G.R. No.

112675 January 25, 1999

AFISCO INSURANCE CORPORATION, et al. petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and COMISSIONER OF INTERNAL
REVENUE, respondent.
PANGANIBAN, J.:
Pursuant to "reinsurance treaties," a number of local insurance firms formed themselves into a
"pool" in order to facilitate the handling of business contracted with a nonresident foreign
insurance company. May the "clearing house" or "insurance pool" so formed be deemed a
partnership or an association that is taxable as a corporation under the National Internal
Revenue Code (NIRC)? Should the pool's remittances to the member companies and to the said
foreign firm be taxable as dividends? Under the facts of this case, has the goverment's right to
assess and collect said tax prescribed?
The Case
These are the main questions raised in the Petition for Review on Certiorari before us, assailing
the October 11, 1993 Decision 1 of the Court of Appeals 2 in CA-GR SP 25902, which dismissed
petitioners' appeal of the October 19, 1992 Decision 3 of the Court of Tax Appeals 4 (CTA) which
had previously sustained petitioners' liability for deficiency income tax, interest and
withholding tax. The Court of Appeals ruled:
WHEREFORE, the petition is DISMISSED, with costs against petitioner

The petition also challenges the November 15, 1993 Court of Appeals (CA) Resolution
denying reconsideration.

The Facts
The antecedent facts, 7 as found by the Court of Appeals, are as follows:
The petitioners are 41 non-life insurance corporations, organized and existing
under the laws of the Philippines. Upon issuance by them of Erection, Machinery
Breakdown, Boiler Explosion and Contractors' All Risk insurance policies, the
petitioners on August 1, 1965 entered into a Quota Share Reinsurance Treaty and
a Surplus Reinsurance Treaty with the Munchener RuckversicherungsGesselschaft (hereafter called Munich), a non-resident foreign insurance
corporation. The reinsurance treaties required petitioners to form a [p]ool.
Accordingly, a pool composed of the petitioners was formed on the same day.
On April 14, 1976, the pool of machinery insurers submitted a financial statement
and filed an "Information Return of Organization Exempt from Income Tax" for the
year ending in 1975, on the basis of which it was assessed by the Commissioner
of Internal Revenue deficiency corporate taxes in the amount of P1,843,273.60,
and withholding taxes in the amount of P1,768,799.39 and P89,438.68 on
dividends paid to Munich and to the petitioners, respectively. These assessments

were protested by the petitioners through its auditors Sycip, Gorres, Velayo and
Co.
On January 27, 1986, the Commissioner of Internal Revenue denied the protest
and ordered the petitioners, assessed as "Pool of Machinery Insurers," to pay
deficiency income tax, interest, and with [h]olding tax, itemized as follows:
Net income per information return P3,737,370.00
===========
Income tax due thereon P1,298,080.00
Add: 14% Int. fr. 4/15/76
to 4/15/79 545,193.60

TOTAL AMOUNT DUE & P1,843,273.60

COLLECTIBLE
Dividend paid to Munich
Reinsurance Company P3,728,412.00

35% withholding tax at

source due thereon P1,304,944.20
Add: 25% surcharge 326,236.05
14% interest from
1/25/76 to 1/25/79 137,019.14
Compromise penaltynon-filing of return 300.00
late payment 300.00

TOTAL AMOUNT DUE & P1,768,799.39

COLLECTIBLE ===========
Dividend paid to Pool Members P655,636.00
===========
10% withholding tax at
source due thereon P65,563.60
Add: 25% surcharge 16,390.90
14% interest from
1/25/76 to 1/25/79 6,884.18
Compromise penaltynon-filing of return 300.00
late payment 300.00

TOTAL AMOUNT DUE & P89,438.68

COLLECTIBLE ===========

The CA ruled in the main that the pool of machinery insurers was a partnership taxable as a
corporation, and that the latter's collection of premiums on behalf of its members, the ceding
companies, was taxable income. It added that prescription did not bar the Bureau of Internal
Revenue (BIR) from collecting the taxes due, because "the taxpayer cannot be located at the
address given in the information return filed." Hence, this Petition for Review before us. 9
The Issues
Before this Court, petitioners raise the following issues:
1. Whether or not the Clearing House, acting as a mere agent and performing
strictly administrative functions, and which did not insure or assume any risk in
its own name, was a partnership or association subject to tax as a corporation;
2. Whether or not the remittances to petitioners and MUNICHRE of their
respective shares of reinsurance premiums, pertaining to their individual and
separate contracts of reinsurance, were "dividends" subject to tax; and
3. Whether or not the respondent Commissioner's right to assess the Clearing
House had already prescribed. 10

The Court's Ruling

The petition is devoid of merit. We sustain the ruling of the Court of Appeals that the pool is
taxable as a corporation, and that the government's right to assess and collect the taxes had
not prescribed.
First Issue:
Pool Taxable as a Corporation
Petitioners contend that the Court of Appeals erred in finding that the pool of clearing house
was an informal partnership, which was taxable as a corporation under the NIRC. They point
out that the reinsurance policies were written by them "individually and separately," and that
their liability was limited to the extent of their allocated share in the original risk thus
reinsured. 11 Hence, the pool did not act or earn income as a reinsurer. 12 Its role was limited to
its principal function of "allocating and distributing the risk(s) arising from the original
insurance among the signatories to the treaty or the members of the pool based on their
ability to absorb the risk(s) ceded[;] as well as the performance of incidental functions, such as
records, maintenance, collection and custody of funds, etc." 13
Petitioners belie the existence of a partnership in this case, because (1) they, the reinsurers,
did not share the same risk or solidary liability, 14 (2) there was no common fund; 15 (3) the
executive board of the pool did not exercise control and management of its funds, unlike the
board of directors of a corporation; 16 and (4) the pool or clearing house "was not and could not
possibly have engaged in the business of reinsurance from which it could have derived income
for itself." 17
The Court is not persuaded. The opinion or ruling of the Commission of Internal Revenue, the
agency tasked with the enforcement of tax law, is accorded much weight and even finality,
when there is no showing. that it is patently wrong, 18 particularly in this case where the
findings and conclusions of the internal revenue commissioner were subsequently affirmed by
the CTA, a specialized body created for the exclusive purpose of reviewing tax cases, and the
Court of Appeals. 19 Indeed,
[I]t has been the long standing policy and practice of this Court to respect the
conclusions of quasi-judicial agencies, such as the Court of Tax Appeals which, by
the nature of its functions, is dedicated exclusively to the study and
consideration of tax problems and has necessarily developed an expertise on the
subject, unless there has been an abuse or improvident exercise of its authority.
20

This Court rules that the Court of Appeals, in affirming the CTA which had previously sustained
the internal revenue commissioner, committed no reversible error. Section 24 of the NIRC, as
worded in the year ending 1975, provides:
Sec. 24. Rate of tax on corporations. (a) Tax on domestic corporations. A tax
is hereby imposed upon the taxable net income received during each 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-partnership (compaias colectivas), general

professional partnerships, private educational institutions, and building and loan
associations . . . .
Ineludibly, the Philippine legislature included in the concept of corporations those entities that
resembled them such as unregistered partnerships and associations. Parenthetically, the
NIRC's inclusion of such entities in the tax on corporations was made even clearer by the tax
Reform Act of 1997, 21 which amended the Tax Code. Pertinent provisions of the new law read
as follows:
Sec. 27. Rates of Income Tax on Domestic Corporations.
(A) In General. Except as otherwise provided in this Code, an income tax of
thirty-five percent (35%) is hereby imposed upon the taxable income derived
during each taxable year from all sources within and without the Philippines by
every corporation, as defined in Section 22 (B) of this Code, and taxable under
this Title as a corporation . . . .
Sec. 22. Definition. When used in this Title:
xxx xxx xxx
(B) The term "corporation" shall include partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion),
associations, or insurance companies, but does not include general professional
partnerships [or] a joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum, coal, geothermal
and other energy operations pursuant to an operating or consortium agreement
under a service contract without the Government. "General professional
partnerships" are partnerships formed by persons for the sole purpose of
exercising their common profession, no part of the income of which is derived
from engaging in any trade or business.
xxx xxx xxx
Thus, the Court in Evangelista v. Collector of Internal Revenue 22 held that Section 24 covered
these unregistered partnerships and even associations or joint accounts, which had no legal
personalities apart from their individual members. 23 The Court of Appeals astutely applied
Evangelista. 24
. . . Accordingly, a pool of individual real property owners dealing in real estate
business was considered a corporation for purposes of the tax in sec. 24 of the
Tax Code in Evangelista v. Collector of Internal Revenue, supra. The Supreme
Court said:
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)

Art. 1767 of the Civil Code recognizes the creation of a contract of partnership when "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." 25 Its requisites are: "(1) mutual
contribution to a common stock, and (2) a joint interest in the profits." 26 In other words, a
partnership is formed when persons contract "to devote to a common purpose either money,
property, or labor with the intention of dividing the profits between
themselves." 27 Meanwhile, an association implies associates who enter into a "joint
enterprise . . . for the transaction of business." 28
In the case before us, the ceding companies entered into a Pool Agreement 29 or an association
30
that would handle all the insurance businesses covered under their quota-share reinsurance
treaty 31 and surplus reinsurance treaty 32 with Munich. The following unmistakably indicates a
partnership or an association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and other valuables that are deposited
in the name and credit of the pool. 33 This common fund pays for the administration and
operation expenses of the pool. 24
(2) The pool functions through an executive board, which resembles the board of directors of a
corporation, composed of one representative for each of the ceding companies. 35
(3) True, the pool itself is not a reinsurer and does not issue any insurance policy; however, its
work is indispensable, beneficial and economically useful to the business of the ceding
companies and Munich, because without it they would not have received their premiums. The
ceding companies share "in the business ceded to the pool" and in the "expenses" according to
a "Rules of Distribution" annexed to the Pool Agreement. 36 Profit motive or business is,
therefore, the primordial reason for the pool's formation. As aptly found by the CTA:
. . . The fact that the pool does not retain any profit or income does not obliterate
an antecedent fact, that of the pool being used in the transaction of business for
profit. It is apparent, and petitioners admit, that their association or coaction was
indispensable [to] the transaction of the business, . . . If together they have
conducted business, profit must have been the object as, indeed, profit was
earned. Though the profit was apportioned among the members, this is only a
matter of consequence, as it implies that profit actually resulted. 37
The petitioners' reliance on Pascuals v. Commissioner 38 is misplaced, because the facts
obtaining therein are not on all fours with the present case. In Pascual, there was no
unregistered partnership, but merely a co-ownership which took up only two isolated
transactions. 39 The Court of Appeals did not err in applying Evangelista, which involved a
partnership that engaged in a series of transactions spanning more than ten years, as in the
case before us.
Second Issue:
Pool's Remittances are Taxable
Petitioners further contend that the remittances of the pool to the ceding companies and
Munich are not dividends subject to tax. They insist that such remittances contravene Sections

24 (b) (I) and 263 of the 1977 NIRC and "would be tantamount to an illegal double taxation as
it would result in taxing the same taxpayer" 40 Moreover, petitioners argue that since Munich
was not a signatory to the Pool Agreement, the remittances it received from the pool cannot be
deemed dividends. 41 They add that even if such remittances were treated as dividends, they
would have been exempt under the previously mentioned sections of the 1977 NIRC, 42 as well
as Article 7 of paragraph 1 43 and Article 5 of paragraph 5 44 of the RP-West German Tax Treaty.
45

Petitioners are clutching at straws. Double taxation means taxing the same property twice
when it should be taxed only once. That is, ". . . taxing the same person twice by the same
jurisdiction for the same thing" 46 In the instant case, the pool is a taxable entity distinct from
the individual corporate entities of the ceding companies. The tax on its income is obviously
different from the tax on the dividends received by the said companies. Clearly, there is no
double taxation here.
The tax exemptions claimed by petitioners cannot be granted, since their entitlement thereto
remains unproven and unsubstantiated. It is axiomatic in the law of taxation that taxes are the
lifeblood of the nation. Hence, "exemptions therefrom are highly disfavored in law and he who
claims tax exemption must be able to justify his claim or right." 47 Petitioners have failed to
discharge this burden of proof. The sections of the 1977 NIRC which they cite are inapplicable,
because these were not yet in effect when the income was earned and when the subject
information return for the year ending 1975 was filed.
Referring, to the 1975 version of the counterpart sections of the NIRC, the Court still cannot
justify the exemptions claimed. Section 255 provides that no tax shall ". . . be paid upon
reinsurance by any company that has already paid the tax . . ." This cannot be applied to the
present case because, as previously discussed, the pool is a taxable entity distinct from the
ceding companies; therefore, the latter cannot individually claim the income tax paid by the
former as their own.
On the other hand, Section 24 (b) (1) 48 pertains to tax on foreign corporations; hence, it
cannot be claimed by the ceding companies which are domestic corporations. Nor can Munich,
a foreign corporation, be granted exemption based solely on this provision of the Tax Code,
because the same subsection specifically taxes dividends, the type of remittances forwarded
to it by the pool. Although not a signatory to the Pool Agreement, Munich is patently an
associate of the ceding companies in the entity formed, pursuant to their reinsurance treaties
which required the creation of said pool.
Under its pool arrangement with the ceding companies; Munich shared in their income and
loss. This is manifest from a reading of Article 3 49 and 10 50 of the Quota-Share Reinsurance
treaty and Articles 3 51 and 10 52 of the Surplus Reinsurance Treaty. The foregoing
interpretation of Section 24 (b) (1) is in line with the doctrine that a tax exemption must be
construed strictissimi juris, and the statutory exemption claimed must be expressed in a
language too plain to be mistaken. 53
Finally the petitioners' claim that Munich is tax-exempt based on the RP- West German Tax
Treaty is likewise unpersuasive, because the internal revenue commissioner assessed the pool
for corporate taxes on the basis of the information return it had submitted for the year ending
1975, a taxable year when said treaty was not yet in effect. 54 Although petitioners omitted in

their pleadings the date of effectivity of the treaty, the Court takes judicial notice that it took
effect only later, on December 14, 1984. 55
Third Issue:
Prescription
Petitioners also argue that the government's right to assess and collect the subject tax had
prescribed. They claim that the subject information return was filed by the pool on April 14,
1976. On the basis of this return, the BIR telephoned petitioners on November 11, 1981, to
give them notice of its letter of assessment dated March 27, 1981. Thus, the petitioners
contend that the five-year statute of limitations then provided in the NIRC had already lapsed,
and that the internal revenue commissioner was already barred by prescription from making
an assessment. 56
We cannot sustain the petitioners. The CA and the CTA categorically found that the prescriptive
period was tolled under then Section 333 of the NIRC, 57 because "the taxpayer cannot be
located at the address given in the information return filed and for which reason there was
delay in sending the assessment." 58 Indeed, whether the government's right to collect and
assess the tax has prescribed involves facts which have been ruled upon by the lower courts. It
is axiomatic that in the absence of a clear showing of palpable error or grave abuse of
discretion, as in this case, this Court must not overturn the factual findings of the CA and the
CTA.
Furthermore, petitioners admitted in their Motion for Reconsideration before the Court of
Appeals that the pool changed its address, for they stated that the pool's information return
filed in 1980 indicated therein its "present address." The Court finds that this falls short of the
requirement of Section 333 of the NIRC for the suspension of the prescriptive period. The law
clearly states that the said period will be suspended only "if the taxpayer informs the
Commissioner of Internal Revenue of any change in the address."
WHEREFORE, the petition is DENIED. The Resolution of the Court of Appeals dated October 11,
1993 and November 15, 1993 are hereby AFFIRMED. Cost against petitioners.1wphi1.nt
SO ORDERED.

