATION
OF
THE
RESPONDENT COMMISSIONER,
TO
THE
EFFECT
THAT
PETITIONERS
FORMED
AN
UNREGISTERED
PARTNERSHIP
SUBJECT
TO
CORPORATE
INCOME TAX, AND THAT THE
BURDEN
OF
OFFERING
EVIDENCE
IN
OPPOSITION

THERETO RESTS
PETITIONERS.

UPON

THE

B. IN MAKING A FINDING,
SOLELY ON THE BASIS OF
ISOLATED SALE TRANSACTIONS,
THAT
AN
UNREGISTERED
PARTNERSHIP EXISTED THUS
IGNORING THE REQUIREMENTS
LAID DOWN BY LAW THAT
WOULD
WARRANT
THE
PRESUMPTION/CONCLUSION
THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE
INSTANT CASE IS SIMILAR TO
THE EVANGELISTA CASE AND
THEREFORE
SHOULD
BE
DECIDED
ALONGSIDE
THE
EVANGELISTA CASE.
D. IN RULING THAT THE TAX
AMNESTY DID NOT RELIEVE THE
PETITIONERS FROM PAYMENT
OF OTHER TAXES FOR THE
PERIOD COVERED BY SUCH
AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the
respondent court is the ruling of this Court
in Evangelista. 4
In the said case, petitioners borrowed a sum
of money from their father which together
with their own personal funds they used in
buying several real properties. They appointed
their brother to manage their properties with
full power to lease, collect, rent, issue
receipts, etc. They had the real properties
rented or leased to various tenants for several
years and they gained net profits from the
rental income. Thus, the Collector of Internal
Revenue demanded the payment of income
tax on a corporation, among others, from
them.
In resolving the issue, this Court held as
follows:
The issue in this case is
whether petitioners are subject
to the tax on corporations
provided for in section 24 of
Commonwealth Act No. 466,
otherwise
known
as
the
National Internal Revenue Code,
as well as to the residence tax
for corporations and the real
estate dealers' fixed tax. With

respect
to
the
tax
on
corporations, the issue hinges
on the meaning of the terms
corporation and partnership as
used in sections 24 and 84 of
said Code, the pertinent parts
of which read:
Sec. 24. Rate of the tax on
corporations.There shall be
levied, assessed, collected, and
paid annually upon the total net
income
received
in
the
preceding taxable year from all
sources by every corporation
organized in, or existing under
the laws of the Philippines, no
matter
how
created
or
organized but not including duly
registered
general
copartnerships
(companies
collectives), a tax upon such
income equal to the sum of the
following: ...
Sec.
84(b).
The
term
"corporation"
includes
partnerships, no matter how
created or organized, joint-stock
companies,
joint
accounts
(cuentas
en
participation),
associations
or
insurance
companies,
but
does
not
include duly registered general
co-partnerships
(companies
colectivas).
Article 1767 of the Civil Code of
the Philippines provides:
By the contract of partnership
two or more persons bind
themselves
to
contribute
money, property, or industry to
a common fund, with the
intention of dividing the profits
among themselves.
Pursuant to this article, the
essential
elements
of
a
partnership are two, namely:
(a) an agreement to contribute
money, property or industry to
a common fund; and (b) intent
to divide the profits among the
contracting parties. The first
element is undoubtedly present
in the case at bar, for,
admittedly, petitioners have
agreed to, and did, contribute
money and property to a

common fund. Hence, the issue

narrows down to their intent in
acting as they did. Upon
consideration of all the facts
and circumstances surrounding
the case, we are fully satisfied
that their purpose was to
engage
in
real
estate
transactions for monetary gain
and then divide the same
among themselves, because:
1. Said common fund was not
something they found already
in existence. It was not a
property inherited by them pro
indiviso.
They created
it
purposely. What is more they
jointly borrowed a substantial
portion thereof in order to
establish said common fund.
2. They invested the same, not
merely in one transaction, but
in a series of transactions. On
February 2, 1943, they bought a
lot for P100,000.00. On April 3,
1944, they purchased 21 lots
for P18,000.00. This was soon
followed, on April 23, 1944, by
the acquisition of another real
estate for P108,825.00. Five (5)
days later (April 28, 1944), they
got
a
fourth
lot
for
P237,234.14. The number of
lots
(24)
acquired
and
transcations undertaken, as
well as the brief interregnum
between each, particularly the
last three purchases, is strongly
indicative of a pattern or
common design that was not
limited to the conservation and
preservation
of
the
aforementioned common fund
or even of the property
acquired by petitioners in
February, 1943. In other words,
one cannot but perceive a
character of habituality peculiar
to
business
transactions
engaged in for purposes of
gain.
3. The aforesaid lots were not
devoted to residential purposes
or to other personal uses, of
petitioners
herein.
The
properties
were
leased
separately to several persons,
who, from 1945 to 1948
inclusive, paid the total sum of

P70,068.30 by way of rentals.

Seemingly, the lots are still
being so let, for petitioners do
not even suggest that there has
been any change in the
utilization thereof.
4. Since August, 1945, the
properties have been under the
management of one person,
namely, Simeon Evangelists,
with full power to lease, to
collect rents, to issue receipts,
to bring suits, to sign letters
and contracts, and to indorse
and
deposit
notes
and
checks. Thus,
the
affairs
relative to said properties have
been handled as if the same
belonged to a corporation or
business enterprise operated
for profit.
5. The foregoing conditions
have existed for more than ten
(10) years, or, to be exact, over
fifteen (15) years, since the first
property was acquired, and
over twelve (12) years, since
Simeon Evangelists became the
manager.
6. Petitioners have not testified
or introduced any evidence,
either on their purpose in
creating the set up already
adverted to, or on the causes
for its continued existence.
They did not even try to offer
an explanation therefor.
Although, taken singly, they
might not suffice to establish
the
intent
necessary
to
constitute a partnership, the
collective
effect
of
these
circumstances is such as to
leave no room for doubt on the
existence of said intent in
petitioners herein. Only one or
two of the aforementioned
circumstances were present in
the cases cited by petitioners
herein, and, hence, those cases
are not in point. 5
In the present case, there is no evidence that
petitioners entered into an agreement to
contribute money, property or industry to a
common fund, and that they intended to
divide
the
profits
among
themselves.

10

Respondent commissioner and/ or his

representative just assumed these conditions
to be present on the basis of the fact that
petitioners purchased certain parcels of land
and became co-owners thereof.
In Evangelists, there was a series of
transactions where petitioners purchased
twenty-four (24) lots showing that the purpose
was not limited to the conservation or
preservation of the common fund or even the
properties acquired by them. The character of
habituality peculiar to business transactions
engaged in for the purpose of gain was
present.
In the instant case, petitioners bought two (2)
parcels of land in 1965. They did not sell the
same nor make any improvements thereon. In
1966, they bought another three (3) parcels of
land from one seller. It was only 1968 when
they sold the two (2) parcels of land after
which they did not make any additional or
new purchase. The remaining three (3) parcels
were sold by them in 1970. The transactions
were isolated. The character of habituality
peculiar to business transactions for the
purpose of gain was not present.
In Evangelista, the properties were leased out
to tenants for several years. The business was
under the management of one of the
partners. Such condition existed for over
fifteen (15) years. None of the circumstances
are present in the case at bar. The coownership started only in 1965 and ended in
1970.
Thus, in the concurring opinion of Mr. Justice
Angelo Bautista in Evangelista he said:
I wish however to make the
following observation Article
1769 of the new Civil Code lays
down the rule for determining
when a transaction should be
deemed a partnership or a coownership.
Said
article
paragraphs 2 and 3, provides;
(2)
Co-ownership
or
copossession does not itself
establish
a
partnership,
whether such co-owners or copossessors do or do not share
any profits made by the use of
the property;
(3) The sharing of gross returns
does not of itself establish a
partnership, whether or not the

persons sharing them have a

joint or common right or
interest in any property from
which the returns are derived;
From the above it appears that
the fact that those who agree
to form a co- ownership share
or do not share any profits
made by the use of the
property held in common does
not convert their venture into a
partnership. Or the sharing of
the gross returns does not of
itself establish a partnership
whether or not the persons
sharing therein have a joint or
common right or interest in the
property. This only means that,
aside from the circumstance of
profit, the presence of other
elements
constituting
partnership is necessary, such
as the clear intent to form a
partnership, the existence of a
juridical personality different
from that of the individual
partners, and the freedom to
transfer or assign any interest
in the property by one with the
consent of the others (Padilla,
Civil Code of the Philippines
Annotated, Vol. I, 1953 ed., pp.
635-636)
It is evident that an isolated
transaction whereby two or
more persons contribute funds
to buy certain real estate for
profit in the absence of other
circumstances
showing
a
contrary intention cannot be
considered a partnership.
Persons
who
contribute
property or funds for a common
enterprise and agree to share
the gross returns of that
enterprise in proportion to their
contribution, but who severally
retain
the
title
to
their
respective contribution, are not
thereby
rendered
partners.
They have no common stock or
capital, and no community of
interest as principal proprietors
in the business itself which the
proceeds derived. (Elements of
the Law of Partnership by Flord
D. Mechem 2nd Ed., section 83,
p. 74.)

11

A joint purchase of land, by two,

does not constitute a copartnership in respect thereto;
nor does an agreement to share
the profits and losses on the
sale
of
land
create
a
partnership; the parties are only
tenants in common. (Clark vs.
Sideway, 142 U.S. 682,12 Ct.
327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and
another agreed to become
owners of a single tract of
realty, holding as tenants in
common, and to divide the
profits of disposing of it, the
brother and the other not being
entitled to share in plaintiffs
commission,
no partnership
existed as between the three
parties, whatever their relation
may have been as to third
parties. (Magee vs. Magee 123
N.E. 673, 233 Mass. 341.)
In order to constitute a
partnership inter sese there
must be: (a) An intent to form
the
same;
(b)
generally
participating in both profits and
losses;
(c)
and
such
a
community of interest, as far as
third persons are concerned as
enables each party to make
contract, manage the business,
and dispose of the whole
property.-Municipal Paving Co.
vs. Herring 150 P. 1067, 50 III
470.)
The common ownership of
property does not itself create a
partnership
between
the
owners, though they may use it
for the purpose of making
gains; and they may, without
becoming
partners,
agree
among themselves as to the
management, and use of such
property and the application of
the
proceeds
therefrom.
(Spurlock vs. Wilson, 142 S.W.
363,160 No. App. 14.) 6
The sharing of returns does not in itself
establish a partnership whether or not the
persons sharing therein have a joint or
common right or interest in the property.
There must be a clear intent to form a
partnership, the existence of a juridical
personality different from the individual

partners, and the freedom of each party to

transfer or assign the whole property.
In the present case, there is clear evidence of
co-ownership between the petitioners. There
is no adequate basis to support the
proposition that they thereby formed an
unregistered partnership. The two isolated
transactions
whereby
they
purchased
properties and sold the same a few years
thereafter did not thereby make them
partners. They shared in the gross profits as
co- owners and paid their capital gains taxes
on their net profits and availed of the tax
amnesty thereby. Under the circumstances,
they cannot be considered to have formed an
unregistered partnership which is thereby
liable for corporate income tax, as the
respondent commissioner proposes.
And even assuming for the sake of argument
that such unregistered partnership appears to
have been formed, since there is no such
existing unregistered partnership with a
distinct personality nor with assets that can
be held liable for said deficiency corporate
income tax, then petitioners can be held
individually liable as partners for this unpaid
obligation of the partnership p. 7 However, as
petitioners have availed of the benefits of tax
amnesty as individual taxpayers in these
transactions, they are thereby relieved of any
further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED
and the decision of the respondent Court of
Tax Appeals of March 30, 1987 is hereby
REVERSED and SET ASIDE and another
decision
is
hereby
rendered
relieving
petitioners of the corporate income tax
liability in this case, without pronouncement
as to costs.
SO ORDERED.
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN,
DAVID P. WHITTINGHAM and CHARLES
CHAMSAY, petitioners,
vs.
SANITARY
WARES
MANUFACTURING
CORPORATOIN, ERNESTO V. LAGDAMEO,
ERNESTO R. LAGDAMEO, JR., ENRIQUE R.
LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO
V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989

12

SANITARY
WARES
MANUFACTURING
CORPORATION, ERNESTO R. LAGDAMEO,
ENRIQUE B. LAGDAMEO, GEORGE FL .EE
RAUL A. BONCAN, BALDWIN YOUNG and
AVELINO
V.
CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG
AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM, CHARLES CHAMSAY and
LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO
E.
SALAZAR, petitioner,
vs.
SANITARY
WARES
MANUFACTURING
CORPORATION, ERNESTO V. LAGDAMEO,
ERNESTO R. LAGDAMEO, JR., ENRIQUE R.
LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG, AVELINO V.
CRUZ
and
the
COURT
OF
APPEALS, respondents.
Belo, Abiera & Associates for petitioners in
75875.
Sycip, Salazar, Hernandez & Gatmaitan for
Luciano E. Salazar.

European or American who could help in its

expansion plans. On August 15, 1962, ASI, a
foreign corporation domiciled in Delaware,
United States entered into an Agreement with
Saniwares and some Filipino investors
whereby ASI and the Filipino investors agreed
to participate in the ownership of an
enterprise which would engage primarily in
the business of manufacturing in the
Philippines and selling here and abroad
vitreous china and sanitary wares. The parties
agreed that the business operations in the
Philippines shall be carried on by an
incorporated enterprise and that the name of
the corporation shall initially be "Sanitary
Wares Manufacturing Corporation."
The Agreement has the following provisions
relevant to the issues in these cases on the
nomination and election of the directors of the
corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation
of the Corporation shall be
substantially
in
the
form
annexed hereto as Exhibit A
and, insofar as permitted under
Philippine law, shall specifically
provide for

GUTIERREZ, JR., J.:

These consolidated petitions seek the review
of the amended decision of the Court of
Appeals in CA-G.R. SP Nos. 05604 and 05617
which set aside the earlier decision dated June
5, 1986, of the then Intermediate Appellate
Court and directed that in all subsequent
elections for directors of Sanitary Wares
Manufacturing
Corporation
(Saniwares),
American Standard Inc. (ASI) cannot nominate
more than three (3) directors; that the Filipino
stockholders shall not interfere in ASI's choice
of its three (3) nominees; that, on the other
hand, the Filipino stockholders can nominate
only six (6) candidates and in the event they
cannot agree on the six (6) nominees, they
shall vote only among themselves to
determine who the six (6) nominees will be,
with cumulative voting to be allowed but
without interference from ASI.
The antecedent facts can be summarized as
follows:
In 1961, Saniwares, a domestic corporation
was incorporated for the primary purpose of
manufacturing and marketing sanitary wares.
One of the incorporators, Mr. Baldwin Young
went abroad to look for foreign partners,

(1)
Cumulative
voting
for
directors:
xxx xxx xxx
5. Management
(a) The management of the
Corporation shall be vested in a
Board of Directors, which shall
consist of nine individuals. As
long as American-Standard shall
own at least 30% of the
outstanding
stock
of
the
Corporation, three of the nine
directors shall be designated by
American-Standard, and the
other six shall be designated by
the other stockholders of the
Corporation. (pp. 51 & 53, Rollo
of 75875)
At the request of ASI, the agreement
contained provisions designed to protect it as
a minority group, including the grant of veto
powers over a number of corporate acts and
the right to designate certain officers, such as
a member of the Executive Committee whose

13

vote was required for important corporate

transactions.
Later, the 30% capital stock of ASI was
increased to 40%. The corporation was also
registered with the Board of Investments for
availment of incentives with the condition that
at least 60% of the capital stock of the
corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the
Filipino
investors
and
the
American
corporation prospered. Unfortunately, with the
business
successes,
there
came
a
deterioration of the initially harmonious
relations between the two groups. According
to the Filipino group, a basic disagreement
was due to their desire to expand the export
operations of the company to which ASI
objected as it apparently had other
subsidiaries of joint joint venture groups in the
countries where Philippine exports were
contemplated. On March 8, 1983, the annual
stockholders' meeting was held. The meeting
was presided by Baldwin Young. The minutes
were taken by the Secretary, Avelino Cruz.
After disposing of the preliminary items in the
agenda, the stockholders then proceeded to
the election of the members of the board of
directors. The ASI group nominated three
persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The
Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan,
Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then
nominated Mr. Luciano E. Salazar, who in turn
nominated
Mr.
Charles
Chamsay.
The
chairman, Baldwin Young ruled the last two
nominations out of order on the basis of
section 5 (a) of the Agreement, the consistent
practice of the parties during the past annual
stockholders' meetings to nominate only nine
persons as nominees for the nine-member
board of directors, and the legal advice of
Saniwares' legal counsel. The following events
then, transpired:
... There were protests against
the action of the Chairman and
heated arguments ensued. An
appeal was made by the ASI
representative to the body of
stockholders present that a
vote be taken on the ruling of
the Chairman. The Chairman,
Baldwin Young, declared the
appeal out of order and no vote
on the ruling was taken. The
Chairman then instructed the
Corporate Secretary to cast all

the
votes
present
and
represented by proxy equally
for the 6 nominees of the
Philippine Investors and the 3
nominees
of
ASI,
thus
effectively excluding the 2
additional persons nominated,
namely, Luciano E. Salazar and
Charles Chamsay. The ASI
representative,
Mr.
Jaqua
protested the decision of the
Chairman and announced that
all votes accruing to ASI shares,
a total of 1,329,695 (p. 27,
Rollo, AC-G.R. SP No. 05617)
were being cumulatively voted
for the three ASI nominees and
Charles
Chamsay,
and
instructed the Secretary to so
vote. Luciano E. Salazar and
other proxy holders announced
that all the votes owned by and
or
represented
by
them
467,197 shares (p. 27, Rollo,
AC-G.R. SP No. 05617) were
being voted cumulatively in
favor of Luciano E. Salazar. The
Chairman,
Baldwin
Young,
nevertheless
instructed
the
Secretary to cast all votes
equally in favor of the three ASI
nominees, namely, Wolfgang
Aurbach, John Griffin and David
Whittingham
and
the
six
originally nominated by Rogelio
Vinluan,
namely,
Ernesto
Lagdameo, Sr., Raul Boncan,
Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, and
Baldwin Young. The Secretary
then certified for the election of
the following Wolfgang Aurbach,
John Griffin, David Whittingham
Ernesto Lagdameo, Sr., Ernesto
Lagdameo,
Jr.,
Enrique
Lagdameo, George F. Lee, Raul
A. Boncan, Baldwin Young. The
representative of ASI then
moved to recess the meeting
which was duly seconded.
There was also a motion to
adjourn (p. 28, Rollo, AC-G.R. SP
No. 05617). This motion to
adjourn was accepted by the
Chairman, Baldwin Young, who
announced that the motion was
carried
and
declared
the
meeting adjourned. Protests
against the adjournment were
registered and having been
ignored, Mr. Jaqua the ASI
representative, stated that the

14

meeting was not adjourned but

only recessed and that the
meeting would be reconvened
in the next room. The Chairman
then threatened to have the
stockholders who did not agree
to the decision of the Chairman
on the casting of votes bodily
thrown out. The ASI Group,
Luciano E. Salazar and other
stockholders,
allegedly
representing 53 or 54% of the
shares of Saniwares, decided to
continue the meeting at the
elevator lobby of the American
Standard
Building.
The
continued
meeting
was
presided by Luciano E. Salazar,
while Andres Gatmaitan acted
as Secretary. On the basis of the
cumulative votes cast earlier in
the meeting, the ASI Group
nominated its four nominees;
Wolfgang Aurbach, John Griffin,
David Whittingham and Charles
Chamsay. Luciano E. Salazar
voted for himself, thus the said
five directors were certified as
elected directors by the Acting
Secretary, Andres Gatmaitan,
with the explanation that there
was a tie among the other six
(6) nominees for the four (4)
remaining positions of directors
and that the body decided not
to break the tie. (pp. 37-39,
Rollo of 75975-76)

warranto petition of Salazar and Chamsay. The

ASI Group and Salazar appealed the decision
to the SEC en banc which affirmed the hearing
officer's decision.

These incidents triggered off the filing of

separate petitions by the parties with the
Securities and Exchange Commission (SEC).
The first petition filed was for preliminary
injunction by Saniwares, Emesto V. Lagdameo,
Baldwin Young, Raul A. Bonean Ernesto R.
Lagdameo, Jr., Enrique Lagdameo and George
F. Lee against Luciano Salazar and Charles
Chamsay. The case was denominated as SEC
Case No. 2417. The second petition was for
quo warranto and application for receivership
by Wolfgang Aurbach, John Griffin, David
Whittingham, Luciano E. Salazar and Charles
Chamsay against the group of Young and
Lagdameo (petitioners in SEC Case No. 2417)
and Avelino F. Cruz. The case was docketed as
SEC Case No. 2718. Both sets of parties
except for Avelino Cruz claimed to be the
legitimate directors of the corporation.

II. THE COURT OF APPEALS

PROHIBITS THE STOCKHOLDERS
FROM EXERCISING THEIR FULL
VOTING RIGHTS REPRESENTED
BY THE NUMBER OF SHARES IN
SANIWARES, THUS DEPRIVING
PETITIONERS
AND
THE
CORPORATION
THEY
REPRESENT
OF
THEIR
PROPERTY RIGHTS WITHOUT
DUE PROCESS OF LAW.

The two petitions were consolidated and tried

jointly by a hearing officer who rendered a
decision upholding the election of the
Lagdameo Group and dismissing the quo

The SEC decision led to the filing of two

separate appeals with the Intermediate
Appellate Court by Wolfgang Aurbach, John
Griffin, David Whittingham and Charles
Chamsay (docketed as AC-G.R. SP No. 05604)
and by Luciano E. Salazar (docketed as ACG.R. SP No. 05617). The petitions were
consolidated and the appellate court in its
decision ordered the remand of the case to
the Securities and Exchange Commission with
the directive that a new stockholders' meeting
of Saniwares be ordered convoked as soon as
possible, under the supervision of the
Commission.
Upon a motion for reconsideration filed by the
appellees Lagdameo Group) the appellate
court (Court of Appeals) rendered the
questioned amended decision. Petitioners
Wolfgang Aurbach, John Griffin, David P.
Whittingham and Charles Chamsay in G.R. No.
75875 assign the following errors:
I. THE COURT OF APPEALS, IN
EFFECT, UPHELD THE ALLEGED
ELECTION
OF
PRIVATE
RESPONDENTS AS MEMBERS OF
THE BOARD OF DIRECTORS OF
SANIWARES WHEN IN FACT
THERE WAS NO ELECTION AT
ALL.

III. THE COURT OF APPEALS

IMPOSES
CONDITIONS
AND
READS PROVISIONS INTO THE
AGREEMENT OF THE PARTIES
WHICH WERE NOT THERE,
WHICH ACTION IT CANNOT
LEGALLY DO. (p. 17, Rollo75875)
Petitioner Luciano E. Salazar in G.R. Nos.
75975-76 assails the amended decision on the
following grounds:

15

11.1.
ThatAmendedDecisionwouldsan
ctiontheCA'sdisregard
of
binding contractual agreements
entered into by stockholders
and the replacement of the
conditions of such agreements
with terms never contemplated
by the stockholders but merely
dictated by the CA .
11.2. The Amended decision
would likewise sanction the
deprivation of the property
rights of stockholders without
due process of law in order that
a favored group of stockholders
may be illegally benefitted and
guaranteed
a
continuing
monopoly of the control of a
corporation. (pp. 14-15, Rollo75975-76)
On the other hand, the petitioners in G.R. No.
75951 contend that:

10% equity during elections of Saniwares'

board of directors.
The rule is that whether the parties to a
particular contract have thereby established
among themselves a joint venture or some
other relation depends upon their actual
intention which is determined in accordance
with the rules governing the interpretation
and construction of contracts. (Terminal
Shares, Inc. v. Chicago, B. and Q.R. Co. (DC
MO) 65 F Supp 678; Universal Sales Corp. v.
California Press Mfg. Co. 20 Cal. 2nd 751, 128
P 2nd 668)
The ASI Group and petitioner Salazar (G.R.
Nos. 75975-76) contend that the actual
intention of the parties should be viewed
strictly on the "Agreement" dated August
15,1962 wherein it is clearly stated that the
parties' intention was to form a corporation
and not a joint venture.
They
specifically
mention
number
16
under Miscellaneous Provisions which states:

xxx xxx xxx

THE AMENDED DECISION OF

THE
RESPONDENT
COURT,
WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES
ARE
DIVIDED
INTO
TWO
BLOCKS,
FAILS
TO
FULLY
ENFORCE THE BASIC INTENT OF
THE AGREEMENT AND THE LAW.

c) nothing herein contained

shall be construed to constitute
any of the parties hereto
partners or joint venturers in
respect of any transaction
hereunder. (At P. 66, Rollo-GR
No. 75875)

II
THE AMENDED DECISION DOES
NOT
CATEGORICALLY
RULE
THAT
PRIVATE
PETITIONERS
HEREIN
WERE
THE
DULY
ELECTED DIRECTORS DURING
THE 8 MARCH 1983 ANNUAL
STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo75951)
The issues raised in the petitions are
interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly
elected directors of Saniwares for the year
1983 during its annual stockholders' meeting
held on March 8, 1983. To answer this
question the following factors should be
determined: (1) the nature of the business
established by the parties whether it was a
joint venture or a corporation and (2) whether
or not the ASI Group may vote their additional

They object to the admission of other

evidence which tends to show that the
parties' agreement was to establish a joint
venture presented by the Lagdameo and
Young Group on the ground that it
contravenes the parol evidence rule under
section 7, Rule 130 of the Revised Rules of
Court. According to them, the Lagdameo and
Young Group never pleaded in their pleading
that the "Agreement" failed to express the
true intent of the parties.
The parol evidence Rule under Rule 130
provides:
Evidence
of
written
agreements-When the terms of
an
agreement
have
been
reduced to writing, it is to be
considered as containing all
such terms, and therefore,
there can be, between the
parties and their successors in
interest, no evidence of the
terms of the agreement other

16

than the contents of the writing,

except in the following cases:
(a)
Where
a
mistake
or
imperfection of the writing, or
its failure to express the true
intent and agreement of the
parties or the validity of the
agreement is put in issue by the
pleadings.
(b) When there is an intrinsic
ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo
and Young Group pleaded in their Reply and
Answer to Counterclaim in SEC Case No. 2417
that the Agreement failed to express the true
intent of the parties, to wit:
xxx xxx xxx
4. While certain provisions of
the Agreement would make it
appear that the parties thereto
disclaim being partners or joint
venturers such disclaimer is
directed at third parties and is
not inconsistent with, and does
not preclude, the existence of
two
distinct
groups
of
stockholders in Saniwares one
of
which
(the
Philippine
Investors) shall constitute the
majority, and the other ASI shall
constitute
the
minority
stockholder. In any event, the
evident
intention
of
the
Philippine Investors and ASI in
entering into the Agreement is
to enter into ajoint venture
enterprise, and if some words in
the Agreement appear to be
contrary
to
the
evident
intention of the parties, the
latter shall prevail over the
former (Art. 1370, New Civil
Code). The various stipulations
of
a
contract
shall
be
interpreted together attributing
to the doubtful ones that sense
which may result from all of
them taken jointly (Art. 1374,
New Civil Code). Moreover, in
order to judge the intention of
the contracting parties, their
contemporaneous
and
subsequent
acts
shall
be
principally
considered.
(Art.
1371, New Civil Code). (Part I,

Original Records, SEC Case No.

2417)
It has been ruled:
In an action at law, where there
is evidence tending to prove
that the parties joined their
efforts in furtherance of an
enterprise for their joint profit,
the question whether they
intended by their agreement to
create a joint adventure, or to
assume some other relation is a
question of fact for the jury.
(Binder v. Kessler v 200 App.
Div. 40,192 N Y S 653; Pyroa v.
Brownfield (Tex. Civ. A.) 238 SW
725; Hoge v. George, 27 Wyo,
423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of
important provisions of the Agreement as well
as the testimonial evidence presented by the
Lagdameo and Young Group shows that the
parties agreed to establish a joint venture and
not a corporation. The history of the
organization of Saniwares and the unusual
arrangements which govern its policy making
body are all consistent with a joint venture
and not with an ordinary corporation. As
stated by the SEC:
According to the unrebutted
testimony of Mr. Baldwin Young,
he negotiated the Agreement
with ASI in behalf of the
Philippine nationals. He testified
that ASI agreed to accept the
role of minority vis-a-vis the
Philippine National group of
investors, on the condition that
the Agreement should contain
provisions to protect ASI as the
minority.
An
examination
of
the
Agreement shows that certain
provisions were included to
protect the interests of ASI as
the minority. For example, the
vote of 7 out of 9 directors is
required in certain enumerated
corporate acts [Sec. 3 (b) (ii) (a)
of the Agreement]. ASI is
contractually
entitled
to
designate a member of the
Executive Committee and the
vote of this member is required
for certain transactions [Sec. 3
(b) (i)].

17

The Agreement also requires a

75% super-majority vote for the
amendment of the articles and
by-laws of Saniwares [Sec. 3 (a)
(iv) and (b) (iii)]. ASI is also
given the right to designate the
president and plant manager
[Sec. 5 (6)]. The Agreement
further provides that the sales
policy of Saniwares shall be that
which is normally followed by
ASI [Sec. 13 (a)] and that
Saniwares should not export
"Standard" products otherwise
than through ASI's Export
Marketing Services [Sec. 13
(6)]. Under the Agreement, ASI
agreed to provide technology
and know-how to Saniwares and
the latter paid royalties for the
same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the
provisions of the Agreement
requiring a 7 out of 9 votes of
the board of directors for
certain actions, in effect gave
ASI
(which
designates
3
directors under the Agreement)
an
effective
veto
power.
Furthermore, the grant to ASI of
the right to designate certain
officers of the corporation; the
super-majority
voting
requirements for amendments
of the articles and by-laws; and
most significantly to the issues
of tms case, the provision that
ASI shall designate 3 out of the
9 directors and the other
stockholders shall designate the
other 6, clearly indicate that
there are two distinct groups in
Saniwares, namely ASI, which
owns 40% of the capital stock
and the Philippine National
stockholders who own the
balance of 60%, and that 2) ASI
is given certain protections as
the minority stockholder.
Premises
considered,
we
believe
that
under
the
Agreement
there
are
two
groups of stockholders who
established a corporation with
provisions
for
a
special
contractual
relationship
between the parties, i.e., ASI

and the other stockholders. (pp.

4-5)
Section 5 (a) of the agreement uses the word
"designated"
and
not
"nominated"
or
"elected" in the selection of the nine directors
on a six to three ratio. Each group is assured
of a fixed number of directors in the board.
Moreover, ASI in its communications referred
to the enterprise as joint venture. Baldwin
Young also testified that Section 16(c) of the
Agreement that "Nothing herein contained
shall be construed to constitute any of the
parties hereto partners or joint venturers in
respect of any transaction hereunder" was
merely to obviate the possibility of the
enterprise being treated as partnership for tax
purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their
desire to develop the industrial and
manufacturing capacities of a local firm are
constrained to seek the technology and
marketing assistance of huge multinational
corporations
of
the
developed
world.
Arrangements are formalized where a foreign
group becomes a minority owner of a firm in
exchange for its manufacturing expertise, use
of its brand names, and other such assistance.
However, there is always a danger from such
arrangements. The foreign group may, from
the start, intend to establish its own sole or
monopolistic operations and merely uses the
joint venture arrangement to gain a foothold
or test the Philippine waters, so to speak. Or
the covetousness may come later. As the
Philippine firm enlarges its operations and
becomes profitable, the foreign group
undermines the local majority ownership and
actively tries to completely or predominantly
take
over
the
entire
company.
This
undermining of joint ventures is not consistent
with fair dealing to say the least. To the extent
that such subversive actions can be lawfully
prevented,
the
courts
should
extend
protection especially in industries where
constitutional and legal requirements reserve
controlling ownership to Filipino citizens.
The Lagdameo Group stated in
appellees' brief in the Court of Appeal

their

In
fact,
the
Philippine
Corporation
Code
itself
recognizes
the
right
of
stockholders to enter into
agreements
regarding
the
exercise of their voting rights.

18

Sec.
100.
Agreements
stockholders.-

by

appellants
cannot
honestly
claim that Saniwares is a public
issue
or
a
widely
held
corporation.

2. An agreement between two

or more stockholders, if in
writing and signed by the
parties thereto, may provide
that in exercising any voting
rights, the shares held by them
shall be voted as therein
provided, or as they may agree,
or as determined in accordance
with a procedure agreed upon
by them.

In the United States, many

courts have taken a realistic
approach
to
joint
venture
corporations and have not
rigidly applied principles of
corporation
law
designed
primarily
for
public
issue
corporations. These courts have
indicated
that
express
arrangements
between
corporate joint ventures should
be
construed
with
less
emphasis on the ordinary rules
of law usually applied to
corporate entities and with
more consideration given to the
nature
of
the
agreement
between the joint venturers
(Please see Wabash Ry v.
American Refrigerator Transit
Co., 7 F 2d 335; Chicago, M &
St. P. Ry v. Des Moines Union
Ry; 254 Ass'n. 247 US. 490';
Seaboard Airline Ry v. Atlantic
Coast Line Ry; 240 N.C. 495,.82
S.E. 2d 771; Deboy v. Harris,
207 Md., 212,113 A 2d 903;
Hathway v. Porter Royalty Pool,
Inc., 296 Mich. 90, 90, 295 N.W.
571; Beardsley v. Beardsley,
138 U.S. 262; "The Legal Status
of Joint Venture Corporations",
11 Vand Law Rev. p. 680,1958).
These American cases dealt
with legal questions as to the
extent
to
which
the
requirements arising from the
corporate form of joint venture
corporations should control, and
the courts ruled that substantial
justice lay with those litigants
who relied on the joint venture
agreement rather than the
litigants who relied on the
orthodox
principles
of
corporation law.

xxx xxx xxx

Appellants contend that the

above provision is included in
the Corporation Code's chapter
on close corporations and
Saniwares cannot be a close
corporation because it has 95
stockholders. Firstly, although
Saniwares had 95 stockholders
at the time of the disputed
stockholders meeting, these 95
stockholders are not separate
from each other but are
divisible
into
groups
representing
a
single
Identifiable
interest.
For
example, ASI, its nominees and
lawyers count for 13 of the 95
stockholders. The YoungYutivo
family count for another 13
stockholders,
the
Chamsay
family for 8 stockholders, the
Santos
family
for
9
stockholders, the Dy family for
7 stockholders, etc. If the
members of one family and/or
business or interest group are
considered as one (which, it is
respectfully submitted, they
should be for purposes of
determining how closely held
Saniwares is there were as of 8
March 1983, practically only 17
stockholders
of
Saniwares.
(Please refer to discussion in
pp. 5 to 6 of appellees'
Rejoinder Memorandum dated
11 December 1984 and Annex
"A" thereof).
Secondly, even assuming that
Saniwares is technically not a
close corporation because it has
more than 20 stockholders, the
undeniable fact is that it is
a close-held corporation. Surely,

As correctly held by the SEC

Hearing Officer:
It is said that participants in a
joint venture, in organizing the
joint venture deviate from the
traditional
pattern
of
corporation management. A
noted authority has pointed out
that
just
as
in
close

19

corporations,
shareholders'
agreements in joint venture
corporations
often
contain
provisions which do one or
more of the following: (1)
require greater than majority
vote
for
shareholder
and
director action; (2) give certain
shareholders or groups of
shareholders power to select a
specified number of directors;
(3) give to the shareholders
control over the selection and
retention of employees; and (4)
set up a procedure for the
settlement of disputes by
arbitration (See I O' Neal, Close
Corporations, 1971 ed., Section
1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100
of the Corporation Code does
not necessarily imply that
agreements
regarding
the
exercise of voting rights are
allowed
only
in
close
corporations. As Campos and
Lopez-Campos explain:
Paragraph 2 refers to pooling
and voting agreements in
particular. Does this provision
necessarily imply that these
agreements can be valid only in
close corporations as defined by
the Code? Suppose that a
corporation has twenty five
stockholders,
and
therefore
cannot qualify as a close
corporation under section 96,
can some of them enter into an
agreement to vote as a unit in
the election of directors? It is
submitted that there is no
reason for denying stockholders
of corporations other than close
ones the right to enter into not
voting or pooling agreements to
protect their interests, as long
as they do not intend to commit
any wrong, or fraud on the
other stockholders not parties
to the agreement. Of course,
voting or pooling agreements
are perhaps more useful and
more often resorted to in close
corporations. But they may also
be found necessary even in
widely
held
corporations.
Moreover, since the Code limits
the legal meaning of close

corporations to those which

comply with the requisites laid
down by section 96, it is
entirely
possible
that
a
corporation which is in fact a
close corporation will not come
within the definition. In such
case, its stockholders should
not be precluded from entering
into
contracts
like
voting
agreements
if
these
are
otherwise valid. (Campos &
Lopez-Campos, op cit, p. 405)
In short, even assuming that
sec. 5(a) of the Agreement
relating to the designation or
nomination of directors restricts
the right of the Agreement's
signatories to vote for directors,
such contractual provision, as
correctly held by the SEC, is
valid and binding upon the
signatories
thereto,
which
include appellants. (Rollo No.
75951, pp. 90-94)
In regard to the question as to whether or not
the ASI group may vote their additional equity
during elections of Saniwares' board of
directors, the Court of Appeals correctly
stated:
As in other joint venture
companies, the extent of ASI's
participation
in
the
management of the corporation
is spelled out in the Agreement.
Section 5(a) hereof says that
three of the nine directors shall
be designated by ASI and the
remaining six by the other
stockholders, i.e., the Filipino
stockholders. This allocation of
board seats is obviously in
consonance with the minority
position of ASI.
Having entered into a welldefined
contractual
relationship, it is imperative
that the parties should honor
and adhere to their respective
rights
and
obligations
thereunder. Appellants seem to
contend that any allocation of
board seats, even in joint
venture corporations, are null
and void to the extent that such
may
interfere
with
the
stockholder's
rights
to
cumulative voting as provided

20

in Section 24 of the Corporation

Code. This Court should not be
prepared to hold that any
agreement which curtails in any
way cumulative voting should
be struck down, even if such
agreement has been freely
entered into by experienced
businessmen
and
do
not
prejudice those who are not
parties thereto. It may well be
that it would be more cogent to
hold, as the Securities and
Exchange Commission has held
in the decision appealed from,
that cumulative voting rights
may be voluntarily waived by
stockholders who enter into
special relationships with each
other to pursue and implement
specific purposes, as in joint
venture relationships between
foreign and local stockholders,
so long as such agreements do
not
adversely
affect
third
parties.
In any event, it is believed that
we are not here called upon to
make a general rule on this
question. Rather, all that needs
to be done is to give life and
effect
to
the
particular
contractual
rights
and
obligations which the parties
have assumed for themselves.
On the one hand, the clearly
established minority position of
ASI
and
the
contractual
allocation of board seats Cannot
be disregarded. On the other
hand,
the
rights
of
the
stockholders
to
cumulative
voting should also be protected.
In our decision sought to be
reconsidered, we opted to
uphold the second over the
first. Upon further reflection, we
feel that the proper and just
solution
to
give
due
consideration to both factors
suggests itself quite clearly.
This Court should recognize and
uphold the division of the
stockholders into two groups,
and at the same time uphold
the right of the stockholders
within each group to cumulative
voting in the process of
determining who the group's

nominees would be. In practical

terms,
as
suggested
by
appellant Luciano E. Salazar
himself, this means that if the
Filipino stockholders cannot
agree who their six nominees
will be, a vote would have to be
taken
among
the
Filipino
stockholders only. During this
voting, each Filipino stockholder
can cumulate his votes. ASI,
however, should not be allowed
to interfere in the voting within
the Filipino group. Otherwise,
ASI would be able to designate
more than the three directors it
is allowed to designate under
the Agreement, and may even
be able to get a majority of the
board seats, a result which is
clearly
contrary
to
the
contractual
intent
of
the
parties.
Such a ruling will give effect to
both the allocation of the board
seats and the stockholder's
right to cumulative voting.
Moreover, this ruling will also
give due consideration to the
issue raised by the appellees on
possible
violation
or
circumvention of the AntiDummy Law (Com. Act No. 108,
as
amended)
and
the
nationalization requirements of
the Constitution and the laws if
ASI is allowed to nominate more
than three directors. (Rollo75875, pp. 38-39)
The ASI Group and petitioner Salazar, now
reiterate their theory that the ASI Group has
the right to vote their additional equity
pursuant to Section 24 of the Corporation
Code which gives the stockholders of a
corporation the right to cumulate their votes
in electing directors. Petitioner Salazar adds
that this right if granted to the ASI Group
would not necessarily mean a violation of the
Anti-Dummy Act (Commonwealth Act 108, as
amended). He cites section 2-a thereof which
provides:
And provided finally that the
election of aliens as members
of the board of directors or
governing body of corporations
or associations engaging in
partially nationalized activities
shall be allowed in proportion to
their allowable participation or

21

share in the capital of such

entities.
(amendments
introduced
by
Presidential
Decree
715,
section
1,
promulgated May 28, 1975)
The ASI Group's argument is correct within the
context of Section 24 of the Corporation Code.
The point of query, however, is whether or not
that provision is applicable to a joint venture
with clearly defined agreements:
The legal concept of ajoint
venture is of common law
origin. It has no precise legal
definition but it has been
generally understood to mean
an organization formed for
some
temporary
purpose.
(Gates v. Megargel, 266 Fed.
811 [1920]) It is in fact hardly
distinguishable
from
the
partnership,
since
their
elements are similar community
of interest in the business,
sharing of profits and losses,
and a mutual right of control.
Blackner v. Mc Dermott, 176 F.
2d. 498, [1949]; Carboneau v.
Peterson, 95 P. 2d., 1043
[1939]; Buckley v. Chadwick, 45
Cal. 2d. 183, 288 P. 2d. 12 289
P. 2d. 242 [1955]). The main
distinction
cited
by
most
opinions
in
common
law
jurisdictions
is
that
the
partnership
contemplates
a
general business with some
degree of continuity, while the
joint venture is formed for the
execution
of
a
single
transaction, and is thus of a
temporary nature. (Tufts v.
Mann 116 Cal. App. 170, 2 P. 2d.
500 [1931]; Harmon v. Martin,
395 111. 595, 71 NE 2d. 74
[1947]; Gates v. Megargel 266
Fed.
811
[1920]).
This
observation is not entirely
accurate in this jurisdiction,
since under the Civil Code, a
partnership may be particular
or universal, and a particular
partnership may have for its
object a specific undertaking.
(Art. 1783, Civil Code). It would
seem therefore that under
Philippine law, a joint venture is
a form of partnership and
should thus be governed by the
law
of
partnerships.
The
Supreme Court has however

recognized
a
distinction
between these two business
forms, and has held that
although a corporation cannot
enter
into
a
partnership
contract,
it
may
however
engage in a joint venture with
others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954])
(Campos and Lopez-Campos
Comments, Notes and Selected
Cases, Corporation Code 1981)
Moreover, the usual rules as regards the
construction and operations of contracts
generally apply to a contract of joint venture.
(O' Hara v. Harman 14 App. Dev. (167) 43 NYS
556).
Bearing these principles in mind, the correct
view would be that the resolution of the
question of whether or not the ASI Group may
vote their additional equity lies in the
agreement of the parties.
Necessarily, the appellate court was correct in
upholding the agreement of the parties as
regards the allocation of director seats under
Section 5 (a) of the "Agreement," and the
right of each group of stockholders to
cumulative voting in the process of
determining who the group's nominees would
be under Section 3 (a) (1) of the "Agreement."
As pointed out by SEC, Section 5 (a) of the
Agreement relates to the manner of
nominating the members of the board of
directors while Section 3 (a) (1) relates to the
manner of voting for these nominees.
This is the proper interpretation of the
Agreement of the parties as regards the
election of members of the board of directors.
To allow the ASI Group to vote their additional
equity to help elect even a Filipino director
who would be beholden to them would
obliterate their minority status as agreed
upon by the parties. As aptly stated by the
appellate court:
... ASI, however, should not be
allowed to interfere in the
voting within the Filipino group.
Otherwise, ASI would be able to
designate more than the three
directors it is allowed to
designate
under
the
Agreement, and may even be
able to get a majority of the
board seats, a result which is
clearly
contrary
to
the

22

contractual
parties.

intent

of

the

Such a ruling will give effect to

both the allocation of the board
seats and the stockholder's
right to cumulative voting.
Moreover, this ruling will also
give due consideration to the
issue raised by the appellees on
possible
violation
or
circumvention of the AntiDummy Law (Com. Act No. 108,
as
amended)
and
the
nationalization requirements of
the Constitution and the laws if
ASI is allowed to nominate more
than three directors. (At p. 39,
Rollo, 75875)
Equally important as the consideration of the
contractual intent of the parties is the
consideration
as regards
the
possible
domination by the foreign investors of the
enterprise in violation of the nationalization
requirements enshrined in the Constitution
and circumvention of the Anti-Dummy Act. In
this regard, petitioner Salazar's position is that
the Anti-Dummy Act allows the ASI group to
elect board directors in proportion to
their share in the capital of the entity. It is to
be noted, however, that the same law also
limits the election of aliens as members of the
board of directors in proportion to their
allowance participation of said entity. In the
instant case, the foreign Group ASI was
limited to designate three directors. This is the
allowable participation of the ASI Group.
Hence, in future dealings, this limitation of six
to three board seats should always be
maintained as long as the joint venture
agreement exists considering that in limiting 3
board seats in the 9-man board of directors
there are provisions already agreed upon and
embodied in the parties' Agreement to protect
the interests arising from the minority status
of the foreign investors.
With these findings, we the decisions of the
SEC Hearing Officer and SEC which were
impliedly affirmed by the appellate court
declaring Messrs. Wolfgang Aurbach, John
Griffin, David P Whittingham, Emesto V.
Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo,
and George F. Lee as the duly elected
directors of Saniwares at the March 8,1983
annual stockholders' meeting.
On the other hand, the Lagdameo and Young
Group (petitioners in G.R. No. 75951) object to
a cumulative voting during the election of the

board of directors of the enterprise as ruled by

the appellate court and submits that the six
(6) directors allotted the Filipino stockholders
should be selected by consensus pursuant to
section 5 (a) of the Agreement which uses the
word
"designate"
meaning
"nominate,
delegate or appoint."
They also stress the possibility that the ASI
Group might take control of the enterprise if
the Filipino stockholders are allowed to select
their nominees separately and not as a
common slot determined by the majority of
their group.
Section 5 (a) of the Agreement which uses the
word designates in the allocation of board
directors should not be interpreted in
isolation. This should be construed in relation
to section 3 (a) (1) of the Agreement. As we
stated earlier, section 3(a) (1) relates to
the manner of voting for these nominees
which is cumulative voting while section 5(a)
relates to the manner of nominating the
members of the board of directors. The
petitioners in G.R. No. 75951 agreed to this
procedure, hence, they cannot now impugn its
legality.
The insinuation that the ASI Group may be
able to control the enterprise under the
cumulative voting procedure cannot, however,
be ignored. The validity of the cumulative
voting procedure is dependent on the
directors thus elected being genuine members
of the Filipino group, not voters whose interest
is to increase the ASI share in the
management of Saniwares. The joint venture
character of the enterprise must always be
taken into account, so long as the company
exists
under
its
original
agreement.
Cumulative voting may not be used as a
device to enable ASI to achieve stealthily or
indirectly what they cannot accomplish
openly. There are substantial safeguards in
the Agreement which are intended to preserve
the majority status of the Filipino investors as
well as to maintain the minority status of the
foreign investors group as earlier discussed.
They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 7597576 and G.R. No. 75875 are DISMISSED and the
petition in G.R. No. 75951 is partly GRANTED.
The amended decision of the Court of Appeals
is MODIFIED in that Messrs. Wolfgang Aurbach
John Griffin, David Whittingham Emesto V.
Lagdameo, Baldwin Young, Raul A. Boncan,
Ernesto R. Lagdameo, Jr., Enrique Lagdameo,
and George F. Lee are declared as the duly
elected directors of Saniwares at the March
8,1983 annual stockholders' meeting. In all

23

other respects, the questioned decision is

AFFIRMED. Costs against the petitioners in
G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
G.R. No. L-59956 October 31, 1984
ISABELO
MORAN,
JR., petitioner,
vs.
THE HON. COURT OF APPEALS and
MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.:+.wph!1

This is a petition for review on certiorari of the
decision of the respondent Court of Appeals
which ordered petitioner Isabelo Moran, Jr. to
pay damages to respondent Mariano E,
Pecson.
As found by the respondent Court of Appeals,
the undisputed facts indicate that: t.
hqw
xxx xxx xxx
... on February 22, 1971 Pecson
and Moran entered into an
agreement whereby both would
contribute P15,000 each for the
purpose of printing 95,000
posters (featuring the delegates
to the 1971 Constitutional
Convention),
with
Moran
actually supervising the work;
that Pecson would receive a
commission of P l,000 a month
starting on April 15, 1971 up to
December 15, 1971; that on
December
15,
1971,
a
liquidation of the accounts in
the distribution and printing of
the 95,000 posters would be
made, that Pecson gave Moran
P10,000 for which the latter
issued a receipt; that only a few
posters were printed; that on or
about May 28, 1971, Moran
executed in favor of Pecson a
promissory note in the amount
of P20,000 payable in two equal
installments (P10,000 payable
on or before June 15, 1971 and
P10,000 payable on or before
June 30, 1971), the whole sum
becoming due upon default in
the payment of the first
installment on the date due,

complete with
collection.

the

costs

of

Private respondent Pecson filed with the Court

of First Instance of Manila an action for the
recovery of a sum of money and alleged in his
complaint three (3) causes of action, namely:
(1) on the alleged partnership agreement, the
return of his contribution of P10,000.00,
payment of his share in the profits that the
partnership would have earned, and, payment
of unpaid commission; (2) on the alleged
promissory note, payment of the sum of
P20,000.00; and, (3) moral and exemplary
damages and attorney's fees.
After the trial, the Court of First Instance held
that: t.hqw
From the evidence presented it
is clear in the mind of the court
that by virtue of the partnership
agreement entered into by the
parties-plaintiff and defendant
the plaintiff did contribute
P10,000.00, and another sum of
P7,000.00 for the Voice of the
Veteran or Delegate Magazine.
Of the expected 95,000 copies
of the posters, the defendant
was able to print 2,000 copies
only
authorized
of
which,
however, were sold at P5.00
each. Nothing more was done
after this and it can be said that
the venture did not really get
off the ground. On the other
hand, the plaintiff failed to give
his
full
contribution
of
P15,000.00. Thus, each party is
entitled to rescind the contract
which right is implied in
reciprocal obligations under
Article 1385 of the Civil Code
whereunder 'rescission creates
the obligation to return the
things which were the object of
the contract ...
WHEREFORE, the court hereby
renders
judgment
ordering
defendant Isabelo C. Moran, Jr.
to return to plaintiff Mariano E.
Pecson the sum of P17,000.00,
with interest at the legal rate
from the filing of the complaint
on June 19, 1972, and the costs
of the suit.

24

For insufficiency of evidence,

the counterclaim is hereby
dismissed.

IN THE PARTNERSHIP
PECSON'S INVESTMENT.

ARISING

OUT

OF

III
From this decision, both parties appealed to
the respondent Court of Appeals. The latter
likewise rendered a decision against the
petitioner. The dispositive portion of the
decision reads: t.hqw
PREMISES CONSIDERED, the
decision appealed from is
hereby SET ASIDE, and a new
one
is
hereby
rendered,
ordering
defendant-appellant
Isabelo C. Moran, Jr. to pay
plaintiff- appellant Mariano E.
Pecson:
(a) Forty-seven thousand five
hundred (P47,500) (the amount
that could have accrued to
Pecson under their agreement);
(b) Eight thousand (P8,000),
(the commission for eight
months);
(c) Seven thousand (P7,000) (as
a return of Pecson's investment
for the Veteran's Project);
(d) Legal interest on (a), (b) and
(c) from the date the complaint
was filed (up to the time
payment is made)
The petitioner contends that the respondent
Court of Appeals decided questions of
substance in a way not in accord with law and
with Supreme Court decisions when it
committed the following errors:
I
THE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO
C.
MORAN,
JR.
LIABLE
TO
RESPONDENT MARIANO E. PECSON IN THE
SUM OF P47,500 AS THE SUPPOSED
EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO
C.
MORAN,
JR.
LIABLE
TO
RESPONDENT MARIANO E. PECSON IN THE
SUM OF P8,000, AS SUPPOSED COMMISSION

THE HONORABLE
COURT
OF APPEALS
GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO
C.
MORAN,
JR.
LIABLE
TO
RESPONDENT MARIANO E. PECSON IN THE
SUM OF P7,000 AS A SUPPOSED RETURN OF
INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING
WITHOUT
ADMITTING
THAT
PETITIONER IS AT ALL LIABLE FOR ANY
AMOUNT, THE HONORABLE COURT OF
APPEALS DID NOT EVEN OFFSET PAYMENTS
ADMITTEDLY RECEIVED BY PECSON FROM
MORAN.
V
THE HONORABLE
COURT
OF APPEALS
GRIEVOUSLY ERRED IN NOT GRANTING THE
PETITIONER'S COMPULSORY COUNTERCLAIM
FOR DAMAGES.
The first question raised in this petition refers
to the award of P47,500.00 as the private
respondent's share in the unrealized profits of
the partnership. The petitioner contends that
the award is highly speculative. The petitioner
maintains that the respondent court did not
take into account the great risks involved in
the business undertaking.
We agree with the petitioner that the award of
speculative damages has no basis in fact and
law.
There is no dispute over the nature of the
agreement between the petitioner and the
private respondent. It is a contract of
partnership. The latter in his complaint
alleged that he was induced by the petitioner
to enter into a partnership with him under the
following terms and conditions: t.hqw
1. That the partnership will print
colored posters of the delegates
to
the
Constitutional
Convention;
2. That they will invest the
amount of Fifteen Thousand
Pesos (P15,000.00) each;

25

3. That they will print Ninety

Five Thousand (95,000) copies
of the said posters;
4. That plaintiff will receive a
commission of One Thousand
Pesos (P1,000.00) a month
starting April 15, 1971 up to
December 15, 1971;
5. That upon the termination of
the partnership on December
15, 1971, a liquidation of the
account
pertaining
to the
distribution and printing of the
said 95,000 posters shall be
made.
The petitioner on the other hand admitted in
his answer the existence of the partnership.
The rule is, when a partner who has
undertaken to contribute a sum of money fails
to do so, he becomes a debtor of the
partnership for whatever he may have
promised to contribute (Art. 1786, Civil Code)
and for interests and damages from the time
he should have complied with his obligation
(Art. 1788, Civil Code). Thus in Uy v. Puzon (79
SCRA 598), which interpreted Art. 2200 of the
Civil Code of the Philippines, we allowed a
total of P200,000.00 compensatory damages
in favor of the appellee because the appellant
therein was remiss in his obligations as a
partner and as prime contractor of the
construction projects in question. This case
was decided on a particular set of facts. We
awarded
compensatory
damages
in
the Uy case because there was a finding that
the constructing business is a profitable one
and that the UP construction company derived
some profits from its contractors in the
construction of roads and bridges despite its
deficient capital." Besides, there was evidence
to show that the partnership made some
profits during the periods from July 2, 1956 to
December 31, 1957 and from January 1, 1958
up to September 30, 1959. The profits on two
government contracts worth P2,327,335.76
were not speculative. In the instant case,
there is no evidence whatsoever that the
partnership between the petitioner and the
private respondent would have been a
profitable venture. In fact, it was a failure
doomed from the start. There is therefore no
basis for the award of speculative damages in
favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed
to
give
his
full
contribution
while
Uy contributed much more than what was

expected of him. In this case, however, there

was mutual breach. Private respondent failed
to give his entire contribution in the amount of
P15,000.00. He contributed only P10,000.00.
The petitioner likewise failed to give any of
the amount expected of him. He further failed
to comply with the agreement to print 95,000
copies of the posters. Instead, he printed only
2,000 copies.
Article 1797 of the Civil Code provides: t.
hqw
The losses and profits shall be
distributed in conformity with
the agreement. If only the share
of each partner in the profits
has been agreed upon, the
share of each in the losses shall
be in the same proportion.
Being a contract of partnership, each partner
must share in the profits and losses of the
venture. That is the essence of a partnership.
And even with an assurance made by one of
the partners that they would earn a huge
amount of profits, in the absence of fraud, the
other partner cannot claim a right to recover
the highly speculative profits. It is a rare
business venture guaranteed to give 100%
profits. In this case, on an investment of
P15,000.00, the respondent was supposed to
earn a guaranteed P1,000.00 a month for
eight months and around P142,500.00 on
95,000 posters costing P2.00 each but 2,000
of which were sold at P5.00 each. The
fantastic nature of expected profits is obvious.
We have to take various factors into account.
The failure of the Commission on Elections to
proclaim all the 320 candidates of the
Constitutional Convention on time was a
major factor. The petitioner undesirable his
best business judgment and felt that it would
be a losing venture to go on with the printing
of the agreed 95,000 copies of the posters.
Hidden risks in any business venture have to
be considered.
It does not follow however that the private
respondent is not entitled to recover any
amount from the petitioner. The records show
that the private respondent gave P10,000.00
to the petitioner. The latter used this amount
for the printing of 2,000 posters at a cost of
P2.00 per poster or a total printing cost of
P4,000.00. The records further show that the
2,000 copies were sold at P5.00 each. The
gross income therefore was P10,000.00.
Deducting the printing costs of P4,000.00
from the gross income of P10,000.00 and with
no evidence on the cost of distribution, the
net profits amount to only P6,000.00. This net

26

profit of P6,000.00 should be divided between

the petitioner and the private respondent. And
since only P4,000.00 was undesirable by the
petitioner in printing the 2,000 copies, the
remaining P6,000.00 should therefore be
returned to the private respondent.
Relative to the second alleged error, the
petitioner submits that the award of
P8,000.00 as Pecson's supposed commission
has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the
petitioner would give the private respondent a
monthly commission of Pl,000.00 from April
15, 1971 to December 15, 1971 for a total of
eight
(8)
monthly
commissions.
The
agreement does not state the basis of the
commission. The payment of the commission
could only have been predicated on relatively
extravagant profits. The parties could not
have intended the giving of a commission
inspite of loss or failure of the venture. Since
the venture was a failure, the private
respondent is not entitled to the P8,000.00
commission.
Anent the third assigned error, the petitioner
maintains that the respondent Court of
Appeals erred in holding him liable to the
private respondent in the sum of P7,000.00 as
a supposed return of investment in a
magazine venture.
In awarding P7,000.00 to the private
respondent as his supposed return of
investment in the "Voice of the Veterans"
magazine venture, the respondent court ruled
that: t.hqw
xxx xxx xxx
... Moran admittedly signed the
promissory note of P20,000 in
favor of Pecson. Moran does not
question the due execution of
said note. Must Moran therefore
pay the amount of P20,000?
The evidence indicates that the
P20,000 was assigned by Moran
to cover the following: t.
hqw
(a) P 7,000 the amount of the PNB check
given by Pecson to Moran representing
Pecson's investment in Moran's other project
(the publication and printing of the 'Voice of
the Veterans');

(b) P10,000 to cover the return of Pecson's

contribution in the project of the Posters;
(c)
P3,000

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

27

promissory note for P14,000

dated March 31, 1971 marked
by defendant as Exhibit 2
(t.s.n., pp. 20-21, Nov. 29,
1972), and by plaintiff as
Exhibit P. Later, defendant
returned P3,000.00 of the
P6,000.00 investment thereby
proportionately reducing the
promised profit to P4,000. With
the balance of P3,000 (capital)
and P4,000 (promised profit),
defendant signed and executed
the promissory note for P7,000
marked Exhibit 3 for the
defendant and Exhibit M for
plaintiff.
Of
this
P7,000,
defendant
paid
P4,000
representing full return of the
capital investment and P1,000
partial payment of the promised
profit. The P3,000 balance of
the promised profit was made
part
consideration
of
the
P20,000 promissory note (t.s.n.,
pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to
show the consideration for the
P20,000 promissory note.

P3,000 balance of the promised

profit was later made part
consideration of the P20,000
promissory note.

F Xerox copy of PNB

Manager's check dated May 29,
1971 for P7,000 in favor of
defendant. The authenticity of
the check and his receipt of the
proceeds thereof were admitted
by the defendant (t.s.n., pp. 34, Nov. 29, 1972). This P 7,000
is part consideration, and in
cash, of the P20,000 promissory
note (t.s.n., p. 25, Nov. 29,
1972), and it is being presented
to show the consideration for
the P20,000 note and the
existence and validity of the
obligation.

P-Promissory
note
for
P14,000.00.
This
is
also
defendant's Exhibit 2. It is being
offered for the purpose of
showing the transaction as
explained in connection with
Exhibits E, L, M, and N above.

M-Promissory note for P7,000

dated March 30, 1971. This is
also defendant's Exhibit E. This
document is being offered for
the purpose of further showing
the transaction as explained in
connection with Exhibits E and
L.
N-Receipt of plaintiff dated
March 30, 1971 for the return of
his P3,000 out of his capital
investment of P6,000 (Exh. E) in
the P14,000 promissory note
(Exh. 2; P). This is also
defendant's Exhibit 4. This
document is being offered in
support of plaintiff's explanation
in connection with Exhibits E, L,
and M to show the transaction
mentioned therein.
xxx xxx xxx

Explaining
the
above-quoted
exhibits,
respondent Pecson testified that: t.hqw
Q During the pre-trial of this case, Mr. Pecson,
the defendant presented a promissory note in
the amount of P14,000.00 which has been
marked as Exhibit 2. Do you know this
promissory note?

xxx xxx xxx

A Yes, sir.

L-Book entitled "Voice of the

Veterans" which is being offered
for the purpose of showing the
subject matter of the other
partnership agreement and in
which plaintiff invested the
P6,000
(Exhibit
E)
which,
together with the promised
profit of P8,000 made up for the
consideration of the P14,000
promissory note (Exhibit 2;
Exhibit P). As explained in
connection with Exhibit E. the

Q What is this promissory note, in connection

with your transaction with the defendant?
A This promissory note is for the printing of
the "Voice of the Veterans".
Q What is this "Voice of the Veterans", Mr.
Pecson?
A It is a book.t.hqw
(T.S.N., p. 19, Nov. 29, 1972)

28

Q And what does the amount of P14,000.00

indicated in the promissory note, Exhibit 2,
represent?
A It represents the P6,000.00 cash which I
gave to Mr. Moran, as evidenced by the
Philippine National Bank Manager's check and
the P8,000.00 profit assured me by Mr. Moran
which I will derive from the printing of this
"Voice of the Veterans" book.
Q You said that the P6,000.00 of this
P14,000.00 is covered by, a Manager's check.
I show you Exhibit E, is this the Manager's
check that mentioned?
A Yes, sir.
Q What happened to this promissory note of
P14,000.00 which you said represented
P6,000.00 of your investment and P8,000.00
promised profits?
A Latter, Mr. Moran returned to me P3,000.00
which represented one-half (1/2) of the
P6,000.00 capital I gave to him.
Q As a consequence of the return by Mr.
Moran of one-half (1/2) of the P6,000.00
capital you gave to him, what happened to
the promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is
P4,000.00.
Q Was there any document executed by Mr.
Moran in connection with the Balance of
P3,000.00 of your capital investment and the
P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.
Q I show you a promissory note in the amount
of P7,000.00 dated March 30, 1971 which for
purposes of Identification I request the same
to be marked as Exhibit M. . .
Mark it as Exhibit M.
Q (continuing) is this the promissory note
which you said was executed by Mr. Moran in
connection with your transaction regarding
the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note
executed by Mr. Moran, Mr. Pecson?

A Mr. Moran paid me P4,000.00 out of the

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

29

(P6,000.00) PESOS representing the amount

of the private respondent's contribution to the
partnership but which remained unused; and
THREE
THOUSAND
(P3,000.00)
PESOS
representing one half (1/2) of the net profits
gained by the partnership in the sale of the
two thousand (2,000) copies of the posters,
with interests at the legal rate on both
amounts from the date the complaint was
filed until full payment is made.
SO ORDERED.1wph1.t

as guarantor for us. We can borrow

money from him.
Q You mentioned a certain Peter Lo. Who is
this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the
Geminesse Enterprise?
A He is the one fixing our orders that open
the L/C.
Q You mean Peter Lo is the financier?

MARJORIE
TOCAO
and
WILLIAM
T.
BELO, petitioners, vs. COURT OF
APPEALS
and
NENITA
A.
ANAY, respondents.

A Yes, he is the financier.

RESOLUTION

A Yes, sir.[2]

YNARES-SANTIAGO, J.:
The inherent powers of a Court to amend
and control its processes and orders so as to
make them conformable to law and justice
includes the right to reverse itself, especially
when in its honest opinion it has committed
an error or mistake in judgment, and that to
adhere to its decision will cause injustice to a
party litigant.[1]
On November 14, 2001, petitioners
Marjorie Tocao and William T. Belo filed a
Motion for Reconsideration of our Decision
dated October 4, 2000. They maintain that
there was no partnership bettween petitioner
Belo, on the one hand, and respondent Nenita
A. Anay, on the other hand; and that the latter
being merely an employee of petitioner Tocao.
After a careful review of the evidence
presented, we are convinced that, indeed,
petitioner Belo acted merely as guarantor of
Geminesse Enterprise. This was categorically
affirmed by respondents own witness,
Elizabeth
Bantilan,
during
her
crossexamination. Furthermore, Bantilan testified
that it was Peter Lo who was the companys
financier. Thus:
Q You mentioned a while ago the name
William Belo. Now, what is the role of
William
Belo
with
Geminesse
Enterprise?
A William Belo is the friend of Marjorie
Tocao and he was the guarantor of the
company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes
somebody who is Peter Lo and he acts

Q And the defendant William Belo is merely

the guarantor of Geminesse Enterprise,
am I correct?

The foregoing was neither refuted nor

contradicted by respondents evidence. It
should be recalled that the business
relationship created between petitioner Tocao
and respondent Anay was an informal
partnership, which was not even recorded
with
the
Securities
and
Exchange
Commission. As such, it was understandable
that Belo, who was after all petitioner Tocaos
good
friend
and
confidante,
would
occasionally participate in the affairs of the
business, although never in a formal or official
capacity.[3] Again,
respondents
witness,
Elizabeth Bantilan, confirmed that petitioner
Belos presence in Geminesse Enterprises
meetings was merely as guarantor of the
company and to help petitioner Tocao.[4]
Furthermore, no evidence was presented
to show that petitioner Belo participated in
the
profits
of
the
business
enterprise. Respondent herself professed lack
of knowledge that petitioner Belo received
any share in the net income of the
partnership.[5] On the other hand, petitioner
Tocao declared that petitioner Belo was not
entitled to any share in the profits of
Geminesse Enterprise.[6] With no participation
in the profits, petitioner Belo cannot be
deemed a partner since the essence of a
partnership is that the partners share in the
profits and losses.[7]
Consequently, inasmuch as petitioner
Belo was not a partner in Geminesse
Enterprise, respondent had no cause of action
against him and her complaint against him
should accordingly be dismissed.
As regards the award of damages,
petitioners argue that respondent should be
deemed in bad faith for failing to account for
stocks of Geminesse Enterprise amounting to

30

P208,250.00 and that, accordingly, her claim

for damages should be barred to that
extent. We
do
not
agree. Given
the
circumstances
surrounding
private
respondents
sudden
ouster
from
the
partnership by petitioner Tocao, her act of
withholding whatever stocks were in her
possession and control was justified, if only to
serve as security for her claims against the
partnership. However, while we do not agree
that the same renders private respondent in
bad faith and should bar her claim for
damages, we find that the said sum of
P208,250.00 should be deducted from
whatever amount is finally adjudged in her
favor on the basis of the formal account of the
partnership affairs to be submitted to the
Regional Trial Court.
WHEREFORE, based on the foregoing,
the Motion for Reconsideration of petitioners
is PARTIALLY GRANTED. The Regional Trial
Court of Makati is hereby ordered to DISMISS
the complaint, docketed as Civil Case No. 88509, as against petitioner William T. Belo
only. The sum of P208,250.00 shall be
deducted from whatever amount petitioner
Marjorie Tocao shall be held liable to pay
respondent after the formal accounting of the
partnership affairs.
SO ORDERED.
FERNANDO
SANTOS, petitioner, vs. Spouses
ARSENIO
and
NIEVES
REYES, respondents.
DECISION
PANGANIBAN, J.:
As a general rule, the factual findings of
the Court of Appeals affirming those of the
trial court are binding on the Supreme
Court. However, there are several exceptions
to this principle. In the present case, we find
occasion to apply both the rule and one of the
exceptions.

The Case
Before us is a Petition for Review on
Certiorari assailing the November 28, 1997
Decision,[1] as well as the August 17, 1998 and
the October 9, 1998 Resolutions, [2] issued by
the Court of Appeals (CA) in CA-GR CV No.
34742. The Assailed Decision disposed as
follows:

WHEREFORE, the decision appealed from is

AFFIRMED save as for the counterclaim which
is
hereby
DISMISSED. Costs
against
[petitioner].[3]
Resolving
respondents
Motion
for
Reconsideration, the August 17, 1998
Resolution ruled as follows:
WHEREFORE,
[respondents]
motion
for
reconsideration is GRANTED. Accordingly, the
courts decision dated November 28, 1997 is
hereby MODIFIED in that the decision
appealed from is AFFIRMEDin toto, with costs
against [petitioner].[4]
The October 9, 1998 Resolution denied for
lack
of
merit
petitioners
Motion
for
Reconsideration of the August 17, 1998
Resolution.[5]

The Facts
The events that led to this case are
summarized by the CA as follows:
Sometime in June, 1986, [Petitioner] Fernando
Santos and [Respondent] Nieves Reyes were
introduced to each other by one Meliton Zabat
regarding
a
lending
business
venture
proposed by Nieves. It was verbally agreed
that [petitioner would] act as financier while
[Nieves] and Zabat [would] take charge of
solicitation of members and collection of loan
payments. The venture was launched on June
13, 1986, with the understanding that
[petitioner] would receive 70% of the profits
while x x x Nieves and Zabat would earn 15%
each.
In July, 1986, x x x Nieves introduced Cesar
Gragera to [petitioner]. Gragera, as chairman
of
the
Monte
Maria
Development
Corporation[6] (Monte Maria, for brevity),
sought short-term loans for members of the
corporation. [Petitioner]
and
Gragera
executed an agreement providing funds for
Monte
Marias
members. Under
the
agreement, Monte Maria, represented by
Gragera, was entitled to P1.31 commission
per thousand paid daily to [petitioner] (Exh.
A). x x x Nieves kept the books as
representative
of
[petitioner]
while
[Respondent] Arsenio, husband of Nieves,
acted as credit investigator.
On August 6, 1986, [petitioner], x x x [Nieves]
and Zabat executed the Article of Agreement

31

which
formalized
arrangement.

their

earlier

verbal

earn if all the sums guaranteed by Gragera

were collected.

[Petitioner] and [Nieves] later discovered that

their partner Zabat engaged in the same
lending business in competition with their
partnership[.] Zabat was thereby expelled
from the partnership. The operations with
Monte Maria continued.

[Petitioner] on the other hand insisted that

[respondents] were his mere employees and
not partners with respect to the agreement
with Gragera. He claimed that after he
discovered Zabats activities, he ceased
infusing
funds,
thereby
causing
the
extinguishment
of
the
partnership. The
agreement with Gragera was a distinct
partnership [from] that of [respondent] and
Zabat. [Petitioner] asserted that [respondents]
were hired as salaried employees with respect
to the partnership between [petitioner] and
Gragera.

On June 5, 1987, [petitioner] filed a complaint

for recovery of sum of money and
damages. [Petitioner] charged [respondents],
allegedly in their capacities as employees of
[petitioner], with having misappropriated
funds intended for Gragera for the period July
8, 1986 up to March 31, 1987. Upon Grageras
complaint
that
his
commissions
were
inadequately
remitted,
[petitioner]
entrusted P200,000.00 to x x x Nieves to be
given to Gragera. x x x Nieves allegedly failed
to account for the amount. [Petitioner]
asserted that after examination of the
records, he found that of the total amount
of P4,623,201.90 entrusted to [respondents],
only P3,068,133.20 was remitted to Gragera,
thereby leaving the balance of P1,555,065.70
unaccounted for.
In their answer, [respondents] asserted that
they were partners and not mere employees
of [petitioner]. The complaint, they alleged,
was filed to preempt and prevent them from
claiming their rightful share to the profits of
the partnership.
x x x Arsenio alleged that he was enticed by
[petitioner] to take the place of Zabat after
[petitioner]
learned
of
Zabats
activities. Arsenio resigned from his job at the
Asian Development Bank to join the
partnership.
For her part, x x x Nieves claimed that she
participated in the business as a partner, as
the lending activity with Monte Maria
originated from her initiative. Except for the
limited period of July 8, 1986 through August
20, 1986, she did not handle sums intended
for Gragera. Collections were turned over to
Gragera because he guaranteed 100%
payment of all sums loaned by Monte
Maria. Entries she made on worksheets were
based on this assumptive 100% collection of
all loans. The loan releases were made less
Grageras agreed commission. Because of this
arrangement, she neither received payments
from borrowers nor remitted any amount to
Gragera. Her job was merely to make
worksheets (Exhs. 15 to 15-DDDDDDDDDD) to
convey to [petitioner] how much he would

[Petitioner] further asserted that in Nieves

capacity as bookkeeper, she received all
payments from which Nieves deducted
Grageras commission. The commission would
then be remitted to Gragera. She likewise
determined loan releases.
During the pre-trial, the parties narrowed the
issues to the following points: whether
[respondents] were employees or partners of
[petitioner], whether [petitioner] entrusted
money to [respondents] for delivery to
Gragera, whether the P1,555,068.70 claimed
under the complaint was actually remitted to
Gragera and whether [respondents] were
entitled to their counterclaim for share in the
profits.[7]

Ruling of the Trial Court

In its August 13, 1991 Decision, the trial
court held that respondents were partners,
not mere employees, of petitioner. It further
ruled that Gragera was only a commission
agent of petitioner, not his partner. Petitioner
moreover failed to prove that he had
entrusted any money to Nieves. Thus,
respondents counterclaim for their share in
the partnership and for damages was
granted. The trial court disposed as follows:
39. WHEREFORE, the Court hereby
renders judgment as follows:
39.1.
THE
SECOND
AMENDED
COMPLAINT dated July 26, 1989 is
DISMISSED.
39.2. The [Petitioner] FERNANDO J.
SANTOS is ordered to pay the
[Respondent] NIEVES S. REYES,
the following:

32

39.3.3. P25,000.00 - As
damages

moral

39.3.4. P10,000.00 - As
damages

exemplary

39.4. The [petitioner] FERNANDO J.

SANTOS is ordered to pay the
[respondents]:
39.4.1. P50,000.00 - As
fees; and

attorneys

39.4.2 The cost of the suit.[8]

Ruling of the Court of Appeals

On appeal, the Decision of the trial court
was upheld, and the counterclaim of
respondents was dismissed. Upon the latters
Motion for Reconsideration, however, the trial
courts
Decision
was
reinstatedin
toto. Subsequently, petitioners own Motion for
Reconsideration was denied in the CA
Resolution of October 9, 1998.
The CA ruled that the following
circumstances indicated the existence of a
partnership among the parties: (1) it was
Nieves who broached to petitioner the idea of
starting a money-lending business and
introduced him to Gragera; (2) Arsenio
received dividends or profit-shares covering
the period July 15 to August 7, 1986 (Exh. 6);
and (3) the partnership contract was executed
after the Agreement with Gragera and
petitioner and thus showed the parties
intention to consider it as a transaction of the
partnership. In
their
common
venture,
petitioner invested capital while respondents
contributed industry or services, with the
intention of sharing in the profits of the
business.
The CA disbelieved petitioners claim that
Nieves
had
misappropriated
a
total
of P200,000 which was supposed to be
delivered to Gragera to cover unpaid
commissions. It was his task to collect the
amounts due, while hers was merely to
prepare the daily cash flow reports (Exhs. 1515DDDDDDDDDD) to keep track of his
collections.
Hence, this Petition.[9]

Issue
Petitioner asks this Court to rule on the
following issues:[10]

Whether or not Respondent Court of Appeals

acted with grave abuse of discretion
tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents
were partners/joint venturers and
not employees of Santos in
connection with the agreement
between
Santos
and
Monte
Maria/Gragera;
2. Affirming the findings of the trial
court that the phrase Received by
on documents signed by Nieves
Reyes signified receipt of copies of
the documents and not of the
sums shown thereon;
3. Affirming that the signature of
Nieves Reyes on Exhibit E was a
forgery;
4. Finding that Exhibit H [did] not
establish receipt by Nieves Reyes
of P200,000.00 for delivery to
Gragera;
5. Affirming the dismissal of Santos
[Second] Amended Complaint;
6. Affirming the decision of the trial
court,
upholding
private
respondents counterclaim;
7. Denying
Santos
motion
for
reconsideration dated September
11, 1998.
Succinctly put, the following were the
issues raised by petitioner: (1) whether the
parties relationship was one of partnership or
of employer-employee; (2) whether Nieves
misappropriated the sums of money allegedly
entrusted to her for delivery to Gragera as his
commissions; and (3) whether respondents
were entitled to the partnership profits as
determined by the trial court.

The Courts Ruling

The Petition is partly meritorious.