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.
Courts may not extricate parties from the necessary consequences of their acts. That the
terms of a contract turn out to be financially disadvantageous to them will not relieve them of
their obligations therein. The lack of an inventory of real property will not ipso facto release the
contracting partners from their respective obligations to each other arising from acts executed
in accordance with their agreement.
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court
of Appeals 2 (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying
reconsideration. The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of
Cebu City in Civil Case No. R-21208, which disposed as follows:
WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiffs
complaint. The counterclaims of the defendant are likewise ordered dismissed.
No pronouncement as to costs. 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of
land in favor of respondent, who then had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a loan of P40,000 which, under the Joint
Venture Agreement, was to be used for the development of the subdivision. 4 All three of them
also agreed to share the proceeds from the sale of the subdivided lots.
9

The project did not push through, and the land was subsequently foreclosed by the bank.
According to petitioners, the project failed because of "respondent's lack of funds or means
and skills." They add that respondent used the loan not for the development of the subdivision,
but in furtherance of his own company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement the Agreement.
With the said amount, he was able to effect the survey and the subdivision of the lots. He
secured the Lapu Lapu City Council's approval of the subdivision project which he advertised in
a local newspaper. He also caused the construction of roads, curbs and gutters. Likewise, he
entered into a contract with an engineering firm for the building of sixty low-cost housing units
and actually even set up a model house on one of the subdivision lots. He did all of these for a
total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because petitioners and their
relatives had separately caused the annotations of adverse claims on the title to the land,
which eventually scared away prospective buyers. Despite his requests, petitioners refused to
cause the clearing of the claims, thereby forcing him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who
were however acquitted. Thereafter, they filed the present civil case which, upon respondent's
motion, was later dismissed by the trial court in an Order dated September 6, 1982. On appeal,
however, the appellate court remanded the case for further proceedings. Thereafter, the RTC
issued its assailed Decision, which, as earlier stated, was affirmed by the CA.
Hence, this Petition.

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had
formed a partnership for the development of the subdivision. Thus, they must bear the loss
suffered by the partnership in the same proportion as their share in the profits stipulated in the
contract. Disagreeing with the trial court's pronouncement that losses as well as profits in a
joint venture should be distributed equally, 7 the CA invoked Article 1797 of the Civil Code
which provides:
Art. 1797 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.
The CA elucidated further:
In the absence of stipulation, the share of each partner in the profits and losses
shall be in proportion to what he may have contributed, but the industrial partner
shall not be liable for the losses. As for the profits, the industrial partner shall
receive such share as may be just and equitable under the circumstances. If
besides his services he has contributed capital, he shall also receive a share in
the profits in proportion to his capital.

10

The Issue
Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in concluding that the transaction
. . . between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769, and other
related provisions of the Civil Code of the Philippines. 8
The Court's Ruling: The Petition is bereft of merit.
Main Issue: Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend that the Joint
Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate
court's finding of a partnership, were void.
In the same breath, however, they assert that under those very same contracts, respondent is
liable for his failure to implement the project. Because the agreement entitled them to receive
60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay
them damages equivalent to 60 percent of the value of the property. 9
The pertinent portions of the Joint Venture Agreement read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day
of March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY,
likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the
SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a total area of 17,009 square meters, to be subdivided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency upon the execution of this
contract for the property entrusted by the SECOND PARTY, for sub-division
projects and development purposes;
NOW THEREFORE, for and in consideration of the above covenants and promises
herein contained the respective parties hereto do hereby stipulate and agree as
follows:
ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March
5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN &

11

FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE
[PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY,
but the SECOND PARTY did not actually receive the payment.
SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
currency, for their personal obligations and this particular amount will serve as
an advance payment from the FIRST PARTY for the property mentioned to be subdivided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the
interest and the principal amount involving the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, until the sub-division project is
terminated and ready for sale to any interested parties, and the amount of
TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.
FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
project should be paid by the FIRST PARTY, exclusively and all the expenses will
not be deducted from the sales after the development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the
FIRST PARTY, and additional profits or whatever income deriving from the sales
will be divided equally according to the . . . percentage [agreed upon] by both
parties.
SIXTH: That the intended sub-division project of the property involved will start
the work and all improvements upon the adjacent lots will be negotiated in both
parties['] favor and all sales shall [be] decided by both parties.
SEVENTH: That the SECOND PARTIES, should be given an option to get back the
property mentioned provided the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to
the FIRST PARTY, including all necessary improvements spent by the FIRST
PARTY, and-the FIRST PARTY will be given a grace period to turnover the property
mentioned above.
That this AGREEMENT shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein stated.

10

A reading of the terms embodied in the Agreement indubitably shows the existence of a
partnership pursuant to Article 1767 of the Civil Code, which provides:
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 profits among themselves.

12

Under the above-quoted Agreement, petitioners would contribute property to the partnership
in the form of land which was to be developed into a subdivision; while respondent would give,
in addition to his industry, the amount needed for general expenses and other costs.
Furthermore, the income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to form a partnership.
11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred
the title to the land to facilitate its use in the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged, the proceeds of which were used for the
survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and
the gutters of the subdivision and entered into a contract to construct low-cost housing units
on the property.
Respondent's actions clearly belie petitioners' contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or
property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been
expressly stipulated, but also to all necessary consequences thereof, as follows:
Art. 1315. Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may
be in keeping with good faith, usage and law.
It is undisputed that petitioners are educated and are thus presumed to have understood the
terms of the contract they voluntarily signed. If it was not in consonance with their
expectations, they should have objected to it and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary consequences of their acts,
and the fact that the contractual stipulations may turn out to be financially disadvantageous
will not relieve parties thereto of their obligations. They cannot now disavow the relationship
formed from such agreement due to their supposed misunderstanding of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code,
which provides:
Art. 1773. A contract of partnership is void, whenever immovable property is
contributed thereto, if an inventory of said property is not made, signed by the
parties, and attached to the public instrument.

13

They contend that since the parties did not make, sign or attach to the public instrument an
inventory of the real property contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the
eminent Arturo M. Tolentino states that under the aforecited provision which is a complement
of Article 1771, 12 "The execution of a public instrument would be useless if there is no
inventory of the property contributed, because without its designation and description, they
cannot be subject to inscription in the Registry of Property, and their contribution cannot
prejudice third persons. This will result in fraud to those who contract with the partnership in
the belief [in] the efficacy of the guaranty in which the immovables may consist. Thus, the
contract is declared void by the law when no such inventory is made." The case at bar does
not involve third parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis for their claim that
respondent should pay them 60 percent of the value of the property. 13 They cannot in one
breath deny the contract and in another recognize it, depending on what momentarily suits
their purpose. Parties cannot adopt inconsistent positions in regard to a contract and courts
will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent courts from considering the Joint
Venture Agreement an ordinary contract from which the parties' rights and obligations to each
other may be inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the
Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of
the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the consideration for
the sale was the expectation of profits from the subdivision project. Its first stipulation states
that petitioners did not actually receive payment for the parcel of land sold to respondent.
Consideration, more properly denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another. 15
In this case, the cause of the contract of sale consisted not in the stated peso value of the
land, but in the expectation of profits from the subdivision project, for which the land was
intended to be used. As explained by the trial court, "the land was in effect given to the
partnership as [petitioner's] participation therein. . . . There was therefore a consideration for
the sale, the [petitioners] acting in the expectation that, should the venture come into fruition,
they [would] get sixty percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible for the failure of the subdivision project,
petitioners maintain that he should be made to pay damages equivalent to 60 percent of the
value of the property, which was their share in the profits under the Joint Venture Agreement.

14

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause
of the failure of the project. 16 But it also ruled that neither was respondent responsible
therefor. 17 In imputing the blame solely to him, petitioners failed to give any reason why we
should disregard the factual findings of the appellate court relieving him of fault. Verily, factual
issues cannot be resolved in a petition for review under Rule 45, as in this case. Petitioners
have not alleged, not to say shown, that their Petition constitutes one of the exceptions to this
doctrine. 18 Accordingly, we find no reversible error in the CA's ruling that petitioners are not
entitled to damages.
WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs
against petitioners.
SO ORDERED

G.R. No. 172690

March 3, 2010

HEIRS OF JOSE LIM, represented by ELENITO LIM, Petitioners,

vs.
JULIET VILLA LIM, Respondent.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil
Procedure, assailing the Court of Appeals (CA) Decision2 dated June 29, 2005, which reversed
and set aside the decision3 of the Regional Trial Court (RTC) of Lucena City, dated April 12,
2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow Cresencia Palad
(Cresencia); and their children Elenito, Evelia, Imelda, Edelyna and Edison, all surnamed Lim
(petitioners), represented by Elenito Lim (Elenito). They filed a Complaint4 for Partition,
Accounting and Damages against respondent Juliet Villa Lim (respondent), widow of the late
Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in Cagsiay, Mauban,
Quezon. Sometime in 1980, Jose, together with his friends Jimmy Yu (Jimmy) and Norberto Uy
(Norberto), formed a partnership to engage in the trucking business. Initially, with a
contribution of P50,000.00 each, they purchased a truck to be used in the hauling and
transport of lumber of the sawmill. Jose managed the operations of this trucking business until
his death on August 15, 1981. Thereafter, Jose's heirs, including Elfledo, and partners agreed
to continue the business under the management of Elfledo. The shares in the partnership
profits and income that formed part of the estate of Jose were held in trust by Elfledo, with
petitioners' authority for Elfledo to use, purchase or acquire properties using said funds.

15

Petitioners also alleged that, at that time, Elfledo was a fresh commerce graduate serving as
his fathers driver in the trucking business. He was never a partner or an investor in the
business and merely supervised the purchase of additional trucks using the income from the
trucking business of the partners. By the time the partnership ceased, it had nine trucks, which
were all registered in Elfledo's name. Petitioners asseverated that it was also through Elfledos
management of the partnership that he was able to purchase numerous real properties by
using the profits derived therefrom, all of which were registered in his name and that of
respondent. In addition to the nine trucks, Elfledo also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir. Petitioners
claimed that respondent took over the administration of the aforementioned properties, which
belonged to the estate of Jose, without their consent and approval. Claiming that they are coowners of the properties, petitioners required respondent to submit an accounting of all
income, profits and rentals received from the estate of Elfledo, and to surrender the
administration thereof. Respondent refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was himself a partner of
Norberto and Jimmy. Respondent also claimed that per testimony of Cresencia, sometime in
1980, Jose gave Elfledo P50,000.00 as the latter's capital in an informal partnership with Jimmy
and Norberto. When Elfledo and respondent got married in 1981, the partnership only had one
truck; but through the efforts of Elfledo, the business flourished. Other than this trucking
business, Elfledo, together with respondent, engaged in other business ventures. Thus, they
were able to buy real properties and to put up their own car assembly and repair business.
When Norberto was ambushed and killed on July 16, 1993, the trucking business started to
falter. When Elfledo died on May 18, 1995 due to a heart attack, respondent talked to Jimmy
and to the heirs of Norberto, as she could no longer run the business. Jimmy suggested that
three out of the nine trucks be given to him as his share, while the other three trucks be given
to the heirs of Norberto. However, Norberto's wife, Paquita Uy, was not interested in the
vehicles. Thus, she sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known assets, and the
partnership with Jimmy and Norberto ceased upon his demise. Respondent also stressed that
Jose left no properties that Elfledo could have held in trust. Respondent maintained that all the
properties involved in this case were purchased and acquired through her and her husbands
joint efforts and hard work, and without any participation or contribution from petitioners or
from Jose. Respondent submitted that these are conjugal partnership properties; and thus, she
had the right to refuse to render an accounting for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision in favor of
petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1) Ordering the partition of the above-mentioned properties equally between the
plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-Lim; and
2) Ordering the defendant to submit an accounting of all incomes, profits and rentals
received by her from said properties.

16

SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision, dismissing petitioners'
complaint for lack of merit. Undaunted, petitioners filed their Motion for Reconsideration, 5
which the CA, however, denied in its Resolution6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE PARTIES, CAN THE
TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF THE OTHER PARTNERS IN THE
PARTNERSHIP?7
In essence, petitioners argue that according to the testimony of Jimmy, the sole surviving
partner, Elfledo was not a partner; and that he and Norberto entered into a partnership with
Jose. Thus, the CA erred in not giving that testimony greater weight than that of Cresencia,
who was merely the spouse of Jose and not a party to the partnership. 8
Respondent counters that the issue raised by petitioners is not proper in a petition for review
on certiorari under Rule 45 of the Rules of Civil Procedure, as it would entail the review,
evaluation, calibration, and re-weighing of the factual findings of the CA. Moreover, respondent
invokes the rationale of the CA decision that, in light of the admissions of Cresencia and Edison
and the testimony of respondent, the testimony of Jimmy was effectively refuted; accordingly,
the CA's reversal of the RTC's findings was fully justified.9
We resolve first the procedural matter regarding the propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence necessarily involves consideration of
factual issues an exercise that is not appropriate for a petition for review on certiorari under
Rule 45. This rule provides that the parties may raise only questions of law, because the
Supreme Court is not a trier of facts. Generally, we are not duty-bound to analyze again and
weigh the evidence introduced in and considered by the tribunals below. 10 When supported by
substantial evidence, the findings of fact of the CA are conclusive and binding on the parties
and are not reviewable by this Court, unless the case falls under any of the following
recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and
conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;

17

(6) When the Court of Appeals, in making its findings, went beyond the issues of the
case and the same is contrary to the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of specific evidence on
which they are based;
(9) When the facts set forth in the petition as well as in the petitioners' main and reply
briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the supposed
absence of evidence and contradicted by the evidence on record.11
We note, however, that the findings of fact of the RTC are contrary to those of the CA. Thus,
our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money, effects, labor, and
skill in lawful commerce or business, with the understanding that there shall be a proportionate
sharing of the profits and losses among them. A contract of partnership is defined by the Civil
Code as one where two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among themselves. 12
Undoubtedly, the best evidence would have been the contract of partnership or the articles of
partnership. Unfortunately, there is none in this case, because the alleged partnership was
never formally organized. Nonetheless, we are asked to determine who between Jose and
Elfledo was the "partner" in the trucking business.
A careful review of the records persuades us to affirm the CA decision. The evidence presented
by petitioners falls short of the quantum of proof required to establish that: (1) Jose was the
partner and not Elfledo; and (2) all the properties acquired by Elfledo and respondent form part
of the estate of Jose, having been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one piece of evidence
against respondent. It must be considered and weighed along with petitioners' other evidence
vis--vis respondent's contrary evidence. In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence. "Preponderance of evidence" is the
weight, credit, and value of the aggregate evidence on either side and is usually considered
synonymous with the term "greater weight of the evidence" or "greater weight of the credible
evidence." "Preponderance of evidence" is a phrase that, in the last analysis, means
probability of the truth. It is evidence that is more convincing to the court as worthy of belief
than that which is offered in opposition thereto.13 Rule 133, Section 1 of the Rules of Court
provides the guidelines in determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases, the party having burden
of proof must establish his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the court may