First Issue:
Business Relationship
Petitioner maintains that he employed the
services of respondent spouses in the moneylending venture with Gragera, with Nieves as

33

bookkeeper
and
Arsenio
as
credit
investigator. That Nieves introduced Gragera
to Santos did not make her a partner. She was
only a witness to the Agreement between the
two. Separate from the partnership between
petitioner and Gragera was that which existed
among petitioner, Nieves and Zabat, a
partnership that was dissolved when Zabat
was expelled.
On the other hand, both the CA and the
trial court rejected petitioners contentions and
ruled that the business relationship was one
of partnership. We quote from the CA
Decision, as follows:
[Respondents] were industrial partners of
[petitioner]. x x x Nieves herself provided the
initiative in the lending activities with Monte
Maria. In consonance with the agreement
between appellant, Nieves and Zabat (later
replaced
by
Arsenio),
[respondents]
contributed industry to the common fund with
the intention of sharing in the profits of the
partnership. [Respondents] provided services
without which the partnership would not have
[had] the wherewithal to carry on the purpose
for which it was organized and as such [were]
considered industrial partners (Evangelista v.
Abad Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between
[petitioner,] Nieves and Zabat was technically
dissolved by the expulsion of Zabat therefrom,
the remaining partners simply continued the
business
of
the
partnership
without
undergoing
the
procedure
relative
to
dissolution. Instead, they invited Arsenio to
participate
as
a
partner
in
their
operations. There was therefore, no intent to
dissolve
the
earlier
partnership. The
partnership between [petitioner,] Nieves and
Arsenio simply took over and continued the
business of the former partnership with Zabat,
one of the incidents of which was the lending
operations with Monte Maria.
xxxxxxxxx
Gragera
and
[petitioner]
were
not
partners. The
money-lending
activities
undertaken with Monte Maria was done in
pursuit of the business for which the
partnership between [petitioner], Nieves and
Zabat (later Arsenio) was organized. Gragera
who represented Monte Maria was merely
paid commissions in exchange for the
collection of loans. The commissions were
fixed on gross returns, regardless of the
expenses incurred in the operation of the
business. The sharing of gross returns does
not in itself establish a partnership.[11]

We agree with both courts on this

point. 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.[12] The
Articles
of
Agreement stipulated that the signatories
shall share the profits of the business in a 7015-15 manner, with petitioner getting the
lions share.[13] This stipulation clearly proved
the establishment of a partnership.
We find no cogent reason to disagree with
the lower courts that the partnership
continued lending money to the members of
the Monte Maria Community Development
Group, Inc., which later on changed its
business name to Private Association for
Community Development, Inc. (PACDI). Nieves
was not merely petitioners employee. She
discharged her bookkeeping duties in
accordance with paragraphs 2 and 3 of the
Agreement, which states as follows:
2. That the SECOND PARTY and THIRD PARTY
shall handle the solicitation and screening of
prospective borrowers, and shall x x x each be
responsible in handling the collection of the
loan payments of the borrowers that they
each solicited.
3. That the bookkeeping and daily balancing
of account of the business operation shall be
handled by the SECOND PARTY.[14]
The Second Party named in the
Agreement was none other than Nieves
Reyes. On the other hand, Arsenios duties as
credit investigator are subsumed under the
phrase screening of prospective borrowers.
Because of this Agreement and the
disbursement of monthly allowances and
profit shares or dividends (Exh. 6) to Arsenio,
we uphold the factual finding of both courts
that he replaced Zabat in the partnership.
Indeed, the partnership was established
to engage in a money-lending business,
despite the fact that it was formalized only
after the Memorandum of Agreement had
been
signed
by
petitioner
and
Gragera. Contrary to petitioners contention,
there is no evidence to show that a different
business venture is referred to in this
Agreement, which was executed on August 6,
1986, or about a month after the
Memorandum had been signed by petitioner
and Gragera on July 14, 1986. The Agreement
itself attests to this fact:
WHEREAS, the parties have decided to
formalize the terms of their business

34

relationship in order that their respective

interests may be properly defined and
established for their mutual benefit and
understanding.[15]

received in evidence, its due execution and

authenticity must be proved either:

Second Issue:

(b) By evidence of the genuineness of the

signature or handwriting of the maker.

No Proof of Misappropriation of Grageras

Unpaid Commission

Any other private document need only be

identified as that which it is claimed to be.

Petitioner faults the CA finding that

Nieves did not misappropriate money
intended for Grageras commission. According
to him, Gragera remitted his daily collection to
Nieves. This is shown by Exhibit B (the
Schedule of Daily Payments), which bears her
signature under the words received by. For the
period July 1986 to March 1987, Gragera
should have earned a total commission
of P4,282,429.30.However,
only P3,068,133.20
was
received
by
him. Thus,
petitioner
infers
that
she
misappropriated
the
difference
of P1,214,296.10, which represented the
unpaid commissions. Exhibit H is an untitled
tabulation which, according to him, shows that
Gragera was also entitled to a commission
of P200,000, an amount that was never
delivered by Nieves.[16]

The court a quo even ruled that the signature

thereon was a forgery, as it found that:

On this point, the CA ruled that Exhibits B,

F, E and H did not show that Nieves received
for delivery to Gragera any amount from
which the P1,214,296.10 unpaid commission
was supposed to come, and that such exhibits
were insufficient proof that she had
embezzled P200,000. Said the CA:
The presentation of Exhibit D vaguely
denominated as members ledger does not
clearly establish that Nieves received
amounts from Monte Marias members. The
document does not clearly state what
amounts the entries thereon represent. More
importantly, Nieves made the entries for the
limited period of January 11, 1987 to February
17, 1987 only while the rest were made by
Grageras own staff.

(a) By anyone who saw

executed or written; or

the

document

x x x. But NIEVES denied that Exh. E-1 is her

signature; she claimed that it is a forgery. The
initial stroke of Exh. E-1 starts from up and
goes downward. The initial stroke of the
genuine signatures of NIEVES (Exhs. A-3, B-1,
F-1, among others) starts from below and
goes upward. This difference in the start of
the initial stroke of the signatures Exhs. E-1
and of the genuine signatures lends credence
to Nieves claim that the signature Exh. E-1 is
a forgery.
xxxxxxxxx
Nieves testimony that the schedules of daily
payment (Exhs. B and F) were based on the
predetermined 100% collection as guaranteed
by Gragera is credible and clearly in accord
with the evidence. A perusal of Exhs. B and F
as well as Exhs. 15 to 15-DDDDDDDDDD
reveal that the entries were indeed based on
the 100% assumptive collection guaranteed
by Gragera. Thus, the total amount recorded
on Exh. B is exactly the number of borrowers
multiplied
by
the
projected
collection
of P150.00 per borrower. This holds true for
Exh. F.
Corollarily, Nieves explanation that the
documents were pro forma and that she
signed them not to signify that she collected
the amounts but that she received the
documents themselves is more believable
than [petitioners] assertion that she actually
handled the amounts.

Neither can we give probative value to Exhibit

E which allegedly shows acknowledgment of
the remittance of commissions to Verona
Gonzales. The document is a private one and
its due execution and authenticity have not
been duly proved as required in [S]ection 20,
Rule 132 of the Rules of Court which states:

Contrary to [petitioners] assertion, Exhibit H

does not unequivocally establish that x x x
Nieves received P200,000.00 as commission
for Gragera. As correctly stated by the court a
quo, the document showed a liquidation
of P240,000.00 and not P200,000.00.

Sec. 20. Proof of Private Document Before any

private document offered as authentic is

Accordingly, we find Nieves testimony that

after August 20, 1986, all collections were

35

made by Gragera believable and worthy of

credence. Since Gragera guaranteed a daily
100% payment of the loans, he took charge of
the
collections. As
[petitioners]
representative, Nieves merely prepared the
daily cash flow reports (Exh. 15 to 15
DDDDDDDDDD) to enable [petitioner] to keep
track of Grageras operations. Gragera on the
other hand devised the schedule of daily
payment (Exhs. B and F) to record the
projected gross daily collections.

partnership. She did not remit P1,214,296.10

to Gragera, because he had deducted his
commissions
before
remitting
his
collections. Exhibits B and F are merely
computations of what Gragera should collect
for the day; they do not show that Nieves
received the amounts stated therein. Neither
is
there
sufficient
proof
that
she
misappropriated P200,000, because Exhibit H
does not indicate that such amount was
received by her; in fact, it shows a different
figure.

As aptly observed by the court a quo:

Petitioner
has
utterly
failed
to
demonstrate why a review of these factual
findings is warranted. Well-entrenched is the
basic rule that factual findings of the Court of
Appeals affirming those of the trial court are
binding and conclusive on the Supreme Court.
[19]
Although there are exceptions to this rule,
petitioner has not satisfactorily shown that
any of them is applicable to this issue.

26.1. As between the versions of SANTOS and

NIEVES on how the commissions of GRAGERA
[were] paid to him[,] that of NIEVES is more
logical and practical and therefore, more
believable.SANTOS version would have given
rise to this improbable situation: GRAGERA
would collect the daily amortizations and then
give them to NIEVES; NIEVES would get
GRAGERAs
commissions
from
the
amortizations and then give such commission
to GRAGERA.[17]

Third Issue:

These findings are in harmony with the

trial courts ruling, which we quote below:

Accounting of Partnership

21. Exh. H does not prove that SANTOS gave

to NIEVES and the latter received P200,000.00
for delivery to GRAGERA. Exh. H shows under
its sixth column ADDITIONAL CASH that the
additional cash was P240,000.00. If Exh. H
were the liquidation of the P200,000.00 as
alleged by SANTOS, then his claim is not
true. This is so because it is a liquidation of
the sum of P240,000.00.

Petitioner
refuses
any
liability
for
respondents claims on the profits of the
partnership. He maintains that both business
propositions were flops, as his investments
were consumed and eaten up by the
commissions orchestrated to be due Gragera
a situation that could not have been rendered
possible without complicity between Nieves
and Gragera.

21.2. The evidence shows that all money

transactions of the money-lending business of
SANTOS were covered by petty cash
vouchers. It is therefore strange why SANTOS
did not present any voucher or receipt
covering the P200,000.00.[18]

Respondent spouses, on the other hand,

postulate that petitioner instituted the action
below to avoid payment of the demands of
Nieves, because sometime in March 1987, she
signified to petitioner that it was about time to
get her share of the profits which had already
accumulated to some P3 million. Respondents
add that while the partnership has not
declared dividends or liquidated its earnings,
the profits are already reflected on paper. To
prove the counterclaim of Nieves, the spouses
show that from June 13, 1986 up to April 19,
1987, the profit totaled P20,429,520 (Exhs. 10
et seq. and 15 et seq.). Based on that income,
her 15 percent share under the joint venture
amounts to P3,064,428 (Exh. 10-I-3); and
Arsenios, P2,026,000
minus
the P30,000
which was already advanced to him (Petty
Cash Vouchers, Exhs. 6, 6-A to 6-B).

In sum, the lower

unbelievable
that
embezzled P1,555,068.70

The CA originally held that respondents

counterclaim was premature, pending an
accounting of the partnership. However, in its

21.1. SANTOS claimed that he learned of

NIEVES failure to give the P200,000.00 to
GRAGERA when he received the latters letter
complaining of its delayed release. Assuming
as
true
SANTOS
claim
that
he
gave P200,000.00 to GRAGERA, there is no
competent evidence that NIEVES did not give
it to GRAGERA. The only proof that NIEVES did
not give it is the letter. But SANTOS did not
even present the letter in evidence. He did not
explain why he did not.

courts found it
Nieves
had
from
the

36

assailed Resolution of August 17, 1998, it

turned volte face. Affirming the trial courts
ruling on the counterclaim, it held as follows:
We earlier ruled that there is still need for an
accounting of the profits and losses of the
partnership before we can rule with certainty
as to the respective shares of the
partners. Upon a further review of the records
of this case, however, there appears to be
sufficient basis to determine the amount of
shares of the parties and damages incurred by
[respondents]. The fact is that the court a
quo already made such a determination [in
its] decision dated August 13, 1991 on the
basis of the facts on record.[20]
The trial courts ruling alluded to above is
quoted below:
27. The defendants counterclaim for the
payment of their share in the profits of their
joint venture with SANTOS is supported by the
evidence.
27.1. NIEVES testified that: Her claim to a
share in the profits is based on the agreement
(Exhs. 5, 5-A and 5-B). The profits are shown
in the working papers (Exhs. 10 to 10-I,
inclusive) which she prepared. Exhs. 10 to 10-I
(inclusive) were based on the daily cash flow
reports of which Exh. 3 is a sample. The
originals of the daily cash flow reports (Exhs.
3 and 15 to 15-D (10) were given to
SANTOS. The joint venture had a net profit
of P20,429,520.00 (Exh. 10-I-1), from its
operations from June 13, 1986 to April 19,
1987 (Exh. 1-I-4). She had a share of
P3,064,428.00 (Exh. 10-I-3) and ARSENIO,
about P2,926,000.00, in the profits.
27.1.1 SANTOS
never
denied
NIEVES
testimony that the money-lending business he
was engaged in netted a profit and that the
originals of the daily case flow reports were
furnished to him. SANTOS however alleged
that the money-lending operation of his joint
venture with NIEVES and ZABAT resulted in a
loss of about half a million pesos to him. But
such loss, even if true, does not negate
NIEVES claim that overall, the joint venture
among them SANTOS, NIEVES and ARSENIO
netted a profit. There is no reason for the
Court to doubt the veracity of [the testimony
of] NIEVES.
27.2 The P26,260.50 which ARSENIO received
as part of his share in the profits (Exhs. 6, 6-A
and 6-B) should be deducted from his total
share.[21]

After a close examination of respondents

exhibits, we find reason to disagree with the
CA. Exhibit 10-I[22] shows that the partnership
earned a total income of P20,429,520 for the
period June 13, 1986 until April 19, 1987. This
entry is derived from the sum of the amounts
under the following column headings: 2-Day
Advance Collection, Service Fee, Notarial Fee,
Application Fee, Net Interest Income and
Interest Income on Investment. Such entries
represent the collections of the money-lending
business or its gross income.
The total income shown on Exhibit 10-I
did not consider the expenses sustained by
the partnership. For instance, it did not factor
in the gross loan releases representing the
money loaned to clients. Since the business is
money-lending, such releases are comparable
with the inventory or supplies in other
business enterprises.
Noticeably missing from the computation
of the total income is the deduction of the
weekly
allowance
disbursed
to
respondents. Exhibits I et seq. and J et seq.
[23]
show that Arsenio received allowances
from July 19, 1986 to March 27, 1987 in the
aggregate amount of P25,500; and Nieves,
from July 12, 1986 to March 27, 1987 in the
total amount of P25,600. These allowances
are different from the profit already received
by Arsenio. They represent expenses that
should have been deducted from the business
profits. The point is that all expenses incurred
by the money-lending enterprise of the parties
must first be deducted from the total income
in order to arrive at the net profit of the
partnership. The share of each one of them
should be based on this net profit and not
from the gross income or total income
reflected in Exhibit 10-I, which the two courts
invariably referred to as cash flow sheets.
Similarly, Exhibits 15 et seq.,[24] which are
the Daily Cashflow Reports, do not reflect the
business expenses incurred by the parties,
because they show only the daily cash
collections. Contrary to the rulings of both the
trial and the appellate courts, respondents
exhibits do not reflect the complete financial
condition of the money-lending business. The
lower courts obviously labored over a
mistaken
notion
that
Exhibit
10-I-1
represented the net profits earned by the
partnership.
For the purpose of determining the profit
that should go to an industrial partner (who
shares in the profits but is not liable for the
losses), the gross income from all the
transactions carried on by the firm must be
added together, and from this sum must be
subtracted the expenses or the losses

37

sustained in the business. Only in the

difference representing the net profits does
the industrial partner share. But if, on the
contrary, the losses exceed the income, the
industrial partner does not share in the losses.
[25]

When the judgment of the CA is premised

on a misapprehension of facts or a failure to
notice certain relevant facts that would
otherwise justify a different conclusion, as in
this particular issue, a review of its factual
findings may be conducted, as an exception to
the general rule applied to the first two issues.
[26]

The trial court has the advantage of

observing the witnesses while they are
testifying, an opportunity not available to
appellate courts. Thus, its assessment of the
credibility of witnesses and their testimonies
are accorded great weight, even finality, when
supported by substantial evidence; more so
when such assessment is affirmed by the
CA. But when the issue involves the
evaluation of exhibits or documents that are
attached to the case records, as in the third
issue, the rule may be relaxed. Under that
situation, this Court has a similar opportunity
to inspect, examine and evaluate those
records,
independently
of
the
lower
courts. Hence, we deem the award of the
partnership share, as computed by the trial
court and adopted by the CA, to be
incomplete and not binding on this Court.
WHEREFORE,
the
Petition
is
partly GRANTED. The assailed November 28,
1997
Decision
is AFFIRMED, but
the
challenged Resolutions dated August 17, 1998
and October 9, 1998 areREVERSED and SET
ASIDE. No costs.
G.R. No. L-19342 May 25, 1972
LORENZO T. OA and HEIRS OF JULIA
BUALES, namely: RODOLFO B. OA,
MARIANO B. OA, LUZ B. OA, VIRGINIA
B.
OA
and
LORENZO
B.
OA,
JR., petitioners,
vs.
THE
COMMISSIONER
OF
INTERNAL
REVENUE, respondent.
Orlando Velasco for petitioners.
Office of the Solicitor General Arturo A.
Alafriz, Assistant Solicitor General Felicisimo
R. Rosete, and Special Attorney Purificacion
Ureta for respondent.

BARREDO, J.:p
Petition for review of the decision of the Court
of Tax Appeals in CTA Case No. 617, similarly
entitled as above, holding that petitioners
have constituted an unregistered partnership
and are, therefore, subject to the payment of
the deficiency corporate income taxes
assessed against them by respondent
Commissioner of Internal Revenue for the
years 1955 and 1956 in the total sum of
P21,891.00, plus 5% surcharge and 1%
monthly interest from December 15, 1958,
subject to the provisions of Section 51 (e) (2)
of the Internal Revenue Code, as amended by
Section 8 of Republic Act No. 2343 and the
costs of the suit, 1 as well as the resolution of
said court denying petitioners' motion for
reconsideration of said decision.
The facts are stated in the decision of the Tax
Court as follows:
Julia Buales died on March 23,
1944, leaving as heirs her
surviving spouse, Lorenzo T.
Oa and her five children. In
1948, Civil Case No. 4519 was
instituted in the Court of First
Instance of Manila for the
settlement of her estate. Later,
Lorenzo T. Oa the surviving
spouse
was
appointed
administrator of the estate of
said deceased (Exhibit 3, pp.
34-41, BIR rec.). On April 14,
1949,
the
administrator
submitted
the
project
of
partition, which was approved
by the Court on May 16, 1949
(See Exhibit K). Because three
of the heirs, namely Luz,
Virginia and Lorenzo, Jr., all
surnamed Oa, were still minors
when the project of partition
was approved, Lorenzo T. Oa,
their father and administrator of
the estate, filed a petition in
Civil Case No. 9637 of the Court
of First Instance of Manila for
appointment as guardian of said
minors. On November 14, 1949,
the
Court
appointed
him
guardian of the persons and
property of the aforenamed
minors (See p. 3, BIR rec.).
The project of partition (Exhibit
K; see also pp. 77-70, BIR rec.)
shows that the heirs have
undivided one-half (1/2) interest
in ten parcels of land with a

38

total
assessed
value
of
P87,860.00, six houses with a
total
assessed
value
of
P17,590.00
and
an
undetermined amount to be
collected from the War Damage
Commission.
Later,
they
received from said Commission
the amount of P50,000.00,
more or less. This amount was
not divided among them but
was used in the rehabilitation of
properties owned by them in
common (t.s.n., p. 46). Of the
ten
parcels
of
land
aforementioned,
two
were
acquired after the death of the
decedent with money borrowed
from
the
Philippine
Trust
Company in the amount of
P72,173.00 (t.s.n., p. 24; Exhibit
3, pp. 31-34 BIR rec.).
The project of partition also
shows that the estate shares
equally with Lorenzo T. Oa, the
administrator thereof, in the
obligation
of
P94,973.00,
consisting of loans contracted
by the latter with the approval
of the Court (see p. 3 of Exhibit
K; or see p. 74, BIR rec.).
Although the project of partition
was approved by the Court on
May 16, 1949, no attempt was
made to divide the properties
therein listed. Instead, the
properties remained under the
management of Lorenzo T. Oa
who used said properties in
business by leasing or selling
them and investing the income
derived therefrom and the
proceeds from the sales thereof
in real properties and securities.
As
a
result,
petitioners'
properties
and
investments
gradually
increased
from
P105,450.00
in
1949
to
P480,005.20 in 1956 as can be
gleaned from the following
year-end balances:
Investm
ent

Land

Buildi
ng

Account

Accou
nt

Accou
nt

P87,860.00

P17,590.00

128,566.72

96,076.26

120,349.28

110,605.11

87,065.28

152,674.39

84,925.68

161,463.83

99,001.20

167,962.04

120,249.78

169,262.52

135,714.68

169,262.52
(See Exhibits 3 & K t.s.n., pp.
22, 25-26, 40, 50, 102-104)
From said investments and
properties petitioners derived
such incomes as profits from
installment sales of subdivided
lots, profits from sales of stocks,
dividends, rentals and interests
(see p. 3 of Exhibit 3; p. 32, BIR
rec.; t.s.n., pp. 37-38). The said
incomes are recorded in the
books of account kept by
Lorenzo T. Oa where the
corresponding shares of the
petitioners in the net income for
the year are also known. Every
year, petitioners returned for
income tax purposes their
shares in the net income
derived from said properties
and securities and/or from
transactions involving them
(Exhibit 3,supra; t.s.n., pp. 2526). However, petitioners did
not actually receive their shares
in the yearly income. (t.s.n., pp.
25-26, 40, 98, 100). The income
was always left in the hands of
Lorenzo
T.
Oa who,
as
heretofore pointed out, invested
them in real properties and
securities. (See Exhibit 3, t.s.n.,
pp. 50, 102-104).
On the basis of the foregoing
facts,
respondent
(Commissioner
of
Internal
Revenue)
decided
that
petitioners
formed
an
unregistered partnership and
therefore,
subject
to
the
corporate income tax, pursuant
to Section 24, in relation to
Section 84(b), of the Tax Code.
Accordingly,
he
assessed
against the petitioners the
amounts of P8,092.00 and

39

P13,899.00
as
corporate
income taxes for 1955 and
1956, respectively. (See Exhibit
5, amended by Exhibit 17, pp.
50 and 86, BIR rec.). Petitioners
protested
against
the
assessment and asked for
reconsideration of the ruling of
respondent that they have
formed
an
unregistered
partnership. Finding no merit in
petitioners' request, respondent
denied it (See Exhibit 17, p. 86,
BIR
rec.).
(See
pp.
1-4,
Memorandum for Respondent,
June 12, 1961).
The original assessment was as
follows:
1955
Net income as per investigation
................ P40,209.89
Income
tax
due
thereon
...............................
8,042.00
25%
surcharge ..................................
............
2,010.50
Compromise
for
nonfiling
.......................... 50.00
Total ..........................................
..................... P10,102.50
1956
Net income as per investigation
................ P69,245.23
Income
tax
due
thereon
...............................
13,849.00
25%
surcharge ..................................
............
3,462.25
Compromise
for
nonfiling
.......................... 50.00
Total ..........................................
..................... P17,361.25
(See Exhibit 13, page 50, BIR
records)
Upon further consideration of
the case, the 25% surcharge
was eliminated in line with the
ruling of the Supreme Court
in Collector
v.
Batangas
Transportation Co., G.R. No. L-

9692, Jan. 6, 1958, so that the

questioned assessment refers
solely to the income tax proper
for the years 1955 and 1956
and the "Compromise for nonfiling," the latter item obviously
referring to the compromise in
lieu of the criminal liability for
failure of petitioners to file the
corporate income tax returns
for said years. (See Exh. 17,
page 86, BIR records). (Pp. 1-3,
Annex C to Petition)
Petitioners have assigned the following as
alleged errors of the Tax Court:
I.
THE COURT OF TAX APPEALS
ERRED IN HOLDING THAT THE
PETITIONERS
FORMED
AN
UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS
ERRED IN NOT HOLDING THAT
THE PETITIONERS WERE COOWNERS OF THE PROPERTIES
INHERITED AND (THE) PROFITS
DERIVED FROM TRANSACTIONS
THEREFROM (sic);
III.
THE COURT OF TAX APPEALS
ERRED
IN
HOLDING
THAT
PETITIONERS WERE LIABLE FOR
CORPORATE
INCOME
TAXES
FOR 1955 AND 1956 AS AN
UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE
PETITIONERS CONSTITUTED AN
UNREGISTERED PARTNERSHIP,
THE COURT OF TAX APPEALS
ERRED IN NOT HOLDING THAT
THE PETITIONERS WERE AN
UNREGISTERED
PARTNERSHIP
TO THE EXTENT ONLY THAT
THEY INVESTED THE PROFITS
FROM THE PROPERTIES OWNED
IN COMMON AND THE LOANS
RECEIVED
USING
THE
INHERITED
PROPERTIES
AS
COLLATERALS;

40

V.
ON THE ASSUMPTION THAT
THERE WAS AN UNREGISTERED
PARTNERSHIP, THE COURT OF
TAX APPEALS ERRED IN NOT
DEDUCTING
THE
VARIOUS
AMOUNTS
PAID
BY
THE
PETITIONERS AS INDIVIDUAL
INCOME
TAX
ON
THEIR
RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE
PROPERTIES
OWNED
IN
COMMON,
FROM
THE
DEFICIENCY
TAX
OF
THE
UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our
resolution the following questions: (1) Under
the facts found by the Court of Tax Appeals,
should petitioners be considered as co-owners
of the properties inherited by them from the
deceased Julia Buales and the profits derived
from transactions involving the same, or,
must they be deemed to have formed an
unregistered partnership subject to tax under
Sections 24 and 84(b) of the National Internal
Revenue Code? (2) Assuming they have
formed an unregistered partnership, should
this not be only in the sense that they
invested as a common fund the profits earned
by the properties owned by them in common
and the loans granted to them upon the
security of the said properties, with the result
that as far as their respective shares in the
inheritance are concerned, the total income
thereof should be considered as that of coowners and not of the unregistered
partnership? And (3) assuming again that they
are taxable as an unregistered partnership,
should not the various amounts already paid
by them for the same years 1955 and 1956 as
individual income taxes on their respective
shares of the profits accruing from the
properties they owned in common be
deducted from the deficiency corporate taxes,
herein involved, assessed against such
unregistered partnership by the respondent
Commissioner?
Pondering on these questions, the first thing
that has struck the Court is that whereas
petitioners' predecessor in interest died way
back on March 23, 1944 and the project of
partition of her estate was judicially approved
as early as May 16, 1949, and presumably
petitioners have been holding their respective
shares in their inheritance since those dates
admittedly under the administration or
management of the head of the family, the
widower and father Lorenzo T. Oa, the
assessment in question refers to the later

years 1955 and 1956. We believe this point to

be important because, apparently, at the
start, or in the years 1944 to 1954, the
respondent Commissioner of Internal Revenue
did treat petitioners as co-owners, not liable
to corporate tax, and it was only from 1955
that he considered them as having formed an
unregistered partnership. At least, there is
nothing in the record indicating that an earlier
assessment had already been made. Such
being the case, and We see no reason how it
could be otherwise, it is easily understandable
why petitioners' position that they are coowners and not unregistered co-partners, for
the purposes of the impugned assessment,
cannot be upheld. Truth to tell, petitioners
should find comfort in the fact that they were
not similarly assessed earlier by the Bureau of
Internal Revenue.
The Tax Court found that instead of actually
distributing the estate of the deceased among
themselves pursuant to the project of partition
approved in 1949, "the properties remained
under the management of Lorenzo T. Oa who
used said properties in business by leasing or
selling them and investing the income derived
therefrom and the proceed from the sales
thereof in real properties and securities," as a
result
of
which
said
properties
and
investments steadily increased yearly from
P87,860.00 in "land account" and P17,590.00
in "building account" in 1949 to P175,028.68
in "investment account," P135.714.68 in "land
account" and P169,262.52 in "building
account" in 1956. And all these became
possible because, admittedly, petitioners
never actually received any share of the
income or profits from Lorenzo T. Oa and
instead, they allowed him to continue using
said shares as part of the common fund for
their ventures, even as they paid the
corresponding income taxes on the basis of
their respective shares of the profits of their
common business as reported by the said
Lorenzo T. Oa.
It is thus incontrovertible that petitioners did
not, contrary to their contention, merely limit
themselves to holding the properties inherited
by them. Indeed, it is admitted that during the
material years herein involved, some of the
said properties were sold at considerable
profit, and that with said profit, petitioners
engaged, thru Lorenzo T. Oa, in the purchase
and sale of corporate securities. It is likewise
admitted that all the profits from these
ventures were divided among petitioners
proportionately in accordance with their
respective shares in the inheritance. In these
circumstances, it is Our considered view that
from the moment petitioners allowed not only

41

the incomes from their respective shares of

the inheritance but even the inherited
properties themselves to be used by Lorenzo
T. Oa as a common fund in undertaking
several transactions or in business, with the
intention of deriving profit to be shared by
them proportionally, such act was tantamonut
to actually contributing such incomes to a
common fund and, in effect, they thereby
formed an unregistered partnership within the
purview of the above-mentioned provisions of
the Tax Code.
It is but logical that in cases of inheritance,
there should be a period when the heirs can
be considered as co-owners rather than
unregistered
co-partners
within
the
contemplation of our corporate tax laws
aforementioned. Before the partition and
distribution of the estate of the deceased, all
the income thereof does belong commonly to
all the heirs, obviously, without them
becoming thereby unregistered co-partners,
but it does not necessarily follow that such
status as co-owners continues until the
inheritance
is
actually
and
physically
distributed among the heirs, for it is easily
conceivable
that
after
knowing
their
respective shares in the partition, they might
decide to continue holding said shares under
the
common
management
of
the
administrator or executor or of anyone chosen
by them and engage in business on that basis.
Withal, if this were to be allowed, it would be
the easiest thing for heirs in any inheritance
to circumvent and render meaningless
Sections 24 and 84(b) of the National Internal
Revenue Code.
It is true that in Evangelista vs. Collector, 102
Phil. 140, it was stated, among the reasons for
holding the appellants therein to be
unregistered co-partners for tax purposes,
that their common fund "was not something
they found already in existence" and that "it
was not a property inherited by them pro
indiviso," but it is certainly far fetched to
argue therefrom, as petitioners are doing
here, that ergo, in all instances where an
inheritance is not actually divided, there can
be no unregistered co-partnership. As already
indicated, for tax purposes, the co-ownership
of inherited properties is automatically
converted into an unregistered partnership
the moment the said common properties
and/or the incomes derived therefrom are
used as a common fund with intent to produce
profits for the heirs in proportion to their
respective shares in the inheritance as
determined in a project partition either duly
executed in an extrajudicial settlement or
approved by the court in the corresponding

testate or intestate proceeding. The reason for

this is simple. From the moment of such
partition, the heirs are entitled already to their
respective definite shares of the estate and
the incomes thereof, for each of them to
manage and dispose of as exclusively his own
without the intervention of the other heirs,
and,
accordingly
he
becomes
liable
individually for all taxes in connection
therewith. If after such partition, he allows his
share to be held in common with his co-heirs
under a single management to be used with
the intent of making profit thereby in
proportion to his share, there can be no doubt
that, even if no document or instrument were
executed for the purpose, for tax purposes, at
least, an unregistered partnership is formed.
This is exactly what happened to petitioners in
this case.
In this connection, petitioners' reliance on
Article 1769, paragraph (3), of the Civil Code,
providing that: "The sharing of gross returns
does not of itself establish a partnership,
whether or not the persons sharing them have
a joint or common right or interest in any
property from which the returns are derived,"
and, for that matter, on any other provision of
said code on partnerships is unavailing.
In Evangelista, supra,
this
Court
clearly
differentiated the concept of partnerships
under the Civil Code from that of unregistered
partnerships
which
are
considered
as
"corporations" under Sections 24 and 84(b) of
the National Internal Revenue Code. Mr.
Justice Roberto Concepcion, now Chief Justice,
elucidated on this point thus:
To begin with, the tax in
question is one imposed upon
"corporations", which, strictly
speaking, are distinct and
different from "partnerships".
When our Internal Revenue
Code includes "partnerships"
among the entities subject to
the tax on "corporations", said
Code must allude, therefore, to
organizations which are not
necessarily "partnerships",
in
the technical sense of the term.
Thus, for instance, section 24 of
said Code exempts from the
aforementioned
tax
"duly
registered
general
partnerships," which constitute
precisely one of the most
typical forms of partnerships in
this jurisdiction. Likewise, as
defined in section 84(b) of said
Code, "the term corporation
includes
partnerships, no

42

matter
how
created
or
organized."
This
qualifying
expression clearly indicates that
a joint venture need not be
undertaken in any of the
standard forms, or in confirmity
with the usual requirements of
the law on partnerships, in
order that one could be deemed
constituted for purposes of the
tax on corporation. Again,
pursuant
to
said
section
84(b),the term "corporation"
includes, among others, "joint
accounts,(cuentas
en
participacion)"
and
"associations", none of which
has a legal personality of its
own, independent of that of its
members.
Accordingly,
the
lawmaker
could
not
have
regarded that personality as a
condition
essential
to
the
existence of the partnerships
therein referred to. In fact, as
above stated, "duly registered
general
co-partnerships"

which are possessed of the

aforementioned personality
have been expressly excluded
by law (sections 24 and 84[b])
from the connotation of the
term "corporation." ....
xxx xxx xxx
Similarly, the American Law
...
provides its
own concept of a
partnership.
Under the term
"partnership"
it
includes not only
a partnership as
known
in
common law but,
as
well,
a
syndicate, group,
pool, joint
venture, or other
unincorporated
organization
which carries on
any
business,
financial
operation,
or
venture,
and
which
is
not,
within
the
meaning of the
Code, a trust,

estate,
or
a
corporation. ... .
(7A Merten's Law
of Federal Income
Taxation, p. 789;
emphasis ours.)
The
term
"partnership"
includes
a
syndicate, group,
pool, joint
venture or other
unincorporated
organization,
through or by
means of which
any
business,
financial
operation,
or
venture is carried
on.
...
.
(8
Merten's Law of
Federal
Income
Taxation, p. 562
Note
63;
emphasis ours.)
For purposes of the tax on
corporations, our
National
Internal Revenue Code includes
these partnerships with the
exception
only
of
duly
registered
general
copartnerships within the
purview
of
the
term
"corporation." It is, therefore,
clear
to
our
mind
that
petitioners herein constitute a
partnership, insofar as said
Code is concerned, and are
subject to the income tax for
corporations.
We reiterated this view, thru Mr. Justice
Fernando, in Reyes vs. Commissioner of
Internal Revenue, G. R. Nos. L-24020-21, July
29, 1968, 24 SCRA 198, wherein the Court
ruled against a theory of co-ownership
pursued by appellants therein.
As regards the second question raised by
petitioners about the segregation, for the
purposes of the corporate taxes in question,
of their inherited properties from those
acquired by them subsequently, We consider
as justified the following ratiocination of the
Tax Court in denying their motion for
reconsideration:

43

In connection with the second

ground, it is alleged that, if
there was an unregistered
partnership, the holding should
be limited to the business
engaged in apart from the
properties
inherited
by
petitioners. In other words, the
taxable
income
of
the
partnership should be limited to
the income derived from the
acquisition and sale of real
properties
and
corporate
securities
and
should
not
include the income derived
from the inherited properties. It
is admitted that the inherited
properties and the income
derived therefrom were used in
the business of buying and
selling other real properties and
corporate
securities.
Accordingly, the partnership
income must include not only
the income derived from the
purchase and sale of other
properties but also the income
of the inherited properties.
Besides, as already observed earlier, the
income derived from inherited properties may
be considered as individual income of the
respective heirs only so long as the
inheritance or estate is not distributed or, at
least, partitioned, but the moment their
respective known shares are used as part of
the common assets of the heirs to be used in
making profits, it is but proper that the
income of such shares should be considered
as the part of the taxable income of an
unregistered partnership. This, We hold, is the
clear intent of the law.
Likewise, the third question of petitioners
appears to have been adequately resolved by
the Tax Court in the aforementioned resolution
denying
petitioners'
motion
for
reconsideration of the decision of said court.
Pertinently, the court ruled this wise:
In support of the third ground,
counsel for petitioners alleges:
Even if we were
to yield to the
decision of this
Honorable Court
that the herein
petitioners have
formed
an
unregistered
partnership and,

therefore, have to
be taxed as such,
it
might
be
recalled that the
petitioners
in
their
individual
income
tax
returns reported
their shares of
the profits of the
unregistered
partnership. We
think it only fair
and
equitable
that the various
amounts paid by
the
individual
petitioners
as
income tax on
their
respective
shares
of
the
unregistered
partnership
should
be
deducted
from
the
deficiency
income tax found
by this Honorable
Court against the
unregistered
partnership.
(page
7,
Memorandum for
the Petitioner in
Support of Their
Motion
for
Reconsideration,
Oct. 28, 1961.)
In other words, it is the position
of petitioners that the taxable
income of the partnership must
be reduced by the amounts of
income tax paid by each
petitioner on his share of
partnership profits. This is not
correct; rather, it should be the
other
way
around.
The
partnership profits distributable
to the partners (petitioners
herein) should be reduced by
the amounts of income tax
assessed
against
the
partnership.
Consequently,
each of the petitioners in his
individual capacity overpaid his
income tax for the years in
question, but the income tax
due from the partnership has
been correctly assessed. Since
the
individual
income
tax
liabilities of petitioners are not

44

in issue in this proceeding, it is

not proper for the Court to pass
upon the same.

MELO, J.:

Petitioners insist that it was error for the Tax

Court to so rule that whatever excess they
might have paid as individual income tax
cannot be credited as part payment of the
taxes herein in question. It is argued that to
sanction the view of the Tax Court is to oblige
petitioners to pay double income tax on the
same income, and, worse, considering the
time that has lapsed since they paid their
individual income taxes, they may already be
barred by prescription from recovering their
overpayments in a separate action. We do not
agree. As We see it, the case of petitioners as
regards the point under discussion is simply
that of a taxpayer who has paid the wrong
tax, assuming that the failure to pay the
corporate taxes in question was not
deliberate. Of course, such taxpayer has the
right to be reimbursed what he has
erroneously paid, but the law is very clear that
the claim and action for such reimbursement
are subject to the bar of prescription. And
since the period for the recovery of the excess
income taxes in the case of herein petitioners
has already lapsed, it would not seem right to
virtually disregard prescription merely upon
the ground that the reason for the delay is
precisely because the taxpayers failed to
make the proper return and payment of the
corporate taxes legally due from them. In
principle, it is but proper not to allow any
relaxation of the tax laws in favor of persons
who are not exactly above suspicion in their
conduct vis-a-vis their tax obligation to the
State.

Assailed and sought to be set aside by the

petition before us is the Resolution of the
Court of Appeals dated June 20, 1991 which
dismissed the petition for annulment of
judgment filed by the Spouses Lourdes and
Menardo Navarro, thusly:

IN VIEW OF ALL THE FOREGOING, the

judgment of the Court of Tax Appeals
appealed from is affirm with costs against
petitioners.

SO
ORDERED.
25, Rollo.)

G.R. No. 101847 May 27, 1993

The
instant
annulment
of
DISMISSED.

petition
decision

for
is

1. Judgments may be annulled

only on the ground of extrinsic
or
collateral
fraud,
as
distinguished
from
intrinsic
fraud (Canlas vs. Court of
Appeals, 164 SCRA 160, 170).
No such ground is alleged in the
petition.
2. Even if the judgment
rendered by the respondent
Court were erroneous, it is not
necessarily void (Chereau vs.
Fuentebella, 43 Phil. 216).
Hence, it cannot be annulled by
the proceeding sought to be
commenced by the petitioners.
3. The petitioners' remedy
against
the
judgment
enforcement of which is sought
to be stopped should have been
appeal.
(pp.

24-

The antecedent facts of the case are as

follows:

George L. Howard Law Office for petitioners

On July 23, 1976, herein private respondent

Olivia V. Yanson filed a complaint against
petitioner Lourdes Navarro for "Delivery of
Personal Properties With Damages". The
complaint incorporated an application for a
writ of replevin. The complaint was later
docketed as Civil Case No. 716 (12562) of the
then Court of First Instance of Bacolod (Branch
55) and was subsequently amended to include
private respondent's husband, Ricardo B.
Yanson, as co-plaintiff, and petitioner's
husband, as co-defendant.

Geocadin, Vinco, Guance, Laudenorio & Cario

Law Office for private respondents.

On July 27, 1976, then Executive Judge Oscar

R. Victoriano (later to be promoted and to

LOURDES
NAVARRO
AND
MENARDO
NAVARRO, petitioners,
vs.
COURT OF APPEALS, JUDGE BETHEL
KATALBAS-MOSCARDON,
Presiding
Judge, Regional Trial Court of Bacolod
City, Branch 52, Sixth Judicial Region and
Spouses OLIVIA V. YANSON AND RICARDO
B. YANSON, respondents.

45

retire as Presiding Justice of the Court of

Appeals) approved private respondents'
application for a writ of replevin. The Sheriff's
Return of Service dated March 3, 1978
affirmed receipt by private respondents of all
pieces of personal property sought to be
recovered from petitioners.

Sheriff's Return of Service (Annex "6", p.

82, Rollo) declared that the writ was "duly
served and satisfied". A receipt for the
amount of P6,500.00 issued by Mrs. Lourdes
Yanson, co-petitioner in this case, was likewise
submitted by the Sheriff (Annex "7", p.
83, Rollo).

On April 30, 1990, Presiding Judge Bethel

Katalbas-Moscardon rendered a decision,
disposing as follows :

On June 26, 1991, petitioners filed with

respondent court a petition for annulment of
the trial court's decision, claiming that the
trial judge erred in declaring the nonexistence of a partnership, contrary to the
evidence on record.

Accordingly, in the light of the

aforegoing findings, all chattels
already recovered by plaintiff by
virtue of the Writ of Replevin
and as listed in the complaint
are hereby sustained to belong
to plaintiff being the owner of
these properties; the motor
vehicle, particularly that Ford
Fiera Jeep registered in and
which had remain in the
possession of the defendant is
likewise declared to belong to
her, however, said defendant is
hereby ordered to reimburse
plaintiff the sum of P6,500.00
representing
the
amount
advanced to pay part of the
price
therefor;
and
said
defendant is likewise hereby
ordered to return to plaintiff
such other equipment[s] as
were brought by the latter to
and during the operation of
their business as were listed in
the
complaint
and
not
recovered as yet by virtue of
the previous Writ of Replevin.
(p. 12, Rollo.)
Petitioner received a copy of the decision on
January 10, 1991 (almost 9 months after its
rendition) and filed on January 16, 1991 a
"Motion for Extension of Time To File a Motion
for Reconsideration". This was granted on
January 18, 1991. Private respondents filed
their opposition, citing the ruling in the case
of Habaluyas Enterprises, Inc. vs. Japson (142
SCRA 208 [1986]) proscribing the filing of any
motion for extension of time to file a motion
for a new trial or reconsideration. The trial
judge vacated the order dated January 18,
1991 and declared the decision of April 30,
1990 as final and executory. (Petitioners'
motion for reconsideration was subsequently
filed on February 1, 1991 or 22 days after the
receipt of the decision).
On February 4, 1991, the trial court issued a
writ of execution (Annex "5", p. 79, Rollo). The

The appellate court, as aforesaid, outrightly

dismissed the petition due to absence of
extrinsic or collateral fraud, observing further
that an appeal was the proper remedy.
In the petition before us, petitioners claim that
the trial judge ignored evidence that would
show that the parties "clearly intended to
form, and (in fact) actually formed a verbal
partnership engaged in the business of Air
Freight Service Agency in Bacolod"; and that
the decision sustaining the writ of replevin is
void since the properties belonging to the
partnership do not actually belong to any of
the parties until the final disposition and
winding up of the partnership" (p. 15, Rollo).
These issues, however, were extensively
discussed by the trial judge in her 16-page,
single-spaced decision.
We agree with respondents that the decision
in this case has become final. In fact a writ of
execution had been issued and was promptly
satisfied by the payment of P6,500.00 to
private respondents.
Having lost their right to appeal, petitioners
resorted to annulment proceedings to justify a
belated judicial review of their case. This was,
however, correctly thrown out by the Court of
Appeals because petitioners failed to cite
extrinsic or collateral fraud to warrant the
setting aside of the trial court's decision. We
respect the appellate court's finding in this
regard.
Petitioners have come to us in a petition for
review. However, the petition is focused solely
on factual issues which can no longer be
entertained. Petitioners' arguments are all
directed against the decision of the regional
trial court; not a word is said in regard to the
appellate's court disposition of their petition
for annulment of judgment. Verily, petitioners
keeps on pressing that the idea of a
partnership exists on account of the so-called

46

admissions in judicio. But the factual premises

of the trial court were more than enough to
suppress and negate petitioners submissions
along this line:
To be resolved by this Court
factually involved in the issue of
whether
there
was
a
partnership
that
existed
between the parties based on
their verbal contention; whether
the
properties
that
were
commonly used in the operation
of Allied Air Freight belonged to
the
alleged
partnership
business; and the status of the
parties in this transaction of
alleged partnership. On the
other hand, the legal issues
revolves on the dissolution and
winding
up
in
case
a
partnership so existed as well
as the issue of ownership over
the properties subject matter of
recovery.
As a premise, Article 1767 of
the New Civil Code defines the
contract of partnership to
quote:
Art. 1767. By the contract of
partnership
two
or
more
persons bind themselves to
contribute money, property, or
industry to a common fund,
with the intention of dividing
the
proceeds
among
themselves.
xxx xxx xxx
Corollary to this definition is the
provision
in
determining
whether a partnership exist as
so provided under Article 1769,
to wit:
xxx xxx xxx
Furthermore, the Code provides
under Article 1771 and 1772
that while a partnership may be
constituted in any form, a public
instrument is necessary where
immovables or any rights is
constituted. Likewise, if the
partnership
involves
a
capitalization of P3,000.00 or
more in money or property, the
same must appear in a public

instrument which must be

recorded in the Office of the
Securities
and
Exchange
Commission. Failure to comply
with these requirements shall
only affect liability of the
partners to third persons.
In consideration of the above, it
is undeniable that both the
plaintiff and the defendant-wife
made
admission
to
have
entered into an agreement of
operating this Allied Air Freight
Agency of which the plaintiff
personally constituted with the
Manila Office in a sense that the
plaintiff
did
supply
the
necessary
equipments
and
money while her brother Atty.
Rodolfo Villaflores was the
Manager and the defendant the
Cashier. It was also admitted
that part of this agreement was
an equal sharing of whatever
proceeds
realized.
Consequently,
the
plaintiff
brought into this transaction
certain chattels in compliance
with her obligation. The same
has been done by the herein
brother
and
the
herein
defendant who started to work
in the business. A cursory
examination of the evidences
presented no proof that a
partnership, whether oral or
written had been constituted at
the
inception
of
this
transaction. True it is that even
up to the filing of this complaint
those movables brought by the
plaintiff for the use in the
operation
of
the
business
remain registered in her name.
While there may have been coownership or co-possession of
some items and/or any sharing
of proceeds by way of advances
received by both plaintiff and
the defendant, these are not
indicative and supportive of the
existence of any partnership
between them. Article 1769 of
the New Civil Code is explicit.
Even the books and records
retrieved by the Commissioner
appointed by the Court did not
show proof of the existence of a
partnership as conceptualized
by law. Such that if assuming

47

that there were profits realized

in 1975 after the two-year
deficits were compensated, this
could only be subject to an
equal sharing consonant to the
agreement to equally divide
any profit realized. However,
this Court cannot overlook the
fact that the Audit Report of the
appointed Commissioner was
not highly reliable in the sense
that it was more of his personal
estimate of what is available on
hand. Besides, the alleged
profits was a difference found
after valuating the assets and
not arising from the real
operation of the business. In
accounting procedures, strictly,
this could not be profit but a net
worth.
In view of the above factual
findings of the Court it follows
inevitably therefore that there
being no partnership that
existed,
any
dissolution,
liquidation or winding up is
beside the point. The plaintiff
himself had summarily ceased
from her contract of agency and
it is a personal prerogative to
desist. On the other hand, the
assumption by the defendant in
negotiating for herself the
continuance of the Agency with
the principal in Manila is
comparable to plaintiff's. Any
account of plaintiff with the
principal as alleged, bore no
evidence as no collection was
ever demanded of from her. The
alleged P20,000.00 assumption
specifically, as would have been
testified to by the defendant's
husband
remain
a
mere
allegation.
As to the properties sought to
be
recovered,
the
Court
sustains the possession by
plaintiff of all equipments and
chattels recovered by virtue of
the
Writ
of
Replevin.
Considering the other vehicle
which appeared registered in
the name of the defendant, and
to which even she admitted
that part of the purchase price
came
from
the
business
claimed
mutually
operated,
although the Court have not as

much considered all entries in

the Audit Report as totally
reliable to be sustained insofar
as the operation of the business
is concerned, nevertheless, with
this admission of the defendant
and the fact that as borne out in
said Report there has been
disbursed and paid for in this
vehicle out of the business
funds in the total sum of
P6,500.00, it is only fitting and
proper that validity of these
disbursements
must
be
sustained as true (Exhs. M-1 to
M-3, p. 180, Records). In this
connection and taking into
account the earlier agreement
that only profits were to be
shared equally, the plaintiff
must be reimbursed of this cost
if only to allow the defendant
continuous possession of the
vehicle in question. It is a
fundamental moral, moral and
civil injunction that no one shall
enrich himself at the expense of
another. (pp. 71-75, Rollo.)
Withal, the appellate court acted properly in
dismissing the petition for annulment of
judgment, the issue raised therein having
been directly litigated in, and passed upon by,
the trial court.
WHEREFORE, the petition is DISMISSED. The
Resolution of the Court of Appeals dated June
20, 1991 is AFFIRMED in all respects.
G.R. No. L-47045 November 22, 1988
NOBIO
SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J.
ACOJEDO, respondents.
Y.G. Villaruz & Associates for petitioner.
Pelagio R. Lachica for private respondent.

REGALADO, J.:
The extensive discussion and exhaustive
disquisition
in
the
decision 1 of
the
respondent
Court 2 should
have
written finis to this case without further
recourse to Us. The assignment of errors and
arguments raised in the respondent Court by
herein private respondent, as the petitioner

48

therein, having been correctly and justifiedly

sustained by said court without any reversible
error in its conclusions, the present petition
must fail.
The assailed decision details the facts and
proceedings which spawned the present
controversy as follows:
Petitioner brought an action in
the City Court of Dipolog for
collection of a sum of P5,217.25
based on promissory notes
executed by the herein private
respondent Nobio Sardane in
favor of the herein petitioner.
Petitioner bases his right to
collect on Exhibits B, C, D, E, F,
and G executed on different
dates and signed by private
respondent
Nobio
Sardane.
Exhibit
B
is
a
printed
promissory
note
involving
Pl,117.25 and dated May 13,
1972. Exhibit C is likewise a
printed promissory note and
denotes on its face that the
sum loaned was Pl,400.00.
Exhibit D is also a printed
promissory note dated May 31,
1977 involving an amount of
P100.00. Exhibit E is what is
commonly known to the layman
as 'vale' which reads: 'Good for:
two hundred pesos (Sgd) Nobio
Sardane'. Exhibit F is stated in
the following tenor: 'Received
from Mr. Romeo Acojedo the
sum Pesos: Two Thousand Two
Hundred (P2,200.00) ONLY, to
be paid on or before December
25, 1975. (Sgd) Nobio Sardane.'
Exhibit G and H are both vales'
involving the same amount of
one hundred pesos, and dated
August
25,
1972
and
September
12,
1972
respectively.
It has been established in the
trial court that on many
occasions,
the
petitioner
demanded the payment of the
total amount of P5,217.25. The
failure of the private respondent
to pay the said amount
prompted the petitioner to seek
the services of lawyer who
made a letter (Exhibit 1)
formally demanding the return
of the sum loaned. Because of
the failure of the private

respondent
to
heed
the
demands extrajudicially made
by the petitioner, the latter was
constrained to bring an action
for collection of sum of money.
During the scheduled day for
trial, private respondent failed
to appear and to file an answer.
On motion by the petitioner, the
City Court of Dipolog issued an
order dated May 18, 1976
declaring
the
private
respondent in default and
allowed
the
petitioner
to
present his evidence ex-parte.
Based on petitioner's evidence,
the City Court of Dipolog
rendered judgment by default in
favor of the petitioner.
Private respondent filed a
motion to lift the order of
default which was granted by
the City Court in an order dated
May 24, 1976, taking into
consideration that the answer
was filed within two hours after
the hearing of the evidence
presented ex-parte by
the
petitioner.
After the trial on the merits, the
City Court of Dipolog rendered
its decision on September 14,
1976, the dispositive portion of
which reads:
IN VIEW OF THE FOREGOING,
judgment is hereby rendered in
favor of the plaintiff and against
the defendant as follows:
(a) Ordering the defendant to
pay unto the plaintiff the sum of
Five Thousand Two Hundred
Seventeen Pesos and Twentyfive centavos (P5,217.25) plus
legal interest to commence
from April 23, 1976 when this
case was filed in court; and
(b) Ordering the defendant to
pay the plaintiff the sum of
P200.00 as attorney's fee and
to pay the cost of this
proceeding. 3
Therein defendant Sardane appealed to the
Court of First Instance of Zamboanga del
Norte which reversed the decision of the lower

49

court by dismissing the complaint and ordered

the plaintiff-appellee Acojedo to pay said
defendant-appellant P500.00 each for actual
damages,
moral
damages,
exemplary
damages and attorney's fees, as well as the
costs of suit. Plaintiff-appellee then sought the
review of said decision by petition to the
respondent Court.

failure to express the the true

intent and agreement of the
parties, or the validity of the
agreement is put in issue by the
pleadings;

The assignment of errors in said petition for

review can be capsulized into two decisive
issues, firstly, whether the oral testimony for
the therein private respondent Sardane that a
partnership existed between him and therein
petitioner Acojedo are admissible to vary the
meaning of the abovementioned promissory
notes; and, secondly, whether because of the
failure of therein petitioner to cross-examine
therein private respondent on his sur-rebuttal
testimony, there was a waiver of the
presumption accorded in favor of said
petitioner by Section 8, Rule 8 of the Rules of
Court.

As correctly pointed out by the respondent

Court the exceptions to the rule do not apply
in this case as there is no ambiguity in the
writings in question, thus:

On the first issue, the then Court of First

Instance held that "the pleadings of the
parties herein put in issue the imperfection or
ambiguity of the documents in question",
hence "the appellant can avail of the parol
evidence rule to prove his side of the case,
that is, the said amount taken by him from
appellee is or was not his personal debt to
appellee, but expenses of the partnership
between him and appellee."
Consequently, said trial court concluded that
the promissory notes involved were merely
receipts for the contributions to said
partnership and, therefore, upheld the claim
that there was ambiguity in the promissory
notes, hence parol evidence was allowable to
vary or contradict the terms of the
represented loan contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written
agreements.When the terms
of an agreement have been
reduced to writing, it is to be
considered as containing all
such terms, and, therefore,
there can be, between the
parties and their successors in
interest, no evidence of the
terms of the agreement other
than the contents of the writing
except in the following cases:
(a)
Where
a
mistake
or
imperfection of the writing or its

(b) When there is an intrinsic

ambiguity in the writing.

In the case at bar, Exhibits B, C,

and D are printed promissory
notes containing a promise to
pay a sum certain in money,
payable on demand and the
promise to bear the costs of
litigation in the event of the
private respondent's failure to
pay the amount loaned when
demanded
extrajudicially.
Likewise, the vales denote that
the
private
respondent
is
obliged to return the sum
loaned to him by the petitioner.
On their face, nothing appears
to be vague or ambigous, for
the terms of the promissory
notes clearly show that it was
incumbent upon the private
respondent to pay the amount
involved in the promissory
notes if and when the petitioner
demands the same. It was
clearly the intent of the parties
to enter into a contract of loan
for how could an educated man
like the private respondent be
deceived to sign a promissory
note yet intending to make such
a writing to be mere receipts of
the
petitioner's
supposed
contribution to the alleged
partnership existing between
the parties?
It has been established in the
trial court that, the private
respondent has been engaged
in business for quite a long
period of time--as owner of the
Sardane
Trucking
Service,
entering into contracts with the
government
for
the
construction of wharfs and
seawall; and a member of the
City Council of Dapitan (TSN,
July 20, 1976, pp. 57-58).<re||
an1w> It indeed puzzles us

50

how the private respondent

could have been misled into
signing a document containing
terms which he did not mean
them to be. ...
xxx xxx xxx
The
private
respondent
admitted during the crossexamination
made
by
petitioner's counsel that he was
the one who was responsible for
the printing of Exhibits B, C,
and D (TSN, July 28, 1976, p.
64). How could he purportedly
rely on such a flimsy pretext
that the promissory notes were
receipts of the petitioner's
contribution? 4
The Court of Appeals held, and We agree, that
even if evidence aliunde other than the
promissory notes may be admitted to alter the
meaning conveyed thereby, still the evidence
is insufficient to prove that a partnership
existed between the private parties hereto.
As manager of the basnig Sarcado naturally
some degree of control over the operations
and maintenance thereof had to be exercised
by herein petitioner. The fact that he had
received 50% of the net profits does not
conclusively establish that he was a partner of
the private respondent herein. Article 1769(4)
of the Civil Code is explicit that while 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, no such inference
shall be drawn if such profits were received in
payment as wages of an employee.
Furthermore, herein petitioner had no voice in
the management of the affairs of the basnig.
Under similar facts, this Court in the early
case of Fortis vs. Gutierrez Hermanos, 5 in
denying the claim of the plaintiff therein that
he was a partner in the business of the
defendant, declared:
This contention cannot be
sustained. It was a mere
contract of employment. The
plaintiff had no voice nor vote in
the management of the affairs
of the company. The fact that
the compensation received by
him was to be determined with
reference to the profits made by
the defendant in their business
did not in any sense make him
a partner therein. ...

The same rule was reiterated in Bastida vs.

Menzi & Co., Inc., et al. 6 which involved the
same factual and legal milieu.
There are other considerations noted by
respondent Court which negate herein
petitioner's pretension that he was a partner
and not a mere employee indebted to the
present private respondent. Thus, in an action
for damages filed by herein private
respondent against the North Zamboanga
Timber Co., Inc. arising from the operations of
the business, herein petitioner did not ask to
be joined as a party plaintiff. Also, although he
contends that herein private respondent is the
treasurer of the alleged partnership, yet it is
the latter who is demanding an accounting.
The advertence of the Court of First Instance
to the fact that the casco bears the name of
herein petitioner disregards the finding of the
respondent Court that it was just a concession
since it was he who obtained the engine used
in the Sardaco from the Department of Local
Government and Community Development.
Further, the use by the parties of the pronoun
"our" in referring to "our basnig, our catch",
"our deposit", or "our boseros" was merely
indicative of the camaraderie and not
evidentiary of a partnership, between them.
The foregoing factual findings, which belie the
further claim that the aforesaid promissory
notes do not express the true intent and
agreement of the parties, are binding on Us
since there is no showing that they fall within
the exceptions to the rule limiting the scope of
appellate review herein to questions of law.
On the second issue, the pertinent rule on
actionable documents in Rule 8, for ready
reference, reads:
Sec.
8.
How
to
contest
genuineness
of
such
documents.When an action or
defense is founded upon a
written instrument, copied in or
attached to the corresponding
pleading as provided in the
preceding
section,
the
genuineness and due execution
of the instrument shall be
deemed admitted unless the
adverse party, under oath,
specifically denies them, and
sets forth what he claims to be
the facts; but this provision
does not apply when the
adverse party does not appear
to be a party to the instrument
or when compliance with an

51

order for the inspection of the

original instrument is refused.
The record shows that herein petitioner did
not deny under oath in his answer the
authenticity and due execution of the
promissory notes which had been duly
pleaded and attached to the complaint,
thereby admitting their genuineness and due
execution. Even in the trial court, he did not at
all question the fact that he signed said
promissory notes and that the same were
genuine. Instead, he presented parol evidence
to vary the import of the promissory notes by
alleging that they were mere receipts of his
contribution to the alleged partnership.
His arguments on this score reflect a
misapprehension of the rule on parol evidence
as distinguished from the rule on actionable
documents. As the respondent Court correctly
explained to herein petitioner, what he
presented in the trial Court was testimonial
evidence that the promissory notes were
receipts of his supposed contributions to the
alleged partnership which testimony, in the
light of Section 7, Rule 130, could not be
admitted to vary or alter the explicit meaning
conveyed by said promissory notes. On the
other hand, the presumed genuineness and
due execution of said promissory notes were
not affected, pursuant to the provisions of
Section 8, Rule 8, since such aspects were not
at all questioned but, on the contrary, were
admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu
Chuck, et al. vs. Kong Li Po, 7 which was
reiterated in Central Surety & Insurance Co.
vs. C. N. Hodges, et al. 8 does not sustain his
thesis that the herein private respondent had
"waived the mantle of protection given him by
Rule 8, Sec. 8". It is true that such implied
admission of genuineness and due execution
may be waived by a party but only if he acts
in a manner indicative of either an express or
tacit waiver thereof. Petitioner, however,
either overlooked or ignored the fact that, as
held in Yu Chuck, and the same is true in
other cases of Identical factual settings, such
a finding of waiver is proper where a case has
been tried in complete disregard of the rule
and the plaintiff having pleaded a document
by copy, presents oral evidence to prove the
due execution of the document and no
objections are made to the defendant's
evidence in refutation. This situation does not
obtain in the present case hence said doctrine
is obviously inapplicable.
Neither did the failure of herein private
respondent to cross-examine herein petitioner

on
the
latter's
sur-rebuttal
testimony
constitute a waiver of the aforesaid implied
admission. As found by the respondent Court,
said sur-rebuttal testimony consisted solely of
the denial of the testimony of herein private
respondent and no new or additional matter
was introduced in that sur-rebuttal testimony
to exonerate herein petitioner from his
obligations under the aforesaid promissory
notes.
On the foregoing premises and considerations,
the respondent Court correctly reversed and
set aside the appealed decision of the Court of
First Instance of Zamboanga del Norte and
affirmed in full the decision of the City Court
of Dipolog City in Civil Case No. A-1838, dated
September 14, 1976.
Belatedly, in his motion for reconsideration of
said decision of the respondent Court, herein
petitioner, as the private respondent therein,
raised a third unresolved issue that the
petition for review therein should have been
dismissed for lack of jurisdiction since the
lower Court's decision did not affirm in full the
judgment of the City Court of Dipolog, and
which he claimed was a sine qua non for such
a petition under the law then in force. He
raises the same point in his present appeal
and
We
will
waive
the
procedural
technicalities in order to put this issue at rest.
Parenthetically, in that same motion for
reconsideration he had sought affirmative
relief from the respondent Court praying that
it sustain the decision of the trial Court,
thereby invoking and submitting to its
jurisdiction which he would now assail.
Furthermore, the objection that he raises is
actually not one of jurisdiction but of
procedure. 9
At any rate, it will be noted that petitioner
anchors his said objection on the provisions of
Section 29, Republic Act 296 as amended by
Republic Act 5433 effective September 9,
1968. Subsequently, the procedure for appeal
to the Court of Appeals from decisions of the
then courts of first instance in the exercise of
their appellate jurisdiction over cases
originating from the municipal courts was
provided for by Republic Act 6031, amending
Section 45 of the Judiciary Act effective
August 4, 1969. The requirement for
affirmance in full of the inferior court's
decision was not adopted or reproduced in
Republic Act 6031. Also, since Republic Act
6031 failed to provide for the procedure or
mode of appeal in the cases therein
contemplated, the Court of Appeals en
banc provided thereof in its Resolution of

52

August 12, 1971, by requiring a petition for

review but which also did not require for its
availability that the judgment of the court of
first instance had affirmed in full that of the
lower court. Said mode of appeal and the
procedural requirements thereof governed the
appeal taken in this case from the aforesaid
Court of First Instance to the Court of Appeals
in 1977. 10 Herein petitioner's plaint on this
issue is, therefore, devoid of merit.
WHEREFORE, the judgment of the respondent
Court of Appeals is AFFIRMED, with costs
against herein petitioner.
SO ORDERED.
G.R. Nos. L-24020-21

July 29, 1968

FLORENCIO
REYES
and
ANGEL
REYES, petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE
and
HON.
COURT
OF
TAX
APPEALS, respondents.
Jose W. Diokno and Domingo Sandoval for
petitioners.
Office of the Solicitor General for respondents.
FERNANDO, J.:
Petitioners in this case were assessed by
respondent Commissioner of Internal Revenue
the sum of P46,647.00 as income tax,
surcharge and compromise for the years 1951
to 1954, an assessment subsequently reduced
to P37,528.00. This assessment sought to be
reconsidered unsuccessfully was the subject
of an appeal to respondent Court of Tax
Appeals. Thereafter, another assessment was
made against petitioners, this time for back
income taxes plus surcharge and compromise
in the total sum of P25,973.75, covering the
years 1955 and 1956. There being a failure on
their part to have such assessments
reconsidered, the matter was likewise taken to
the respondent Court of Tax Appeals. The two
cases1 involving as they did identical issues
and ultimately traceable to facts similar in
character were heard jointly with only one
decision being rendered.
In that joint decision of respondent Court of
Tax Appeals, the tax liability for the years
1951 to 1954 was reduced to P37,128.00 and
for the years 1955 and 1956, to P20,619.00 as
income tax due "from the partnership formed"
by petitioners.2 The reduction was due to the
elimination of surcharge, the failure to file the
income tax return being accepted as due to

petitioners honest belief that no such liability

was incurred as well as the compromise
penalties
for
such
failure
to
file. 3 A
reconsideration of the aforesaid decision was
sought and denied by respondent Court of Tax
Appeals. Hence this petition for review.
The facts as found by respondent Court of Tax
Appeals, which being supported by substantial
evidence, must be respected4 follow: "On
October 31, 1950, petitioners, father and son,
purchased a lot and building, known as the
Gibbs Building, situated at 671 Dasmarias
Street, Manila, for P835,000.00, of which they
paid the sum of P375,000.00, leaving a
balance of P460,000.00, representing the
mortgage obligation of the vendors with the
China Banking Corporation, which mortgage
obligations were assumed by the vendees.
The initial payment of P375,000.00 was
shared equally by petitioners. At the time of
the purchase, the building was leased to
various tenants, whose rights under the lease
contracts with the original owners, the
purchasers, petitioners herein, agreed to
respect. The administration of the building
was entrusted to an administrator who
collected the rents; kept its books and records
and rendered statements of accounts to the
owners; negotiated leases; made necessary
repairs and disbursed payments, whenever
necessary, after approval by the owners; and
performed such other functions necessary for
the conservation and preservation of the
building. Petitioners divided equally the
income of operation and maintenance. The
gross income from rentals of the building
amounted to about P90,000.00 annually."5
From the above facts, the respondent Court of
Tax
Appeals
applying
the
appropriate
provisions of the National Internal Revenue
Code, the first of which imposes an income
tax on corporations "organized in, or existing
under the laws of the Philippines, no matter
how created or organized but not including
duly
registered
general
co-partnerships
(companias colectivas), ...,"6 a term, which
according to the second provision cited,
includes partnerships "no matter how created
or organized, ...,"7 and applying the leading
case of Evangelista v. Collector of Internal
Revenue,8 sustained the action of respondent
Commissioner of Internal Revenue, but
reduced the tax liability of petitioners, as
previously noted.
Petitioners maintain the view that the
Evangelista ruling does not apply; for them,
the
situation
is
dissimilar.1wph1.tConsequently
they
allege that the reliance by respondent Court

53

of Tax Appeals was unwarranted and the

decision should be set aside. If their
interpretation of the authoritative doctrine
therein set forth commands assent, then
clearly what respondent Court of Tax Appeals
did fails to find shelter in the law. That is the
crux of the matter. A perusal of the
Evangelista decision is therefore unavoidable.
As noted in the opinion of the Court, penned
by the present Chief Justice, the issue was
whether petitioners are subject to the tax on
corporations provided for in section 24 of
Commonwealth Act No. 466, otherwise known
as
the
National
Internal
Revenue
Code, ..."9 After referring to another section of
the National Internal Revenue Code, which
explicitly provides that the term corporation
"includes partnerships" and then to Article
1767 of the Civil Code of the Philippines,
defining what a contract of partnership is, the
opinion goes on to state that "the essential
elements of a partnership are two, namely: (a)
an agreement to contribute money, property
or industry to a common fund; and (b) intent
to divide the profits among the contracting
parties. The first element is undoubtedly
present in the case at bar, for, admittedly,
petitioners have agreed to and did, contribute
money and property to a common fund.
Hence, the issue narrows down to their intent
in acting as they did. Upon consideration of all
the facts and circumstances surrounding the
case, we are fully satisfied that their purpose
was to engage in real estate transactions for
monetary gain and then divide the same
among themselves, ..."10
In support of the above conclusion, reference
was made to the following circumstances,
namely, the common fund being created
purposely not something already found in
existence, the investment of the same not
merely in one transaction but in a series of
transactions; the lots thus acquired not being
devoted to residential purposes or to other
personal uses of petitioners in that case; such
properties
having
been
under
the
management of one person with full power to
lease, to collect rents, to issue receipts, to
bring suits, to sign letters and contracts and
to endorse notes and checks; the above
conditions having existed for more than 10
years since the acquisition of the above
properties; and no testimony having been
introduced as to the purpose "in creating the
set up already adverted to, or on the causes
for its continued existence."11 The conclusion
that emerged had all the imprint of
inevitability. Thus: "Although, taken singly,
they might not suffice to establish the intent
necessary to constitute a partnership, the

collective effect of these circumstances is

such as to leave no room for doubt on the
existence of said intent in petitioners
herein."12
It may be said that there could be a
differentiation
made
between
the
circumstances above detailed and those
existing in the present case. It does not suffice
though to preclude the applicability of the
Evangelista decision. Petitioners could harp on
these being only one transaction. They could
stress that an affidavit of one of them found in
the Bureau of Internal Revenue records would
indicate that their intention was to house in
the building acquired by them the respective
enterprises, coupled with a plan of effecting a
division in 10 years. It is a little surprising
then that while the purchase was made on
October 31, 1950 and their brief as petitioners
filed on October 20, 1965, almost 15 years
later, there was no allegation that such
division as between them was in fact made.
Moreover, the facts as found and as submitted
in the brief made clear that the building in
question continued to be leased by other
parties with petitioners dividing "equally the
income ... after deducting the expenses of
operation and maintenance ..."13 Differences
of such slight significance do not call for a
different ruling.
It is obvious that petitioners' effort to avoid
the controlling force of the Evangelista ruling
cannot be deemed successful. Respondent
Court of Tax Appeals acted correctly. It yielded
to the command of an authoritative decision;
it recognized its binding character. There is
clearly no merit to the second error assigned
by
petitioners,
who
would
deny
its
applicability to their situation.
The first alleged error committed by
respondent Court of Tax Appeals in holding
that petitioners, in acquiring the Gibbs
Building, established a partnership subject to
income tax as a corporation under the
National Internal Revenue Code is likewise
untenable. In their discussion in their brief of
this alleged error, stress is laid on their being
co-owners and not partners. Such an
allegation was likewise made in the
Evangelista case.
This is the way it was disposed of in the
opinion of the present Chief Justice: "This
pretense was correctly rejected by the Court
of Tax Appeals."14 Then came the explanation
why: "To begin with, the tax in question is one
imposed upon "corporations", which, strictly
speaking, are distinct and different from
"partnerships". When our Internal Revenue

54

Code includes "partnerships" among the

entities subject to the tax on "corporations",
said Code must allude, therefore, to
organizations
which
are not
necessarily "partnerships", in the technical
sense of the term. Thus, for instance, section
24
of
said
Code exempts from
the
aforementioned tax "duly registered general
partnerships", which constitute precisely one
of the most typical forms of partnerships in
this jurisdiction. Likewise, as defined in
section 84(b) of said Code, "the term
corporation includes partnerships, no matter
how created or organized." This qualifying
expression clearly indicates that a joint
venture need not be undertaken in any of the
standard forms, or in conformity with the
usual requirements of the law on partnerships,
in order that one could be deemed constituted
for purposes of the tax on corporations. Again,
pursuant to said section 84(b), the term
"corporation" includes, among others, "joint
accounts, (cuentas en participacion)" and
"associations", none of which has a legal
personality of its own, independent of that of
its members. Accordingly, the lawmaker could
not have regarded that personality as a
condition essential to the existence of the
partnerships therein referred to. In fact, as
above stated, "duly registered general
copartnerships" which are possessed of the
aforementioned personality - have been
expressly excluded by law (sections 24 and
84[b]) from the connotation of the term
"corporation"."15 The opinion went on to
summarize the matter aptly: "For purposes of
the tax on corporations, our National Internal
Revenue Code, include these partnerships
with the exception only of duly registered
general co-partnerships within the purview of
the term "corporation." It is, therefore, clear to
our mind that petitioners herein constitute a
partnership, insofar as said Code is
concerned, and are subject to the income tax
for corporations."16
In the light of the above, it cannot be said that
the respondent Court of Tax Appeals decided
the matter incorrectly. There is no warrant for
the assertion that it failed to apply the settled
law to uncontroverted facts. Its decision
cannot be successfully assailed. Moreover, an
observation made in Alhambra Cigar &
Cigarette Manufacturing Co. v. Commissioner
of Internal Revenue,17 is well-worth recalling.
Thus: "Nor as a matter of principle is it
advisable for this Court to set aside the
conclusion reached by an agency such as the
Court of Tax Appeals which is, by the very
nature of its functions, dedicated exclusively
to the study and consideration of tax
problems and has necessarily developed an

expertise on the subject, unless, as did not

happen here, there has been an abuse or
improvident exercise of its authority."
WHEREFORE, the decision of the respondent
Court of Tax Appeals ordering petitioners "to
pay the sums of P37,128.00 as income tax
due from the partnership formed by herein
petitioners for the years 1951 to 1954 and
P20,619.00 for the years 1955 and 1956
within thirty days from the date this decision
becomes final, plus the corresponding
surcharge
and
interest
in
case
of
delinquency," is affirmed. With costs against
petitioners.
G.R. No. L-9996

October 15, 1957

EUFEMIA
EVANGELISTA,
MANUELA
EVANGELISTA, and FRANCISCA EVANGELISTA,
petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE
and
THE
COURT
OF
TAX
APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for
petitioner.
Office of the Solicitor General Ambrosio
Padilla, Assistant Solicitor General Esmeraldo
Umali and Solicitor Felicisimo R. Rosete for
Respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista,
Manuela
Evangelista
and
Francisca
Evangelista, for review of a decision of the
Court of Tax Appeals, the dispositive part of
which reads:
FOR ALL THE FOREGOING, we hold that
the petitioners are liable for the
income tax, real estate dealer's tax
and the residence tax for the years
1945 to 1949, inclusive, in accordance
with the respondent's assessment for
the same in the total amount of
P6,878.34, which is hereby affirmed
and the petition for review filed by
petitioner is hereby dismissed with
costs against petitioners.
It appears from the stipulation submitted by
the parties:
1. That the petitioners borrowed from
their father the sum of P59,1400.00
which amount together with their
personal monies was used by them for
the purpose of buying real properties,.

55

2. That on February 2, 1943, they

bought from Mrs. Josefina Florentino a
lot with an area of 3,713.40 sq. m.
including improvements thereon from
the sum of P100,000.00; this property
has an assessed value of P57,517.00
as of 1948;
3. That on April 3, 1944 they
purchased from Mrs. Josefa Oppus 21
parcels of land with an aggregate area
of
3,718.40
sq.
m.
including
improvements
thereon
for
P130,000.00; this property has an
assessed value of P82,255.00 as of
1948;
4. That on April 28, 1944 they
purchased
from
the
Insular
Investments Inc., a lot of 4,353 sq. m.
including improvements thereon for
P108,825.00. This property has an
assessed value of P4,983.00 as of
1948;
5. That on April 28, 1944 they bought
form Mrs. Valentina Afable a lot of
8,371 sq. m. including improvements
thereon for P237,234.34. This property
has an assessed value of P59,140.00
as of 1948;
6. That in a document dated August
16, 1945, they appointed their brother
Simeon Evangelista to 'manage their
properties with full power to lease; to
collect and receive rents; to issue
receipts therefor; in default of such
payment, to bring suits against the
defaulting tenants; to sign all letters,
contracts, etc., for and in their behalf,
and to endorse and deposit all notes
and checks for them;

expenses thereby leaving them a net

rental income of P7,498.13;
10. That in 1948, they realized a gross
rental income of P17,453.00 out of the
which amount was deducted the sum
of P4,837.65 as expenses, thereby
leaving them a net rental income of
P12,615.35.
It further appears that on September 24, 1954
respondent Collector of Internal Revenue
demanded the payment of income tax on
corporations, real estate dealer's fixed tax and
corporation residence tax for the years 19451949, computed, according to assessment
made by said officer, as follows:
INCOME TAXES
1945

14.84

1946

1,144.71

1947

10.34

1948

1,912.30

1949

1,575.90

Total including
compromise

surcharge

and

P6,157.09

REAL ESTATE DEALER'S FIXED TAX

1946

P37.50

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

7. That after having bought the abovementioned

real
properties
the
petitioners had the same rented or
leases to various tenants;

RESIDENCE TAXES OF CORPORATION

1945

P38.75

1946

38.75

8. That from the month of March, 1945

up to an including December, 1945,
the total amount collected as rents on
their real properties was P9,599.00
while the expenses amounted to
P3,650.00 thereby leaving them a net
rental income of P5,948.33;

1947

38.75

1948

38.75

1949

38.75

Total including surcharge

P193.75

9. That on 1946, they realized a gross

rental income of in the sum of
P24,786.30, out of which amount was
deducted in the sum of P16,288.27 for

TOTAL TAXES DUE

P6,878.34
.