18

consider all the facts and circumstances of the case, the witnesses' manner of testifying, their
intelligence, their means and opportunity of knowing the facts to which they are testifying, the
nature of the facts to which they testify, the probability or improbability of their testimony,
their interest or want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number of witnesses,
though the preponderance is not necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals 14 is enlightening. Therein,
we cited Article 1769 of the Civil Code, which provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other
are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of the
property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property from
which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie
evidence that he is a partner in the business, but no such inference shall be drawn if
such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the profits of
the business;
(e) As the consideration for the sale of a goodwill of a business or other property
by installments or otherwise.
Applying the legal provision to the facts of this case, the following circumstances tend to prove
that Elfledo was himself the partner of Jimmy and Norberto: 1) Cresencia testified that Jose
gave Elfledo P50,000.00, as share in the partnership, on a date that coincided with the
payment of the initial capital in the partnership;15 (2) Elfledo ran the affairs of the partnership,
wielding absolute control, power and authority, without any intervention or opposition
whatsoever from any of petitioners herein;16 (3) all of the properties, particularly the nine
trucks of the partnership, were registered in the name of Elfledo; (4) Jimmy testified that
Elfledo did not receive wages or salaries from the partnership, indicating that what he actually
received were shares of the profits of the business;17 and (5) none of the petitioners, as heirs of
Jose, the alleged partner, demanded periodic accounting from Elfledo during his lifetime. As

19

repeatedly stressed in Heirs of Tan Eng Kee,18 a demand for periodic accounting is evidence of
a partnership.
Furthermore, petitioners failed to adduce any evidence to show that the real and personal
properties acquired and registered in the names of Elfledo and respondent formed part of the
estate of Jose, having been derived from Jose's alleged partnership with Jimmy and Norberto.
They failed to refute respondent's claim that Elfledo and respondent engaged in other
businesses. Edison even admitted that Elfledo also sold Interwood lumber as a sideline. 19
Petitioners could not offer any credible evidence other than their bare assertions. Thus, we
apply the basic rule of evidence that between documentary and oral evidence, the former
carries more weight.20
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one of the partners in
the trucking business, active and visible in the running of its affairs from day one until this
ceased operations upon his demise. The extent of his control, administration and management
of the partnership and its business, the fact that its properties were placed in his name, and
that he was not paid salary or other compensation by the partners, are indicative of the fact
that Elfledo was a partner and a controlling one at that. It is apparent that the other partners
only contributed in the initial capital but had no say thereafter on how the business was ran.
Evidently it was through Elfredos efforts and hard work that the partnership was able to
acquire more trucks and otherwise prosper. Even the appellant participated in the affairs of the
partnership by acting as the bookkeeper sans salary.1avvphi1
It is notable too that Jose Lim died when the partnership was barely a year old, and the
partnership and its business not only continued but also flourished. If it were true that it was
Jose Lim and not Elfledo who was the partner, then upon his death the partnership should have
been dissolved and its assets liquidated. On the contrary, these were not done but instead its
operation continued under the helm of Elfledo and without any participation from the heirs of
Jose Lim.
Whatever properties appellant and her husband had acquired, this was through their own
concerted efforts and hard work. Elfledo did not limit himself to the business of their
partnership but engaged in other lines of businesses as well.
In sum, we find no cogent reason to disturb the findings and the ruling of the CA as they are
amply supported by the law and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals Decision dated June
29, 2005 is AFFIRMED. Costs against petitioners.
SO ORDERED.

20

G.R. No. 126881

October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President
TAN ENG LAY, respondents.
DE LEON, JR., J.:
In this petition for review on certiorari, petitioners pray for the reversal of the Decision 1 dated
March 13, 1996 of the former Fifth Division2 of the Court of Appeals in CA-G.R. CV No. 47937,
the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the
complaint dismissed.
The facts are:
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and
Elpidio, collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the
decedent's brother TAN ENG LAY on February 19, 1990. The complaint, 3 docketed as Civil Case
No. 1983-R in the Regional Trial Court of Baguio City was for accounting, liquidation and
winding up of the alleged partnership formed after World War II between Tan Eng Kee and Tan
Eng Lay. On March 18, 1991, the petitioners filed an amended complaint4 impleading private
respondent herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The amended
complaint was admitted by the trial court in its Order dated May 3, 1991. 5
The amended complaint principally alleged that after the second World War, Tan Eng Kee and
Tan Eng Lay, pooling their resources and industry together, entered into a partnership engaged
in the business of selling lumber and hardware and construction supplies. They named their
enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's death. Petitioners
herein averred that the business prospered due to the hard work and thrift of the alleged
partners. However, they claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a corporation called "Benguet Lumber
Company." The incorporation was purportedly a ruse to deprive Tan Eng Kee and his heirs of
their rightful participation in the profits of the business. Petitioners prayed for accounting of

21

the partnership assets, and the dissolution, winding up and liquidation thereof, and the equal
division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment6 on April 12, 1995,
to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a particular
partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers
and/or partners in a business venture and/or particular partnership called Benguet
Lumber and as such should share in the profits and/or losses of the business venture or
particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to
Benguet Lumber Co. Inc. and as such the heirs or legal representatives of the deceased
Tan Eng Kee have a legal right to share in said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or
as partner in a particular partnership have descended to the plaintiffs who are his legal
heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of
Benguet Lumber Company Inc. to render an accounting of all the assets of Benguet
Lumber Company, Inc. so the plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer the assets of
Benguet Lumber Company, Inc. until such time that said corporation is finally liquidated
are directed to submit the name of any person they want to be appointed as receiver
failing in which this Court will appoint the Branch Clerk of Court or another one who is
qualified to act as such.
g) Denying the award of damages to the plaintiffs for lack of proof except the expenses
in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on March 13, 1996,
rendered the assailed decision reversing the judgment of the trial court. Petitioners' motion for
reconsideration7 was denied by the Court of Appeals in a Resolution8 dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay
and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners

22

complained that Exhibits "4" to "4-U" offered by the defendants before the trial court,
consisting of payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber,
were fake, based on the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal
Cases Nos. 78857-78870 against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all
surnamed Tan, for alleged falsification of commercial documents by a private individual. On
March 20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the charges were
filed, rendered judgment9 dismissing the cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM LETTERHEADS
SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF PARTNERSHIP; (D) THERE
WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND (E) THERE WAS NO TIME FIXED
FOR THE DURATION OF THE PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-SERVING
TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER WAS A SOLE
PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING FACTS
WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT SUPPORT THE
EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO ARTICLES OF
PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT
THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE
EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE
EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE
PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO
THE SUPPLIERS (PAGE 18, DECISION).
IV

23

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO TAN
AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC, ADMITTED
THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN BAGUIO CITY AS
BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-17, DECISION).
V
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO
PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY MORE
THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT CREATING A
PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC INSTRUMENT
ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals
will not be disturbed on appeal if such are supported by the evidence. 10 Our jurisdiction, it must
be emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition shall raise only
questions of law which must be distinctly set forth.11 [emphasis supplied]
Admitted exceptions have been recognized, though, and when present, may compel us to
analyze the evidentiary basis on which the lower court rendered judgment. Review of factual
issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are
contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or conjectures;
(3) when the inference made by the Court of Appeals from its findings of fact is
manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues of the case,
and such findings are contrary to the admissions of both appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a misapprehension of
facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if properly
considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;

24

(9) when the findings of fact are conclusions without citation of the specific evidence on
which they are based; and
(10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence but such findings are contradicted by the evidence on record. 12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the plaintiffs
mentioned only the existence of a partnership, the Court in turn went beyond that by
justifying the existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of standing
between the parties, equal proprietary interest and the exercise by the parties equally
of the conduct of the business, thus:
xxx

xxx

xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet
Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6)
this is because during the war, the entire stocks of the pre-war Benguet Lumber were
confiscated if not burned by the Japanese. After the war, because of the absence of
capital to start a lumber and hardware business, Lay and Kee pooled the proceeds of
their individual businesses earned from buying and selling military supplies, so that the
common fund would be enough to form a partnership, both in the lumber and hardware
business. That Lay and Kee actually established the Benguet Lumber in Baguio City, was
even testified to by witnesses. Because of the pooling of resources, the post-war
Benguet Lumber was eventually established. That the father of the plaintiffs and Lay
were partners, is obvious from the fact that: (1) they conducted the affairs of the
business during Kee's lifetime, jointly, (2) they were the ones giving orders to the
employees, (3) they were the ones preparing orders from the suppliers, (4) their families
stayed together at the Benguet Lumber compound, and (5) all their children were
employed in the business in different capacities.
xxx

xxx

xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there
was no firm account, no firm letterheads submitted as evidence, no certificate of
partnership, no agreement as to profits and losses, and no time fixed for the duration of
the partnership. There was even no attempt to submit an accounting corresponding to
the period after the war until Kee's death in 1984. It had no business book, no written
account nor any memorandum for that matter and no license mentioning the existence
of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The certification
dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the only registered
owner of the Benguet Lumber and Hardware. His application for registration, effective
1954, in fact mentioned that his business started in 1945 until 1985 (thereafter, the
incorporation). The deceased, Kee, on the other hand, was merely an employee of the

25

Benguet Lumber Company, on the basis of his SSS coverage effective 1958, Exhibit "3".
In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee was
similarly listed only as an employee; precisely, he was on the payroll listing. In the
Termination Notice, Exhibit "5", Lay was mentioned also as the proprietor.
xxx

xxx

xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted
in any form, but when an immovable is constituted, the execution of a public instrument
becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which
case a public instrument is also necessary, and which is to be recorded with the
Securities and Exchange Commission. In this case at bar, we can easily assume that the
business establishment, which from the language of the appellees, prospered (pars. 5 &
9, Complaint), definitely exceeded P3,000.00, in addition to the accumulation of real
properties and to the fact that it is now a compound. The execution of a public
instrument, on the other hand, was never established by the appellees.
And then in 1981, the business was incorporated and the incorporators were only Lay
and the members of his family. There is no proof either that the capital assets of the
partnership, assuming them to be in existence, were maliciously assigned or transferred
by Lay, supposedly to the corporation and since then have been treated as a part of the
latter's capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then in a room
in the bunk house in Trinidad, but within the compound of the lumber establishment, as
testified to by Tandoc; 2) that both Lay and Kee were seated on a table and were
"commanding people" as testified to by the son, Elpidio Tan; 3) that both were
supervising the laborers, as testified to by Victoria Choi; and 4) that Dionisio Peralta was
supposedly being told by Kee that the proceeds of the 80 pieces of the G.I. sheets were
added to the business.
Partnership presupposes the following elements [citation omitted]: 1) a contract, either
oral or written. However, if it involves real property or where the capital is P3,000.00 or
more, the execution of a contract is necessary; 2) the capacity of the parties to execute
the contract; 3) money property or industry contribution; 4) community of funds and
interest, mentioning equality of the partners or one having a proportionate share in the
benefits; and 5) intention to divide the profits, being the true test of the partnership.
The intention to join in the business venture for the purpose of obtaining profits
thereafter to be divided, must be established. We cannot see these elements from the
testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial court which had
adjudged that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this
connection, we have held that whether a partnership exists is a factual matter; consequently,
since the appeal is brought to us under Rule 45, we cannot entertain inquiries relative to the
correctness of the assessment of the evidence by the court a quo. 13 Inasmuch as the Court of

26

Appeals and the trial court had reached conflicting conclusions, perforce we must examine the
record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet
Lumber. A contract of partnership is defined by law as one where:
. . . two or more persons bind themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves.
Two or more persons may also form a partnership for the exercise of a profession. 14
Thus, in order to constitute a partnership, it must be established that (1) two or more
persons bound themselves to contribute money, property, or industry to a common
fund, and (2) they intend to divide the profits among themselves. 15 The agreement need
not be formally reduced into writing, since statute allows the oral constitution of a
partnership, save in two instances: (1) when immovable property or real rights are
contributed,16 and (2) when the partnership has a capital of three thousand pesos or
more.17 In both cases, a public instrument is required.18 An inventory to be signed by the
parties and attached to the public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to the partnership. 19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture,
which it said is akin to a particular partnership.20 A particular partnership is distinguished from
a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is a sort of
informal partnership, with no firm name and no legal personality. In a joint account, the
participating merchants can transact business under their own name, and can be
individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination may continue for a
number of years; a partnership generally relates to a continuing business of various
transactions of a certain kind.21
A joint venture "presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property
contributed, and where each party exercises equal rights in the conduct of the business." 22
Nonetheless, in Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al., 23 we
expressed the view that a joint venture may be likened to a particular partnership, thus:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is hardly
distinguishable from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual right of control.
(Blackner v. McDermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043
[1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The
main distinction cited by most opinions in common law jurisdiction is that the

27

partnership contemplates a general business with some degree of continuity, while the
joint venture is formed for the execution of a single transaction, and is thus of a
temporary nature. (Tufts v. Mann. 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 Ill. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This
observation is not entirely accurate in this jurisdiction, since under the Civil Code, a
partnership may be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should thus be governed by
the law of partnerships. The Supreme Court has however recognized a distinction
between these two business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint venture with others.
(At p. 12, Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos
Comments, Notes and Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of partnership itself, or the
articles of partnership but there is none. The alleged partnership, though, was never formally
organized. In addition, petitioners point out that the New Civil Code was not yet in effect when
the partnership was allegedly formed sometime in 1945, although the contrary may well be
argued that nothing prevented the parties from complying with the provisions of the New Civil
Code when it took effect on August 30, 1950. But all that is in the past. The net effect,
however, is that we are asked to determine whether a partnership existed based purely on
circumstantial evidence. A review of the record persuades us that the Court of Appeals
correctly reversed the decision of the trial court. The evidence presented by petitioners falls
short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the business relationship between them. In the
absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of establishing a partnership. The
testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It
should be noted that it is not with the number of witnesses wherein preponderance lies; 24 the
quality of their testimonies is to be considered. None of petitioners' witnesses could suitably
account for the beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta
whose deceased wife was related to Matilde Abubo. 25 He stated that when he met Tan Eng Kee
after the liberation, the latter asked the former to accompany him to get 80 pieces of G.I.
sheets supposedly owned by both brothers.26 Tan Eng Lay, however, denied knowledge of this
meeting or of the conversation between Peralta and his brother.27 Tan Eng Lay consistently
testified that he had his business and his brother had his, that it was only later on that his said
brother, Tan Eng Kee, came to work for him. Be that as it may, co-ownership or co-possession
(specifically here, of the G.I. sheets) is not an indicium of the existence of a partnership. 28
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was
allegedly in existence, Tan Eng Kee never asked for an accounting. The essence of a
partnership is that the partners share in the profits and losses. 29 Each has the right to demand
an accounting as long as the partnership exists.30 We have allowed a scenario wherein "[i]f
excellent relations exist among the partners at the start of the business and all the partners
are more interested in seeing the firm grow rather than get immediate returns, a deferment of
sharing in the profits is perfectly plausible."31 But in the situation in the case at bar, the