56

Said letter of demand and corresponding

assessments were delivered to petitioners on
December 3, 1954, whereupon they instituted
the present case in the Court of Tax Appeals,
with a prayer that "the decision of the
respondent contained in his letter of demand
dated September 24, 1954" be reversed, and
that they be absolved from the payment of
the taxes in question, with costs against the
respondent.
After appropriate proceedings, the Court of
Tax Appeals the above-mentioned decision for
the
respondent,
and
a
petition
for
reconsideration and new trial having been
subsequently denied, the case is now before
Us for review at the instance of the
petitioners.
The issue in this case whether petitioners are
subject to the tax on corporations provided for
in section 24 of Commonwealth Act. No. 466,
otherwise known as the National Internal
Revenue Code, as well as to the residence tax
for corporations and the real estate dealers
fixed tax. With respect to the tax on
corporations, the issue hinges on the meaning
of the terms "corporation" and "partnership,"
as used in section 24 and 84 of said Code, the
pertinent parts of which read:
SEC. 24. Rate of tax on corporations.
There shall be levied, assessed,
collected, and paid annually upon the
total net income received in the
preceding taxable year from all
sources by every corporation organized
in, or existing under the laws of the
Philippines, no matter how created or
organized but not including duly
registered
general
co-partnerships
(compaias colectivas), a tax upon
such income equal to the sum of the
following: . . .
SEC. 84 (b). The term 'corporation'
includes partnerships, no matter how
created
or
organized,
joint-stock
companies, joint accounts (cuentas en
participacion),
associations
or
insurance companies, but does not
include
duly
registered
general
copartnerships.
(compaias
colectivas).
Article 1767 of the
Philippines provides:

Civil

Code

of

the

By the contract of partnership two or

more persons bind themselves to
contribute money, properly, or industry

to a common fund, with the intention

of
dividing
the
profits
among
themselves.
Pursuant to the article, the essential elements
of a partnership are two, namely: (a) an
agreement to contribute money, property or
industry to a common fund; and (b) intent to
divide the profits among the contracting
parties. The first element is undoubtedly
present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute
money and property to a common fund.
Hence, the issue narrows down to their intent
in acting as they did. Upon consideration of all
the facts and circumstances surrounding the
case, we are fully satisfied that their purpose
was to engage in real estate transactions for
monetary gain and then divide the same
among themselves, because:
1. Said common fund was not
something they found already in
existence. It was not property inherited
by them pro indiviso. They created it
purposely. What is more they jointly
borrowed a substantial portion thereof
in order to establish said common
fund.
2. They invested the same, not merely
not merely in one transaction, but in
a series of transactions. On February 2,
1943,
they
bought
a
lot
for
P100,000.00. On April 3, 1944, they
purchased 21 lots for P18,000.00. This
was soon followed on April 23, 1944,
by the acquisition of another real
estate for P108,825.00. Five (5) days
later (April 28, 1944), they got a fourth
lot for P237,234.14. The number of lots
(24)
acquired
and
transactions
undertaken, as well as the brief
interregnum
between
each,
particularly the last three purchases, is
strongly indicative of a pattern or
common design that was not limited to
the conservation and preservation of
the aforementioned common fund or
even of the property acquired by the
petitioners in February, 1943. In other
words, one cannot but perceive a
character of habitually peculiar to
business transactions engaged in the
purpose of gain.
3. The aforesaid lots were not devoted
to residential purposes, or to other
personal uses, of petitioners herein.
The properties were leased separately
to several persons, who, from 1945 to
1948 inclusive, paid the total sum of

57

P70,068.30
by
way
of
rentals.
Seemingly, the lots are still being so
let, for petitioners do not even suggest
that there has been any change in the
utilization thereof.
4. Since August, 1945, the properties
have been under the management of
one
person,
namely
Simeon
Evangelista, with full power to lease, to
collect rents, to issue receipts, to bring
suits, to sign letters and contracts, and
to indorse and deposit notes and
checks. Thus, the affairs relative to
said properties have been handled as if
the same belonged to a corporation or
business and enterprise operated for
profit.
5. The foregoing conditions have
existed for more than ten (10) years,
or, to be exact, over fifteen (15) years,
since the first property was acquired,
and over twelve (12) years, since
Simeon
Evangelista
became
the
manager.
6. Petitioners have not testified or
introduced any evidence, either on
their purpose in creating the set up
already adverted to, or on the causes
for its continued existence. They did
not even try to offer an explanation
therefor.
Although, taken singly, they might not suffice
to establish the intent necessary to constitute
a partnership, the collective effect of these
circumstances is such as to leave no room for
doubt on the existence of said intent in
petitioners herein. Only one or two of the
aforementioned circumstances were present
in the cases cited by petitioners herein, and,
hence, those cases are not in point.
Petitioners insist, however, that they are mere
co-owners,
not
copartners,
for,
in
consequence of the acts performed by them,
a legal entity, with a personality independent
of that of its members, did not come into
existence, and some of the characteristics of
partnerships are lacking in the case at bar.
This pretense was correctly rejected by the
Court of Tax Appeals.
To begin with, the tax in question is one
imposed upon "corporations", which, strictly
speaking, are distinct and different from
"partnerships". When our Internal Revenue
Code includes "partnerships" among the
entities subject to the tax on "corporations",

said Code must allude, therefore, to

organizations which are not necessarily
"partnerships", in the technical sense of the
term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax
"duly registered general partnerships which
constitute precisely one of the most typical
forms of partnerships in this jurisdiction.
Likewise, as defined in section 84(b) of said
Code,
"the
term
corporation
includes
partnerships, no matter how created or
organized." This qualifying expression clearly
indicates that a joint venture need not be
undertaken in any of the standard forms, or in
conformity with the usual requirements of the
law on partnerships, in order that one could
be deemed constituted for purposes of the tax
on corporations. Again, pursuant to said
section 84(b), the term "corporation" includes,
among other, joint accounts, (cuentas en
participation)" and "associations," none of
which has a legal personality of its own,
independent of that of its members.
Accordingly, the lawmaker could not have
regarded that personality as a condition
essential to the existence of the partnerships
therein referred to. In fact, as above stated,
"duly registered general copartnerships"
which are possessed of the aforementioned
personality have been expressly excluded
by law (sections 24 and 84 [b] from the
connotation of the term "corporation" It may
not be amiss to add that petitioners'
allegation to the effect that their liability in
connection with the leasing of the lots above
referred to, under the management of one
person even if true, on which we express no
opinion tends to increase the similarity
between the nature of their venture and that
corporations, and is, therefore, an additional
argument in favor of the imposition of said tax
on corporations.
Under the Internal Revenue Laws of the
United States, "corporations" are taxed
differently from "partnerships". By specific
provisions of said laws, such "corporations"
include "associations, joint-stock companies
and insurance companies." However, the term
"association"
is
not
used
in
the
aforementioned laws.
. . . in any narrow or technical sense. It
includes any organization, created for
the transaction of designed affairs, or
the attainment of some object, which
like
a
corporation,
continues
notwithstanding that its members or
participants change, and the affairs of
which, like corporate affairs, are
conducted by a single individual, a
committee, a board, or some other

58

group, acting in a representative

capacity. It is immaterial whether such
organization
is
created
by
an
agreement, a declaration of trust, a
statute, or otherwise. It includes a
voluntary association, a joint-stock
corporation or company, a 'business'
trusts a 'Massachusetts' trust, a
'common law' trust, and 'investment'
trust (whether of the fixed or the
management type), an interinsuarance
exchange
operating
through
an
attorney
in
fact,
a
partnership
association, and any other type of
organization
(by
whatever name
known) which is not, within the
meaning of the Code, a trust or an
estate, or a partnership. (7A Mertens
Law of Federal Income Taxation, p.
788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a
partnership,
under
the
term
'partnership 'it includes not only a
partnership as known at common law
but, as well, a syndicate, group,
pool, joint
venture
or
other
unincorporated organizations which
carries on any business financial
operation, or venture, and which is not,
within the meaning of the Code, a
trust, estate, or a corporation. . . (7A
Merten's Law of Federal Income
taxation, p. 789; emphasis supplied.)
The term 'partnership' includes a
syndicate, group, pool, joint venture or
other unincorporated organization,
through or by means of which any
business,
financial
operation,
or
venture is carried on, . . .. ( 8 Merten's
Law of Federal Income Taxation, p. 562
Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our
National Internal Revenue Code, includes
these partnerships with the exception only
of duly registered general copartnerships
within
the
purview
of
the
term
"corporation." It is, therefore, clear to our
mind that petitioners herein constitute a
partnership, insofar as said Code is concerned
and are subject to the income tax for
corporations.
As regards the residence of tax for
corporations, section 2 of Commonwealth Act
No. 465 provides in part:

Entities liable to residence tax.-Every

corporation, no matter how created or
organized,
whether
domestic
or
resident foreign, engaged in or doing
business in the Philippines shall pay an
annual residence tax of five pesos and
an annual additional tax which in no
case, shall exceed one thousand
pesos, in accordance with the following
schedule: . . .
The term 'corporation' as used in this
Act
includes
joint-stock
company, partnership, joint account
(cuentas en participacion), association
or insurance company, no matter how
created
or
organized.
(emphasis
supplied.)
Considering that the pertinent part of this
provision is analogous to that of section 24
and 84 (b) of our National Internal Revenue
Code (commonwealth Act No. 466), and that
the latter was approved on June 15, 1939, the
day immediately after the approval of said
Commonwealth Act No. 465 (June 14, 1939), it
is apparent that the terms "corporation" and
"partnership" are used in both statutes with
substantially
the
same
meaning.
Consequently, petitioners are subject, also, to
the residence tax for corporations.
Lastly, the records show that petitioners have
habitually engaged in leasing the properties
above mentioned for a period of over twelve
years, and that the yearly gross rentals of said
properties from June 1945 to 1948 ranged
from P9,599 to P17,453. Thus, they are
subject to the tax provided in section 193 (q)
of our National Internal Revenue Code, for
"real estate dealers," inasmuch as, pursuant
to section 194 (s) thereof:
'Real estate dealer' includes any
person engaged in the business of
buying, selling, exchanging, leasing, or
renting property or his own account as
principal and holding himself out as a
full or part time dealer in real estate or
as an owner of rental property or
properties rented or offered to rent for
an
aggregate
amount
of
three
thousand pesos or more a year. . .
(emphasis supplied.)
Wherefore, the appealed decision of the Court
of Tax appeals is hereby affirmed with costs
against the petitioners herein. It is so ordered.
G.R. No. L-41182-3 April 16, 1988

59

DR. CARLOS L. SEVILLA and LINA O.

SEVILLA, petitioners-appellants,
vs.
THE COURT OF APPEALS, TOURIST
WORLD
SERVICE,
INC.,
ELISEO
S.CANILAO,
and
SEGUNDINA
NOGUERA, respondents-appellees.

SARMIENTO , J.:
The petitioners invoke the provisions on
human relations of the Civil Code in this
appeal by certiorari. The facts are beyond
dispute:
xxx xxx xxx
On the strength of a contract
(Exhibit A for the appellant
Exhibit 2 for the appellees)
entered into on Oct. 19, 1960
by and between Mrs. Segundina
Noguera, party of the first part;
the Tourist World Service, Inc.,
represented
by
Mr.
Eliseo
Canilao as party of the second
part, and hereinafter referred to
as appellants, the Tourist World
Service,
Inc.
leased
the
premises belonging to the party
of the first part at Mabini St.,
Manila for the former-s use as a
branch office. In the said
contract the party of the third
part held herself solidarily liable
with the party of the part for
the prompt payment of the
monthly rental agreed on. When
the branch office was opened,
the same was run by the herein
appellant Una 0. Sevilla payable
to Tourist World Service Inc. by
any airline for any fare brought
in on the efforts of Mrs. Lina
Sevilla, 4% was to go to Lina
Sevilla and 3% was to be
withheld by the Tourist World
Service, Inc.
On or about November 24, 1961
(Exhibit 16) the Tourist World
Service, Inc. appears to have
been informed that Lina Sevilla
was connected with a rival firm,
the Philippine Travel Bureau,
and, since the branch office was
anyhow losing, the Tourist World
Service
considered
closing
down its office. This was firmed

up by two resolutions of the

board of directors of Tourist
World Service, Inc. dated Dec.
2, 1961 (Exhibits 12 and 13),
the first abolishing the office of
the manager and vice-president
of the Tourist World Service,
Inc., Ermita Branch, and the
second,authorizing
the
corporate secretary to receive
the properties of the Tourist
World Service then located at
the said branch office. It further
appears that on Jan. 3, 1962,
the contract with the appellees
for the use of the Branch Office
premises was terminated and
while the effectivity thereof was
Jan. 31, 1962, the appellees no
longer used it. As a matter of
fact appellants used it since
Nov. 1961. Because of this, and
to comply with the mandate of
the Tourist World Service, the
corporate
secretary
Gabino
Canilao went over to the branch
office, and, finding the premises
locked, and, being unable to
contact
Lina
Sevilla,
he
padlocked the premises on June
4, 1962 to protect the interests
of the Tourist World Service.
When neither the appellant Lina
Sevilla
nor
any
of
her
employees could enter the
locked premises, a complaint
wall
filed
by
the
herein
appellants
against
the
appellees with a prayer for the
issuance
of
mandatory
preliminary
injunction.
Both
appellees
answered
with
counterclaims. For apparent
lack of interest of the parties
therein, the trial court ordered
the dismissal of the case
without prejudice.
The
appellee
Segundina
Noguera sought reconsideration
of the order dismissing her
counterclaim which the court a
quo, in an order dated June 8,
1963, granted permitting her to
present evidence in support of
her counterclaim.
On June 17,1963, appellant Lina
Sevilla refiled her case against
the herein appellees and after
the issues were joined, the
reinstated
counterclaim
of

60

Segundina Noguera and the

new complaint of appellant Lina
Sevilla
were
jointly
heard
following which the court a quo
ordered both cases dismiss for
lack of merit, on the basis of
which was elevated the instant
appeal
on
the
following
assignment of errors:
I. THE LOWER COURT ERRED
EVEN IN APPRECIATING THE
NATURE
OF
PLAINTIFFAPPELLANT
MRS.
LINA
O.
SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN
HOLDING
THAT
APPELLANT
MRS.
LINA
0.
SEVILA'S
ARRANGEMENT
(WITH
APPELLEE
TOURIST
WORLD
SERVICE,
INC.)
WAS
ONE
MERELY
OF
EMPLOYEREMPLOYEE RELATION AND IN
FAILING TO HOLD THAT THE
SAID ARRANGEMENT WAS ONE
OF JOINT BUSINESS VENTURE.
III. THE LOWER COURT ERRED
IN RULING THAT PLAINTIFFAPPELLANT
MRS.
LINA
O.
SEVILLA IS ESTOPPED FROM
DENYING THAT SHE WAS A
MERE
EMPLOYEE
OF
DEFENDANT-APPELLEE TOURIST
WORLD SERVICE, INC. EVEN AS
AGAINST THE LATTER.
IV. THE LOWER COURT ERRED
IN
NOT
HOLDING
THAT
APPELLEES HAD NO RIGHT TO
EVICT APPELLANT MRS. LINA O.
SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW
INTO THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN
NOT CONSIDERING AT .ALL
APPELLEE
NOGUERA'S
RESPONSIBILITY
FOR
APPELLANT LINA O. SEVILLA'S
FORCIBLE DISPOSSESSION OF
THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED
IN FINDING THAT APPELLANT
APPELLANT
MRS.
LINA
O.
SEVILLA SIGNED MERELY AS
GUARANTOR FOR RENTALS.

On the foregoing facts and in the light of the

errors asigned the issues to be resolved are:
1. Whether the appellee Tourist
World Service unilaterally disco
the telephone line at the branch
office on Ermita;
2.
Whether
or
not
the
padlocking of the office by the
Tourist World Service was
actionable or not; and
3. Whether or not the lessee to
the office premises belonging to
the appellee Noguera was
appellees TWS or TWS and the
appellant.
In this appeal, appealant Lina
Sevilla claims that a joint
bussiness venture was entered
into by and between her and
appellee TWS with offices at the
Ermita branch office and that
she was not an employee of the
TWS to the end that her
relationship with TWS was one
of a joint business venture
appellant made declarations
showing:
1. Appellant Mrs.
Lina 0. Sevilla, a
prominent figure
and wife of an
eminent eye, ear
and
nose
specialist as well
as a imediately
columnist
had
been in the travel
business prior to
the establishment
of
the
joint
business venture
with
appellee
Tourist
World
Service, Inc. and
appellee
Eliseo
Canilao,
her
compadre,
she
being
the
godmother of one
of his children,
with
her
own
clientele, coming
mostly from her
own social circle
(pp.
3-6
tsn.

61

February
16,1965).
2. Appellant Mrs.
Sevilla
was
signatory to a
lease agreement
dated 19 October
1960 (Exh. 'A')
covering
the
premises at A.
Mabini St., she
expressly
warranting
and
holding
[sic]
herself 'solidarily'
liable
with
appellee Tourist
World
Service,
Inc.
for
the
prompt payment
of the monthly
rentals thereof to
other
appellee
Mrs. Noguera (pp.
14-15, tsn. Jan.
18,1964).
3. Appellant Mrs.
Sevilla did not
receive
any
salary
from
appellee Tourist
World
Service,
Inc., which had its
own,
separate
office located at
the
Trade
&
Commerce
Building; nor was
she an employee
thereof,
having
no
participation
in nor connection
with
said
business at the
Trade
&
Commerce
Building (pp. 1618 tsn Id.).
4. Appellant Mrs.
Sevilla
earned
commissions for
her
own
passengers, her
own bookings her
own
business
(and not for any
of the business of
appellee Tourist
World
Service,

Inc.)
obtained
from the airline
companies. She
shared the 7%
commissions
given
by
the
airline companies
giving
appellee
Tourist
World
Service, Lic. 3%
thereof
aid
retaining 4% for
herself (pp. 18
tsn. Id.)
5. Appellant Mrs.
Sevilla
likewise
shared
in
the
expenses
of
maintaining the
A.
Mabini
St.
office, paying for
the salary of an
office secretary,
Miss Obieta, and
other
sundry
expenses, aside
from desicion the
office
furniture
and
supplying
some
of
fice
furnishings
(pp.
15,18 tsn. April
6,1965), appellee
Tourist
World
Service,
Inc.
shouldering
the
rental and other
expenses
in
consideration for
the 3% split in
the co procured
by appellant Mrs.
Sevilla (p. 35 tsn
Feb. 16,1965).
6. It was the
understanding
between
them
that
appellant
Mrs. Sevilla would
be given the title
of
branch
manager
for
appearance's
sake only (p. 31
tsn. Id.), appellee
Eliseo
Canilao
admit that it was
just a title for
dignity (p. 36 tsn.
June 18, 1965-

62

testimony
of
appellee
Eliseo
Canilao pp. 38-39
tsn April 61965testimony
of
corporate
secretary Gabino
Canilao (pp- 2-5,
Appellants' Reply
Brief)

II

Upon the other hand, appellee

TWS contend that the appellant
was an employee of the
appellee Tourist World Service,
Inc. and as such was designated
manager. 1

III

xxx xxx xxx

The trial court 2 held for the private
respondent on the premise that the private
respondent, Tourist World Service, Inc., being
the true lessee, it was within its prerogative to
terminate the lease and padlock the
premises. 3 It likewise found the petitioner,
Lina Sevilla, to be a mere employee of said
Tourist World Service, Inc. and as such, she
was bound by the acts of her employer. 4 The
respondent Court of Appeal 5 rendered an
affirmance.
The petitioners now claim that the respondent
Court, in sustaining the lower court, erred.
Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A
QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION
IN
HOLDING
THAT
"THE
PADLOCKING OF THE PREMISES BY TOURIST
WORLD
SERVICE
INC.
WITHOUT
THE
KNOWLEDGE
AND
CONSENT
OF
THE
APPELLANT LINA SEVILLA ... WITHOUT
NOTIFYING MRS. LINA O. SEVILLA OR ANY OF
HER EMPLOYEES AND WITHOUT INFORMING
COUNSEL FOR THE APPELLANT (SEVILIA),
WHO IMMEDIATELY BEFORE THE PADLOCKING
INCIDENT, WAS IN CONFERENCE WITH THE
CORPORATE SECRETARY OF TOURIST WORLD
SERVICE (ADMITTEDLY THE PERSON WHO
PADLOCKED THE SAID OFFICE), IN THEIR
ATTEMP AMICABLY SETTLE THE CONTROVERSY
BETWEEN THE APPELLANT (SEVILLA) AND THE
TOURIST WORLD SERVICE ... (DID NOT)
ENTITLE THE LATTER TO THE RELIEF OF
DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B"
P. 2) DECISION AGAINST DUE PROCESS WHICH
ADHERES TO THE RULE OF LAW.

THE COURT OF APPEALS ERRED ON A

QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPELLANT SEVILLA
RELIEF BECAUSE SHE HAD "OFFERED TO
WITHDRAW HER COMP PROVIDED THAT ALL
CLAIMS AND COUNTERCLAIMS LODGED BY
BOTH
APPELLEES
WERE
WITHDRAWN."
(ANNEX "A" P. 8)

THE COURT OF APPEALS ERRED ON A

QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING-IN FACT NOT
PASSING
AND
RESOLVING-APPELLANT
SEVILLAS CAUSE OF ACTION FOUNDED ON
ARTICLES 19, 20 AND 21 OF THE CIVIL CODE
ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A
QUESTION OF LAW AND GRAVELY ABUSED ITS
DISCRETION IN DENYING APPEAL APPELLANT
SEVILLA RELIEF YET NOT RESOLVING HER
CLAIM THAT SHE WAS IN JOINT VENTURE WITH
TOURIST WORLD SERVICE INC. OR AT LEAST
ITS AGENT COUPLED WITH AN INTEREST
WHICH COULD NOT BE TERMINATED OR
REVOKED UNILATERALLY BY TOURIST WORLD
SERVICE INC. 6
As a preliminary inquiry, the Court is asked to
declare the true nature of the relation
between Lina Sevilla and Tourist World
Service, Inc. The respondent Court of see fit to
rule on the question, the crucial issue, in its
opinion being "whether or not the padlocking
of the premises by the Tourist World Service,
Inc. without the knowledge and consent of the
appellant Lina Sevilla entitled the latter to the
relief of damages prayed for and whether or
not the evidence for the said appellant
supports the contention that the appellee
Tourist World Service, Inc. unilaterally and
without the consent of the appellant
disconnected the telephone lines of the Ermita
branch office of the appellee Tourist World
Service, Inc. 7 Tourist World Service, Inc.,
insists, on the other hand, that Lina SEVILLA
was a mere employee, being "branch
manager" of its Ermita "branch" office and
that inferentially, she had no say on the lease
executed with the private respondent,
Segundina Noguera. The petitioners contend,
however, that relation between the between
parties was one of joint venture, but concede
that "whatever might have been the true
relationship between Sevilla and Tourist World

63

Service," the Rule of Law enjoined Tourist

World Service and Canilao from taking the law
into their own hands, 8 in reference to the
padlocking now questioned.
The Court finds the resolution of the issue
material, for if, as the private respondent,
Tourist World Service, Inc., maintains, that the
relation between the parties was in the
character of employer and employee, the
courts would have been without jurisdiction to
try the case, labor disputes being the
exclusive domain of the Court of Industrial
Relations, later, the Bureau Of Labor
Relations, pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform
test to determine the evidence of an
employer-employee relation. In general, we
have relied on the so-called right of control
test, "where the person for whom the services
are performed reserves a right to control
not only the end to be achieved but also the
means to
be
used
in
reaching
such
end." 10 Subsequently, however, we have
considered, in addition to the standard of
right-of control, the existing economic
conditions prevailing between the parties, like
the inclusion of the employee in the payrolls,
in determining the existence of an employeremployee relationship. 11
The records will show that the petitioner, Lina
Sevilla, was not subject to control by the
private respondent Tourist World Service, Inc.,
either as to the result of the enterprise or as
to the means used in connection therewith. In
the first place, under the contract of lease
covering the Tourist Worlds Ermita office, she
had bound herself in solidumas and for rental
payments, an arrangement that would be like
claims of a master-servant relationship. True
the respondent Court would later minimize
her participation in the lease as one of mere
guaranty, 12 that does not make her an
employee of Tourist World, since in any case,
a true employee cannot be made to part with
his own money in pursuance of his employer's
business, or otherwise, assume any liability
thereof. In that event, the parties must be
bound by some other relation, but certainly
not employment.
In the second place, and as found by the
Appellate Court, '[w]hen the branch office was
opened, the same was run by the herein
appellant Lina O. Sevilla payable to Tourist
World Service, Inc. by any airline for any fare
brought in on the effort of Mrs. Lina
Sevilla. 13 Under these circumstances, it
cannot be said that Sevilla was under the
control of Tourist World Service, Inc. "as to the

means used." Sevilla in pursuing the business,

obviously relied on her own gifts and
capabilities.
It is further admitted that Sevilla was not in
the company's payroll. For her efforts, she
retained 4% in commissions from airline
bookings, the remaining 3% going to Tourist
World. Unlike an employee then, who earns a
fixed salary usually, she earned compensation
in fluctuating amounts depending on her
booking successes.
The fact that Sevilla had been designated
'branch manager" does not make her, ergo,
Tourist World's employee. As we said,
employment is determined by the right-ofcontrol test and certain economic parameters.
But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s
arguments however, we are not, as a
consequence, accepting Lina Sevilla's own,
that is, that the parties had embarked on a
joint venture or otherwise, a partnership. And
apparently, Sevilla herself did not recognize
the existence of such a relation. In her letter
of November 28, 1961, she expressly
'concedes your [Tourist World Service, Inc.'s]
right to stop the operation of your branch
office 14 in effect, accepting Tourist World
Service, Inc.'s control over the manner in
which the business was run. A joint venture,
including
a
partnership,
presupposes
generally a of standing between the joint coventurers or partners, in which each party has
an equal proprietary interest in the capital or
property contributed 15 and where each party
exercises equal rights in the conduct of the
business.16 furthermore, the parties did not
hold themselves out as partners, and the
building itself was embellished with the
electric sign "Tourist World Service, Inc. 17in
lieu of a distinct partnership name.
It is the Court's considered opinion, that when
the petitioner, Lina Sevilla, agreed to (wo)man
the private respondent, Tourist World Service,
Inc.'s Ermita office, she must have done so
pursuant to a contract of agency. It is the
essence of this contract that the agent
renders services "in representation or on
behalf of another. 18 In the case at bar, Sevilla
solicited airline fares, but she did so for and
on behalf of her principal, Tourist World
Service, Inc. As compensation, she received
4% of the proceeds in the concept of
commissions. And as we said, Sevilla herself
based on her letter of November 28, 1961,
pre-assumed her principal's authority as
owner of the business undertaking. We are
convinced, considering the circumstances and

64

from the respondent Court's recital of facts,

that the ties had contemplated a principal
agent relationship, rather than a joint
managament or a partnership..
But unlike simple grants of a power of
attorney, the agency that we hereby declare
to be compatible with the intent of the
parties, cannot be revoked at will. The reason
is that it is one coupled with an interest, the
agency having been created for mutual
interest, of the agent and the principal. 19 It
appears that Lina Sevilla is a bona fide travel
agent herself, and as such, she had acquired
an interest in the business entrusted to her.
Moreover, she had assumed a personal
obligation for the operation thereof, holding
herself solidarily liable for the payment of
rentals. She continued the business, using her
own name, after Tourist World had stopped
further operations. Her interest, obviously, is
not to the commissions she earned as a result
of her business transactions, but one that
extends to the very subject matter of the
power of management delegated to her. It is
an agency that, as we said, cannot be revoked
at the pleasure of the principal. Accordingly,
the revocation complained of should entitle
the petitioner, Lina Sevilla, to damages.
As we have stated, the respondent Court
avoided this issue, confining itself to the
telephone disconnection and padlocking
incidents. Anent the disconnection issue, it is
the holding of the Court of Appeals that there
is 'no evidence showing that the Tourist World
Service, Inc. disconnected the telephone lines
at the branch office. 20Yet, what cannot be
denied is the fact that Tourist World Service,
Inc. did not take pains to have them
reconnected. Assuming, therefore, that it had
no hand in the disconnection now complained
of, it had clearly condoned it, and as owner of
the telephone lines, it must shoulder
responsibility therefor.
The Court of Appeals must likewise be held to
be in error with respect to the padlocking
incident. For the fact that Tourist World
Service, Inc. was the lessee named in the
lease con-tract did not accord it any authority
to terminate that contract without notice to its
actual occupant, and to padlock the premises
in such fashion. As this Court has ruled, the
petitioner, Lina Sevilla, had acquired a
personal stake in the business itself, and
necessarily, in the equipment pertaining
thereto. Furthermore, Sevilla was not a
stranger to that contract having been
explicitly named therein as a third party in
charge of rental payments (solidarily with
Tourist World, Inc.). She could not be ousted

from possession as summarily as one would

eject an interloper.
The Court is satisfied that from the chronicle
of events, there was indeed some malevolent
design to put the petitioner, Lina Sevilla, in a
bad light following disclosures that she had
worked for a rival firm. To be sure, the
respondent court speaks of alleged business
losses to justify the closure '21 but there is no
clear showing that Tourist World Ermita
Branch had in fact sustained such reverses,
let alone, the fact that Sevilla had moonlit for
another company.
What the evidence
discloses, on the other hand, is that following
such an information (that Sevilla was working
for another company), Tourist World's board of
directors adopted two resolutions abolishing
the office of 'manager" and authorizing the
corporate secretary, the respondent Eliseo
Canilao, to effect the takeover of its branch
office properties. On January 3, 1962, the
private respondents ended the lease over the
branch office premises, incidentally, without
notice to her.
It was only on June 4, 1962, and after office
hours significantly, that the Ermita office was
padlocked, personally by the respondent
Canilao, on the pretext that it was necessary
to Protect the interests of the Tourist World
Service. "22 It is strange indeed that Tourist
World Service, Inc. did not find such a need
when it cancelled the lease five months
earlier. While Tourist World Service, Inc. would
not pretend that it sought to locate Sevilla to
inform her of the closure, but surely, it was
aware that after office hours, she could not
have been anywhere near the premises.
Capping these series of "offensives," it cut the
office's telephone lines, paralyzing completely
its business operations, and in the process,
depriving Sevilla articipation therein.
This conduct on the part of Tourist World
Service, Inc. betrays a sinister effort to punish
Sevillsa it had perceived to be disloyalty on
her part. It is offensive, in any event, to
elementary norms of justice and fair play.
We rule therefore, that for its unwarranted
revocation of the contract of agency, the
private respondent, Tourist World Service, Inc.,
should be sentenced to pay damages. Under
the Civil Code, moral damages may be
awarded for "breaches of contract where the
defendant acted ... in bad faith. 23
We likewise condemn Tourist World Service,
Inc. to pay further damages for the moral
injury done to Lina Sevilla from its brazen

65

conduct subsequent to the cancellation of the

power of attorney granted to her on the
authority of Article 21 of the Civil Code, in
relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully
causes loss or injury to another
in a manner that is contrary to
morals, good customs or public
policy shall compensate the
latter for the damage. 24
ART.
2219.
Moral
damages 25 may be recovered in
the following and analogous
cases:
xxx xxx xxx
(10) Acts and actions refered
into article 21, 26, 27, 28, 29,
30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint
tortfeasor is likewise hereby ordered to
respond for the same damages in a solidary
capacity.
Insofar, however, as the private respondent,
Segundina Noguera is concerned, no evidence
has been shown that she had connived with
Tourist World Service, Inc. in the disconnection
and padlocking
incidents. She cannot
therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00
as and for moral damages,24 P10,000.00 as
exemplary damages, 25and P5,000.00 as
nominal 26 and/or temperate 27 damages, to
be just, fair, and reasonable under the
circumstances.
WHEREFORE, the Decision promulgated on
January 23, 1975 as well as the Resolution
issued on July 31, 1975, by the respondent
Court of Appeals is hereby REVERSED and SET
ASIDE. The private respondent, Tourist World
Service, Inc., and Eliseo Canilao, are
ORDERED jointly and severally to indemnify
the petitioner, Lina Sevilla, the sum of
25,00.00 as and for moral damages, the sum
of P10,000.00, as and for exemplary damages,
and the sum of P5,000.00, as and for nominal
and/or temperate damages.
Costs against said private respondents.
LILIBETH
SUNGA-CHAN
and
CECILIA
SUNGA, petitioners, vs. LAMBERTO
T. CHUA, respondent.

DECISION
GONZAGA-REYES, J.:
Before us is a petition for review
on certiorari under Rule 45 of the Rules of
Court of the Decision[1] of the Court of Appeals
dated January 31, 2000 in the case entitled
Lamberto T. Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga
and of the Resolution dated May 23, 2000
denying the motion for reconsideration of
herein petitioners Lilibeth Sunga Chan and
Cecilia Sunga (hereafter collectively referred
to as petitioners).
The pertinent facts of this case are as
follows:
On June 22, 1992, Lamberto T. Chua
(hereafter respondent) filed a complaint
against Lilibeth Sunga Chan (hereafter
petitioner
Lilibeth)
and
Cecilia
Sunga
(hereafter petitioner Cecilia), daughter and
wife, respectively of the deceased Jacinto L.
Sunga (hereafter Jacinto), for Winding Up of
Partnership Affairs, Accounting, Appraisal and
Recovery of Shares and Damages with Writ of
Preliminary Attachment with the Regional Trial
Court, Branch 11, Sindangan, Zamboanga del
Norte.
Respondent alleged that in 1977, he
verbally entered into a partnership with
Jacinto in the distribution of Shellane Liquefied
Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly
agreed to register the business name of their
partnership,
SHELLITE
GAS
APPLIANCE
CENTER (hereafter Shellite), under the name
of Jacinto as a sole proprietorship. Respondent
allegedly
delivered
his
initial
capital
contribution of P100,000.00 to Jacinto while
the latter in turn produced P100,000.00 as his
counterpart contribution, with the intention
that the profits would be equally divided
between them. The partnership allegedly had
Jacinto as manager, assisted by Josephine Sy
(hereafter Josephine), a sister of the wife of
respondent, Erlinda Sy. As compensation,
Jacinto would receive a managers fee or
remuneration of 10% of the gross profit and
Josephine would receive 10% of the net
profits, in addition to her wages and other
remuneration from the business.
Allegedly, from the time that Shellite
opened for business on July 8, 1977, its
business operation went quite well and was
profitable. Respondent claimed that he could
attest to the success of their business
because of the volume of orders and
deliveries of filled Shellane cylinder tanks
supplied
by
Pilipinas
Shell
Petroleum

66

Corporation. While
Jacinto
furnished
respondent with the merchandise inventories,
balance sheets and net worth of Shellite from
1977 to 1989, respondent however suspected
that the amount indicated in these documents
were understated and undervalued by Jacinto
and Josephine for their own selfish reasons
and for tax avoidance.
Upon Jacintos death in the later part of
1989, his surviving wife, petitioner Cecilia and
particularly his daughter, petitioner Lilibeth,
took over the operations, control, custody,
disposition and management of Shellite
without respondents consent.
Despite respondents repeated demands
upon petitioners for accounting, inventory,
appraisal, winding up and restitution of his net
shares in the partnership, petitioners failed to
comply. Petitioner Lilibeth allegedly continued
the operations of Shellite, converting to her
own use and advantage its properties.
On March 31, 1991, respondent claimed
that after petitioner Lilibeth ran out of alibis
and reasons to evade respondents demands,
she disbursed out of the partnership funds the
amount of P200,000.00 and partially paid the
same
to
respondent. Petitioner
Lilibeth
allegedly informed respondent that the
P200,000.00 represented partial payment of
the latters share in the partnership, with a
promise that the former would make the
complete inventory and winding up of the
properties
of
the
business
establishment. Despite such commitment,
petitioners allegedly failed to comply with
their duty to account, and continued to
benefit from the assets and income of Shellite
to the damage and prejudice of respondent.
On December 19, 1992, petitioners filed a
Motion to Dismiss on the ground that the
Securities and Exchange Commission (SEC) in
Manila, not the Regional Trial Court in
Zambaonga del Norte had jurisdiction over
the action. Respondent opposed the motion to
dismiss.
On January 12, 1993, the trial court
finding the complaint sufficient in form and
substance denied the motion to dismiss.
On January 30, 1993, petitioners filed
their Answer with Compulsory Counterclaims,
contending that they are not liable for
partnership shares, unreceived income/profits,
interests, damages and attorneys fees, that
respondent does not have a cause of action
against them, and that the trial court has no
jurisdiction over the nature of the action, the
SEC being the agency that has original and
exclusive jurisdiction over the case. As

counterclaim, petitioner sought attorneys fees

and expenses of litigation.
On August 2, 1993, petitioner filed a
second Motion to Dismiss this time on the
ground that the claim for winding up of
partnership affairs, accounting and recovery
of shares in partnership affairs, accounting
and recovery of shares in partnership
assets /properties should be dismissed and
prosecuted against the estate of deceased
Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial court denied
the second motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed
their Petition for Certiorari, Prohibition and
Mandamus with the Court of Appeals docketed
as CA-G.R. SP No. 32499 questioning the
denial of the motion to dismiss.
On November 29, 1993, petitioners filed
with the trial court a Motion to Suspend Pretrial Conference.
On December 13, 1993, the trial court
granted the motion to suspend pre-trial
conference.
On November 15, 1994, the Court of
Appeals denied the petition for lack of merit.
On January 16, 1995, this Court denied
the petition for review on certiorari filed by
petitioner, as petitioners failed to show that a
reversible error was committed by the
appellate court."[2]
On February 20, 1995, entry of judgment
was made by the Clerk of Court and the case
was remanded to the trial court on April 26,
1995.
On September 25, 1995, the trial court
terminated the pre-trial conference and set
the hearing of the case on January 17,
1996. Respondent presented his evidence
while petitioners were considered to have
waived their right to present evidence for
their failure to attend the scheduled date for
reception of evidence despite notice.
On October 7, 1997, the trial court
rendered
its
Decision
ruling
for
respondent. The dispositive portion of the
Decision reads:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff and against the
defendants, as follows:
(1) DIRECTING them to render an accounting
in
acceptable
form
under
accounting
procedures and standards of the properties,
assets, income and profits of the Shellite Gas

67

Appliance Center since the time of death of

Jacinto L. Sunga, from whom they continued
the
business
operations
including
all
businesses derived from the Shellite Gas
Appliance Center; submit an inventory, and
appraisal of all these properties, assets,
income, profits, etc. to the Court and to
plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to
the partnership any and all properties, assets,
income and profits they misapplied and
converted to their own use and advantage
that legally pertain to the plaintiff and account
for the properties mentioned in pars. A and B
on pages 4-5 of this petition as basis;
(3) DIRECTING them to restitute and pay to
the plaintiff shares and interest of the plaintiff
in the partnership of the listed properties,
assets and good will (sic) in schedules A, B
and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned
but unreceived income and profits from the
partnership from 1988 to may 30, 1992, when
the plaintiff learned of the closure of the store
the sum of P35,000.00 per month, with legal
rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of
the partnership and terminate its business
activities pursuant to law, after delivering to
the
plaintiff all the
interest, shares,
participation and equity in the partnership, or
the value thereof in money or moneys worth,
if the properties are not physically divisible;
(6) FINDING them especially Lilibeth SungaChan guilty of breach of trust and in bad faith
and hold them liable to the plaintiff the sum of
P50,000.00 as moral and exemplary damages;
and,
(7) DIRECTING them to reimburse and pay the
sum of P25,000.00 as attorneys (sic) and
P25,00.00 as litigation expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]
On October 28, 1997, petitioners filed a
Notice of Appeal with the trial court, appealing
the case to the Court of Appeals.
On January 31, 2000, the Court of Appeals
dismissed the appeal. The dispositive portion
of the Decision reads:

WHEREFORE,
the
instant
appeal
is
dismissed. The appealed decision is AFFIRMED
in all respects.[4]
On May 23, 2000, the Court of Appeals
denied the motion for reconsideration filed by
petitioner.
Hence, this petition wherein petitioner
relies upon the following grounds:
1. The Court of Appeals erred in
making a legal conclusion that
there
existed
a
partnership
between respondent Lamberto T.
Chua and the late Jacinto L. Sunga
upon the latters invitation and
offer and that upon his death the
partnership assets and business
were taken over by petitioners.
2. The Court of Appeals erred in
making the legal conclusion that
laches and/or prescription did not
apply in the instant case.
3. The Court of Appeals erred in
making the legal conclusion that
there was competent and credible
evidence to warrant the finding of
a
partnership,
and
assuming arguendo that indeed
there was a partnership, the
finding of highly exaggerated
amounts
or
values
in
the
partnership assets and profits.[5]
Petitioners question the correctness of the
finding of the trial court and the Court of
Appeals that a partnership existed between
respondent and Jacinto from 1977 until
Jacintos death. In the absence of any written
document to show such partnership between
respondent and Jacinto, petitioners argue that
these courts were proscribed from hearing the
testimonies of respondent and his witness,
Josephine, to prove the alleged partnership
three years after Jacintos death. To support
this argument, petitioners invoke the Dead
Mans Statute or Survivorship Rule under
Section 23, Rule 130 of the Rules of Court that
provides:
SEC. 23. Disqualification by reason of death
or insanity of adverse party.-- Parties or
assignors of parties to a case, or persons in
whose behalf a case is prosecuted, against an
executor
or
administrator
or
other
representative of a deceased person, or
against a person of unsound mind, upon a
claim or demand against the estate of such
deceased person, or against such person of
unsound mind, cannot testify as to any matter
of fact occurring before the death of such

68

deceased person or before

became of unsound mind.

such

person

Petitioners thus implore this Court to rule that

the testimonies of respondent and his alter
ego, Josephine, should not have been
admitted to prove certain claims against a
deceased person (Jacinto), now represented
by petitioners.
We are not persuaded.
A partnership may be constituted in any
form, except where immovable property or
real rights are contributed thereto, in which
case a public instrument shall be necessary.
[6]
Hence, based on the intention of the
parties, as gathered from the facts and
ascertained from their language and conduct,
a verbal contract of partnership may arise.
[7]
The essential points that must be proven to
show that a partnership was agreed upon are
(1) mutual contribution to a common stock,
and (2) a joint interest in the profits.
[8]
Understandably so, in view of the absence
of a written contract of partnership between
respondent and Jacinto, respondent resorted
to the introduction of documentary and
testimonial
evidence
to
prove
said
partnership. The crucial issue to settle then is
whether or not the Dead Mans Statute applies
to this case so as to render inadmissible
respondents testimony and that of his
witness, Josephine.
The Dead Mans Statute provides that if
one party to the alleged transaction is
precluded from testifying by death, insanity,
or other mental disabilities, the surviving
party is not entitled to the undue advantage
of giving his own uncontradicted and
unexplained account of the transaction.[9] But
before this rule can be successfully invoked to
bar the introduction of testimonial evidence, it
is necessary that:
1. The witness is a party or assignor
of a party to a case or persons in
whose behalf a case is prosecuted.
2. The action is against an executor
or
administrator
or
other
representative of a deceased
person or a person of unsound
mind;
3. The subject-matter of the action is
a claim or demand against the
estate of such deceased person or
against person of unsound mind;
4. His testimony refers to any matter
of fact which occurred before the
death of such deceased person or

before such person became of

unsound mind.[10]
Two reasons forestall the application of
the Dead Mans Statute to this case.
First, petitioners filed a compulsory
counterclaim[11] against respondent in their
answer before the trial court, and with the
filing of their counterclaim, petitioners
themselves effectively removed this case from
the ambit of the Dead Mans Statute.[12] Well
entrenched is the rule that when it is the
executor or administrator or representatives
of the estate that sets up the counterclaim,
the plaintiff, herein respondent, may testify to
occurrences before the death of the deceased
to defeat the counterclaim.[13] Moreover, as
defendant in the counterclaim, respondent is
not disqualified from testifying as to matters
of fact occurring before the death of the
deceased, said action not having been
brought against but by the estate or
representatives of the deceased.[14]
Second, the testimony of Josephine is not
covered by the Dead Mans Statute for the
simple reason that she is not a party or
assignor of a party to a case or persons in
whose behalf a case is prosecuted.Records
show that respondent offered the testimony of
Josephine to establish the existence of the
partnership
between
respondent
and
Jacinto. Petitioners insistence that Josephine is
the alter ego of respondent does not make her
an assignor because the term assignor of a
party means assignor of a cause of action
which has arisen, and not the assignor of a
right assigned before any cause of action has
arisen.[15] Plainly then, Josephine is merely a
witness of respondent, the latter being the
party plaintiff.
We are not convinced by petitioners
allegation that Josephines testimony lacks
probative value because she was allegedly
coerced by respondent, her brother-in-law, to
testify in his favor. Josephine merely declared
in court that she was requested by respondent
to testify and that if she were not requested to
do so she would not have testified. We fail to
see how we can conclude from this candid
admission that Josephines testimony is
involuntary when she did not in any way
categorically say that she was forced to be a
witness of respondent. Also, the fact that
Josephine is the sister of the wife of
respondent does not diminish the value of her
testimony since relationship per se, without
more, does not affect the credibility of
witnesses.[16]
Petitioners reliance alone on the Dead
Mans Statute to defeat respondents claim

69

cannot prevail over the factual findings of the

trial court and the Court of Appeals that a
partnership
was
established
between
respondent and Jacinto. Based not only on the
testimonial evidence, but the documentary
evidence as well, the trial court and the Court
of Appeals considered the evidence for
respondent as sufficient to prove the
formation of a partnership, albeit an informal
one.
Notably, petitioners did not present any
evidence in their favor during trial. By the
weight of judicial precedents, a factual matter
like the finding of the existence of a
partnership between respondent and Jacinto
cannot be inquired into by this Court on
review.[17] This Court can no longer be tasked
to go over the proofs presented by the parties
and analyze, assess and weigh them to
ascertain if the trial court and the appellate
court were correct in according superior credit
to this or that piece of evidence of one party
or the other.[18] It must be also pointed out
that petitioners failed to attend the
presentation
of
evidence
of
respondent. Petitioners cannot now turn to
this Court to question the admissibility and
authenticity of the documentary evidence of
respondent when petitioners failed to object
to the admissibility of the evidence at the
time that such evidence was offered.[19]
With regard to petitioners insistence that
laches and/or prescription should have
extinguished respondents claim, we agree
with the trial court and the Court of Appeals
that the action for accounting filed by
respondent three (3) years after Jacintos
death was well within the prescribed
period. The Civil Code provides that an action
to enforce an oral contract prescribes in six
(6) years[20] while the right to demand an
accounting for a partners interest as against
the person continuing the business accrues at
the date of dissolution, in the absence of any
contrary agreement.[21] Considering that the
death of a partner results in the dissolution of
the partnership[22], in this case, it was after
Jacintos death that respondent as the
surviving partner had the right to an account
of his interest as against petitioners. It bears
stressing that while Jacintos death dissolved
the partnership, the dissolution did not
immediately terminate the partnership. The
Civil Code[23] expressly provides that upon
dissolution, the partnership continues and its
legal personality is retained until the complete
winding up of its business, culminating in its
termination.[24]
In a desperate bid to cast doubt on the
validity of the oral partnership between
respondent and Jacinto, petitioners maintain

that said partnership that had an initial capital

of P200,000.00 should have been registered
with the Securities and Exchange Commission
(SEC) since registration is mandated by the
Civil Code. True, Article 1772 of the Civil Code
requires that partnerships with a capital of
P3,000.00 or more must register with the SEC,
however, this registration requirement is not
mandatory. Article
1768
of
the
Civil
Code[25] explicitly
provides
that
the
partnership retains its juridical personality
even if it fails to register. The failure to
register the contract of partnership does not
invalidate the same as among the partners, so
long as the contract has the essential
requisites, because the main purpose of
registration is to give notice to third parties,
and it can be assumed that the members
themselves knew of the contents of their
contract.[26] In the case at bar, non-compliance
with this directory provision of the law will not
invalidate the partnership considering that the
totality of the evidence proves that
respondent and Jacinto indeed forged the
partnership in question.
WHEREFORE, in view of the foregoing,
the petition is DENIED and the appealed
decision is AFFIRMED.
J. TIOSEJO INVESTMENT CORP.,
Petitioner,
- versus SPOUSES BENJAMIN
ANG,
Respondents.

AND

ELEANOR

x----------------------------- - - - - - - - - - - - -x
DECISION

PEREZ, J.:

Filed pursuant to Rule 45 of the 1997 Rules of

Civil Procedure, the petition for review at
bench seeks the reversal of the Resolutions
dated 23 May 2006 and 9 August 2006 issued
by the Third Division of the Court of Appeals
(CA)

in

CA-G.R.

SP

No.

93841

which,

respectively, dismissed the petition for review

of petitioner J. Tiosejo Investment Corp. (JTIC)

70

for having been filed out of time [1] and denied

total P2,077,334.25.[8] On the same date PPGI

the

and respondents also executed Contract to

motion

dismissal.

for

reconsideration

of

said

[2]

Sell No. 0214 over the 12.50 square meter

parking space identified as Parking Slot No.
0405,

The Facts

for

ofP26,400.00

the

stipulated

square

of P313,500.00.

consideration

meters

or

total

[9]

On 28 December 1995 petitioner entered into

a Joint

Venture

Agreement (JVA)

with

Primetown Property Group, Inc. (PPGI) for the

development of a residential condominium
project to be known as The Meditel on the
formers

9,502

square

along Samat

meter

property

St.,

Highway

Hills, Mandaluyong City.[3] With

petitioner

contributing the same property to the joint

venture and PPGI undertaking to develop the
condominium, the JVA provided, among other
terms and conditions, that the developed
units shall be shared by the former and the
latter at a ratio of 17%-83%, respectively.
[4]

While both parties were allowed, at their

own individual responsibility, to pre-sell the

units

pertaining

to

them,[5] PPGI

further

undertook to use all proceeds from the preselling of its saleable units for the completion
of the Condominium Project.

[6]

On 21 July 1999, respondents filed against

petitioner and PPGI the complaint for the
rescission of the aforesaid Contracts to Sell
docketed before the HLURB as HLURB Case
No. REM 072199-10567. Contending that they
were assured by petitioner and PPGI that the
subject condominium unit and parking space
would

be

available

for

turn-over

and

occupancy in December 1998, respondents

averred, among other matters, that in view of
the non-completion of the project according to
said representation, respondents instructed
petitioner and PPGI to stop depositing the
post-dated checks they issued and to cancel
said

Contracts

to

Sell; and,

that

despite

several demands, petitioner and PPGI have

failed and refused to refund the P611,519.52
they

already

paid

under

the

circumstances. Together with the refund of

said amount and interests thereon at the rate
of 12% per annum, respondents prayed for

On 17 June 1996, the Housing and Land Use

the grant of their claims for moral and

Regulatory Board (HLURB) issued License to

exemplary damages as well as attorneys fees

Sell No. 96-06-2854 in favor of petitioner and

and the costs.[10]

PPGI as project owners.[7]By virtue of said

license, PPGI executed Contract to Sell No.
0212 with Spouses Benjamin and Eleanor Ang
on 5 February 1997, over the 35.45-square
meter condominium unit denominated as Unit
A-1006,

for

the

of P52,597.88 per

agreed

contract

square

meter

price
or

Specifically denying the material allegations

of the foregoing complaint, PPGI filed its 7
September 1999 answer alleging that the
delay in the completion of the project was

71

attributable to the economic crisis which

addition to the dismissal of the complaint and

affected the country at the time; that the

the grant of its counterclaims for exemplary

unexpected and unforeseen inflation as well

damages, attorneys fees, litigation expenses

as increase in interest rates and cost of

and the costs, petitioner interposed a cross-

building

constitute force

claim against PPGI for full reimbursement of

majeure and were beyond its control; that

any sum it may be adjudged liable to pay

aware of its responsibilities, it offered several

respondents.[13]

materials

alternatives to its buyers like respondents for

a transfer of their investment to its other
feasible projects and for the amounts they
already paid to be considered as partial
payment for the replacement unit/s; and, that
the complaint was prematurely filed in view of
the on-going negotiations it is undertaking
with its buyers and prospective joint venture
partners. Aside from the dismissal of the
complaint, PPGI sought the readjustment of
the contract price and the grant of its
counterclaims for attorneys fees and litigation
expenses.[11]

Acting on the position papers and draft

decisions
parties,

subsequently

[14]

submitted

by

the

Housing and Land Use (HLU) Arbiter

Dunstan T. San Vicente went on to render the

30 July 2003 decision declaring the subject
Contracts to Sell cancelled and rescinded on
account

of

the

non-completion

of

the

condominium project. On the ground that the

JVA created a partnership liability on their
part, petitioner and PPGI, as co-owners of the
condominium project, were ordered to pay: (a)
respondents

claim

for

refund

of

the P611,519.52 they paid, with interest at

Petitioner also specifically denied the material

the rate of 12% per annum from 5 February

allegations

1997; (b) damages in the sum of P75,000.00;

of

answer dated

the

separate

2002[12] which

(c) attorneys fees in the sum of P30,000.00;

amended on 20 May 2002. Calling attention to

(d) the costs; and, (e) an administrative fine in

the fact that its prestation under the JVA

the sum of P10,000.00 for violation of Sec. 20

consisted in contributing the property on

in relation to Sec. 38 of Presidential Decree

which The Meditel was to be constructed,

No. 957.

petitioner asseverated that, by the terms of

Commissioners via the petition for review filed

the

individually

by petitioner,[16] the foregoing decision was

responsible for the marketing and sale of the

modified to grant the latters cross-claim in the

units pertaining to its share; that not being

14 September 2004 decision rendered by said

privy to the Contracts to Sell executed by PPGI

administrative

and respondents, it did not receive any

HLURB Case No. REM-A-031007-0240,[17] to

portion of the payments made by the latter;

wit:

each

February

in

it

JVA,

complaint

party

was

[15]

Elevated to the HLURB Board of

bodys

Second

Division

in

and, that without any contributory fault and

negligence on its part, PPGI breached its
undertakings under the JVA by failing to
complete

the

condominium

project. In

Wherefore, the petition for

review
of
the
respondent
Corporation
is

72

dismissed. However,
the
decision of the Office below
dated July 30, 2003 is modified,
hence, its dispositive portion
shall read:

2. Ordering
respondents
to pay this
Office
administrative
fine
of P10,000.00
for violation of
Section 20 in
relation
to
Section 38 of
P.D. 957; and
3. Ordering
respondent
Primetown to
reimburse
the
entire
amount
which
the
respondent
Corporation
will
be
constrained
to pay the
complainants
.

1. Declaring the
contracts
to
sell,
both
dated
February
5,
1997,
as
cancelled and
rescinded,
and ordering
the
respondents
to
immediately
pay
the
complainants
the following:
a.

The
amoun
t
of P61
1,519.
52,
with
interes
t
at
the
legal
rate
reckon
ed
from
Februa
ry
5,
1997
until
fully
paid;
b.
Dam
ages
of P75,
000.00
;
c.
Atto
rneys
fees
equival
ent
to P30,
000.00
; and
d.
The
Cost of
suit;

So ordered.[18]

With

the

denial

of

its

motion

for

reconsideration of the foregoing decision,

[19]

petitioner filed a Notice of Appeal dated 28

February 2005 which was docketed before the

Office of the President (OP) as O.P. Case No.
05-B-072.[20] On 3 March 2005, the OP issued
an order directing petitioner to submit its
appeal memorandum within 15 days from
receipt

thereof.[21] Acting

on

the

motion

therefor filed, the OP also issued another

order on the same date, granting petitioner a
period of 15 days from 28 February 2005 or
until 15 March 2005 within which to file its
appeal memorandum.[22] In view of petitioners
filing of a second motion for extension dated
15 March 2005,[23] the OP issued the 18 March
2005 order granting the former an additional
10 days from 15 March 2005 or until 25 March
2005

within

which

to

file

its

appeal

memorandum, provided no further extension

73

shall be allowed.[24] Claiming to have received

of 10 days or until 27 April 2006 within which

the aforesaid 3 March 2005 order only on 16

to file said pleading.[32] Although petitioner

March 2005, however, petitioner filed its 31

filed by registered mail a motion to admit its

March

attached petition for review on 19 April 2006,

2005

motion

seeking yet another

extension of 10 days or until 10 April 2005

[33]

within which to file its appeal memorandum.

2006 resolution,[34] disposing of the formers

[25]

pending motion for extension as well as the

the CA issued the herein assailed 23 May

petition itself in the following wise:

On 7 April 2005, respondents filed their

opposition to the 31 March 2005 motion for
extension

petitioner[26] which

of

eventually

filed its appeal memorandum by registered

mail on 11 April 2005 in view of the fact that
10 April 2005 fell on a Sunday. [27] On 25
October 2005, the OP rendered a decision
dismissing petitioners appeal on the ground
that the latters appeal memorandum was filed
out of time and that the HLURB Board
committed no grave abuse of discretion in
rendering the appealed decision.[28] Aggrieved
by the denial of its motion for reconsideration
of the foregoing decision in the 3 March 2006
order issued by the OP,[29] petitioner filed
before the CA its 29 March 2006 motion for an
extension of 15 days from 31 March 2006 or
until 15 April 2006 within which to file its
petition

for

review.[30]Accordingly,

non-

extendible period of 15 days to file its petition

for review was granted petitioner in the 31

We resolve to DENY the

second extension motion and
rule to DISMISS the petition for
being filed late.
Settled is that heavy
workload is by no means
excusable
(Land
Bank
of
the Philippines vs.
Natividad,
458 SCRA 441 [2005]). If the
failure of the petitioners counsel
to cope up with heavy workload
should be considered a valid
justification to sidestep the
reglementary
period,
there
would be no end to litigations
so long as counsel had not been
sufficiently
diligent
or
experienced
(LTS
Philippine
Corporation vs. Maliwat, 448
SCRA 254, 259-260 [2005],
citing Sublay vs. National Labor
Relations
Commission,
324
SCRA 188 [2000]).
Moreover,
lawyers
should not assume that their
motion
for
extension
or
postponement will be granted
the length of time they pray for
(Ramos vs. Dajoyag, 378 SCRA
229 [2002]).
SO ORDERED.[35]

March 2006 resolution issued by the CA Third

Division in CA-G.R, SP No. 93841.[31]

Petitioners motion for reconsideration

Maintaining that 15 April 2006 fell on a
Saturday
prevented

and

that

its

counsel

pressures
from

of

work

finalizing

its

petition for review, petitioner filed a motion on

of the foregoing resolution[36] was denied for

lack of merit in the CAs second assailed 9
August 2006 resolution,[37]hence, this petition.
The Issues

17 April 2006, seeking for an additional time

74

appeal
Petitioner seeks the reversal of the
assailed resolutions on the following grounds,
to wit:

are

not

harmless

and

trivial

technicalities that litigants can just discard

and

disregard

at

will.[40] Neither

being

natural right nor a part of due process, the

rule is settled that the right to appeal is
merely a statutory privilege which may be

I. THE COURT OF APPEALS

ERRED IN DISMISSING
THE
PETITION
ON
MERE TECHNICALITY;

exercised

only

in

the

manner

and

in

accordance with the provisions of the law.

[41]

II. THE COURT OF APPEALS

ERRED IN REFUSING
TO
RESOLVE
THE
PETITION
ON
THE
MERITS
THEREBY
AFFIRMING
THE
OFFICE
OF
THE
PRESIDENTS
DECISION
(A)
DISMISSING
JTICS
APPEAL ON A MERE
TECHNICALITY;
(B)
AFFIRMING
THE
HLURB
BOARDS
DECISION INSOFAR AS
IT
FOUND
JTIC
SOLIDARILY
LIABLE
WITH PRIMETOWN TO
PAY SPOUSES ANG
DAMAGES,
ATTORNEYS FEES AND
THE COST OF THE
SUIT;
AND
(C)
AFFIRMING
THE
HLURB
BOARDS
DECISION INSOFAR AS
IT FAILED TO AWARD
JITC
ITS
COUNTERCLAIMS
AGAINST
SPOUSES
ANG.[38]

The perfection of an appeal in the manner

and within the period prescribed by law is, in

fact, not only mandatory but jurisdictional.
[42]

Considering that they are requirements

which

cannot

be

trifled

with

as

mere

technicality to suit the interest of a party,

[43]

failure

to

perfect

an

appeal

in

the

prescribed manner has the effect of rendering

the judgment final and executory.[44]

Fealty to the foregoing principles impels us to

discount the error petitioner imputes against
the CA for denying its second motion for
extension of time for lack of merit and
dismissing its petition for review for having
been filed out of time. Acting on the 29 March
2006 motion filed for the purpose, after all,
the CA had already granted petitioner an
inextendible period of 15 days from 31 March
2006 or until 15 April 2006 within which to file
its petition for review. Sec. 4, Rule 43 of

The Courts Ruling

the 1997 Rules of Civil Procedure provides as

follows:

We find the petition bereft of merit.

While the dismissal of an appeal on purely

technical
upon,

[39]

it

procedural

grounds
bears

is

concededly

emphasizing

requirements

of

the

frowned
that
rules

the
on

Sec. 4. Period of appeal. The

appeal shall be taken within
fifteen (15) days from notice of
the award, judgment, final order
or resolution, or from the date
of its last publication, if
publication is required by law
for its effectivity, or of the
denial of petitioners motion for
new trial or reconsideration duly

75

filed in accordance with the

governing law of the court or
agency a quo. Only one (1)
motion for reconsideration shall
be allowed. Upon proper motion
and payment of the full amount
of the docket fee before the
expiration of the reglementary
period, the Court of Appeals
may grant an additional period
of fifteen (15) days only within
which to file the petition for
review. No further extension
shall be granted except for the
most compelling reason and in
no case to exceed fifteen (15)
days. (Underscoring supplied)

Although technical rules of procedure are not

ends in themselves, they are necessary for an
effective and expeditious administration of
justice

and

cannot,

for

discarded

with

the

claiming

substantial

said

mere

reason,

be

expediency

of

merit.[49] This

holds

particularly true in the case at bench where,

prior to the filing of its petition for review
before the CA, petitioners appeal before the
OP was likewise dismissed in view of its failure
to file its appeal memorandum within the
extensions of time it had been granted by said

The record shows that, having been granted

the

15-day

extension sought

in its first

motion, petitioner filed a second motion for

extension praying for an additional 10 days
from 17 April 2006 within which to file its
petition

for

review,

on

the

ground

that

pressures of work and the demands posed by

equally important cases prevented its counsel
from finalizing the same. As correctly ruled by
the CA, however, heavy workload cannot be
considered as a valid justification to sidestep
the reglementary period[45] since to do so
would only serve to encourage needless

office. After being granted an initial extension

of 15 days to do the same, the records
disclose that petitioner was granted by the OP
a second extension of 10 days from 15 March
2005 or until 25 March 2005 within which to
file its appeal memorandum, on the condition
that

no

further

extensions

shall

be

allowed. Aside from not heeding said proviso,

petitioner had, consequently, no more time to
extend when it filed its 31 March 2005 motion
seeking yet another extension of 10 days or
until 10 April 2005 within which to file its
appeal memorandum.

delays and interminable litigations. Indeed,

rules prescribing the time for doing specific
acts or for taking certain proceedings are

With the foregoing procedural antecedents,

considered

to

the initial 15-day extension granted by the CA

prevent needless delays and to orderly and

and the injunction under Sec. 4, Rule 43 of

promptly

the 1997

[46]

absolutely
discharge

Corollary

to

the

indispensable
judicial
principle

business.
that

the

further

Rules

of

extensions

Civil

Procedure against

except

for

the

most

allowance or denial of a motion for extension

compelling reason, it was clearly inexcusable

of time is addressed to the sound discretion of

for petitioner to expediently plead its counsels

the court,
that

[47]

their

moreover, lawyers cannot expect

motions

for

postponement will be granted

of course.

extension
[48]

heavy workload as ground for seeking an

or

additional extension of 10 days within which

as a matter

to file its petition for review. To our mind,

petitioner

would

do

well

to

remember

that, rather than the low gate to which parties

are

unreasonably

required

to

stoop,

76

procedural rules are designed for the orderly

conduct

of

proceedings

and

expeditious

settlement of cases in the courts of law. Like

all

rules,
[50]

followed

they

are

required

to

be

and utter disregard of the same

cannot be expediently rationalized by harping

on the policy of liberal construction [51] which
was never intended as an unfettered license
to disregard the letter of the law or, for that
matter, a convenient excuse to substitute
substantial compliance for regular adherence
thereto. When it comes to compliance with
time

rules,

the

Court

cannot

from

the

afford

inexcusable delay.[52]

Even

prescinding

foregoing

procedural considerations, we also find that

the HLURB Arbiter and Board correctly held
petitioner

liable

respondents
administrative

claims
fine

alongside
and

PPGI

for

the P10,000.00

imposed

pursuant

to Section 20 in relation to Section 38 of P.D.

957. By the express terms of the JVA, it
appears that petitioner not only retained
ownership of the property pending completion
of the condominium project[53] but had also
bound itself to answer liabilities proceeding
from contracts entered into by PPGI with third
parties. Article VIII, Section 1 of the JVA
distinctly provides as follows:
Sec.
1. Rescission
and
damages. Non-performance by
either party of its obligations
under this Agreement shall be
excused when the same is due
to Force Majeure. In such cases,
the defaulting party must
exercise
due
diligence
to
minimize the breach and to
remedy the same at the
soonest possible time. In the
event that either party defaults
or
breaches
any
of
the

provisions of this Agreement

other than by reason of Force
Majeure, the other party shall
have the right to terminate this
Agreement by giving notice to
the defaulting party, without
prejudice to the filing of a civil
case for damages arising from
the breach of the defaulting
party.
In the event that the Developer
shall be rendered unable to
complete
the
Condominium
Project, and such failure is
directly and solely attributable
to the Developer, the Owner
shall send written notice to the
Developer
to
cause
the
completion of the Condominium
Project. If the developer fails to
comply within One Hundred
Eighty (180) days from such
notice or, within such time,
indicates its incapacity to
complete the Project, the Owner
shall have the right to take over
the construction and cause the
completion thereof. If the Owner
exercises its right to complete
the Condominium Project under
these
circumstances,
this
Agreement
shall
be
automatically rescinded upon
written notice to the Developer
and the latter shall hold the
former free and harmless from
any and all liabilities to third
persons arising from such
rescission. In any case, the
Owner shall respect and strictly
comply with any covenant
entered into by the Developer
and third parties with respect to
any of its units in the
Condominium Project. To enable
the owner to comply with this
contingent
liability,
the
Developer shall furnish the
Owner with a copy of its
contracts with the said buyers
on
a
month-to-month
basis. Finally, in case the Owner
would
be
constrained
to
assume the obligations of the
Developer to its own buyers,
the Developer shall lose its right
to ask for indemnity for
whatever it may have spent in
the Development of the Project.

77

Nevertheless, with respect to

the buyers of the Developer for
the First Phase, the area
intended for the Second Phase
shall not be bound and/or
subjected to the said covenants
and/or
any
other
liability
incurred by the Developer in
connection
with
the
development of the first phase.
(Underscoring supplied)

JOHNSON, J.:

Viewed in the light of the foregoing provision

of the JVA, petitioner cannot avoid liability by
claiming that it was not in any way privy to
the Contracts to Sell executed by PPGI and
respondents. As correctly argued by the latter,
moreover, a joint venture is considered in this
jurisdiction as a form of partnership and is,
accordingly, governed by the law of
partnerships.[54] Under Article 1824 of the Civil
Code of the Philippines, all partners are
solidarily liable with the partnership for
everything chargeable to the partnership,
including loss or injury caused to a third
person or penalties incurred due to any
wrongful act or omission of any partner acting
in the ordinary course of the business of the
partnership or with the authority of his copartners.[55] Whether innocent or guilty, all the
partners are solidarily liable with the
partnership itself.[56]

WHEREFORE, premises

considered,

the

petition for review is DENIED for lack of

merit.

G.R. No. L-9393

August 20, 1915

FEDERICO
LOPEZ,
ET
AL, plaintiffsappellees,
vs.
YU
SEFAO
and
BEHN,
MEYER
&
CO., defendants.
YU SEFAO, defendant-appellant.
Alejandro
Zison
for
appellant.
Enage and Karagdag for appellees.

This was an action commenced in the Court if

First Instance of the Province of Samar by the
plaintiff to recover of the defedants a boat
or lanchon, or its value, alleged to be P1,000,
together with damages in the sum of P4,680.
The defendant, Yu Sefao, at first presented a
demurrer, which was overruled. Later, he
presented a general and special defense. Still
later, he asked permission to withdraw his
counterclaim and instead thereof to present
the defense that the plaintiffs were without
legal capacity to sue. The defendants, Behn,
Meyer & Co., presented a general denial.
Later, Behn, Meyer & Co., were absolved from
all liability under the complaint.
After hearing the evidence adduced during
the trial of the cause, the Honorable Ramon
Avancea, in a carefully prepared opinion,
reached the conclusion: (a) That the plaintiffs
had legal capacity to sue; and (b) rendered a
judgment in favor of the plaintiffs and against
the defendant, Yu Sefao, in the sum of P990.
From the judgment, after presenting a motion
for a new trial, the defendant, Yu Sefao,
appealed to this court. The only assignment of
error made by the appellant here is that the
lower court committed an error in deciding
that the plaintiffs had legal capacity to sue.
The defendant and appellant argues that the
plaintiffs had been doing business under thre
name of Lopez Hermanos; that they had not
been organized as a society, in accordance
with the provisions of the Commercial Code,
and that, therefore, they were not authorized
to sue and cited decisions of this court in
support of that conclusion. Evidently the
defendant and appellant had not examined
the complaint presented by the plaintiffs. An
examination of the complaint would have
shown the defendant that the present action
was not commenced in the name of Lopez
Hermanos, but in the individual names of the
persons constituting the alleged society or
mercantile association. We find nothing in the
procedure in the present case which is in
conflict with the decisions cited by the
appellant. The plaintiffs in the present case,
even granting that the society called Lopez
Hermanos was not authorized to sue in the
name of said society for the reason that it had
not
been
properly
organized,
yet,
nevertheless, they were permitted to sue in
their individual names. (Prautch vs.Jones, 8
Phil.
Rep.,
1;
Strachan
&
MacMurray vs. Emaldi, 22 Phil. Rep., 295.)
The appellant having presented no question
here except the one above discussed, and it

78

having been found that the plaintiffs had legal

capacity to sue, we must affirm the decision
of the lower court. The same is, thereofre,
hereby affirmed with costs. So ordered.
G.R. No. L-35840

March 31, 1933

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

That in pursuance of said contract, plaintiff

and defendant Menzi & Co., Inc., began to
manufacture prepared fertilizers, the former
superintending the work of actual preparation,
and the latter, through defendants J.M. Menzi
and P. C. Schlobohm, managing the business
and
opening
an
account
entitled
"FERTILIZERS" on the books of the defendant
Menzi & Co., Inc., where all the accounts of
the partnership business were supposed to be
kept; the plaintiff had no participation in the
making of these entries, which were wholly in
the defendants' charge, under whose orders
every entry was made;
IV
That according to paragraph 7 of the contract
Exhibit A, the defendant Menzi & Co., Inc., was
obliged to render annual balance sheets to be
plaintiff upon the 30th day of June of each
year; that the plaintiff had no intervention in
the preparation of these yearly balances, nor
was he permitted to have any access to the
books of account; and when the balance
sheets were shown him, he, believing in good
faith that they contained the true statement
of the partnership business, and relying upon
the good faith of the defendants, Menzi & Co.,
Inc., J.M. Menzi, and P.C. Schlobohm, accepted
and signed them, the last balance sheet
having been rendered in the year 1926;

Plaintiff alleged:
V
I
That the defendant J.M. Menzi, together with
his wife and daughter, owns ninety-nine per
cent (99%) of the capital stock of the
defendant Menzi & Co., Inc., that the plaintiff
has been informed and therefore believes that
the defendant J.M. Menzi, his wife and
daughter, together with the defendant P.C.
Schlobohm and one Juan Seiboth, constitute
the board of directors of the defendant, Menzi
& Co., Inc.;
II
That on April 27, 1922, the defendant Menzi &
Co., Inc. through its president and general
manager, J.M. Menzi, under the authority of
the board of directors, entered into a contract
with the plaintiff to engage in the business of
exploiting prepared fertilizers, as evidenced
by the contract marked Exhibit A, attached to
the original complaint as a part thereof, and
likewise made a part of the amended
complaint, as if it were here copied verbatim;
III

That by reason of the foregoing facts and

especially those set forth in the preceding
paragraph, the plaintiff was kept in ignorance
of the defendants' acts relating to the
management of the partnership funds, and
the keeping of accounts, until he was
informed and so believes and alleges, that the
defendants had conspired to conceal from him
the true status of the business, and to his
damage and prejudice made false entries in
the books of account and in the yearly
balance sheets, the exact nature and amount
of which it is impossible to ascertain, even
after the examination of the books of the
business, due to the defendants' refusal to
furnish all the books and data required for the
purpose, and the constant obstacles they
have placed in the way of the examination of
the books of account and vouchers;
VI
That when the plaintiff received the
information mentioned in the preceding
paragraph, he demanded that the defendants
permit him to examine the books and

79

vouchers of the business, which were in their

possession, in order to ascertain the truth of
the alleged false entries in the books and
balance sheets submitted for his approval, but
the defendants refused, and did not consent
to the examination until after the original
complaint was filed in this case; but up to this
time they have refused to furnish all the
books, data, and vouchers necessary for a
complete and accurate examination of all the
partnership's accounts; and
VII
That as a result of the partial examination of
the books of account of the business, the
plaintiff has, through his accountants,
discovered that the defendants, conspiring
and confederating together, presented to the
plaintiff during the period covered by the
partnership contract false and incorrect
accounts,
(a) For having included therein undue
interest;
(b) For having entered, as a charge to
fertilizers, salaries and wages which
should have been paid and were in fact
paid by the defendant Menzi & Co.,
Inc.;
(c) For having collected from the
partnership the income tax which
should have been paid for its own
account by Menzi & Co., Inc.;
(d) For having collected, to the damage
and
prejudice
of
the
plaintiff,
commissions on the purchase of
materials for the manufacture of
fertilizers;
(e) For having appropriated, to the
damage and prejudice of the plaintiff,
the profits obtained from the sale of
fertilizers belonging to the partnership
and bought with its own funds; and
(f)
For
having
appropriated
to
themselves all rebates for freight
insurance, taxes, etc., upon materials
for fertilizer bought abroad, no entries
of said rebates having been made on
the books to the credit of the
partnership.
Upon the strength of the facts set out in this
first cause of action, the plaintiff prays the
court:

1. To prohibit the defendants, each and

every one of them, from destroying
and concealing the books and papers
of the partnership constituted between
the defendant Menzi & Co., Inc., and
the plaintiff;
2. To summon each and every
defendant to appear and give a true
account of all facts relating to the
partnership between the plaintiff and
the defendant Menzi & Co., Inc., and of
each and every act and transaction
connected with the business of said
partnership from the beginning to April
27, 1927, and a true statement of all
merchandise of whatever description,
purchased for said partnership, and of
all the expenditures and sale of every
kind, together with the true amount
thereof, besides the sums received by
the partnership from every source
together with their exact nature, and a
true and complete account of the
vouchers for all sums paid by the
partnership, and of the salaries paid to
its employees;
3. To declare null and void the yearly
balances submitted by the defendants
to the plaintiff from 1922 to 1926, both
inclusive;
4. To order the defendants to give a
true statement of all receipts and
disbursements of the partnership
during the period of its existence,
besides granting the plaintiff any other
remedy that the court may deem just
and equitable.
EXHIBIT A
CONTRATO
que se celebra entre los Sres. Menzi y
Compaia, de Manila, como Primera
Parte, y D. Francisco Bastada, tambien
de Manila, como Segunda Parte, bajo
las siguientes
CONDICIONES
1. El objeto de este contrato es la
explotacion del negocio de Abonos o
Fertilizantes Preparados, para diversas
aplicaciones agricolas;
2. La duracion de este contrato sera
de cinco aos, a contrar desde la fecha
de su firma;

80

3. La Primera Parte se compromete a

facilitar la ayuda financiera necesaria
para el negocio;

En testimonio de lo cual firmamos el

presente en la Ciudad de Manila, I. F., a
veintisiete de abril de 1922.

4. La Segunda Parte se compromete a

poner su entero tiempo y toda su
experiencia a la disposicion del
negocio;

MENZI
&
Por
(Fdo.)
General
Primera Parte

5. La Segunda Parte no podra, directa

o indirectamente, dedicarse por si sola
ni en sociedad con otras personas, o
de manera alguna que no sea con la
Primera Parte, al negecio de Abonos,
simples o preparados, o de materia
alguna que se aplique comunmente a
la fertilizacion de suelos y plantas,
durante la vigencia de este contrato, a
menos que obtenga autorizacion
expresa de la Primera Parte para ello;

(Fdo.)
Segunda Parte

6. La Primera Parte no podra

dedicarse, por si sola ni en sociedad o
combinacion con otras personas o
entidades, ni de otro modo que en
sociedad con la Segunda Parte, al
negocio de Abonos o Fertilizantes
preparados, ya sean ellos importados,
ya preparados en las Islas Fllipinas;
tampoco podra dedicarse a la venta o
negocio de materias o productos que
tengan aplicacion como fertilizantes, o
que se usen en la composicion de
fertilizantes o abonos, si ellos son
productos de suelo de la manufactura
filipinos, pudiendo sin embargo vender
o negociar en materim fertilizantes
simples importados de los Estados
Unidos o del Extranjero;
7. La Primera Parte se obliga a ceder y
a hacer efectivo a la Segunda Parte el
35 por ciento (treinta y cinco por
ciento) de las utilidades netas del
negocio de abonos, liquidables el 30 de
junio de cada ao;
8. La Primera Parte facilitara la
Segunda, mensualmente, la cantidad
de P300 (trescientos pesos), a cuenta
de su parte de beneficios.
9. Durante el ao 1923 la Parte
concedera a la Segunda permiso para
que este se ausente de Filipinas por un
periodo de tiempo que no exceda de
un ao, sin menoscabo para derechos
de la Segunda Parte con arreglo a este
contrato.

CO.,
J.

F.