28

deferment, if any, had gone on too long to be plausible. A person is presumed to take ordinary
care of his concerns.32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre. In
the third place, it does not appear that she has even demanded from defendant any
accounting of the expenses and earnings of the business. Were she really a partner, her
first concern should have been to find out how the business was progressing, whether
the expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have done; all that
she did was to receive her share of P3,000.00 a month, which cannot be interpreted in
any manner than a payment for the use of the premises which she had leased from the
owners. Clearly, plaintiff had always acted in accordance with the original letter of
defendant of June 17, 1945 (Exh. "A"), which shows that both parties considered this
offer as the real contract between them.33 [emphasis supplied]
A demand for periodic accounting is evidence of a partnership.34 During his lifetime, Tan Eng
Kee appeared never to have made any such demand for accounting from his brother, Tang Eng
Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of
payrolls purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as
it was then called. The authenticity of these documents was questioned by petitioners, to the
extent that they filed criminal charges against Tan Eng Lay and his wife and children. As
aforesaid, the criminal cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U"
in fact shows that Tan Eng Kee received sums as wages of an employee. In connection
therewith, Article 1769 of the Civil Code provides:
In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to each other
are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership, whether
such co-owners or co-possessors do or do not share any profits made by the use of the
property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property which
the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima facie
evidence that he is a partner in the business, but no such inference shall be drawn if
such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;

29

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of
the business;
(e) As the consideration for the sale of a goodwill of a business or other property
by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an
employee, not a partner. Even if the payrolls as evidence were discarded, petitioners would still
be back to square one, so to speak, since they did not present and offer evidence that would
show that Tan Eng Kee received amounts of money allegedly representing his share in the
profits of the enterprise. Petitioners failed to show how much their father, Tan Eng Kee,
received, if any, as his share in the profits of Benguet Lumber Company for any particular
period. Hence, they failed to prove that Tan Eng Kee and Tan Eng Lay intended to divide the
profits of the business between themselves, which is one of the essential features of a
partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a
partnership from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were
commanding the employees; that both were supervising the employees; that both were the
ones who determined the price at which the stocks were to be sold; and that both placed
orders to the suppliers of the Benguet Lumber Company. They also point out that the families
of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet Lumber Company compound,
a privilege not extended to its ordinary employees.
However, private respondent counters that:
Petitioners seem to have missed the point in asserting that the above enumerated
powers and privileges granted in favor of Tan Eng Kee, were indicative of his being a
partner in Benguet Lumber for the following reasons:
(i) even a mere supervisor in a company, factory or store gives orders and directions to
his subordinates. So long, therefore, that an employee's position is higher in rank, it is
not unusual that he orders around those lower in rank.
(ii) even a messenger or other trusted employee, over whom confidence is reposed by
the owner, can order materials from suppliers for and in behalf of Benguet Lumber.
Furthermore, even a partner does not necessarily have to perform this particular task. It
is, thus, not an indication that Tan Eng Kee was a partner.
(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and
this privilege was not accorded to other employees, the undisputed fact remains that
Tan Eng Kee is the brother of Tan Eng Lay. Naturally, close personal relations existed
between them. Whatever privileges Tan Eng Lay gave his brother, and which were not
given the other employees, only proves the kindness and generosity of Tan Eng Lay
towards a blood relative.

30

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in
connection with the pricing of stocks, this does not adequately prove the existence of a
partnership relation between them. Even highly confidential employees and the owners
of a company sometimes argue with respect to certain matters which, in no way
indicates that they are partners as to each other.35
In the instant case, we find private respondent's arguments to be well-taken. Where
circumstances taken singly may be inadequate to prove the intent to form a partnership,
nevertheless, the collective effect of these circumstances may be such as to support a finding
of the existence of the parties' intent.36 Yet, in the case at bench, even the aforesaid
circumstances when taken together are not persuasive indicia of a partnership. They only tend
to show that Tan Eng Kee was involved in the operations of Benguet Lumber, but in what
capacity is unclear. We cannot discount the likelihood that as a member of the family, he
occupied a niche above the rank-and-file employees. He would have enjoyed liberties
otherwise unavailable were he not kin, such as his residence in the Benguet Lumber Company
compound. He would have moral, if not actual, superiority over his fellow employees, thereby
entitling him to exercise powers of supervision. It may even be that among his duties is to
place orders with suppliers. Again, the circumstances proffered by petitioners do not provide a
logical nexus to the conclusion desired; these are not inconsistent with the powers and duties
of a manager, even in a business organized and run as informally as Benguet Lumber
Company.
There being no partnership, it follows that there is no dissolution, winding up or liquidation to
speak of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals
is hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.

31

G.R. No. 154486

December 1, 2010

FEDERICO JARANTILLA, JR., Petitioner,

vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA
REMOTIGUE, DOROTEO JARANTILLA and TOMAS JARANTILLA, Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals
dated July 30, 2002 in CA-G.R. CV No. 40887, which set aside the Decision 3 dated December
18, 1992 of the Regional Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico,
Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla,
Jr. is the grandchild of the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife
Leda Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas Jarantilla.
Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla,
his aunt, was the plaintiff therein. His co-respondents before he joined his aunt Antonieta in
her complaint, were his late aunt Conchita Jarantillas husband Buenaventura Remotigue, who
died during the pendency of the case, his cousin Cynthia Remotigue, the adopted daughter of
Conchita Jarantilla and Buenaventura Remotigue, and his brothers Doroteo and Tomas
Jarantilla.6
In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties
of their deceased parents.7 With the exception of the real property adjudicated to Pacita
Jarantilla, the heirs also agreed to allot the produce of the said real properties for the years
1947-1949 for the studies of Rafael and Antonieta Jarantilla. 8
In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an
agreement with the spouses Buenaventura Remotigue and Conchita Jarantilla to provide
mutual assistance to each other by way of financial support to any commercial and agricultural
activity on a joint business arrangement. This business relationship proved to be successful as
they were able to establish a manufacturing and trading business, acquire real properties, and
construct buildings, among other things.9 This partnership ended in 1973 when the parties, in

32

an "Agreement,"10 voluntarily agreed to completely dissolve their "joint business

relationship/arrangement."11
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document
wherein they acknowledged that while registered only in Buenaventura Remotigues name,
they were not the only owners of the capital of the businesses Manila Athletic Supply (712
Raon Street, Manila), Remotigue Trading (Calle Real, Iloilo City) and Remotigue Trading
(Cotabato City). In this same "Acknowledgement of Participating Capital," they stated the
participating capital of their co-owners as of the year 1952, with Antonieta Jarantillas stated as
eight thousand pesos (P8,000.00) and Federico Jarantilla, Jr.s as five thousand pesos
(P5,000.00).12
The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta
Jarantilla against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo
Jarantilla and Tomas Jarantilla, for the accounting of the assets and income of the coownership, for its partition and the delivery of her share corresponding to eight percent (8%),
and for damages. Antonieta claimed that in 1946, she had entered into an agreement with
Conchita and Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to
engage in business. Antonieta alleged that the initial contribution of property and money came
from the heirs inheritance, and her subsequent annual investment of seven thousand five
hundred pesos (P7,500.00) as additional capital came from the proceeds of her farm. Antonieta
also alleged that from 1946-1969, she had helped in the management of the business they coowned without receiving any salary. Her salary was supposedly rolled back into the business as
additional investments in her behalf. Antonieta further claimed co-ownership of certain
properties14 (the subject real properties) in the name of the defendants since the only way the
defendants could have purchased these properties were through the partnership as they had
no other source of income.
The respondents, including petitioner herein, in their Answer,15 denied having formed a
partnership with Antonieta in 1946. They claimed that she was in no position to do so as she
was still in school at that time. In fact, the proceeds of the lands they partitioned were devoted
to her studies. They also averred that while she may have helped in the businesses that her
older sister Conchita had formed with Buenaventura Remotigue, she was paid her due salary.
They did not deny the existence and validity of the "Acknowledgement of Participating Capital"
and in fact used this as evidence to support their claim that Antonietas 8% share was limited
to the businesses enumerated therein. With regard to Antonietas claim in their other
corporations and businesses, the respondents said these should also be limited to the number
of her shares as specified in the respective articles of incorporation. The respondents denied
using the partnerships income to purchase the subject real properties and said that the
certificates of title should be binding on her.16
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the
original defendants, entered into a compromise agreement17 with Antonieta Jarantilla wherein
he supported Antonietas claims and asserted that he too was entitled to six percent (6%) of
the supposed partnership in the same manner as Antonieta was. He prayed for a favorable
judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiffs prayer for an accounting from the
other defendants, and the partition of the properties of the co-ownership and the delivery to

33

the plaintiff and to defendant Federico Jarantilla, Jr. of their rightful share of the assets and
properties in the co-ownership.181avvphi1
The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve
Compromise Agreement20 and on December 18, 1992, decided in favor of Antonieta, to wit:
WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff
Antonieta Jarantilla and against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas
Jarantilla ordering the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties
covered by TCT Nos. 35655, 338398, 338399 & 335395, all of the Registry of Deeds of
Quezon City; TCT Nos. (18303)23341, 142882 & 490007(4615), all of the Registry of
Deeds of Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato based on their
present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue
Agro-Industrial Corporation, Manila Athletic Supply, Inc., MAS Rubber Products, Inc. and
Buendia Recapping Corporation based on the shares of stocks present book value;
3. to account for the assets and income of the co-ownership and deliver to plaintiff her
rightful share thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as moral damages;
5. to pay, jointly and severally, the sum of P50,000.00 as attorneys fees; and
6. to pay, jointly and severally, the costs of the suit. 21
Both the petitioner and the respondents appealed this decision to the Court of Appeals. The
petitioner claimed that the RTC "erred in not rendering a complete judgment and ordering the
partition of the co-ownership and giving to [him] six per centum (6%) of the properties." 22
While the Court of Appeals agreed to some of the RTCs factual findings, it also established that
Antonieta Jarantilla was not part of the partnership formed in 1946, and that her 8% share was
limited to the businesses enumerated in the Acknowledgement of Participating Capital. On July
30, 2002, the Court of Appeals rendered the herein challenged decision setting aside the RTCs
decision, as follows:
WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new
one is hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets
and profits of Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue
Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the
assets and profits of the above-mentioned enterprises; and, holding that

34

(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the

extent stated in their Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs.23
The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court
of Appeals denied this in a Resolution24 dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated
September 16, 2002, assailing the Court of Appeals decision on "similar grounds and similar
assignments of errors as this present case"26 but it was dismissed on November 20, 2002 for
failure to file the appeal within the reglementary period of fifteen (15) days in accordance with
Section 2, Rule 45 of the Rules of Court.27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT PETITIONER
FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE OWNERSHIP
OF THE REAL PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS USING COMMON FUNDS
FROM THE BUSINESSES WHERE HE HAD OWNED SUCH SHARE. 28
Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo
spouses, Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as
evidenced by the Acknowledgement of Participating Capital the Remotigue spouses executed
in 1957. He contends that from this partnership, several other corporations and businesses
were established and several real properties were acquired. In this petition, he is essentially
asking for his 6% share in the subject real properties. He is relying on the Acknowledgement of
Participating Capital, on his own testimony, and Antonieta Jarantillas testimony to support this
contention.
The core issue is whether or not the partnership subject of the Acknowledgement of
Participating Capital funded the subject real properties. In other words, what is the petitioners
right over these real properties?
It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, only questions of law may be raised by the parties and passed upon by this Court. 29
A question of law arises when there is doubt as to what the law is on a certain state of facts,
while there is a question of fact when the doubt arises as to the truth or falsity of the alleged
facts. For a question to be one of law, the same must not involve an examination of the
probative value of the evidence presented by the litigants or any of them. The resolution of the

35

issue must rest solely on what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the question posed is one of
fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to
such question by the party raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in which case, it is a
question of law; otherwise it is a question of fact.30
Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in
resolving the questions of law that are now in issue, shall look into the facts only in so far as
the two courts a quo differed in their appreciation thereof.
The RTC found that an unregistered partnership existed since 1946 which was affirmed in the
1957 document, the "Acknowledgement of Participating Capital." The RTC used this as its basis
for giving Antonieta Jarantilla an 8% share in the three businesses listed therein and in the
other businesses and real properties of the respondents as they had supposedly acquired
these through funds from the partnership.31
The Court of Appeals, on the other hand, agreed with the RTC as to Antonietas 8% share in the
business enumerated in the Acknowledgement of Participating Capital, but not as to her share
in the other corporations and real properties. The Court of Appeals ruled that Antonietas claim
of 8% is based on the "Acknowledgement of Participating Capital," a duly notarized document
which was specific as to the subject of its coverage. Hence, there was no reason to pattern her
share in the other corporations from her share in the partnerships businesses. The Court of
Appeals also said that her claim in the respondents real properties was more "precarious" as
these were all covered by certificates of title which served as the best evidence as to all the
matters contained therein.32 Since petitioners claim was essentially the same as Antonietas,
the Court of Appeals also ruled that petitioner be given his 6% share in the same businesses
listed in the Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of Appeals, are final and
conclusive except in the following cases: (1) when the inference made is manifestly mistaken,
absurd or impossible; (2) when there is a grave abuse of discretion; (3) when the finding is
grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the
Court of Appeals is based on misapprehension of facts; (5) when the findings of fact are
conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of
the case and the same is contrary to the admissions of both appellant and appellee; (7) when
the findings of the Court of Appeals are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific evidence on which they are based;
(9) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a different conclusion; and (10) when
the findings of fact of the Court of Appeals are premised on the absence of evidence and are
contradicted by the evidence on record.33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents
as a co-ownership, but in the same breath, assert that a verbal partnership was formed in
1946 and was affirmed in the 1957 Acknowledgement of Participating Capital.

36

There is a co-ownership when an undivided thing or right belongs to different persons. 34 It is a

partnership when 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. 35 The
Court, in Pascual v. The Commissioner of Internal Revenue,36 quoted the concurring opinion of
Mr. Justice Angelo Bautista in Evangelista v. The Collector of Internal Revenue 37 to further
elucidate on the distinctions between a co-ownership and a partnership, to wit:
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 co-possession does not itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the
property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property 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.
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.
A joint purchase of land, by two, does not constitute a co-partnership 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.
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.