MENZI
&
CO.,
(Fdo.)
MAX
Acting Secretary

INC.
MENZI
Manager

BASTIDA

INC.
KAEGI

Defendants denied all the allegations of the

amended complaint, except the formal
allegations as to the parties, and as a special
defense to the first cause of action alleged:
1. That the defendant corporation,
Menzi & Co., Inc., has been engaged in
the general merchandise business in
the
Philippine
Islands
since
its
organization
in
October,
1921,
including the importation and sale of
all kinds of goods, wares, and
merchandise, and especially simple
fertilizer and fertilizer ingredients, and
as a part of that business, it has been
engaged since its organization in the
manufacture and sale of prepared
fertilizers for agricultural purposes, and
has used for that purpose trade-marks
belonging to it;
2. That on or about November, 1921,
the defendant, Menzi & CO., Inc., made
and entered into an employment
agreement with the plaintiff, who
represented that he had had much
experience in the mixing of fertilizers,
to superintend the mixing of the
ingredients in the manufacture of
prepared fertilizers in its fertilizer
department and to obtain orders for
such prepared fertilizers subject to its
approval, for a compensation of 50 per
cent of the net profits which it might
derive from the sale of the fertilizers
prepared by him, and that said
Francisco Bastida worked under said
agreement until April 27, 1922, and
received the compensation agreed
upon for his services; that on the said
27th of April, 1922, the said Menzi &
Co., Inc., and the said Francisco
Bastida made and entered into the
written agreement, which is marked
Exhibit A, and made a part of the

81

amended complaint in this case,

whereby they mutually agreed that the
employment of the said Francisco
Bastida by the said Menzi & Co., Inc., in
the capacity stated, should be for a
definite period of five years from that
date and under the other terms and
conditions stated therein, but with the
understanding and agreement that the
said Francisco Bastida should receive
as compensation for his said services
only 35 per cent of the net profits
derived from the sale of the fertilizers
prepared by him during the period of
the contract instead of 50 per cent of
such profits, as provided in his former
agreement; that the said Francisco
Bastida was found to be incompetent
to do anything in relation to its said
fertilizer business with the exception of
over-seeing
the
mixing
of
the
ingredients in the manufacture of the
same, and on or about the month of
December, 1922, the defendant, Menzi
& Inc., in order to make said business
successful, was obliged to and actually
did assume the full management and
direction of said business;
3. That the accounts of the business of
the said fertilizer department of Menzi
& Co., Inc., were duly kept in the
regular books of its general business,
in the ordinary course thereof, up to
June 30, 1923, and that after that time
and during the remainder of the period
of said agreement, for the purpose of
convenience
in
determining
the
amount of compensation due to the
plaintiff under his agreement, separate
books of account for its said fertilizer
business were duly, kept in the name
of 'Menzi & Co., Inc., Fertilizer', and
used exclusively for that purpose and it
was mutually agreed between the said
Francisco Bastida and the said Menzi &
Co., Inc., that the yearly balances for
the determination of the net profits of
said business due to the said plaintiff
as compensation for his services under
said agreement would be made as of
December 31st, instead of June 30th,
of each year, during the period of said
agreement; that the accounts of the
business
of
its
said
fertilizer
department, as recorded in its said
books, and the vouchers and records
supporting the same, for each year of
said business have been duly audited
by Messrs. White, Page & Co., certified
public accountants, of Manila, who,
shortly after the close of business at

the end of each year up to and

including the year 1926, have prepared
therefrom a manufacturing and profit
and loss account and balance sheet,
showing the status of said business
and the share of the net profits
pertaining to the plaintiff as his
compensation under said agreement;
that after the said manufacturing and
profit and the loss account and balance
sheet for each year of the business of
its said fertilizer department up to and
including the year 1926, had been
prepared by the said auditors and
certified by them, they were shown to
and examined by the plaintiff, and duly
accepted, and approved by him, with
full knowledge of their contents, and as
evidence of such approval, he signed
his name on each of them, as shown
on the copies of said manufacturing
and profit and loss account and
balance sheet for each year up to and
including the year 1926, which are
attached to the record of this case, and
which are hereby referred to and made
a part of this amended answer, and in
accordance therewith, the said plaintiff
has actually received the portion of the
net profits of its said business for those
years pertaining to him for his services
under said agreement; that at no time
during the course of said fertilizer
business and the liquidation thereof
has the plaintiff been in any way
denied access to the books and
records pertaining thereto, but on the
contrary, said books and records have
been subject to his inspection and
examination at any time during
business hours, and even since the
commencement of this action, the
plaintiff and his accountants, Messrs.
Haskins & Sells, of Manila, have been
going over and examining said books
and records for months and the
defendant, Menzi & Co. Inc., through
its officers, have turned over to said
plaintiff and his accountant the books
and records of said business and even
furnished
them
suitable
accommodations in its own office to
examine the same;
4. That prior to the termination of the
said agreement, Exhibit A, the
defendant, Menzi & Co., Inc., duly
notified the plaintiff that it would not
under any conditions renew his said
agreement or continue his said
employment with it after its expiration,
and after the termination of said

82

agreement of April 27, 1927, the said

Menzi & Co., Inc., had the certified
public accountants, White, Page & Co.,
audit the accounts of the business of
its said fertilizer department for the
four months of 1927 covered by
plaintiff's agreement and prepare a
manufacturing and profit and loss
account and balance sheet of said
business showing the status of said
business at the termination of said
agreement, a copy of which was shown
to and explained to the plaintiff; that at
that
time
there
were accounts
receivable to be collected for business
covered by said agreement of over
P100,000, and there was guano, ashes,
fine tobacco and other fertilizer
ingredients on hand of over P75,000,
which had to be disposed of by Menzi
& Co., Inc., or valued by the parties,
before the net profits of said business
for the period of the agreement could
be determined; that Menzi & Co., Inc.,
offered to take the face value of said
accounts and the cost value of the
other properties for the purpose of
determining the profits of said business
for that period, and to pay to the
plaintiff at that time his proportion of
such profits on that basis, which the
plaintiff refused to accept, and being
disgruntled because the said Menzi &
Co., Inc., would not continue him in its
service, the said plaintiff commenced
this action, including therein not only
Menzi & Co. Inc., but also it managers
J.M. Menzi and P.C. Schlobohm, wherein
he knowingly make various false and
malicious allegations against the
defendants; that since that time the
said Menzi & Co., Inc., has been
collecting the accounts receivable and
disposing of the stocks on hand, and
there is still on hand old stock of
approximately P25,000, which it has
been unable to dispose of up to this
time; that as soon as possible a final
liquidation and amounting of the net
profits of the business covered by said
agreement for the last four months
thereof will be made and the share
thereof appertaining to the plaintiff will
be paid to him; that the plaintiff has
been informed from time to time as to
the status of the disposition of such
properties, and he and his auditors
have fully examined the books and
records of said business in relation
thereto.
SECOND CAUSE OF ACTION

As a second cause of action plaintiff alleged:

I. That the plaintiff hereby reproduces
paragraphs I, II, III, IV, and V of the first
cause of action.
II. That the examination made by the
plaintiff's auditors of some of the books
of the partnership that were furnished
by the defendants disclosed the fact
that said defendants had charged to
"purchases" of the business, undue
interest, the amount of which the
plaintiff is unable to determine, as he
has never had at his disposal the
books and vouchers necessary for that
purpose, and especially, owning to the
fact that the partnership constituted
between
the
plaintiff
and
the
defendant Menzi & Co., Inc., never kept
its own cash book, but that its funds
were maliciously included in the
private funds of the defendant entity,
neither was there a separate BANK
ACCOUNT of the partnership, such
account
being
included
in
the
defendant's bank account.
III. That from the examination of the
partnership books as aforesaid, the
plaintiff estimates that the partnership
between himself and the defendant
Menzi & Co., Inc., has been defrauded
by the defendants by way of interest in
an
amount
of
approximately
P184,432.51, of which 35 per cent, or
P64,551.38, belongs to the plaintiff
exclusively.
Wherefore, the plaintiff prays the court to
render judgment ordering the defendants
jointly and severally to pay him the sum of
P64,551.38, or any amount which may finally
appear to be due and owing from the
defendants to the plaintiff upon this ground,
with legal interest from the filing of the
original complaint until payment.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2, 3
and 4, of the special defense to the
first cause of action in this amended
answer;
2. That under the contract of
employment,
Exhibit
A,
of
the
amended complaint, the defendant,
Menzi & Co., Inc., only undertook and
agreed to facilitate financial aid in

83

carrying on the said fertilizer business,

as it had been doing before the plaintiff
was
employed
under
the
said
agreement; that the said defendant,
Menzi & Co., Inc., in the course of the
said
business
of
its
fertilizer
department, opened letters of credit
through the banks of Manila, accepted
and paid drafts drawn upon it under
said letters of credit, and obtained
loans and advances of moneys for the
purchase of materials to be used in
mixing and manufacturing its fertilizers
and in paying the expenses of said
business; that such drafts and loans
naturally provided for interest at the
banking rate from the dates thereof
until paid, as is the case in all, such
business enterprises, and that such
payments of interest as were actually
made on such drafts, loans and
advances during the period of the said
employment agreement constituted
legitimate expenses of said business
under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I.
That
he
hereby
reproduces
paragraphs I, II, III, IV, and V of the first
cause of action.
II. That under the terms of the contract
Exhibit A, neither the defendants J.M.
Menzi and P.C. Schlobohm, nor the
defendant Menzi & Co., Inc., had a
right to collect for itself or themselves
any amount whatsoever by way of
salary for services rendered to the
partnership between the plaintiff and
the defendant, inasmuch as such
services were compensated with the
65% of the net profits of the business
constituting their share.
III. That the plaintiff has, on his on
account and with his own money, paid
all the employees he has placed in the
service of the partnership, having
expended for their account, during the
period of the contract, over P88,000,
without ever having made any claim
upon the defendants for this sum
because it was included in the
compensation of 35 per cent which he
was to receive in accordance with the
contract Exhibit A.

IV. That the defendants J.M. Menzi and

P.C. Schlobohm, not satisfied with
collecting undue and excessive salaries
for themselves, have made the
partnership, or the fertilizer business,
pay the salaries of a number of the
employees of the defendant Menzi &
Co., Inc.
V. That under this item of undue
salaries
the
defendants
have
appropriated
P43,920
of
the
partnership funds, of which 35 per
cent, or P15,372 belongs exclusively to
the plaintiff.
Wherefore, the plaintiff prays the court to
render judgment ordering the defendants to
pay jointly and severally to the plaintiff the
amount of P15,372, with legal interest from
the date of the filing of the original complaint
until the date of payment.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2, 3
and 4 of the special defense the first
cause of action in this amended
answer;
2. That the defendant, Menzi & Co.,
Inc., through its manager, exclusively
managed and conducted its said
fertilizer business, in which the plaintiff
was to receive 35 percent of the net
profits as compensation for this
services, as hereinbefore alleged, from
on or about January 1, 1923, when its
other
departments
had
special
experienced Europeans in charge
thereof, who received not only salaries
but also a percentage of the net profits
of such departments; that its said
fertilizer business, after its manager
took charge of it, became very
successful, and owing to the large
volume of business transacted, said
business required great deal of time
and attention, and actually consumed
at least one-half of the time of the
manager and certain employees of
Menzi & Co., Inc., in carrying it on; that
the said Menzi & Co., furnished office
space,
stationery
and
other
incidentals, for said business, and had
its employees perform the duties of
cashiers,
accountants,
clerks,
messengers, etc., for the same, and for
that reason the said Menzi & Co., Inc.,
charged each year, from and after

84

1922, as expenses of said business,

which pertained to the fertilizer
department, as certain amount as
salaries and wages to cover the
proportional part of the overhead
expenses of Menzi & Co., Inc.; that the
same method is followed in each of the
several departments of the business of
Menzi & Co., Inc., that each and every
year from and after 1922, a just
proportion of said overhead expenses
were
charged
to
said
fertilizer
departments and entered on the books
thereof, with the knowledge and
consent of the plaintiff, and included in
the auditors' reports, which were
examined, accepted and approved by
him, and he is now estopped from
saying that such expenses were not
legitimate and just expenses of said
business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
I.
That
he
hereby
reproduces
paragraph I, II, III, IV, and V of the first
cause of action.
II. That the defendant Menzi & Co.,
Inc., through the defendant J. M. Menzi
and P. C. Schlobohm, has paid, with the
funds of the partnership between the
defendant entity and the plaintiff, the
income tax due from said defendant
entity for the fertilizer business,
thereby defrauding the partnership in
the amount of P10,361.72 of which 35
per cent belongs exclusively to the
plaintiff, amounting to P3,626.60.
III. That the plaintiff has, during the
period of the contract, paid with his
own
money
the
income
tax
corresponding to his share which
consists in 35 per cent of the profits of
the fertilizer business, expending
about P5,000 without ever having
made any claim for reimbursement
against the partnership, inasmuch as it
has always been understood among
the partners that each of them would
pay his own income tax.
Wherefore, the plaintiff prays the court to
order the defendants jointly and severally to
pay the plaintiff the sum of P3,362.60, with
legal interest from the date of the filing of the
original complaint until its payment.

Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2, 3
and 4, of the special defense to the
first cause of action in this amended
answer;
2. That under the Income Tax Law
Menzi & Co., Inc., was obliged to and
did make return to the Government of
the Philippine Islands each year during
the period of the agreement, Exhibit A,
of the income of its whole business,
including its fertilizer department; that
the proportional share of such income
taxes found to be due on the business
of the fertilizer department was
charged as a proper and legitimate
expense of that department, in the
same manner as was done in the other
departments of its business; that
inasmuch as the agreement with the
plaintiff
was
an
employment
agreement, he was required to make
his own return under the Income Tax
Law and to pay his own income taxes,
instead of having them paid at the
source, as might be done under the
law, so that he would be entitled to the
personal exemptions allowed by the
law; that the income taxes paid by the
said Menzi & Co., Inc., pertaining to the
business, were duly entered on the
books of that department, and
included in the auditors' reports
hereinbefore referred to, which reports
were
examined,
accepted
and
approved by the plaintiff, with full
knowledge of their contents, and he is
now estopped from saying that such
taxes are not a legitimate expense of
said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I,
II, III, IV, and V of the first cause of
action.
II. That the plaintiff has discovered that
the defendants Menzi & Co., Inc., had
been receiving, during the period of
the contract Exhibit A, from foreign
firms selling fertilizing material, a
secret commission equivalent to 5 per
cent of the total value of the purchases
of fertilizing material made by the
partnership constituted between the

85

plaintiff and the defendant Menzi Co.,

Inc., and that said 5 per cent
commission was not entered by the
defendants in the books of the
business, to the credit and benefit of
the partnership constituted between
the plaintiff and the defendant, but to
the credit of the defendant Menzi Co.,
Inc., which appropriated it to itself.
III. That the exact amount, or even the
approximate amount of the fraud thus
suffered by the plaintiff cannot be
determined,
because the
entries
referring to these items do not appear
in the partnership books, although the
plaintiff believes and alleges that they
do appear in the private books of the
defendant Menzi & Co., Inc., which the
latter
has
refused
to
furnish,
notwithstanding the demands made
therefore by the auditors and the
lawyers of the plaintiff.
IV. That taking as basis the amount of
the purchases of some fertilizing
material made by the partnership
during the first four years of the
contract Exhibit A, the plaintiff
estimates that this 5 per cent
commission collected by the defendant
Menzi Co., Inc., to the damage and
prejudice of the plaintiff, amounts to
P127,375.77 of which 35 per cent
belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to
order the defendants to pay jointly and
severally to the plaintiff the amount of
P44,581.52, or the exact amount owed upon
this ground, after both parties have adduced
their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraph 1, 2, 3
and 4, of the special defense to the
first cause of action in this amended
answer;
2. That the defendant, Menzi & Co.,
Inc., did have during the period of said
agreement, Exhibit A, and has now
what is called a "Propaganda Agency
Agreement" which the Deutsches
Kalesyndikat, G.M.B., of Berlin, which is
a manufacturer of potash, by virtue of
which said Menzi & Co., Inc., was to
receive for its propaganda work in
advertising and bringing about sales of

its potash a commission of 5 per cent

on all orders of potash received by it
from the Philippine Islands; that during
the period of said agreement, Exhibit
A, orders were sent to said concern for
potash, through C. Andre & Co., of
Hamburg, as the agent of the said
Menzi & Co., Inc., upon which the said
Menzi & Co., Inc., received a 5 per cent
commission, amounting in all to
P2,222.32 for the propaganda work
which it did for said firm in the
Philippine
Islands;
that
said
commissioners were not in any sense
discounts on the purchase price of said
potash, and have no relation to the
fertilizer business of which the plaintiff
was to receive a share of the net
profits
for
his
services,
and
consequently were not credited to that
department;
3. That in going over the books of
Menzi Co., Inc., it has been found that
there
are
only
two
items
of
commissions, which were received
from the United Supply Co., of San
Francisco, in the total of sum $66.51,
which through oversight, were not
credited on the books of the fertilizer
department of Menzi & Co., Inc., but
due allowance has now been given to
the department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I,
II, III, IV and V, of the first cause of
action.
II. That the defendant Menzi Co., Inc.,
in collusion with and through the
defendants J.M. Menzi and P.C.
Schlobohm and their assistants, has
tampered with the books of the
business making fictitious transfers in
favor of the defendant Menzi & Co.,
Inc., of merchandise belonging to the
partnership, purchased with the latter's
money,
and
deposited
in
its
warehouses, and then sold by Menzi &
Co., Inc., to third persons, thereby
appropriating to itself the profits
obtained from such resale.
III. That it is impossible to ascertain the
amount of the fraud suffered by the
plaintiff in this respect as the real
amount obtained from such sales can

86

only
be
ascertained
from
the
examination of the private books of the
defendant entity, which the latter has
refused to permit notwithstanding the
demand made for the purpose by the
auditors and the lawyers of the
plaintiff, and no basis of computation
can
be
established,
even
approximately, to ascertain the extent
of the fraud sustained by the plaintiff
in this respect, by merely examining
the partnership books.
Wherefore, the plaintiff prays the court to
order the defendants J.M. Menzi and P.C.
Schlobohm, to make a sworn statement as to
all the profits received from the sale to third
persons of the fertilizers pertaining to the
partnership, and the profits they have
appropriated, ordering them jointly and
severally to pay 35 per cent of the net
amount, with legal interest from the filing of
the original complaint until the payment
thereof.
Defendant alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2, 3
and 4, of the special defense to the
first cause of action in this amended
answer:
2. That under the express terms of the
employment agreement, Exhibit A, the
defendant, Menzi & Co., Inc., had the
right to import into the Philippine
Islands in the course of its fertilizer
business and sell fro its exclusive
account and benefit simple fertilizer
ingredients; that the only materials
imported by it and sold during the
period of said agreement were simple
fertilizer
ingredients,
which
had
nothing whatever to do with the
business of mixed fertilizers, of which
the plaintiff was to receive a share of
the net profits as a part of his
compensation.
SEVENTH CAUSE OF ACTION
As seventh cause of action, plaintiff alleged:

partnership constituted between itself

and the plaintiff, and with the latter's
money, purchased from a several
foreign firms various simple fertilizing
material for the use of the partnership.
III. That in the paid invoices for such
purchases there are charged, besides
the cost price of the merchandise,
other amounts for freight, insurance,
duty, etc., some of which were not
entirely thus spent and were later
credited by the selling firms to the
defendant Menzi & Co., Inc.
IV. That said defendant Menzi & Co.,
Inc., through and in collusion with the
defendants J.M. Menzi and P.C.
Schlobohm upon receipt of the credit
notes remitted by the selling firms of
fertilizing material, for rebates upon
freight, insurance, duty, etc., charged
in the invoice but not all expended, did
not enter them upon the books to the
credit of the partnership constituted
between the defendant and the
plaintiff, but entered or had them
entered to the credit on Menzi & Co.,
Inc., thereby defrauding the plaintiff of
35 per cent of the value of such
reductions.
V. That the total amount, or even the
approximate amount of this fraud
cannot be ascertained without an
examination of the private books of
Menzi & Co., Inc., which the latter has
refused to permit notwithstanding the
demand to this effect made upon them
by the auditors and the lawyers of the
plaintiff.
Wherefore, the plaintiff prays the court to
order the defendants J.M. Menzi and P.C.
Schlobohm, to make a sworn statement as to
the total amount of such rebates, and to
sentence the defendants to pay the plaintiff
jointly and severally 35 per cent of the net
amount.
Defendants alleged:

I.
That
he
hereby
reproduces
paragraphs I, II, III, IV, and V of the first
cause of action.

1. That they repeat and make a part of

this special defense paragraphs 1, 2, 3
and 4, of the special defense to the
first cause of action in this amended
answer:

II. That during the existence of the

contract Exhibit A, the defendant Menzi
& Co., Inc., for the account of the

2. That during the period of said

employment agreement, Exhibit A, the
defendant, Menzi & Co., Inc., received

87

from its agent, C. Andre & Co., of

Hamburg, certain credits pertaining to
the fertilizer business in the profits of
which the plaintiff was interested, by
way of refunds of German Export
Taxes, in the total sum of P1,402.54;
that all of department as received, but
it has just recently been discovered
that through error an additional sum of
P216.22
was
credited
to
said
department, which does not pertain to
said business in the profits of which
the plaintiff is interested.
EIGHT CAUSE OF ACTION
A eighth cause of action, plaintiff alleged:
I.
That
he
hereby
reproduces
paragraphs I, II, III, IV and V of the first
cause of action.
II. That on or about April 21, 1927, that
is, before the expiration of the contract
Exhibit A of the complaint, the
defendant Menzi & Co., Inc., acting as
manager of the fertilizer business
constituted between said defendant
and the plaintiff, entered into a
contract with the Compaia General de
Tabacos de Filipinas for the sale of said
entity of three thousand tons of
fertilizers of the trade mark "Corona
No. 1", at the rate of P111 per ton, f. o.
b. Bais, Oriental Negros, to be
delivered, as they were delivered,
according to information received by
the plaintiff, during the months of
November and December, 1927, and
January, February, March, and April,
1928.
III. That both the contract mentioned
above and the benefits derived
therefrom, which the plaintiff estimates
at
P90,000,
Philippine
currency,
belongs to the fertilizer business
constituted between the plaintiff and
the defendant, of which 35 per cent, or
P31,500, belongs to said plaintiff.
IV. That notwithstanding the expiration
of the partnership contract Exhibit A,
on April 27, 1927, the defendants have
not rendered a true accounting of the
profits obtained by the business during
the last four months thereof, as the
purposed balance submitted to the
plaintiff was incorrect with regard to
the
inventory
of
merchandise,
transportation equipment, and the

value of the trade marks, for which

reason such proposed balance did not
represent the true status of the
business of the partnership on April 30,
1927.
V.
That
the
proposed
balance
submitted
to
the
plaintiff
with
reference to the partnership operations
during the last four months of its
existence, was likewise incorrect,
inasmuch as it did not include the
profit realized or to be realized from
the contract entered into with the
Compaia General de Tabacos de
Filipinas, notwithstanding the fact that
this contract was negotiated during the
existence of the partnership, and while
the defendant Menzi & Co., Inc., was
the manager thereof.
VI. That the defendant entity now
contends that the contract entered into
with the Compaia General de Tabacos
de Filipinas belongs to it exclusively,
and refuses to give the plaintiff his
share consisting in 35 per cent of the
profits produced thereby.
Wherefore, the plaintiff prays the honorable
court to order the defendants to render a true
and detailed account of the business during
the last four months of the existence of the
partnership, i. e., from January 1, 1927 to April
27, 1927, and to sentence them likewise to
pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2, 3
and 4, of the special defense to the
first cause of action in this amended
answer;
2. That the said order for 3,000 tons of
mixed fertilizer, received by Menzi &
Co., Inc., from the Compaia General
de Tabacos Filipinas on April 21, 1927,
was taken by it in the regular course of
its fertilizer business, and was to be
manufactured
and
delivered
in
December, 1927, and up to April,
1928; that the employment agreement
of the plaintiff expired by its own terms
on April 27, 1927, and he has not been
in any way in the service of the
defendant, Menzi & Co., Inc., since that
time, and he cannot possibly have any
interest in the fertilizers manufactured
and delivered by the said Menzi & Co.,

88

Inc., after the expiration of his contract

for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I.
That
he
hereby
reproduces
paragraphs I, II, III, IV, and V of the first
cause of action.
II. That during the period of the
contract Exhibit A, the partnership
constituted thereby registered in the
Bureau of Commerce and Industry the
trade marks "CORONA NO. 1", CORONA
NO. 2", "ARADO", and "HOZ", the
plaintiff and the defendant having by
their efforts succeeded in making them
favorably known in the market.
III. That the plaintiff and the defendant,
laboring jointly, have succeeded in
making the fertilizing business a
prosperous concern to such an extent
that the profits obtained from the
business during the five years it has
existed, amount to approximately
P1,000,000, Philippine currency.
IV. That the value of the good will and
the trade marks of a business of this
nature amounts to at least P1,000,000,
of which sum 35 per cent belongs to
the plaintiff, or, P350,000.
V. That at the time of the expiration of
the contract Exhibit A, the defendant
entity, notwithstanding and in spite of
the plaintiff's insistent opposition, has
assumed the charge of liquidating the
fertilizing business, without having
rendered a monthly account of the
state of the liquidation, as required by
law, thereby causing the plaintiff
damages.
VI. That the damages sustained by the
plaintiff, as well as the amount of his
share in the remaining property of the
plaintiff, and may only be truly and
correctly ascertained by compelling
the defendants J. M. Menzi and P. C.
Schlobohm to declare under oath and
explain to the court in detail the sums
obtained from the sale of the
remaining merchandise, after the
expiration of the partnership contract.
VII. That after the contract Exhibit A
had expired, the defendant continued

to use for its own benefit the good-will

and trade marks belonging to the
partnership,
as
well
as
its
transportation equipment and other
machinery, thereby indicating its
intention to retain such good-will, trade
marks, transportation equipment and
machinery, for the manufacture of
fertilizers, by virtue of which the
defendant is bound to pay the plaintiff
35 per cent of the value of said
property.
VIII. That the true value of the
transportation
equipment
and
machinery
employed
in
the
preparation of the fertilizers amounts
of P20,000, 35 per cent of which
amount to P7,000.
IX. That the plaintiff has repeatedly
demanded that the defendant entity
render a true and detailed account of
the state of the liquidation of the
partnership
business,
but
said
defendants has ignored such demands,
so that the plaintiff does not, and this
date, know whether the liquidation of
the business has been finished, or
what the status of it is at present.
Wherefore, the plaintiff prays the Honorable
Court:
1. To order the defendants J.M. Menzi
and P.C. Schlobohm to render a true
and detailed account of the status of
business in liquidation, that is, from
April 28, 1927, until it is finished,
ordering all the defendants to pay the
plaintiff jointly and severally 35 per
cent of the net amount.
2. To order the defendants to pay the
plaintiff jointly and severally the
amount of P350,000, which is 35 per
cent of the value of the goodwill and
the trade marks of the fertilizer
business;
3. To order the defendants to pay the
plaintiff jointly and severally the
amount of P7,000 which is 35 per cent
of the value of the transportation
equipment and machinery of the
business; and
4. To order the defendants to pay the
costs of this trial, and further, to grant
any other remedy that this Honorable
Court may deem just and equitable.

89

Defendants alleged:
1. That they repeat and make a part of
this special defense paragraphs 1, 2, 3
and 4, of the special defense to the
first cause of action in this amended
answer;
2. That the good-will, if any, of said
fertilizer business of the defendant,
Menzi & Co., Inc., pertains exclusively
to it, and the plaintiff can have no
interest therein of any nature under his
said employment agreement; that the
trade-marks mentioned by the plaintiff
in his amended complaint, as a part of
such good-will, belonged to and have
been used by the said Menzi & Co.,
Inc., in its fertilizer business from and
since its organization, and the plaintiff
can have no rights to or interest
therein under his said employment
agreement; that the transportation
equipment pertains to the fertilizer
department of Menzi & Co., Inc., and
whenever it has been used by the said
Menzi & Co., Inc., in its own business,
due and reasonable compensation for
its use has been allowed to said
business;
that
the
machinery
pertaining to the said fertilizer
business was destroyed by fire in
October, 1926, and the value thereof in
the sum of P20,000 was collected from
the Insurance Company, and the
plaintiff has been given credit for 35
per cent of that amount; that the
present machinery used by Menzi &
Co., Inc., was constructed by it, and
the costs thereof was not charged to
the fertilizer department, and the
plaintiff has no right to have it taken
into consideration in arriving at the net
profits due to him under his said
employment agreement.
The dispositive part of the decision of the trial
court is as follows:
Wherefore, let judgment be entered:
(a) Holding that the contract entered
into by the parties, evidenced by
Exhibit A, as a contract of general
regular
commercial
partnership,
wherein Menzi & Co., Inc., was the
capitalist, and the plaintiff, the
industrial partner;
(b) Holding the plaintiff, by the mere
fact of having signed and approved the

balance sheets, Exhibits C to C-8, is

not estopped from questioning the
statements of the accounts therein
contained;
(c) Ordering Menzi & Co., Inc., upon the
second ground of action, to pay the
plaintiff the sum of P 60,385.67 with
legal interest from the date of the filing
of the original complaint until paid;
(d) Dismissing
action;

the

third

cause

of

(e) Ordering Menzi & Co., Inc., upon

the fourth cause of action, to pay the
plaintiff the sum of P3,821.41, with
legal interest from the date of the filing
of the original until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing
action;

the

sixth

cause

of

(h) Dismissing the seventh cause of

action;
(i) Ordering the defendant Menzi & Co.,
Inc., upon the eighth cause of action,
to pay the plaintiff the sum of
P6,578.38 with legal interest from
January 1, 1929, the date of the
liquidation of the fertilizer business,
until paid;
(j ) Ordering Menzi & Co., Inc., upon
the ninth cause of action to pay the
plaintiff the sum of P196,709.20 with
legal interest from the date of the filing
of the original complaint until paid;
(k) Ordering the said defendant
corporation, in view of the plaintiff's
share of the profits of the business
accruing from January 1, 1927 to
December 31, 1928, to pay the plaintiff
35 per cent of the net balance shown
in Exhibits 51 and 51-A, after
deducting the item of P2,410 for
income tax, and any other sum
charged for interest under the entry
"Purchases";
(l) Ordering the defendant corporation,
in connection with the final liquidation
set in Exhibit 52 and 52-A, to pay the
plaintiff the sum of P17,463.54 with
legal interest from January 1, 1929,
until fully paid;

90

(m) Dismissing the case with reference

to the other defendants, J. M. Menzi
and P. C. Schlobohm; and
(n) Menzi & Co., Inc., shall pay the
costs of the trial.
The appellant makes the following assignment
of error:
I. The trial court erred in finding and
holding that the contract Exhibit A
constitutes
a
regular
collective
commercial copartnership between the
defendant corporation, Menzi & Co.,
Inc., and the plaintiff, Francisco
Bastida, and not a contract of
employment.
II. The trial court erred in finding and
holding that the defendant, Menzi &
Co., Inc., had wrongfully charged to the
fertilizer business in question the sum
of P10,918.33 as income taxes
partners' balances, foreign drafts, local
drafts, and on other credit balances in
the sum of P172,530.49, and that 35
per cent thereof, or the sum of
P60,358.67, with legal interest thereon
from the date of filing his complaint,
corresponds to the plaintiff.
III. The trial court erred finding and
holding that the defendant, Menzi &
Co., Inc., had wrongfully charged to the
fertilizer business in question the sum
of P10,918.33 as income taxes for the
years 1923, 1924, 1925 and 1926, and
that the plaintiff is entitled to 35 per
cent thereof, or the sum of P3,821.41,
with legal interest thereon from the
date of filing his complaint, and in
disallowing the item of P2,410 charged
as income tax in the liquidation in
Exhibits 51 and 51 A for the period
from January 1 to April 27, 1927.
IV. The trial court erred in refusing to
find and hold under the evidence in
this case that the contract, Exhibit A
was daring the whole period thereof
considered
by
the
parties
and
performed by them as a contract of
employment in relation to the fertilizer
business of the defendant, and that
the accounts of said business were
kept by the defendant, Menzi & Co.,
Inc., on that theory with the knowledge
and consent of the plaintiff, and that at
the end of each year for five years a
balance sheet and profit and loss

statement of said business were

prepared from the books of account of
said business on the same theory and
submitted to the plaintiff, and that
each year said balance sheet and profit
and loss statement were examined,
approved and signed by said contract
in accordance therewith with full
knowledge of the manner in which said
business was conducted and the
charges for interest and income taxes
made against the same and that by
reason of such facts, the plaintiff is
now estopped from raising any
question as to the nature of said
contract or the propriety of such
charges.
V. The trial court erred in finding and
holding that the plaintiff, Francisco
Bastida, is entitled to 35 per cent of
the net profits in the sum of
P18,795.38 received by the defendant,
Menzi & Co., Inc., from its contract with
the Compaia General de Tabacos de
Filipinas, or the sum of P6.578.38, with
legal interest thereon from January 1,
1929, the date upon which the
liquidation of said business was
terminated.
VI. The trial court erred in finding and
holding that the value of the good-will
of the fertilizer business in question
was P562,312, and that the plaintiff,
Francisco Bastida, was entitled to 35
per cent of such valuation, or the sum
of P196,709.20, with legal interest
thereon from the date of filing his
complaint.
VII. The trial court erred in rendering
judgment in favor of the plaintiff and
against defendant, Menzi & Co., Inc.,
(a) on the second cause of action, for
the sum of P60,385.67, with legal
interest thereon from the date of filing
the complaint; (b) on the fourth cause
of action, for the sum of P3,821.41,
with legal interest thereon from the
date of filing the complaint; (c) on the
eight cause of action, for the sum of
P6,578.38, with legal interest thereon
from January 1, 1929; and (d) on the
ninth cause of action, for the sum of
P196,709.20,
with
legal
interest
thereon from the date of filing the
original complaint; and (e) for the costs
of the action, and in not approving the
final liquidation of said business,
Exhibits 51 and 51-A and 52 and 52-A,
as true and correct, and entering

91

judgment against said defendant only

for the amounts admitted therein as
due the plaintiff with legal interest,
with the costs against the plaintiff.
VIII. The trial court erred in overruling
the defendants' motion for a new trial.
It appears from the evidence that the
defendants corporation was organized in 1921
for purpose of importing and selling general
merchandise, including fertilizers and fertilizer
ingredients. It appears through John Bordman
and the Menzi-Bordman Co. the good-will,
trade-marks, business, and other assets of the
old German firm of Behn, Meyer & Co., Ltd.,
including its fertilizer business with its stocks
and trade-marks. Behn, Meyer & Co., Ltd., had
owned and carried on this fertilizer business
from 1910 until that firm was taken over the
Alien Property Custodian in 1917. Among the
trade-marks thus acquired by the appellant
were those known as the "ARADO", "HOZ",
and "CORONA". They were registered in the
Bureau of Commerce and Industry in the
name of Menzi & Co. The trade marks
"ARADO" and "HOZ" had been used by Behn,
Meyer & Co., Ltd., in the sale of its mixed
fertilizers, and the trade mark "CORONA" had
been used in its other business. The "HOZ"
trade-mark was used by John Bordman and
the Menzi-Bordman Co. in the continuation of
the fertilizer business that had belonged to
Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided
into several different departments, each of
which was in charge of a manager, who
received a fixed salary and a percentage of
the profits. The corporation had to borrow
money or obtain credits from time to time and
to pay interest thereon. The amount paid for
interest was charged against the department
concerned, and the interest charges were
taken into account in determining the net
profits of each department. The practice of
the corporation was to debit or credit each
department with interest at the bank rate on
its daily balance. The fertilizer business of
Menzi & Co., Inc., was carried on in
accordance with this practice under the
"Sundries Department" until July, 1923, and
after that as a separate department.
In November, 1921, the plaintiff, who had had
some experience in mixing and selling
fertilizer, went to see Toehl, the manager of
the sundries department of Menzi & Co., Inc.,
and told him that he had a written contract
with the Philippine Sugar Centrals Agency for
1,250 tons of mixed fertilizers, and that he
could obtain other contracts, including one

from the Calamba Sugar Estates for 450 tons,

but the he did not have the money to buy the
ingredients to fill the order and carry on the
on the business. He offered to assign to Menzi
& Co., Inc., his contract with the Philippine
Sugar Centrals Agency and to supervise the
mixing of the fertilizer and to obtain other
orders for fifty per cent of the net profits that
Menzi & Co., might derive therefrom. J.M.
Menzi, the general manager of Menzi & Co.,
accepted plaintiff's offer. Plaintiff assigned to
Menzi & Co., Inc., his contract with the Sugar
Centrals
Agency,
and
the
defendant
corporation proceeded to fill the order. Plaintiff
supervised the mixing of the fertilizer.
On January 10, 1922 the defendant
corporation at plaintiff's request gave him the
following letter, Exhibit B:
MANILA, 10 de enero de 1922
Sr.
Manila

FRANCISCO

BASTIDA

MUY SR. NUESTRO: Interin formalizamos el

contrato que, en principio, tenemos convenido
para la explotacion del negocio de abono y
fertilizantes, por la presente venimos en
confirmar su derecho de 50 por ciento de las
untilidades que se deriven del contrato
obtenido por Vd. de la Philippine Sugar
Centrals (por 1250 tonel.) y del contrato con
la Calamba Sugar Estates, asi como de
cuantos contratos se cierren con definitiva de
nuestro contrato mutuo, lo que formalizacion
definitiva de nuestro contrato mutuo, lo que
hacemos para garantia y seguridad de Vd.
MENZI
Por (Fdo.) W. TOEHL

&

CO.,

Menzi & Co., Inc., continued to carry on its

fertilizer business under this arrangement
with the plaintiff. It ordered ingredients from
the United States and other countries, and the
interest on the drafts for the purchase of
these materials was changed to the business
as a part of the cost of the materials. The
mixed fertilizers were sold by Menzi & Co.,
Inc., between January 19 and April 1, 1922
under its "CORONA" brand. Menzi & Co., Inc.,
had only one bank account for its whole
business. The fertilizer business had no
separate capital. A fertilizer account was
opened in the general ledger, and interest at
the rate charged by the Bank of the Philippine
Islands was debited or credited to that
account on the daily balances of the fertilizer
business. This was in accordance with

92

appellant's established practice, to which the

plaintiff assented.
On or about April 24, 1922 the net profits of
the business carried on under the oral
agreement were determined by Menzi & Co.,
Inc., after deducting interest charges,
proportional part of warehouse rent and
salaries and wages, and the other expenses of
said business, and the plaintiff was paid some
twenty thousand pesos in full satisfaction of
his share of the profits.
Pursuant to the aforementioned verbal
agreement, confirmed by the letter, Exhibit B,
the defendant corporation April 27, 1922
entered a written contract with the plaintiff,
marked Exhibit A, which is the basis of the
present action.
The fertilizer business was carried on by Menzi
& Co., Inc., after the execution of Exhibit A in
practically the same manner as it was prior
thereto. The intervention of the plaintiff was
limited to supervising the mixing of the
fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the
fertilizer were registered in the Bureau of
Commerce & Industry in the name of Menzi &
Co., Inc., and the fees were paid by that
company. They were not changed to the
fertilizer business, in which the plaintiff was
interested. Only the fees for registering the
formulas in the Bureau of Science were
charged to the fertilizer business, and the
total amount thereof was credited to this
business in the final liquidation on April 27,
1927.
On May 3, 1924 the plaintiff made a contract
with Menzi & Co., Inc., to furnish it all the
stems and scraps to tobacco that it might
need for its fertilizer business either in the
Philippine Islands or for export to other
countries. This contract is rendered to in the
record as the "Vastago Contract". Menzi & Co.,
Inc., advanced the plaintiff, paying the
salaries of his employees, and other expenses
in performing his contract.
White,
Page
&
Co.,
certified
public
accountants, audited the books of Menzi &
Co., Inc., every month, and at the end of each
year they prepared a balance sheet and a
profit and loss statement of the fertilizer
business. These statements were delivered to
the plaintiff for examination, and after he had
had an opportunity of verifying them he
approved them without objection and
returned them to Menzi & Co., Inc.

Plaintiff collected from Menzi Co., Inc., as his

share or 35 per cent of the net profits of the
fertilizer business the following amounts:
1922 . . . . . . . . . . . . . . .
P1,874.73
......
1923 . . . . . . . . . . . . . . .
30,212.62
......
1924 . . . . . . . . . . . . . . . 101,081.5
......
6
1925 . . . . . . . . . . . . . . .
35,665.03
......
1926 . . . . . . . . . . . . . . .
27,649.98
......
Total . . . . . . . . . . . . . . .
.....

P196,483.
92

To this amount must be added plaintiff's share

of the net profits from January 1 to April 27,
1927, amounting to P34,766.87, making a
total of P231,250.79.
Prior to the expiration of the contract, Exhibit
A, the manager of Menzi & Co. Inc., notified
the plaintiff that the contract for his services
would not be renewed.
When plaintiff's contract expired on April 27,
1927, the fertilizer department of Menzi & Co.,
Inc., had on hand materials and ingredients
and two Ford trucks of the book value of
approximately
P75,000,
and
accounts
receivable amounting to P103,000. There
were claims outstanding and bills to pay.
Before the net profits could be finally
determined, it was necessary to dispose of the
materials
and
equipment,
collect
the
outstanding accounts for Menzi & Co., Inc.,
prepared a balance sheet and a profit and loss
statement for the period from January 1 to
April 27, 1927 as a basis of settlement, but
the plaintiff refused to accept it, and filed the
present action.
Menzi & Co., Inc., then proceeded to liquidate
fertilizer business in question. In October,
1927 it proposed to the plaintiff that the old
and damaged stocks on hand having a book
value of P40,000, which the defendant
corporation had been unable to dispose of, be
sold at public or private sale, or divided
between the parties. The plaintiff refused to
agree to this. The defendant corporation then
applied to the trial court for an order for the
sale of the remaining property at public
auction, but apparently the court did not act
on the petition.

93

The old stocks were taken over by Menzi &

Co., Inc., and the final liquidation of the
fertilizer
business
was
completed
in
December, 1928 and a final balance sheet
and a profit and loss statement were
submitted to the plaintiff during the trial.
During the liquidation the books of Menzi &
Co., Inc., for the whole period of the contract
in question were reaudited by White, Page &
Co.., certain errors of bookkeeping were
discovered by them. After making the
corrections they found the balance due the
plaintiff to be P21,633.20.
Plaintiff
employed
a
certified
public
accountant, Vernon Thompson, to examine
the books and vouchers of Menzi & Co.
Thompson assumed the plaintiff and Menzi &
Co., Inc., to be partners, and that Menzi & Co.,
Inc., was obliged to furnish free of charge all
the capital the partnership should need. He
naturally reached very different conclusions
from those of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's
assignment of error. After considering the
evidence and the arguments of counsel, we
are unanimously of the opinion that under the
facts of this case the relationship established
between Menzi & Co. and by the plaintiff was
to receive 35 per cent of the net profits of the
fertilizer business of Menzi & Co., Inc., in
compensation for his services of supervising
the mixing of the fertilizers. Neither the
provisions of the contract nor the conduct of
the parties prior or subsequent to its
execution justified the finding that it was a
contract of copartnership. Exhibit A, as
appears from the statement of facts, was in
effect a continuation of the verbal agreement
between the parties, whereby the plaintiff
worked for the defendant corporation for onehalf of the net profits derived by the
corporation from certain fertilizer contracts.
Plaintiff was paid his share of the profits from
those transactions after Menzi & Co., Inc., had
deducted the same items of expense which he
now protests. Plaintiff never made any
objection to defendant's manner of keeping
the accounts or to the charges. The business
was continued in the same manner under the
written agreement, Exhibit A, and for four
years the plaintiff never made any objection.
On the contrary he approved and signed
every year the balance sheet and the profit
and loss statement. It was only when
plaintiff's contract was about to expire and the
defendant corporation had notified him that it
would not renew it that the plaintiff began to
make objections.

The trial court relied on article 116 of the

Code of Commerce, which provides that
articles of association by which two or more
persons obligate themselves to place in a
common fund any property, industry, or any
of these things, in order to obtain profit, shall
be commercial, no matter what its class may
be, provided it has been established in
accordance with the provisions of this Code;
but in the case at bar there was no common
fund, that is, a fund belonging to the parties
as joint owners or partners. The business
belonged to Menzi & Co., Inc. The plaintiff was
working for Menzi & Co., Inc. Instead of
receiving a fixed salary or a fixed salary and a
small percentage of the net profits, he was to
receive 35 per cent of the net profits as
compensation for his services. Menzi & Co.,
Inc., was to advanced him P300 a month on
account of his participation in the profits. It
will be noted that no provision was made for
reimbursing Menzi & Co., Inc., in case there
should be no net profits at the end of the year.
It is now well settled that the old rule that
sharing profits as profits made one a partner
is overthrown. (Mechem, second edition, p.
89.)
It is nowhere stated in Exhibit A that the
parties were establishing a partnership or
intended to become partners. Great stress in
laid by the trial judge and plaintiff's attorneys
on the fact that in the sixth paragraph of
Exhibit A the phrase "en sociedad con" is used
in providing that defendant corporation not
engage in the business of prepared fertilizers
except in association with the plaintiff (en
sociedad con). The fact is that en sociedad
con as there used merely means en reunion
con or in association with, and does not carry
the meaning of "in partnership with".
The trial judge found that the defendant
corporation had not always regarded the
contract in question as an employment
agreement, because in its answer to the
original complaint it stated that before the
expiration of Exhibit A it notified the plaintiff
that it would not continue associated with
him in said business. The trial judge
concluded that the phrase "associated with",
used by the defendant corporation, indicated
that it regarded the contract, Exhibit A, as an
agreement of copartnership.
In the first place, the complaint and answer
having been superseded by the amended
complaint and the answer thereto, and the
answer to the original complaint not having
been presented in evidence as an exhibit, the
trial court was not authorized to take it into
account. "Where amended pleadings have

94

been filed, allegations in the original

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

enabled the fertilizer department to do

business on a credit instead of a cash basis.
The charges now complained of, as we have
already stated, are the same as those made
under the verbal agreement, upon the
termination of which the parties made a
settlement; the charges in question were
acquiesced in by the plaintiff for years, and it
is now too late for him to contest them. The
decision of this court in the case of Kriedt vs.
E.C. McCullough & Co. (37 Phil., 474), is in
point. A portion of the syllabus of that case
reads as follows:
1.
CONTRACTS;
INTERPRETATION;
CONTEMPORANEOUS ACTS OF PARTIES.
Acts done by the parties to a
contract
in
the
course
of
its
performance
are
admissible
in
evidence upon the question of its
meaning,
as
being
their
own
contemporaneous interpretation of its
terms.
2. ID, ID; ACTION OF PARTIES UNDER
PRIOR CONTRACT. In an action upon
a contract containing a provision a
doubtful application it appeared that
under a similar prior contract the
parties had, upon the termination of
said contract, adjusted their rights and
made a settlement in which the
doubtful clause had been given effect
in conformity with the interpretation
placed thereon by one of the
parties. Held: That this action of the
parties under the prior contract could
properly be considered upon the
question of the interpretation of the
same clause in the later contract.
3. ID.; ID.; ACQUIESCENCE. Where
one of the parties to a contract
acquiesces in the interpretation placed
by the other upon a provision of
doubtful application, the party so
acquiescing
is
bound
by
such
interpretation.
4. ID.; ID.; ILLUSTRATION. One of the
parties to a contract, being aware at
the time of the execution thereof that
the
other
placed
a
certain
interpretation upon a provision of
doubtful
application,
nevertheless
proceeded,
without
raising
any
question upon the point, to perform
the services which he was bound to
render under the contract. Upon the
termination of the contract by mutual

95

consent a question was raised as to

the proper interpretation of the
doubtful provision. Held: That the party
raising such question had acquiesced
in the interpretation placed upon the
contract by the other party and was
bound thereby.
The trial court held that the plaintiff was
entitled to P6,578.38 or 35 per cent of the net
profits derived by Menzi & Co., Inc., from its
contract for fertilizers with the Tabacalera.
This finding in our opinion is not justified by
the evidence. This contract was obtained by
Menzi & Co., Inc., shortly before plaintiff's
contract with the defendant corporation
expired. Plaintiff tried to get the Tabacalera
contract for himself. When this contract was
filled, plaintiff had ceased to work for Menzi &
Co., Inc., and he has no right to participate in
the profits derived therefrom.
Appellant's sixth assignment of error is that
the trial court erred in finding the value of the
good-will of the fertilizer business in question
to be P562,312, and that the plaintiff was
entitled to 35 per cent thereof or P196,709.20.
In reaching this conclusion the trial court
unfortunately relied on the opinion of the
accountant, Vernon Thompson, who assumed,
erroneously as we have seen, that the plaintiff
and Menzi & Co., Inc., were partners; but even
if they had been partners there would have
been no good-will to dispose of. The
defendant corporation had a fertilizer
business before it entered into any agreement
with the plaintiff; plaintiff's agreement was for
a fixed period, five years, and during that time
the business was carried on in the name of
Menzi & Co., Inc., and in Menzi & Co.'s
warehouses and after the expiration of
plaintiff's contract Menzi & Co., Inc., continued
its fertilizer business, as it had a perfect right
to do. There was really nothing to which any
good-will could attach. Plaintiff maintains,
however, that the trade-marks used in the
fertilizer business during the time that he was
connected with it acquired great value, and
that they have been appropriated by the
appellant to its own use. That seems to be the
only basis of the alleged good-will, to which a
fabulous valuation was given. As we have
seen, the trade- marks were not new. They
had been used by Behn, Meyer & Co. in its
business for other goods and one of them for
fertilizer. They belonged to Menzi & Co., Inc.,
and were registered in its name; only the
expense of registering the formulas in the
Bureau of Science was charged to the
business in which the plaintiff was interested.
These trade-marks remained the exclusive
property of Menzi & Co., and the plaintiff had

no interest therein on the expiration of his

contract.
The balance due the plaintiff, as appears from
Exhibit 52, is P21,633.20. We are satisfied by
the evidence that said balance is correct.
For the foregoing reasons, the decision
appealed from is modified and the defendant
corporation is sentenced to pay the plaintiff
twenty-one thousand, six hundred and thirtythree
pesos
and
twenty
centavos
(P21,633.20), with legal interest thereon from
the date of the filing of the complaint on June
17, 1927, without a special finding as to costs.
G.R. No. 31057

September 7, 1929

ADRIANO
ARBES,
ET
AL., plaintiffsappellees,
vs.
VICENTE POLISTICO, ET AL., defendantsappellants.
Marcelino Lontok and Manuel dela Rosa for
appellants.
Sumulong & Lavides for appellees.
VILLAMOR, J.:
This is an action to bring about liquidation of
the funds and property of the association
called "Turnuhan Polistico & Co." The plaintiffs
were members or shareholders, and the
defendants were designated as presidenttreasurer, directors and secretary of said
association.
It is well to remember that this case is now
brought before the consideration of this court
for the second time. The first one was when
the same plaintiffs appeared from the order of
the court below sustaining the defendant's
demurrer, and requiring the former to amend
their complaint within a period, so as to
include all the members of "Turnuhan Polistico
& Co.," either as plaintiffs or as a defendants.
This court held then that in an action against
the officers of a voluntary association to wind
up its affairs and enforce an accounting for
money and property in their possessions, it is
not necessary that all members of the
association be made parties to the action.
(Borlasa vs. Polistico, 47 Phil., 345.) The case
having been remanded to the court of origin,
both parties amend, respectively, their
complaint and their answer, and by
agreement of the parties, the court appointed
Amadeo R. Quintos, of the Insular Auditor's
Office, commissioner to examine all the
books, documents, and accounts of "Turnuhan

96

Polistico & Co.," and to receive whatever

evidence the parties might desire to present.
The commissioner rendered his report, which
is attached to the record, with the following
resume:
Income:
Member's shares............................
Credits paid................................
Interest received...........................
Miscellaneous...............................

Expenses:
Premiums to members.......................
Loans on real-estate.......................
Loans on promissory notes..............
Salaries....................................
Miscellaneous...............................

Cash on hand........................................

The
defendants
objected
to
the
commissioner's report, but the trial court,
having examined the reasons for the
objection, found the same sufficiently
explained in the report and the evidence, and
accepting it, rendered judgment, holding that
the association "Turnuhan Polistico & Co." is
unlawful, and sentencing the defendants
jointly and severally to return the amount of
P24,607.80, as well as the documents
showing the uncollected credits of the
association, to the plaintiffs in this case, and
to the rest of the members of the said
association represented by said plaintiffs, with
costs against the defendants.
The defendants assigned several errors as
grounds for their appeal, but we believe they
can all be reduced to two points, to wit: (1)
That not all persons having an interest in this
association are included as plaintiffs or
defendants; (2) that the objection to the
commissioner's report should have been
admitted by the court below.

As to the first point, the decision on the case

of Borlasa vs. Polistico, supra, must be
followed.
With regard to the second point, despite the
praiseworthy efforts of the attorney of the
defendants, we are of opinion that, the trial
court having examined all the evidence
touching the grounds for the objection and
having found that they had been explained
away in the commissioner's report, the
conclusion reached by the court below,
accepting and adopting the findings of fact
contained in said report, and especially those
referring to the disposition of the association's
money, should not be disturbed.
In Tan Dianseng Tan Siu Pic vs. Echauz Tan
Siuco (5 Phil., 516), it was held that the
findings of facts made by a referee appointed
under the provisions of section 135 of the
Code of Civil Procedure stand upon the same
basis, when approved by the Court, as
findings made by the judge himself. And in
Kriedt vs. E. C. McCullogh & Co.(37 Phil., 474),
the court held: "Under section 140 of the Code
of Civil Procedure it is made the duty of the
court to render judgment in accordance with
the report of the referee unless the court shall
unless for cause shown set aside the report or
recommit it to the referee. This provision
places upon the litigant parties of the duty of
discovering and exhibiting to the court any
error that may be contained therein." The
appellants stated the grounds for their
objection. The trial examined the evidence
and the commissioner's report, and accepted
the findings of fact made in the report. We
find no convincing arguments on the
appellant's brief to justify a reversal of the
trial
court's
conclusion
admitting
the
commissioner's findings.
There is no question that "Turnuhan Polistico &
Co." is an unlawful partnership (U.S. vs.
Baguio, 39 Phil., 962), but the appellants
allege that because it is so, some charitable
institution to whom the partnership funds may
be ordered to be turned over, should be
included, as a party defendant. The appellants
refer to article 1666 of the Civil Code, which
provides:
A partnership must have a lawful
object, and must be established for the
common benefit of the partners.
When the dissolution of an unlawful
partnership is decreed, the profits shall
be given to charitable institutions of
the domicile of the partnership, or, in

97

default of
province.

such,

to

those

of

the

Appellant's contention on this point is

untenable. According to said article, no
charitable institution is a necessary party in
the present case of determination of the
rights of the parties. The action which may
arise from said article, in the case of unlawful
partnership, is that for the recovery of the
amounts paid by the member from those in
charge of the administration of said
partnership, and it is not necessary for the
said parties to base their action to the
existence of the partnership, but on the fact
that of having contributed some money to the
partnership capital. And hence, the charitable
institution of the domicile of the partnership,
and in the default thereof, those of the
province are not necessary parties in this
case. The article cited above permits no
action for the purpose of obtaining the
earnings made by the unlawful partnership,
during its existence as result of the business
in which it was engaged, because for the
purpose, as Manresa remarks, the partner will
have to base his action upon the partnership
contract, which is to annul and without legal
existence by reason of its unlawful object; and
it is self evident that what does not exist
cannot be a cause of action. Hence,
paragraph 2 of the same article provides that
when the dissolution of the unlawful
partnership is decreed, the profits cannot
inure to the benefit of the partners, but must
be given to some charitable institution.
We deem in pertinent to quote Manresa's
commentaries on article 1666 at length, as a
clear explanation of the scope and spirit of the
provision of the Civil Code which we are
concerned. Commenting on said article
Manresa, among other things says:
When
the
subscriptions
of
the
members have been paid to the
management of the partnership, and
employed by the latter in transactions
consistent with the purposes of the
partnership may the former demand
the return of the reimbursement
thereof
from
the
manager
or
administrator withholding them?
Apropos of this, it is asserted: If the
partnership has no valid existence, if it
is considered juridically non-existent,
the contract entered into can have no
legal effect; and in that case, how can
it give rise to an action in favor of the
partners to judicially demand from the
manager or the administrator of the

partnership
capital,
contribution?

each

one's

The authors discuss this point at great

length, but Ricci decides the matter
quite clearly, dispelling all doubts
thereon. He holds that the partner who
limits himself to demanding only the
amount contributed by him need not
resort to the partnership contract on
which to base his action. And he adds
in explanation that the partner makes
his contribution, which passes to the
managing partner for the purpose of
carrying on the business or industry
which is the object of the partnership;
or in other words, to breathe the
breath of life into a partnership
contract with an objection forbidden by
law. And as said contrast does not exist
in
the
eyes
of
the
law, the
purpose from which the contribution
was made has not come into
existence, and the administrator of the
partnership holding said contribution
retains what belongs to others, without
any consideration; for which reason he
is not bound to return it and he who
has paid in his share is entitled to
recover it.
But this is not the case with regard to
profits earned in the course of the
partnership, because they do not
constitute or represent the partner's
contribution but are the result of the
industry, business or speculation which
is the object of the partnership, and
therefor, in order to demand the
proportional part of the said profits, the
partner would have to base his action
on the contract which is null and void,
since this partition or distribution of
the profits is one of the juridical effects
thereof. Wherefore considering this
contract asnon-existent, by reason of
its illicit object, it cannot give rise to
the necessary action, which must be
the basis of the judicial complaint.
Furthermore, it would be immoral and
unjust for the law to permit a profit
from an industry prohibited by it.
Hence the distinction made in the
second paragraph of this article of this
Code, providing that the profits
obtained by unlawful means shall not
enrich the partners, but shall upon the
dissolution of the partnership, be given
to the charitable institutions of the
domicile of the partnership, or, in

98

default of
province.

such,

to

those

of

the

This is a new rule, unprecedented by

our law, introduced to supply an
obvious deficiency of the former law,
which did not describe the purpose to
which those profits denied the partners
were to be applied, nor state what to
be done with them.

ENCARNACION
MAGALONA,
AL., plaintiffs-appellees,
vs.
JUAN PESAYCO, defendant-appellant.

ET

Manuel Polido and Pedro V. Jimenez for

appellant.
Lutero and Lutero and Ramon Maza for
appellee.
GODDARD, J.:

The profits are so applied, and not the

contributions, because this would be
an excessive and unjust sanction for,
as we have seen, there is no reason, in
such a case, for depriving the partner
of the portion of the capital that he
contributed, the circumstances of the
two cases being entirely different.
Our Code does not state whether, upon
the
dissolution
of the
unlawful
partnership, the amounts contributed
are to be returned by the partners,
because it only deals with the
disposition of the profits; but the fact
that said contributions are not included
in the disposal prescribed profits,
shows that in consequences of said
exclusion, the general law must be
followed, and hence the partners
should reimburse the amount of their
respective contributions. Any other
solution is immoral, and the law will
not consent to the latter remaining in
the possession of the manager or
administrator who has refused to
return them, by denying to the
partners the action to demand them.
(Manresa,
Commentaries
on
the
Spanish Civil Code, vol. XI, pp. 262264)
The judgment appealed from, being in
accordance with law, should be, as it is
hereby, affirmed with costs against the
appellants; provided, however, the defendants
shall pay the legal interest on the sum of
P24,607.80 from the date of the decision of
the court, and provided, further, that the
defendants shall deposit this sum of money
and other documents evidencing uncollected
credits in the office of the clerk of the trial
court, in order that said court may distribute
them among the members of said association,
upon being duly identified in the manner that
it may deem proper. So ordered.
G.R. No. L-39607
1934

February 6,

In the month of September, 1930, the

plaintiffs,
Encarnacion
Magalona,
Juan
Sermeno, and the defendant, Juan Pesayco,
formed a partnership for the purpose of
catching "semillas de bagus o aua" in the
sea and rivers within the jurisdiction of the
municipality of San Jose, Antique Province, for
the year 1931. It was agreed that the
defendant should put in a bid for this privilege
and that the partners should each supply one
third of the capital in case the defendant was
awarded the desired privilege. The defendant,
having had experience in this line, was to be
the manager in case his bid was accepted.
The defendant offered the sum of P5,550.09
for the year ending December 31, 1931. As a
deposit
of
one-fourth of the amount of the bid was
required each of the partners put up one third
of this amount. This bid, being the highest,
was accepted by the municipality and the
privilege was awarded to the defendant. The
latter entered upon his duties under the
contract and gave an account of two sales of
"semillas de bagus", to Tiburcio Lutero as
representative of the plaintiff Magalona. As
the defendant, on April 21, 1931, had on hand
only P410 he wired, Exhibit A, Lutero for
sufficient money to complete the payment of
the first quarter which was to be paid within
the first twenty days of the second quarter of
the year 1931. This telegram reads as follows:
"Hemos conseguido plazo hasta esta tarde
tenemos
aqui
cuatrocientos
diez
gira
telegraficamente
restante."
Lutero
immediately sent P1,000 to the municipal
treasurer of San Jose, Antique (Exhibit D).
The defendant managed the business from
January 1,1931, and with the exception of the
two sales above-mentioned, never gave any
account of his catches or sales to his partners,
the plaintiffs. In view of this the herein
complaint was filed April 21, 1931, in which it
was prayed that a receiver be appointed by
the court to take charge of the funds of the
partnership and the management of its
affairs; that the defendant be ordered to
render an account of his management and to
pay to the plaintiff their participation in the

99

profits thereof; that the defendant be required

to turn over to the receiver all of the funds of
the partnership and that the defendant be
condemned to pay the costs.
The plaintiffs put up a bond of P5,000 and a
receiver was appointed who also put up a
bond for the same amount.
The receiver took over the management and
took possession of all the devices and
implements used in the catching of "semillas
de bagus".
At the trial it was proven that before April 20,
1931, the defendant obtained and sold a total
of 975,000 "semillas de bagus" the market
value of which was P3 per thousand. The
defendant made no report of this nor did he
pay the plaintiffs any part of the P2,925
realized by him on the sales thereof. This was
not denied.
In his two counter-complaints the defendant
prays that he be awarded damages in the sum
of P34,700. He denies that there was a
partnership and depends principally upon the
fact that the partnership agreement was not
in writing.
The partnership was conclusively proven by
the oral testimony of the plaintiffs and other
witnesses, two of whom were Attorneys Lutero
and Maza. The defense made no objection to
the questions asked with regard to the
forming of this partnership. This court has
held that if a party permits a contract, which
the law provides shall be in writing, to be
proved, without objection as to the form of the
proof, it is just as binding as if the statute had
been complied with.
However, we cannot agree with the appellant
that one of the requisites of a partnership
agreement
such
as
the
one
under
consideration, is that it should be in writing.
Article 1667 of the Civil Code provides that
"Civil partnerships may be established in any
form whatever, unless real property or real
rights are contributed to the same, in which
case a public instrument shall be necessary."
Articles of partnership are not required
to be in writing except in the cases
mentioned in article 1667, Civil Code,
which controls article 1280 of the same
Code. (Fernandez vs. Dela Rosa, 1 Phil.,
671.)

A verbal partnership agreement is

valid between the parties even though
more than 1,500 pesetas are involved
and can be enforced without bringing
action under article 1279, Civil Code,
to compel execution of a written
instrument. (Arts. 1261, 1278-1280,
1667, Civil Code; arts. 116-119, 51,
Code of Commerce.)Thunga Chui vs.
Que Bentec, 2 Phil., 561. (4 Phil.
Digest, 3468.)
The dispositive part of the decision of the trial
court reads as follows:
Habiendose probado, sin pruebas en
contrario, de que el demandado
obtuvo durante su administracion de
este negocio, semillas de bagus por
valor de P2,925 que no dio cuenta ni
participacion a sus consocios los
demandantes, el Juzgado declara al
demandado en deber a la sociedad,
compuesta
por
demandantes
y
demandado, en la suma de P2,925,
importe
de
975,000
semillas
de bagus a P3 el millar, y ordena que
entregue esta suma al depositario
judicial nombrado, como fondos de
dicha sociedad.
Se sobreseen las contrademandas y se
condena en costas al demandado. Asi
se ordena.
This decision is affirmed with costs in both
instances against the defendant-appellant. So
ordered.
G.R. No. L-24193

June 28, 1968

MAURICIO
AGAD, plaintiff-appellant,
vs.
SEVERINO MABATO and MABATO and
AGAD COMPANY, defendants-appellees.
Angeles, Maskarino and Associates for
plaintiff-appellant.
Victorio
S.
Advincula
for
defendantsappellees.
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio
Agad, from an order of dismissal of the Court
of First Instance of Davao, we are called upon
to determine the applicability of Article 1773
of our Civil Code to the contract of partnership
on which the complaint herein is based.

100

Alleging that he and defendant Severino

Mabato are pursuant to a public instrument
dated August 29, 1952, copy of which is
attached to the complaint as Annex "A"
partners in a fishpond business, to the capital
of which Agad contributed P1,000, with the
right to receive 50% of the profits; that from
1952 up to and including 1956, Mabato who
handled the partnership funds, had yearly
rendered accounts of the operations of the
partnership; and that, despite repeated
demands, Mabato had failed and refused to
render accounts for the years 1957 to 1963,
Agad prayed in his complaint against Mabato
and Mabato & Agad Company, filed on June 9,
1964, that judgment be rendered sentencing
Mabato to pay him (Agad) the sum of
P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963,
in addition to P1,000 as attorney's fees, and
ordering the dissolution of the partnership, as
well as the winding up of its affairs by a
receiver to be appointed therefor.
In his answer, Mabato admitted the formal
allegations of the complaint and denied the
existence of said partnership, upon the
ground that the contract therefor had not
been perfected, despite the execution of
Annex "A", because Agad had allegedly failed
to give his P1,000 contribution to the
partnership capital. Mabato prayed, therefore,
that the complaint be dismissed; that Annex
"A" be declared void ab initio; and that Agad
be sentenced to pay actual, moral and
exemplary damages, as well as attorney's
fees.
Subsequently, Mabato filed a motion to
dismiss, upon the ground that the complaint
states no cause of action and that the lower
court had no jurisdiction over the subject
matter of the case, because it involves
principally the determination of rights over
public lands. After due hearing, the court
issued the order appealed from, granting the
motion to dismiss the complaint for failure to
state a cause of action. This conclusion was
predicated upon the theory that the contract
of partnership, Annex "A", is null and void,
pursuant to Art. 1773 of our Civil Code,
because an inventory of the fishpond referred
in said instrument had not been attached
thereto. A reconsideration of this order having
been denied, Agad brought the matter to us
for review by record on appeal.

contributed thereto, in which case a

public instrument shall be necessary.
Art. 1773. A contract of partnership is
void, whenever immovable property is
contributed thereto, if inventory of said
property is not made, signed by the
parties; and attached to the public
instrument.
The issue before us hinges on whether or not
"immovable property or real rights" have
been contributed to the partnership under
consideration. Mabato alleged and the lower
court held that the answer should be in the
affirmative, because "it is really inconceivable
how a partnership engaged in the fishpond
business could exist without said fishpond
property
(being)
contributed
to
the
partnership." It should be noted, however,
that, as stated in Annex "A" the partnership
was established "to operate a fishpond", not
to "engage in a fishpond business". Moreover,
none of the partners contributed either a
fishpond or a real right to any fishpond. Their
contributions were limited to the sum of
P1,000 each. Indeed, Paragraph 4 of Annex
"A" provides:
That the capital of the said partnership
is Two Thousand (P2,000.00) Pesos
Philippine Currency, of which One
Thousand (P1,000.00) pesos has been
contributed by Severino Mabato and
One Thousand (P1,000.00) Pesos has
been contributed by Mauricio Agad.
xxx

xxx

xxx

The operation of the fishpond mentioned in

Annex "A" was the purpose of the partnership.
Neither said fishpond nor a real right thereto
was contributed to the partnership or became
part of the capital thereof, even if a fishpond
or a real right thereto could become part of its
assets.
WHEREFORE, we find that said Article 1773 of
the Civil Code is not in point and that, the
order appealed from should be, as it is hereby
set aside and the case remanded to the lower
court for further proceedings, with the costs of
this instance against defendant-appellee,
Severino Mabato. It is so ordered.
G.R. No. 1472

September 30, 1905

Articles 1771 and 1773 of said Code provide:

Art. 1771. A partnership may be
constituted in any form, except where
immovable property or real rights are

E.J.
SMITH
AND
RAFAEL
REYES,
proprietors of the Philippine Gas Light
Company, plaintiffs-appellees,
vs.

101

JACINTA LOPEZ AND IGNACIA LOPEZ DE

PINEDA, defendants-appellants.
Gregorio
Pineda
for
Lionel D. Hargis for appellees.

appellants.

TORRES, J.:
On November 19, 1902, Messrs. Smith and
Reyes, as proprietors of the Philippine Gas
Light Company, brought this action against
the defendant sisters, Jacinta and Ignacia
Lopez de Pineda, to recover from them the
sum of 3,270 pesos, Mexican currency, with
interest due thereon and costs of proceedings,
for work performed in connection with the
installation of a water system, urinals, closets,
shower baths, and drain pipes in the house at
No. 142 Calle Dulumbayan, district of Santa
Cruz, the same being the property of the
defendants. The plaintiffs alleged that they
had complied with the agreement made with
the
father
of
the
defendants,
the
administrator of the property, and that the
labor performed and the material used were
reasonably worth the sum of 4,020 pesos,
Mexican currency, of which sum they
acknowledged having received 750 pesos,
and prayed that judgment be entered against
the defendants and in favor of the plaintiffs
for the sum of 3,270 pesos, together with
accrued interest and costs of proceedings,
defendants having refused to pay the same as
agreed.
Attorney Gregorio Pineda appeared in behalf
of the defendants, denied all the facts set out
in the complaint, and alleged that it did not
appear from the pleadings that plaintiffs had
ever entered into a mercantile partnership
under the aforesaid name and style, or that
any such partnership legally existed; that
Nicasio Lopez was not the administrator nor
was he empowered by the defendants to
make
any
contract
for
repairs
and
improvements to and in the said house; that
there was no allegation as to the extent and
importance of the work performed on the
premises nor as to the quality or quantity of
the materials used; that the work was not
reasonably worth 4,020 pesos; and that,
assuming that plaintiffs had performed work
in the said house pursuant to an agreement
with Nicasio Lopez, without defendants'
authority,
the
defendants
set
up
a
counterclaim for 600 pesos, Mexican currency,
for damages caused to the house as a result
of said work. Defendants finally prayed that
the complaint be dismissed and that plaintiffs
be ordered to pay the costs of proceedings
and the amount of the counterclaim.

The court, after considering the allegations

made and the evidence introduced by both
parties, on April 3, 1903, entered judgment
against the defendants and in favor of the
plaintiffs for the sum of 2,717.40 pesos, local
currency, and accrued interest thereon at the
legal rate of 6 per cent per annum, from
November 19, 1902, and costs of proceedings.
To this judgment defendants duly excepted,
having first moved for a new trial.
This is an action upon a contract to recover
for labor performed on the premises, No. 142
Calle Dulumbayan, district of Santa Cruz, in
connection with the installation of a water
system, urinals, water-closets, shower baths,
and drain pipes. The contract in question was
entered into between one of the plaintiffs and
Nicasio Lopez, the father of the defendants,
who was at the time in charge of the house
and cared for the same for the defendant
sisters. There was no stipulation in the
contract as to the specific cost of the work to
be performed.
There is no doubt that the work was actually
performed as alleged. It thus appears from the
answer of the defendants to plaintiffs'
complaint, and it was also admitted by the
witness Nicasio Enrico Lopez, who, among
other things, testified under oath, that if Mr.
Smith had presented to them a bill for 1,500
or, at most, 2000 pesos for the work
performed he would have paid him with
pleasure. In view of the foregoing the court
made the statement during the course of the
trial that the only question was the reasonable
value of the work.
One of the errors assigned by counsel for
defendants and appellants in this court is that
the court below erred in recognizing plaintiffs'
capacity to sue as a partnership, there being
no evidence to show that they were legally
organized as such.
There was no such error. Messrs. Smith and
Reyes executed the contract in their own
individual capacity and not in the name of any
partnership. They acted as coowners of the
Philippine Gas Light Company. In their
complaint they sought to enforce a legitimate
right which they had as such coowners. (Arts.
392 et seq., and 1669 of the Civil Code.)
The plaintiffs were not seeking to enforce a
right pertaining to a legal entity. They were
not obliged to register in the Mercantile
Registry. They were merely merchants having
a common interest in the business. They were

102

under no obligation to register. (Arts. 16 and

17 of the Code of Commerce.)
As to the second, third, and fourth errors, it
must be borne in mind that Nicasio Lopez, the
father
of
the
defendants,
was
the
administrator of the property; that having
been notified of an order of the Board of
Health he took the necessary steps to comply
with the same, calling upon one of the
plaintiffs to do the work required, and that he
made certain payments on account. He, the
father of the defendants, did all this as a
voluntary agent of the actual owners of the
house, and, although there is no proof of an
express power of attorney, it can not be
denied that there was an implied power,
because the defendants did not object to the
work being done on the house, which was
really benefited and improved by such work.
For this reason it is evidently just that the
owners be held liable for the cost of the work
and the value of the material used therein.
They can not now allege that there was no
contract and that they did not agree to pay for
such labor and material. There was a quasi
contract which created certain reciprocal
obligations between them and the plaintiffs.
(Arts. 1887, 1888, 1892, and 1893 of the Civil
Code.)
At the request of Nicasio Lopez there were
installed in the house of defendants a watersupply system, baths, water-closets, and drain
pipes pursuant to orders from the Board of
Health, for the purpose of bettering the
sanitary condition of the premises, and the
defendants
never
objected
to
the
performance of the necessary work. It
therefore must be presumed that they, the
defendants, approved of the work done upon
the house and ratified the action of their
father in the premises as though he acted
under an express power from them. (Art. 1892
of the Civil Code.)
But, even assuming that the defendants did
not expressly ratify or approve the action of
their father, Nicasio Lopez, the fact remains
that the house was improved by said work,
and, for this reason, the owners of the
premises are liable for the obligations incurred
by their agent, Lopez, for their benefit and
advantage.
Furthermore, if the work had not been done as
required by the Board of Health, it would have
been to the disadvantage of the defendants
because the work would have been eventually
undertaken by the authorities and at the
expense of the said defendants. (Art. 1893 of
the Civil Code.)

As to the second error relating to the price of

the work fixed by the court in its judgment, it
should be noticed that when no price has
been expressly stipulated in a contract of this
nature, it is understood that the contracting
parties have impliedly agreed to pay and
receive the usual and reasonable value of the
services rendered. Otherwise it must be
presumed that the parties intended that the
price be fixed by experts in case they fail to
agree as to the same.
The rule as laid down by the authorities is to
the effect that in a contract for services it
shall
be
presumed
that
a
certain
compensation was intended to be fixed,
although there may not be any express
stipulation in regard thereto; taking into
consideration the law in force and the
customs of the country where the contract
was
executed,
except
where
such
compensation is to be fixed by a third person
or by a competent court upon the testimony
of experts.
A contract for services or work to be
performed exists not only where a certain and
definite compensation has been expressly
agreed upon, but also where the same can be
ascertained from the customs and usages of
the place in which such services were
rendered. (Judgment of the supreme court of
Spain of October 18, 1899.)
The foregoing disposes of the second, third,
and fourth assignments of error.
It appears from the bill of exceptions that the
defendants were the owners of one-half of the
house in question, the other half belonging to
the heirs of the deceased, Vicente Faustino
Cruz. The action, however, was brought solely
against these defendants. neither the
executor of the deceased coowner of the
house nor his surviving heirs having an
interest in the property were joined as parties
defendant in this case.
Section 114 of the Code of Civil Procedure
provides, among other things, that every
action must be prosecuted in the name of the
real party in interest and that an executor or
administrator of a deceased person may sue
or be sued without joining with him the person
for whose benefit the action is prosecuted or
defended.
This action was prosecuted without the
intervention of the executor or legal
representatives of the deceased Vicente F.
Cruz, one of the coowners of the house in

103

question. Therefore this decision can not,

under section 277 of the Code of Civil
Procedure, affect the rights of the successors
or legal heirs of the said deceased.
For this reason, which is a perfectly legal one,
a judgment against the defendants in this
case enforcing the obligation incurred by
them under article 1893 of the Civil Code
would be of no effect as to the successors or
heirs of the deceased Vicente F. Cruz, but a
separate action must be commenced against
such successors or legal heirs. It would not be
just or proper that the defendants should pay
the whole amount of the claim but only onehalf thereof, since they only owned half of the
house wherein the work was done; the
recovery of the cost of such work being the
subject-matter of this action.

amount representing one-half of the total sum

awarded by the judgment of the court below.
The defendants shall further pay to the
plaintiffs whatever interest may have accrued
from the 19th of November, 1902, at the rate
of 6 per cent per annum on the said sum.
Defendants shall also pay the costs of
proceedings in both instances. The judgment
appealed from, thus modified, is in all other
respects hereby affirmed, without prejudice to
the right of the plaintiffs to institute a
separate action against the heirs and
successors of the deceased Vicente F. Cruz for
the recovery of the other half of the value of
the work performed in and upon the premises
No. 142 Calle Dulumbayan. After the
expiration of twenty days let judgment be
entered in accordance herewith and the case
be remanded to the Court of First Instance for
action in accordance with the law. So ordered.

As to the fifth and sixth assignments of error,

it must be said that the bill tendered by the
plaintiffs for material furnished and labor
performed on the premises in question, was
made up from the books kept by the plaintiffs,
and was admitted in evidence by the court for
what it might be worth, as shown by the bill of
exceptions,
and
that
notwithstanding
defendants' objection, the fact is that they
introduced no evidence tending to prove (1)
that less material was used in the work than
that stated in the bill; (2) that the work done
was worth less than the amount charged in
the bill. Therefore, after a consideration of the
evidence of record in this case, we find that
3,467.40 pesos and not 4,020 pesos, Mexican
currency, as alleged in the complaint was the
reasonable value of the work performed,
plaintiffs having agreed that the 552.60 pesos
claimed by them as interest be deducted from
the latter amount. They have expressly
waived any right to the recovery of such
amount.
From the sum of 3,467 pesos and 40 cents
there should be deducted 750 pesos paid to
the plaintiffs on account of their claim, thus
leaving a balance of 2,717 pesos and 40
cents. One-half of this latter amount, to wit,
1,358 pesos and 70 cents, Mexican currency,
plus interest due thereon at the rate of 6 per
cent per annum from the 19th of November,
1902, is the total sum which the plaintiffs are
entitled to recover from the defendants in this
case.
For the foregoing reasons it is hereby
adjudged and decreed that the defendants,
Jacinta Lopez and Ignacia Lopez de Pineda,
pay to the plaintiffs in this case the sum of
1,358 pesos and 70 cents, Mexican currency,
or its equivalent in Philippine currency, said

104