37

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. x x x.
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.38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential elements in a contract of
partnership: (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, all the parties in this case 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.39 It is not denied that all the parties in this case have
agreed to contribute capital to a common fund to be able to later on share its profits. They
have admitted this fact, agreed to its veracity, and even submitted one common documentary
evidence to prove such partnership - the Acknowledgement of Participating Capital.
As this case revolves around the legal effects of the Acknowledgement of Participating Capital,
it would be instructive to examine the pertinent portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of
legal age, Filipinos and residents of Loyola Heights, Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo
City and the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods
and equipments, and general merchandise are recorded in their respective books with
Buenaventura Remotigue as the registered owner and are being operated by them as such:
That they are not the only owners of the capital of the three establishments and their
participation in the capital of the three establishments together with the other co-owners as of
the year 1952 are stated as follows:
1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)P25,000.00
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND) 25,000.00
3. Vicencio Deocampo (FIFTEEN THOUSAND) 15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND).... 15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND).. 8,000.00

38

6. Rafael Jarantilla (SIX THOUSAND).. ... 6,000.00

7. Federico Jarantilla, Jr. (FIVE THOUSAND).. 5,000.00
8. Quintin Vismanos (TWO THOUSAND)... 2,000.00
That aside from the persons mentioned in the next preceding paragraph, no other person has
any interest in the above-mentioned three establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of
April, 1957.
[Sgd.]
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40
The Acknowledgement of Participating Capital is a duly notarized document voluntarily
executed by Conchita Jarantilla-Remotigue and Buenaventura Remotigue in 1957. Petitioner
does not dispute its contents and is actually relying on it to prove his participation in the
partnership. Article 1797 of the Civil Code provides:
Art. 1797. 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.
In the absence of stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable for
the losses. As for the profits, the industrial partner shall receive such share as may be just and
equitable under the circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital. (Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in
the absence of any such stipulations, then to his share in proportion to his contribution to the
partnership. The petitioner himself claims his share to be 6%, as stated in the
Acknowledgement of Participating Capital. However, petitioner fails to realize that this
document specifically enumerated the businesses covered by the partnership: Manila Athletic
Supply, Remotigue Trading in Iloilo City and Remotigue Trading in Cotabato City. Since there
was a clear agreement that the capital the partners contributed went to the three businesses,
then there is no reason to deviate from such agreement and go beyond the stipulations in the
document. Therefore, the Court of Appeals did not err in limiting petitioners share to the
assets of the businesses enumerated in the Acknowledgement of Participating Capital.
In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity,
the shares to be paid out to the partners is necessarily limited only to its total resources, to
wit:

39

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words,
it can only pay out what it has in its coffers, which consists of all its assets. However, before
the partners can be paid their shares, the creditors of the partnership must first be
compensated. After all the creditors have been paid, whatever is left of the partnership assets
becomes available for the payment of the partners shares.42
There is no evidence that the subject real properties were assets of the partnership referred to
in the Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents properties based on the
concept of trust. He claims that since the subject real properties were purchased using funds of
the partnership, wherein he has a 6% share, then "law and equity mandates that he should be
considered as a co-owner of those properties in such proportion." 43 In Pigao v. Rabanillo,44 this
Court explained the concept of trusts, to wit:
Express trusts are created by the intention of the trustor or of the parties, while implied trusts
come into being by operation of law, either through implication of an intention to create a trust
as a matter of law or through the imposition of the trust irrespective of, and even contrary to,
any such intention. In turn, implied trusts are either resulting or constructive trusts. Resulting
trusts are based on the equitable doctrine that valuable consideration and not legal title
determines the equitable title or interest and are presumed always to have been contemplated
by the parties. They arise from the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title but is obligated in
equity to hold his legal title for the benefit of another.45
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was created. Noting the need to
prove the existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party asserting its existence,
and such proof must be clear and satisfactorily show the existence of the trust and its
elements. While implied trusts may be proved by oral evidence, the evidence must be
trustworthy and received by the courts with extreme caution, and should not be made to rest
on loose, equivocal or indefinite declarations. Trustworthy evidence is required because oral
evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust over the subject real properties.
Aside from his bare allegations, he has failed to show that the respondents used the
partnerships money to purchase the said properties. Even assuming arguendo that some
partnership income was used to acquire these properties, the petitioner should have
successfully shown that these funds came from his share in the partnership profits. After all, by
his own admission, and as stated in the Acknowledgement of Participating Capital, he owned a
mere 6% equity in the partnership.
In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on
his own self-serving testimony and the equally biased testimony of Antonieta Jarantilla.
Petitioner has not presented evidence, other than these unsubstantiated testimonies, to prove

40

that the respondents did not have the means to fund their other businesses and real properties
without the partnerships income. On the other hand, the respondents have not only, by
testimonial evidence, proven their case against the petitioner, but have also presented
sufficient documentary evidence to substantiate their claims, allegations and defenses. They
presented preponderant proof on how they acquired and funded such properties in addition to
tax receipts and tax declarations.47 It has been held that "while tax declarations and realty tax
receipts do not conclusively prove ownership, they may constitute strong evidence of
ownership when accompanied by possession for a period sufficient for prescription." 48
Moreover, it is a rule in this jurisdiction that testimonial evidence cannot prevail over
documentary evidence.49 This Court had on several occasions, expressed our disapproval on
using mere self-serving testimonies to support ones claim. In Ocampo v. Ocampo, 50 a case on
partition of a co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property was sufficiently proved by
their witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies
cannot prevail over the array of documents presented by Belen. A claim of ownership cannot
be based simply on the testimonies of witnesses; much less on those of interested parties, selfserving as they are.51
It is true that a certificate of title is merely an evidence of ownership or title over the particular
property described therein. Registration in the Torrens system does not create or vest title as
registration is not a mode of acquiring ownership; hence, this cannot deprive an aggrieved
party of a remedy in law.52 However, petitioner asserts ownership over portions of the subject
real properties on the strength of his own admissions and on the testimony of Antonieta
Jarantilla.1avvphi1 As held by this Court in Republic of the Philippines v. Orfinada, Sr. 53:
Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to
therein, and a strong presumption exists that a Torrens title was regularly issued and valid. A
Torrens title is incontrovertible against any informacion possessoria, of other title existing prior
to the issuance thereof not annotated on the Torrens title. Moreover, persons dealing with
property covered by a Torrens certificate of title are not required to go beyond what appears on
its face.54
As we have settled that this action never really was for partition of a co-ownership, to permit
petitioners claim on these properties is to allow a collateral, indirect attack on respondents
admitted titles. In the words of the Court of Appeals, "such evidence cannot overpower the
conclusiveness of these certificates of title, more so since plaintiffs [petitioners] claims
amount to a collateral attack, which is prohibited under Section 48 of Presidential Decree No.
1529, the Property Registration Decree."55
SEC. 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to
collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in
accordance with law.
This Court has deemed an action or proceeding to be "an attack on a title when its objective is
to nullify the title, thereby challenging the judgment pursuant to which the title was decreed." 56
In Aguilar v. Alfaro,57 this Court further distinguished between a direct and an indirect or
collateral attack, as follows:

41

A collateral attack transpires when, in another action to obtain a different relief and as an
incident to the present action, an attack is made against the judgment granting the title. This
manner of attack is to be distinguished from a direct attack against a judgment granting the
title, through an action whose main objective is to annul, set aside, or enjoin the enforcement
of such judgment if not yet implemented, or to seek recovery if the property titled under the
judgment had been disposed of. x x x.
Petitioners only piece of documentary evidence is the Acknowledgement of Participating
Capital, which as discussed above, failed to prove that the real properties he is claiming coownership of were acquired out of the proceeds of the businesses covered by such document.
Therefore, petitioners theory has no factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CAG.R. CV No. 40887, dated July 30, 2002 is AFFIRMED.
SO ORDERED.

42

G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
PANGANIBAN, J.:
A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that
they have not contributed any capital of their own to a "common fund." Their contribution may
be in the form of credit or industry, not necessarily cash or fixed assets. Being partner, they
are all liable for debts incurred by or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or ostensible corporation may lie in a
person who may not have directly transacted on its behalf, but reaped benefits from that
contract.
The Case
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998
Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:
WHEREFORE, [there being] no reversible error in the appealed decision,
the same is hereby affirmed. 2
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by
the CA, reads as follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary attachment issued by
this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts,
subject to the modifications as hereinafter made by reason of the special
and unique facts and circumstances and the proceedings that transpired
during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of
the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by
said Agreement;
b. 12% interest per annum counted from date of plaintiff's
invoices and computed on their respective amounts as
follows:

43

i. Accrued interest of P73,221.00 on Invoice No.

14407 for P385,377.80 dated February 9, 1990;
ii. Accrued interest for P27,904.02 on Invoice
No. 14413 for P146,868.00 dated February 13,
1990;
iii. Accrued interest of P12,920.00 on Invoice
No. 14426 for P68,000.00 dated February 19,
1990;
c. P50,000.00 as and for attorney's fees, plus P8,500.00
representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for
storage charges on the nets counted from September 20,
1990 (date of attachment) to September 12, 1991 (date of
auction sale);
e. Cost of suit.
With respect to the joint liability of defendants for the principal
obligation or for the unpaid price of nets and floats in the amount of
P532,045.00 and P68,000.00, respectively, or for the total amount
P600,045.00, this Court noted that these items were attached to
guarantee any judgment that may be rendered in favor of the
plaintiff but, upon agreement of the parties, and, to avoid further
deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for
which the plaintiff was the sole and winning bidder. The proceeds of
the sale paid for by plaintiff was deposited in court. In effect, the
amount of P900,000.00 replaced the attached property as a
guaranty for any judgment that plaintiff may be able to secure in
this case with the ownership and possession of the nets and floats
awarded and delivered by the sheriff to plaintiff as the highest
bidder in the public auction sale. It has also been noted that
ownership of the nets [was] retained by the plaintiff until full
payment [was] made as stipulated in the invoices; hence, in effect,
the plaintiff attached its own properties. It [was] for this reason also
that this Court earlier ordered the attachment bond filed by plaintiff
to guaranty damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as its
bond in favor of defendants.
From the foregoing, it would appear therefore that whatever
judgment the plaintiff may be entitled to in this case will have to be
satisfied from the amount of P900,000.00 as this amount replaced
the attached nets and floats. Considering, however, that the total
judgment obligation as computed above would amount to only
P840,216.92, it would be inequitable, unfair and unjust to award the
excess to the defendants who are not entitled to damages and who
did not put up a single centavo to raise the amount of P900,000.00
aside from the fact that they are not the owners of the nets and
floats. For this reason, the defendants are hereby relieved from any
and all liabilities arising from the monetary judgment obligation

44

enumerated above and for plaintiff to retain possession and

ownership of the nets and floats and for the reimbursement of the
P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED.

The Facts
On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the
Philippine Fishing Gear Industries, Inc. (herein respondent). They claimed that they were
engaged in a business venture with Petitioner Lim Tong Lim, who however was not a signatory
to the agreement. The total price of the nets amounted to P532,045. Four hundred pieces of
floats worth P68,000 were also sold to the Corporation. 4
The buyers, however, failed to pay for the fishing nets and the floats; hence, private
respondents filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer
for a writ of preliminary attachment. The suit was brought against the three in their capacities
as general partners, on the allegation that "Ocean Quest Fishing Corporation" was a
nonexistent corporation as shown by a Certification from the Securities and Exchange
Commission. 5 On September 20, 1990, the lower court issued a Writ of Preliminary
Attachment, which the sheriff enforced by attaching the fishing nets on board F/B Lourdes
which was then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and
requesting a reasonable time within which to pay. He also turned over to respondent some of
the nets which were in his possession. Peter Yao filed an Answer, after which he was deemed to
have waived his right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on the other hand, filed
an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment. 6 The trial court maintained the Writ, and upon motion of private respondent,
ordered the sale of the fishing nets at a public auction. Philippine Fishing Gear Industries won
the bidding and deposited with the said court the sales proceeds of P900,000. 7
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general
partners, were jointly liable to pay respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the
three 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation
of contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages.
10
The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have
the four (4) vessels sold in the amount of P5,750,000.00
including the fishing net. This P5,750,000.00 shall be applied
as full payment for P3,250,000.00 in favor of JL Holdings
Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a
higher price than P5,750,000.00 whatever will be the excess
will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua;
1/3 Peter Yao;

45

c) If the proceeds of the sale the vessels will be less than

P5,750,000.00 whatever the deficiency shall be shouldered
and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao. 11
The trial court noted that the Compromise Agreement was silent as to the nature of their
obligations, but that joint liability could be presumed from the equal distribution of the profit
and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a
fishing business and may thus be held liable as a such for the fishing nets and floats purchased
by and for the use of the partnership. The appellate court ruled:
The evidence establishes that all the defendants including herein
appellant Lim Tong Lim undertook a partnership for a specific undertaking,
that is for commercial fishing . . . . Oviously, the ultimate undertaking of
the defendants was to divide the profits among themselves which is what
a partnership essentially is . . . . By a 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
(Article 1767, New Civil Code). 13
Hence, petitioner brought this recourse before this Court.

14

The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE
AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A
SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG
THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING
FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS
FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN
IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND
ATTACHMENT OF PETITIONER LIM'S GOODS.
In determining whether petitioner may be held liable for the fishing nets and floats from
respondent, the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao
could be deemed to have entered into a partnership.
This Court's Ruling
The Petition is devoid of merit.

46

First and Second Issues:

Existence of a Partnership
and Petitioner's Liability
In arguing that he should not be held liable for the equipment purchased from respondent,
petitioner controverts the CA finding that a partnership existed between him, Peter Yao and
Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement alone.
Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the
negotiations were conducted by Chua and Yao only, and that he has not even met the
representatives of the respondent company. Petitioner further argues that he was a lessor, not
a partner, of Chua and Yao, for the "Contract of Lease " dated February 1, 1990, showed that
he had merely leased to the two the main asset of the purported partnership the fishing
boat F/B Lourdes. The lease was for six months, with a monthly rental of P37,500 plus 25
percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found by the two lower
courts clearly showed that there existed a partnership among Chua, Yao and him, pursuant to
Article 1767 of the Civil Code which provides:
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 profits among themselves.
Specifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yao's
partner;
(2) That after convening for a few times, Lim, Chua, and Yao verbally
agreed to acquire two fishing boats, the FB Lourdes and the FB Nelson for
the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner
Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which
executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim
Tong Lim only to serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping,
repairing, dry docking and other expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again extended
a loan to the partnership in the amount of P1 million secured by a check,
because of which, Yao and Chua entrusted the ownership papers of two
other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.

47

(7) That in pursuance of the business agreement, Peter Yao and Antonio
Chua bought nets from Respondent Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon
RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a)
declaration of nullity of commercial documents; (b) reformation of
contracts; (c) declaration of ownership of fishing boats; (4) injunction; and
(e) damages.
(9) That the case was amicably settled through a Compromise Agreement
executed between the parties-litigants the terms of which are already
enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed
by a loan secured from Jesus Lim who was petitioner's brother. In their Compromise
Agreement, they subsequently revealed their intention to pay the loan with the proceeds of the
sale of the boats, and to divide equally among them the excess or loss. These boats, the
purchase and the repair of which were financed with borrowed money, fell under the term
"common fund" under Article 1767. The contribution to such fund need not be cash or fixed
assets; it could be an intangible like credit or industry. That the parties agreed that any loss or
profit from the sale and operation of the boats would be divided equally among them also
shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase of the boat, but
also to that of the nets and the floats. The fishing nets and the floats, both essential to fishing,
were obviously acquired in furtherance of their business. It would have been inconceivable for
Lim to involve himself so much in buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have proceeded.
Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a
partnership engaged in the fishing business. They purchased the boats, which constituted the
main assets of the partnership, and they agreed that the proceeds from the sales and
operations thereof would be divided among them.
We stress that under Rule 45, a petition for review like the present case should involve only
questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this
Court, absent any cogent proof that the present action is embraced by one of the exceptions to
the rule. 16 In assailing the factual findings of the two lower courts, petitioner effectively goes
beyond the bounds of a petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the existence of a
partnership was the Compromise Agreement. He also claims that the settlement was entered
into only to end the dispute among them, but not to adjudicate their preexisting rights and
obligations. His arguments are baseless. The Agreement was but an embodiment of the
relationship extant among the parties prior to its execution.
A proper adjudication of claimants' rights mandates that courts must review and thoroughly
appraise all relevant facts. Both lower courts have done so and have found, correctly, a
preexisting partnership among the parties. In implying that the lower courts have decided on

48

the basis of one piece of document alone, petitioner fails to appreciate that the CA and the RTC
delved into the history of the document and explored all the possible consequential
combinations in harmony with law, logic and fairness. Verily, the two lower courts' factual
findings mentioned above nullified petitioner's argument that the existence of a partnership
was based only on the Compromise Agreement.
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the lessor of the boats to
Chua and Yao, not a partner in the fishing venture. His argument allegedly finds support in the
Contract of Lease and the registration papers showing that he was the owner of the boats,
including F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that he consented to the
sale of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be
divided among the three of them. No lessor would do what petitioner did. Indeed, his consent
to the sale proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua
and Yao, in which debts were undertaken in order to finance the acquisition and the upgrading
of the vessels which would be used in their fishing business. The sale of the boats, as well as
the division among the three of the balance remaining after the payment of their loans, proves
beyond cavil that F/B Lourdes, though registered in his name, was not his own property but an
asset of the partnership. It is not uncommon to register the properties acquired from a loan in
the name of the person the lender trusts, who in this case is the petitioner himself. After all, he
is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd for petitioner to sell his property to
pay a debt he did not incur, if the relationship among the three of them was merely that of
lessor-lessee, instead of partners.
Corporation by Estoppel
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed
only to Chua and Yao, and not to him. Again, we disagree.
Sec. 21 of the Corporation Code of the Philippines provides:
Sec. 21. Corporation by estoppel. All persons who assume to act as a
corporation knowing it to be without authority to do so shall be liable as
general partners for all debts, liabilities and damages incurred or arising
as a result thereof: Provided however, That when any such ostensible
corporation is sued on any transaction entered by it as a corporation or on
any tort committed by it as such, it shall not be allowed to use as a
defense its lack of corporate personality.
One who assumes an obligation to an ostensible corporation as such,
cannot resist performance thereof on the ground that there was in fact no
corporation.
Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may
be estopped from denying its corporate existence. "The reason behind this doctrine is obvious

49

 an unincorporated association has no personality and would be incompetent to act and

appropriate for itself the power and attributes of a corporation as provided by law; it cannot
create agents or confer authority on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority and at their own risk. And as it is
an elementary principle of law that a person who acts as an agent without authority or without
a principal is himself regarded as the principal, possessed of all the right and subject to all the
liabilities of a principal, a person acting or purporting to act on behalf of a corporation which
has no valid existence assumes such privileges and obligations and becomes personally liable
for contracts entered into or for other acts performed as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third
party. In the first instance, an unincorporated association, which represented itself to be a
corporation, will be estopped from denying its corporate capacity in a suit against it by a third
person who relied in good faith on such representation. It cannot allege lack of personality to
be sued to evade its responsibility for a contract it entered into and by virtue of which it
received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated,
nonetheless treated it as a corporation and received benefits from it, may be barred from
denying its corporate existence in a suit brought against the alleged corporation. In such case,
all those who benefited from the transaction made by the ostensible corporation, despite
knowledge of its legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be
paid for the nets it sold. The only question here is whether petitioner should be held jointly 18
liable with Chua and Yao. Petitioner contests such liability, insisting that only those who dealt in
the name of the ostensible corporation should be held liable. Since his name does not appear
on any of the contracts and since he never directly transacted with the respondent
corporation, ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the
boat which has earlier been proven to be an asset of the partnership. He in fact questions the
attachment of the nets, because the Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does
not preclude the liabilities of the three as contracting parties in representation of it. Clearly,
under the law on estoppel, those acting on behalf of a corporation and those benefited by it,
knowing it to be without valid existence, are held liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However,
having reaped the benefits of the contract entered into by persons with whom he previously
had an existing relationship, he is deemed to be part of said association and is covered by the
scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso
v. Villamor: 19
A litigation is not a game of technicalities in which one, more deeply
schooled and skilled in the subtle art of movement and position, entraps
and destroys the other. It is, rather, a contest in which each contending
party fully and fairly lays before the court the facts in issue and then,
brushing aside as wholly trivial and indecisive all imperfections of form
and technicalities of procedure, asks that justice be done upon the merits.
Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great

50

hindrance and chief enemy, deserves scant consideration from courts.

There should be no vested rights in technicalities.
Third Issue:
Validity of Attachment
Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets.
We agree with the Court of Appeals that this issue is now moot and academic. As previously
discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of
petitioner, only to assure payment of the debt he and his partners owed. The nets and the
floats were specifically manufactured and tailor-made according to their own design, and were
bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to
assure the payment of the price stipulated in the invoices is proper. Besides, by specific
agreement, ownership of the nets remained with Respondent Philippine Fishing Gear, until full
payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.
SO ORDERED.

G.R. NOS. 166299-300 December 13, 2005

51

AURELIO K. LITONJUA, JR., Petitioner,

vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC.,
CINEPLEX, INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC.,
EDDIE K. LITONJUA SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E. K.
Litonjua Sec), LUNETA THEATER, INC., E & L REALTY, (formerly E & L INTL SHIPPING
CORP.), FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC.,
GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM
THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON
REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC. (formerly General
Theatrical & Film Exchange, INC.), AVENUE REALTY, INC., AVENUE THEATER, INC. and
LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES), Respondents.
DECISION
GARCIA, J.:
In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr.
seeks to nullify and set aside the Decision of the Court of Appeals (CA) dated March 31, 2004 1
in consolidated cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution
dated December 07, 2004,2 denying petitioners motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr.
(Eduardo) are brothers. The legal dispute between them started when, on December 4, 2002,
in the Regional Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo
and herein respondent Robert T. Yang (Yang) and several corporations for specific performance
and accounting. In his complaint,3 docketed as Civil Case No. 69235 and eventually raffled to
Branch 68 of the court,4 Aurelio alleged that, since June 1973, he and Eduardo are into a joint
venture/partnership arrangement in the Odeon Theater business which had expanded thru
investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty Corporation (operator of
Odeon I and II theatres), Avenue Realty, Inc., owner of lands and buildings, among other
corporations. Yang is described in the complaint as petitioners and Eduardos partner in their
Odeon Theater investment.5 The same complaint also contained the following material
averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership
for the continuation of their family business and common family funds .
3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed
by Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached
hereto and made an integral part as Annex "A" and the portion referring to [Aurelio]
submarked as Annex "A-1".
3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of
[Aurelios] retaining his share in the remaining family businesses (mostly, movie theaters,
shipping and land development) and contributing his industry to the continued operation of

52

these businesses, [Aurelio] will be given P1 Million or 10% equity in all these businesses and
those to be subsequently acquired by them whichever is greater. . . .
4.01 from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and
Eduardo had accumulated in their joint venture/partnership various assets including but not
limited to the corporate defendants and [their] respective assets.
4.02 In addition . . . the joint venture/partnership had also acquired [various other assets],
but Eduardo caused to be registered in the names of other parties.
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants consist of real properties . A
list of some of these real properties is attached hereto and made an integral part as Annex
"B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that
[Aurelio] requested for an accounting and liquidation of his share in the joint
venture/partnership [but these demands for complete accounting and liquidation were not
heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the
corporate defendants as well as Bobby [Yang], are transferring . . . various real properties of
the corporations belonging to the joint venture/partnership to other parties in fraud of
[Aurelio]. In consequence, [Aurelio] is therefore causing at this time the annotation on the titles
of these real properties a notice of lis pendens . (Emphasis in the original; underscoring
and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been
meant for him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. .
I am trying my best to mold you the way I work so you can follow the pattern . You will be the
only one left with the company, among us brothers and I will ask you to stay as I want you to
run this office every time I am away. I want you to run it the way I am trying to run it because I
will be all alone and I will depend entirely to you (sic). My sons will not be ready to help me yet
until about maybe 15/20 years from now. Whatever is left in the corporation, I will make sure
that you get ONE MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is
greater. We two will gamble the whole thing of what I have and what you are entitled to. . It
will be you and me alone on this. If ever I pass away, I want you to take care of all of this. You
keep my share for my two sons are ready take over but give them the chance to run the
company which I have built.

53

xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED
THOUSANDS PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better
there. The rest I will give you in form of stocks which you can keep. This stock I assure you is
good and saleable. I will also gladly give you the share of Wack-Wack and Valley Golf
because you have been good. The rest will be in stocks from all the corporations which I
repeat, ten percent (10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a
joint ANSWER With Compulsory Counterclaim denying under oath the material allegations of
the complaint, more particularly that portion thereof depicting petitioner and Eduardo as
having entered into a contract of partnership. As affirmative defenses, Eduardo, et al., apart
from raising a jurisdictional matter, alleged that the complaint states no cause of action, since
no cause of action may be derived from the actionable document, i.e., Annex "A-1", being void
under the terms of Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further
alleged that whatever undertaking Eduardo agreed to do, if any, under Annex "A-1", are
unenforceable under the provisions of the Statute of Frauds. 7
For his part, Yang - who was served with summons long after the other defendants submitted
their answer moved to dismiss on the ground, inter alia, that, as to him, petitioner has no
cause of action and the complaint does not state any.8 Petitioner opposed this motion to
dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses.9 To this
motion, petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial.10
Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus
Order dated March 5, 2003, denied the affirmative defenses and, except for Yang, set the case
for pre-trial on April 10, 2003.11
In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et
al., for reconsideration12 and Yangs motion to dismiss. The following then transpired insofar as
Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek
reconsideration of the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss 13
to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but
his motion was denied in an Order of July 4, 2003. 14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under
Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,15 to nullify the separate
orders of the trial court, the first denying his motion to dismiss the basic complaint and, the
second, denying his motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of
discretion and injudicious haste attended the issuance of the trial courts aforementioned

54

Omnibus Orders dated March 5, and April 2, 2003, sought relief from the CA via similar
recourse. Their petition for certiorari was docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003,16 the CAs 14th Division ordered the consolidation of
CA G.R. SP No. 78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their respective Memoranda of Authorities, the
appellate court came out with the herein assailed Decision dated March 31, 2004, finding
for Eduardo and Yang, as lead petitioners therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in
these consolidated cases annulling, reversing and setting aside the assailed orders of the court
a quo dated March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private
respondent [now petitioner Aurelio] against all the petitioners [now herein respondents
Eduardo, et al.] with the court a quo is hereby dismissed.
SO ORDERED.17 (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that the alleged
partnership, as evidenced by the actionable documents, Annex "A" and "A-1" attached to the
complaint, and upon which petitioner solely predicates his right/s allegedly violated by
Eduardo, Yang and the corporate defendants a quo is "void or legally inexistent".
In time, petitioner moved for reconsideration but his motion was denied by the CA in its
equally assailed Resolution of December 7, 2004.18 .
Hence, petitioners present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the actionable document because
this was not a public instrument and immovable properties were contributed to the
partnership.
B. When it ruled that the actionable document did not create a demandable right in favor of
petitioner.
C. When it ruled that the complaint stated no cause of action against [respondent] Robert
Yang; and
D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had
done was to support his pleaded cause of action by another legal perspective/argument.
The petition lacks merit.
Petitioners demand, as defined in the petitory portion of his complaint in the trial court, is for
delivery or payment to him, as Eduardos and Yangs partner, of his partnership/joint venture
share, after an accounting has been duly conducted of what he deems to be partnership/joint
venture property.19

55

A partnership exists when two or more persons agree to place their money, effects, labor, and
skill in lawful commerce or business, with the understanding that there shall be a proportionate
sharing of the profits and losses between them.20 A contract of partnership is defined by the
Civil Code as one where two or more persons bound themselves to contribute money, property,
or industry to a common fund with the intention of dividing the profits among themselves. 21 A
joint venture, on the other hand, is hardly distinguishable from, and may be likened to, a
partnership since their elements are similar, i.e., community of interests in the business and
sharing of profits and losses. Being a form of partnership, a joint venture is generally governed
by the law on partnership.22
The underlying issue that necessarily comes to mind in this proceedings is whether or not
petitioner and respondent Eduardo are partners in the theatre, shipping and realty business, as
one claims but which the other denies. And the issue bearing on the first assigned error relates
to the question of what legal provision is applicable under the premises, petitioner seeking, as
it were, to enforce the actionable document - Annex "A-1" - which he depicts in his complaint
to be the contract of partnership/joint venture between himself and Eduardo. Clearly, then, a
look at the legal provisions determinative of the existence, or defining the formal requisites, of
a partnership is indicated. Foremost of these are the following provisions of the Civil Code:
Art. 1771. 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.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in
money or property, shall appear in a public instrument, which must be recorded in the Office of
the Securities and Exchange Commission.
Failure to comply with the requirement of the preceding paragraph shall not affect the liability
of the partnership and the members thereof to third persons.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed
thereto, if an inventory of said property is not made, signed by the parties, and attached to the
public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and
undated. As an unsigned document, there can be no quibbling that Annex "A-1" does not meet
the public instrumentation requirements exacted under Article 1771 of the Civil Code.
Moreover, being unsigned and doubtless referring to a partnership involving more than
P3,000.00 in money or property, Annex "A-1" cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission (SEC), as called for under the Article
1772 of the Code. And inasmuch as the inventory requirement under the succeeding Article
1773 goes into the matter of validity when immovable property is contributed to the
partnership, the next logical point of inquiry turns on the nature of petitioners contribution, if
any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioners contribution
consisted of immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that [petitioners]
contribution to the so-called "partnership/joint venture" was his supposed share in the family

56

business that is consisting of movie theaters, shipping and land development under paragraph
3.02 of the complaint. In other words, his contribution as a partner in the alleged
partnership/joint venture consisted of immovable properties and real rights. . 23
Significantly enough, petitioner matter-of-factly concurred with the appellate courts
observation that, prescinding from what he himself alleged in his basic complaint, his
contribution to the partnership consisted of his share in the Litonjua family businesses which
owned variable immovable properties. Petitioners assertion in his motion for reconsideration 24
of the CAs decision, that "what was to be contributed to the business [of the partnership] was
[petitioners] industry and his share in the family [theatre and land development] business"
leaves no room for speculation as to what petitioner contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the
Civil Code applies as long real property or real rights are initially brought into the partnership.
In short, it is really of no moment which of the partners, or, in this case, who between
petitioner and his brother Eduardo, contributed immovables. In context, the more important
consideration is that real property was contributed, in which case an inventory of the
contributed property duly signed by the parties should be attached to the public instrument,
else there is legally no partnership to speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues that the
immovables in question were not contributed, but were acquired after the formation of the
supposed partnership. Needless to stress, the Court cannot accord cogency to this specious
argument. For, as earlier stated, petitioner himself admitted contributing his share in the
supposed shipping, movie theatres and realty development family businesses which already
owned immovables even before Annex "A-1" was allegedly executed.
Considering thus the value and nature of petitioners alleged contribution to the purported
partnership, the Court, even if so disposed, cannot plausibly extend Annex "A-1" the legal
effects that petitioner so desires and pleads to be given. Annex "A-1", in fine, cannot support
the existence of the partnership sued upon and sought to be enforced. The legal and factual
milieu of the case calls for this disposition. A partnership may be constituted in any form, save
when immovable property or real rights are contributed thereto or when the partnership has a
capital of at least P3,000.00, in which case a public instrument shall be necessary.25 And if only
to stress what has repeatedly been articulated, an inventory to be signed by the parties and
attached to the public instrument is also indispensable to the validity of the partnership
whenever immovable property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its assailed Decision 26 about
the probative value and legal effect of Annex "A-1" commends itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the "Memorandum" (Annex "A" of the
complaint) which purports to establish the said "partnership/joint venture" is NOT a public
instrument and there was NO inventory of the immovable property duly signed by the parties.
As such, the said "Memorandum" is null and void for purposes of establishing the existence
of a valid contract of partnership. Indeed, because of the failure to comply with the essential
formalities of a valid contract, the purported "partnership/joint venture" is legally inexistent
and it produces no effect whatsoever. Necessarily, a void or legally inexistent contract cannot

57

be the source of any contractual or legal right. Accordingly, the allegations in the complaint,
including the actionable document attached thereto, clearly demonstrates that [petitioner] has
NO valid contractual or legal right which could be violated by the [individual respondents]
herein. As a consequence, [petitioners] complaint does NOT state a valid cause of action
because NOT all the essential elements of a cause of action are present. (Underscoring and
words in bracket added.)
Likewise well-taken are the following complementary excerpts from the CAs equally assailed
Resolution of December 7, 200427 denying petitioners motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the complaint as well as
the actionable document attached thereto (Rollo, p. 191), the [trial] court did not appreciate
and apply the legal provisions which were brought to its attention by herein [respondents] in
the their pleadings. In our evaluation of [petitioners] complaint, the latter alleged inter alia to
have contributed immovable properties to the alleged partnership but the actionable
document is not a public document and there was no inventory of immovable properties
signed by the parties. Both the allegations in the complaint and the actionable documents
considered, it is crystal clear that [petitioner] has no valid or legal right which could be violated
by [respondents]. (Words in bracket added.)
Under the second assigned error, it is petitioners posture that Annex "A-1", assuming its
inefficacy or nullity as a partnership document, nevertheless created demandable rights in his
favor. As petitioner succinctly puts it in this petition:
43. Contrariwise, this actionable document, especially its above-quoted provisions, established
an actionable contract even though it may not be a partnership. This actionable contract is
what is known as an innominate contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does
create rights and obligations of the parties and which rights and obligations may be
enforceable and demandable. Just because the relationship created by the agreement cannot
be specifically labeled or pigeonholed into a category of nominate contract does not mean it is
void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on
the CA after he experienced a reversal of fortune thereat - as an afterthought. The appellate
court, however, cannot really be faulted for not yielding to petitioners dubious stratagem of
altering his theory of joint venture/partnership to an innominate contract. For, at bottom, the
appellate courts certiorari jurisdiction was circumscribed by what was alleged to have been
the order/s issued by the trial court in grave abuse of discretion. As respondent Yang pointedly
observed,28 since the parties basic position had been well-defined, that of petitioner being that
the actionable document established a partnership/joint venture, it is on those positions that
the appellate court exercised its certiorari jurisdiction. Petitioners act of changing his original
theory is an impermissible practice and constitutes, as the CA aptly declared, an admission of
the untenability of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now
contended that the actionable instrument may be considered an innominate contract. xxx
Verily, this now changes [petitioners] theory of the case which is not only prohibited by the

58

Rules but also is an implied admission that the very theory he himself has adopted, filed and
prosecuted before the respondent court is erroneous.
Be that as it may . . We hold that this new theory contravenes [petitioners] theory of the
actionable document being a partnership document. If anything, it is so obvious we do have to
test the sufficiency of the cause of action on the basis of partnership law xxx. 29 (Emphasis in
the original; Words in bracket added).
But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected innominate
contract, petitioners complaint would still be dismissible as against Eduardo and, more so,
against Yang. It cannot be over-emphasized that petitioner points to Eduardo as the author of
Annex "A-1". Withal, even on this consideration alone, petitioners claim against Yang is
doomed from the very start.
As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as
vesting petitioner with a right to demand from respondent Eduardo the observance of a
determinate conduct, reads:
xxx You will be the only one left with the company, among us brothers and I will ask you to
stay as I want you to run this office everytime I am away. I want you to run it the way I am
trying to run it because I will be alone and I will depend entirely to you, My sons will not be
ready to help me yet until about maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten percent
(10%) equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself under the above
passage, if he indeed wrote Annex "A-1", is a promise which is not to be performed within one
year from "contract" execution on June 22, 1973. Accordingly, the agreement embodied in
Annex "A-1" is covered by the Statute of Frauds and ergo unenforceable for non-compliance
therewith.30 By force of the statute of frauds, an agreement that by its terms is not to be
performed within a year from the making thereof shall be unenforceable by action, unless the
same, or some note or memorandum thereof, be in writing and subscribed by the party
charged. Corollarily, no action can be proved unless the requirement exacted by the statute of
frauds is complied with.31
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of
the family businesses supposedly promised by Eduardo to give in the near future. Any
suggestion that the stated amount or the equity component of the promise was intended to go
to a common fund would be to read something not written in Annex "A-1". Thus, even this
angle alone argues against the very idea of a partnership, the creation of which requires two or
more contracting minds mutually agreeing to contribute money, property or industry to a
common fund with the intention of dividing the profits between or among themselves. 32
In sum then, the Court rules, as did the CA, that petitioners complaint for specific performance
anchored on an actionable document of partnership which is legally inexistent or void or, at
best, unenforceable does not state a cause of action as against respondent Eduardo and the
corporate defendants. And if no of action can successfully be maintained against respondent
Eduardo because no valid partnership existed between him and petitioner, the Court cannot
see its way clear on how the same action could plausibly prosper against Yang. Surely, Yang

59

could not have become a partner in, or could not have had any form of business relationship
with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie
Yang to him as his partner. In fact, attendant circumstances would indicate the contrary.
Consider:
1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo
was "for the continuation of their family business and common family funds which were
theretofore being mainly managed by Eduardo." 33 But Yang denies kinship with the Litonjua
family and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint
venture/partnership with Eduardo and what his share in the businesses will be. No allegation is
made whatsoever about what Yang contributed, if any, let alone his proportional share in the
profits. But such allegation cannot, however, be made because, as aptly observed by the CA,
the actionable document did not contain such provision, let alone mention the name of Yang.
How, indeed, could a person be considered a partner when the document purporting to
establish the partnership contract did not even mention his name.
3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners
in the [respondent] corporations," while "Bobby is his and Eduardos partner in their Odeon
Theater investment (par. 2.03). This means that the partnership between petitioner and
Eduardo came first; Yang became their partner in their Odeon Theater investment thereafter.
Several paragraphs later, however, petitioner would contradict himself by alleging that his
"investment and that of Eduardo and Yang in the Odeon theater business has expanded
through a reinvestment of profit income and direct investments in several corporation
including but not limited to [six] corporate respondents" This simply means that the "Odeon
Theatre business" came before the corporate respondents. Significantly enough, petitioner
refers to the corporate respondents as "progeny" of the Odeon Theatre business. 34
Needless to stress, petitioner has not sufficiently established in his complaint the legal
vinculum whence he sourced his right to drag Yang into the fray. The Court of Appeals, in its
assailed decision, captured and formulated the legal situation in the following wise:
[Respondent] Yang, is impleaded because, as alleged in the complaint, he is a "partner" of
[Eduardo] and the [petitioner] in the Odeon Theater Investment which expanded through
reinvestments of profits and direct investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioners] claim against Yang arose from his alleged partnership with petitioner
and the respondent. However, there was NO allegation in the complaint which directly
alleged how the supposed contractual relation was created between [petitioner] and Yang.
More importantly, however, the foregoing ruling of this Court that the purported partnership
between [Eduardo] is void and legally inexistent directly affects said claim against Yang.
Since [petitioner] is trying to establish his claim against Yang by linking him to the legally
inexistent partnership . . . such attempt had become futile because there was NOTHING that
would contractually connect [petitioner] and Yang. To establish a valid cause of action, the

60

complaint should have a statement of fact upon which to connect [respondent] Yang to the
alleged partnership between [petitioner] and respondent [Eduardo], including their alleged
investment in the Odeon Theater. A statement of facts on those matters is pivotal to the
complaint as they would constitute the ultimate facts necessary to establish the elements of a
cause of action against Yang. 35
Pressing its point, the CA later stated in its resolution denying petitioners motion for
reconsideration the following:
xxx Whatever the complaint calls it, it is the actionable document attached to the complaint
that is controlling. Suffice it to state, We have not ignored the actionable document As a
matter of fact, We emphasized in our decision that insofar as [Yang] is concerned, he is not
even mentioned in the said actionable document. We are therefore puzzled how a person not
mentioned in a document purporting to establish a partnership could be considered a partner. 36
(Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed his theory of the
case, as peremptorily determined by the CA, has been discussed at length earlier and need not
detain us long. Suffice it to say that after the CA has ruled that the alleged partnership is
inexistent, petitioner took a different tack. Thus, from a joint venture/partnership theory which
he adopted and consistently pursued in his complaint, petitioner embraced the innominate
contract theory. Illustrative of this shift is petitioners statement in par. #8 of his motion for
reconsideration of the CAs decision combined with what he said in par. # 43 of this petition, as
follows:
8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is
a legal matter. What is determinative for purposes of sufficiency of the complainants
allegations, is whether the actionable document bears out an actionable contract be it a
partnership, a joint venture or whatever or some innominate contract It may be noted that
one kind of innominate contract is what is known as du ut facias (I give that you may do).37
43. Contrariwise, this actionable document, especially its above-quoted provisions, established
an actionable contract even though it may not be a partnership. This actionable contract is
what is known as an innominate contract (Civil Code, Article 1307). 38
Springing surprises on the opposing party is offensive to the sporting idea of fair play, justice
and due process; hence, the proscription against a party shifting from one theory at the trial
court to a new and different theory in the appellate court. 39 On the same rationale, an issue
which was neither averred in the complaint cannot be raised for the first time on appeal. 40 It is
not difficult, therefore, to agree with the CA when it made short shrift of petitioners
innominate contract theory on the basis of the foregoing basic reasons.
Petitioners protestation that his act of introducing the concept of innominate contract was not
a case of changing theories but of supporting his pleaded cause of action that of the
existence of a partnership - by another legal perspective/argument, strikes the Court as a
strained attempt to rationalize an untenable position. Paragraph 12 of his motion for
reconsideration of the CAs decision virtually relegates partnership as a fall-back theory. Two
paragraphs later, in the same notion, petitioner faults the appellate court for reading, with
myopic eyes, the actionable document solely as establishing a partnership/joint venture. Verily,

61

the cited paragraphs are a study of a party hedging on whether or not to pursue the original
cause of action or altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a partnership between
[respondent] Eduardo, Sr. and [petitioner], no immovables were contributed to this
partnership. xxx
14. All told, the Decision takes off from a false premise that the actionable document attached
to the complaint does not establish a contractual relationship between [petitioner] and
Eduardo, Sr. and Roberto T Yang simply because his document does not create a partnership or
a joint venture. This is a myopic reading of the actionable document.
Per the Courts own count, petitioner used in his complaint the mixed words "joint
venture/partnership" nineteen (19) times and the term "partner" four (4) times. He made
reference to the "law of joint venture/partnership [being applicable] to the business
relationship between [him], Eduardo and Bobby [Yang]" and to his "rights in all specific
properties of their joint venture/partnership". Given this consideration, petitioners right of
action against respondents Eduardo and Yang doubtless pivots on the existence of the
partnership between the three of them, as purportedly evidenced by the undated and
unsigned Annex "A-1". A void Annex "A-1", as an actionable document of partnership, would
strip petitioner of a cause of action under the premises. A complaint for delivery and
accounting of partnership property based on such void or legally non-existent actionable
document is dismissible for failure to state of action. So, in gist, said the Court of Appeals. The
Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of
the Court of Appeals AFFIRMED.
Cost against the petitioner.
SO ORDERED.

62

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.

63

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 co-ownership
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.

64

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 question pro-indiviso 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 co-ownership 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.CoOwnership 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. 7778).
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.

65

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.
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.

66

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 co-owners 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 co-ownership 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 UPON THE PETITIONERS.
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

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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 co-partnerships
(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

68

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. 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

69

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 co-ownership 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 co-ownership. Said article paragraphs 2 and
3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived;
From the above it appears that the fact that those who agree to form a coownership 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.)
A joint purchase of land, by two, does not constitute a co-partnership 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.)

70

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.

71

G.R. No. 148187

April 16, 2008

PHILEX MINING CORPORATION, petitioner,

vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review on certiorari of the June 30, 2000 Decision 1 of the Court of Appeals
in CA-G.R. SP No. 49385, which affirmed the Decision 2 of the Court of Tax Appeals in C.T.A.
Case No. 5200. Also assailed is the April 3, 2001 Resolution 3 denying the motion for
reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining), entered into an
agreement4 with Baguio Gold Mining Company ("Baguio Gold") for the former to manage and
operate the latters mining claim, known as the Sto. Nino mine, located in Atok and Tublay,
Benguet Province. The parties agreement was denominated as "Power of Attorney" and
provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold) shall make
available to the MANAGERS (Philex Mining) up to ELEVEN MILLION PESOS
(P11,000,000.00), in such amounts as from time to time may be required by the
MANAGERS within the said 3-year period, for use in the MANAGEMENT of the STO. NINO
MINE. The said ELEVEN MILLION PESOS (P11,000,000.00) shall be deemed, for internal
audit purposes, as the owners account in the Sto. Nino PROJECT. Any part of any
income of the PRINCIPAL from the STO. NINO MINE, which is left with the Sto. Nino
PROJECT, shall be added to such owners account.
5. Whenever the MANAGERS shall deem it necessary and convenient in connection with
the MANAGEMENT of the STO. NINO MINE, they may transfer their own funds or property
to the Sto. Nino PROJECT, in accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be carried
by the Sto. Nino PROJECT as a special fund to be known as the MANAGERS
account.
(b) The total of the MANAGERS account shall not exceed P11,000,000.00, except
with prior approval of the PRINCIPAL; provided, however, that if the compensation
of the MANAGERS as herein provided cannot be paid in cash from the Sto. Nino

72

PROJECT, the amount not so paid in cash shall be added to the MANAGERS
account.
(c) The cash and property shall not thereafter be withdrawn from the Sto. Nino
PROJECT until termination of this Agency.
(d) The MANAGERS account shall not accrue interest. Since it is the desire of the
PRINCIPAL to extend to the MANAGERS the benefit of subsequent appreciation of
property, upon a projected termination of this Agency, the ratio which the
MANAGERS account has to the owners account will be determined, and the
corresponding proportion of the entire assets of the STO. NINO MINE, excluding
the claims, shall be transferred to the MANAGERS, except that such transferred
assets shall not include mine development, roads, buildings, and similar property
which will be valueless, or of slight value, to the MANAGERS. The MANAGERS can,
on the other hand, require at their option that property originally transferred by
them to the Sto. Nino PROJECT be re-transferred to them. Until such assets are
transferred to the MANAGERS, this Agency shall remain subsisting.
xxxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the net profit of
the Sto. Nino PROJECT before income tax. It is understood that the MANAGERS shall pay
income tax on their compensation, while the PRINCIPAL shall pay income tax on the net
profit of the Sto. Nino PROJECT after deduction therefrom of the MANAGERS
compensation.
xxxx
16. The PRINCIPAL has current pecuniary obligation in favor of the MANAGERS and, in
the future, may incur other obligations in favor of the MANAGERS. This Power of
Attorney has been executed as security for the payment and satisfaction of all such
obligations of the PRINCIPAL in favor of the MANAGERS and as a means to fulfill the
same. Therefore, this Agency shall be irrevocable while any obligation of the PRINCIPAL
in favor of the MANAGERS is outstanding, inclusive of the MANAGERS account. After all
obligations of the PRINCIPAL in favor of the MANAGERS have been paid and satisfied in
full, this Agency shall be revocable by the PRINCIPAL upon 36-month notice to the
MANAGERS.
17. Notwithstanding any agreement or understanding between the PRINCIPAL and the
MANAGERS to the contrary, the MANAGERS may withdraw from this Agency by giving 6month notice to the PRINCIPAL. The MANAGERS shall not in any manner be held liable to
the PRINCIPAL by reason alone of such withdrawal. Paragraph 5(d) hereof shall be
operative in case of the MANAGERS withdrawal.
x x x x5
In the course of managing and operating the project, Philex Mining made advances of cash and
property in accordance with paragraph 5 of the agreement. However, the mine suffered
continuing losses over the years which resulted to petitioners withdrawal as manager of the

73

mine on January 28, 1982 and in the eventual cessation of mine operations on February 20,
1982.6
Thereafter, on September 27, 1982, the parties executed a "Compromise with Dation in
Payment"7 wherein Baguio Gold admitted an indebtedness to petitioner in the amount of
P179,394,000.00 and agreed to pay the same in three segments by first assigning Baguio
Golds tangible assets to petitioner, transferring to the latter Baguio Golds equitable title in its
Philodrill assets and finally settling the remaining liability through properties that Baguio Gold
may acquire in the future.
On December 31, 1982, the parties executed an "Amendment to Compromise with Dation in
Payment"8 where the parties determined that Baguio Golds indebtedness to petitioner actually
amounted to P259,137,245.00, which sum included liabilities of Baguio Gold to other creditors
that petitioner had assumed as guarantor. These liabilities pertained to long-term loans
amounting to US$11,000,000.00 contracted by Baguio Gold from the Bank of America NT & SA
and Citibank N.A. This time, Baguio Gold undertook to pay petitioner in two segments by first
assigning its tangible assets for P127,838,051.00 and then transferring its equitable title in its
Philodrill assets for P16,302,426.00. The parties then ascertained that Baguio Gold had a
remaining outstanding indebtedness to petitioner in the amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the remaining outstanding
indebtedness of Baguio Gold by charging P112,136,000.00 to allowances and reserves that
were set up in 1981 and P2,860,768.00 to the 1982 operations.
In its 1982 annual income tax return, petitioner deducted from its gross income the amount of
P112,136,000.00 as "loss on settlement of receivables from Baguio Gold against reserves and
allowances."9 However, the Bureau of Internal Revenue (BIR) disallowed the amount as
deduction for bad debt and assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be allowed since all
requisites for a bad debt deduction were satisfied, to wit: (a) there was a valid and existing
debt; (b) the debt was ascertained to be worthless; and (c) it was charged off within the
taxable year when it was determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management contract it entered into
with Baguio Gold. The bad debt deduction represented advances made by petitioner which,
pursuant to the management contract, formed part of Baguio Golds "pecuniary obligations" to
petitioner. It also included payments made by petitioner as guarantor of Baguio Golds longterm loans which legally entitled petitioner to be subrogated to the rights of the original
creditor.
Petitioner also asserted that due to Baguio Golds irreversible losses, it became evident that it
would not be able to recover the advances and payments it had made in behalf of Baguio Gold.
For a debt to be considered worthless, petitioner claimed that it was neither required to
institute a judicial action for collection against the debtor nor to sell or dispose of collateral
assets in satisfaction of the debt. It is enough that a taxpayer exerted diligent efforts to
enforce collection and exhausted all reasonable means to collect.

74

On October 28, 1994, the BIR denied petitioners protest for lack of legal and factual basis. It
held that the alleged debt was not ascertained to be worthless since Baguio Gold remained
existing and had not filed a petition for bankruptcy; and that the deduction did not consist of a
valid and subsisting debt considering that, under the management contract, petitioner was to
be paid fifty percent (50%) of the projects net profit.10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is hereby DENIED
for lack of merit. The assessment in question, viz: FAS-1-82-88-003067 for deficiency
income tax in the amount of P62,811,161.39 is hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to PAY
respondent Commissioner of Internal Revenue the amount of P62,811,161.39, plus, 20%
delinquency interest due computed from February 10, 1995, which is the date after the
20-day grace period given by the respondent within which petitioner has to pay the
deficiency amount x x x up to actual date of payment.
SO ORDERED.11
The CTA rejected petitioners assertion that the advances it made for the Sto. Nino mine were
in the nature of a loan. It instead characterized the advances as petitioners investment in a
partnership with Baguio Gold for the development and exploitation of the Sto. Nino mine. The
CTA held that the "Power of Attorney" executed by petitioner and Baguio Gold was actually a
partnership agreement. Since the advanced amount partook of the nature of an investment, it
could not be deducted as a bad debt from petitioners gross income.
The CTA likewise held that the amount paid by petitioner for the long-term loan obligations of
Baguio Gold could not be allowed as a bad debt deduction. At the time the payments were
made, Baguio Gold was not in default since its loans were not yet due and demandable. What
petitioner did was to pre-pay the loans as evidenced by the notice sent by Bank of America
showing that it was merely demanding payment of the installment and interests due.
Moreover, Citibank imposed and collected a "pre-termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA.12 Hence, upon denial of its motion for
reconsideration,13 petitioner took this recourse under Rule 45 of the Rules of Court, alleging
that:
I.
The Court of Appeals erred in construing that the advances made by Philex in the
management of the Sto. Nino Mine pursuant to the Power of Attorney partook of the
nature of an investment rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net profits of the
Sto. Nino Mine indicates that Philex is a partner of Baguio Gold in the development of

75

the Sto. Nino Mine notwithstanding the clear absence of any intent on the part of Philex
and Baguio Gold to form a partnership.
III.
The Court of Appeals erred in relying only on the Power of Attorney and in completely
disregarding the Compromise Agreement and the Amended Compromise Agreement
when it construed the nature of the advances made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the propriety of the
bad debts write-off.14
Petitioner insists that in determining the nature of its business relationship with Baguio Gold,
we should not only rely on the "Power of Attorney", but also on the subsequent "Compromise
with Dation in Payment" and "Amended Compromise with Dation in Payment" that the parties
executed in 1982. These documents, allegedly evinced the parties intent to treat the
advances and payments as a loan and establish a creditor-debtor relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument that is material
in determining the true nature of the business relationship between petitioner and Baguio
Gold. Before resort may be had to the two compromise agreements, the parties contractual
intent must first be discovered from the expressed language of the primary contract under
which the parties business relations were founded. It should be noted that the compromise
agreements were mere collateral documents executed by the parties pursuant to the
termination of their business relationship created under the "Power of Attorney". On the other
hand, it is the latter which established the juridical relation of the parties and defined the
parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be considered as a subsequent
or contemporaneous act that is reflective of the parties true intent. The compromise
agreements were executed eleven years after the "Power of Attorney" and merely laid out a
plan or procedure by which petitioner could recover the advances and payments it made under
the "Power of Attorney". The parties entered into the compromise agreements as a
consequence of the dissolution of their business relationship. It did not define that relationship
or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint venture was
indeed intended by the parties. Under a 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.15 While a corporation, like petitioner, cannot generally
enter into a contract of partnership unless authorized by law or its charter, it has been held
that it may enter into a joint venture which is akin to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no precise legal
definition, but it has been generally understood to mean an organization formed for

76

some temporary purpose. x x x 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. x x x 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. x x x 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. x x x It would seem therefore that under Philippine law, a
joint venture is a form of partnership and should 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. x x x
(Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney" indicates that the parties
had intended to create a partnership and establish a common fund for the purpose. They also
had a joint interest in the profits of the business as shown by a 50-50 sharing in the income of
the mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to contribute money,
property and industry to the common fund known as the Sto. Nio mine. 17 In this regard, we
note that there is a substantive equivalence in the respective contributions of the parties to
the development and operation of the mine. Pursuant to paragraphs 4 and 5 of the agreement,
petitioner and Baguio Gold were to contribute equally to the joint venture assets under their
respective accounts. Baguio Gold would contribute P11M under its owners account plus any
of its income that is left in the project, in addition to its actual mining claim. Meanwhile,
petitioners contribution would consist of its expertise in the management and operation of
mines, as well as the managers account which is comprised of P11M in funds and property
and petitioners "compensation" as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership agreement with
Baguio Gold because it did not "bind" itself to contribute money or property to the project; that
under paragraph 5 of the agreement, it was only optional for petitioner to transfer funds or
property to the Sto. Nio project "(w)henever the MANAGERS shall deem it necessary and
convenient in connection with the MANAGEMENT of the STO. NIO MINE." 18
The wording of the parties agreement as to petitioners contribution to the common fund does
not detract from the fact that petitioner transferred its funds and property to the project as
specified in paragraph 5, thus rendering effective the other stipulations of the contract,
particularly paragraph 5(c) which prohibits petitioner from withdrawing the advances until
termination of the parties business relations. As can be seen, petitioner became bound by its
contributions once the transfers were made. The contributions acquired an obligatory nature
as soon as petitioner had chosen to exercise its option under paragraph 5.
There is no merit to petitioners claim that the prohibition in paragraph 5(c) against withdrawal
of advances should not be taken as an indication that it had entered into a partnership with
Baguio Gold; that the stipulation only showed that what the parties entered into was actually a

77

contract of agency coupled with an interest which is not revocable at will and not a
partnership.
In an agency coupled with interest, it is the agency that cannot be revoked or withdrawn by
the principal due to an interest of a third party that depends upon it, or the mutual interest of
both principal and agent.19 In this case, the non-revocation or non-withdrawal under paragraph
5(c) applies to the advances made by petitioner who is supposedly the agent and not the
principal under the contract. Thus, it cannot be inferred from the stipulation that the parties
relation under the agreement is one of agency coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that the relationship of
the parties was one of agency and not a partnership. Although the said provision states that
"this Agency shall be irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS account," it does not necessarily follow
that the parties entered into an agency contract coupled with an interest that cannot be
withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was not to confer a power
in favor of petitioner to contract with third persons on behalf of Baguio Gold but to create a
business relationship between petitioner and Baguio Gold, in which the former was to manage
and operate the latters mine through the parties mutual contribution of material resources
and industry. The essence of an agency, even one that is coupled with interest, is the agents
ability to represent his principal and bring about business relations between the latter and
third persons.20 Where representation for and in behalf of the principal is merely incidental or
necessary for the proper discharge of ones paramount undertaking under a contract, the latter
may not necessarily be a contract of agency, but some other agreement depending on the
ultimate undertaking of the parties.21
In this case, the totality of the circumstances and the stipulations in the parties agreement
indubitably lead to the conclusion that a partnership was formed between petitioner and
Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to return the advances
made by petitioner under the agreement. Paragraph 5 (d) thereof provides that upon
termination of the parties business relations, "the ratio which the MANAGERS account has to
the owners account will be determined, and the corresponding proportion of the entire assets
of the STO. NINO MINE, excluding the claims" shall be transferred to petitioner. 22 As pointed out
by the Court of Tax Appeals, petitioner was merely entitled to a proportionate return of the
mines assets upon dissolution of the parties business relations. There was nothing in the
agreement that would require Baguio Gold to make payments of the advances to petitioner as
would be recognized as an item of obligation or "accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a distribution of assets
of the Sto. Nio mine upon termination, a provision that is more consistent with a partnership
than a creditor-debtor relationship. It should be pointed out that in a contract of loan, a person
who receives a loan or money or any fungible thing acquires ownership thereof and is bound
to pay the creditor an equal amount of the same kind and quality.23 In this case, however, there
was no stipulation for Baguio Gold to actually repay petitioner the cash and property that it

78

had advanced, but only the return of an amount pegged at a ratio which the managers
account had to the owners account.
In this connection, we find no contractual basis for the execution of the two compromise
agreements in which Baguio Gold recognized a debt in favor of petitioner, which supposedly
arose from the termination of their business relations over the Sto. Nino mine. The "Power of
Attorney" clearly provides that petitioner would only be entitled to the return of a
proportionate share of the mine assets to be computed at a ratio that the managers account
had to the owners account. Except to provide a basis for claiming the advances as a bad debt
deduction, there is no reason for Baguio Gold to hold itself liable to petitioner under the
compromise agreements, for any amount over and above the proportion agreed upon in the
"Power of Attorney".
Next, the tax court correctly observed that it was unlikely for a business corporation to lend
hundreds of millions of pesos to another corporation with neither security, or collateral, nor a
specific deed evidencing the terms and conditions of such loans. The parties also did not
provide a specific maturity date for the advances to become due and demandable, and the
manner of payment was unclear. All these point to the inevitable conclusion that the advances
were not loans but capital contributions to a partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is the fact that it
would receive 50% of the net profits as "compensation" under paragraph 12 of the agreement.
The entirety of the parties contractual stipulations simply leads to no other conclusion than
that petitioners "compensation" is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a person of a share in
the profits of a business is prima facie evidence that he is a partner in the business." Petitioner
asserts, however, that no such inference can be drawn against it since its share in the profits
of the Sto Nio project was in the nature of compensation or "wages of an employee", under
the exception provided in Article 1769 (4) (b).24
On this score, the tax court correctly noted that petitioner was not an employee of Baguio Gold
who will be paid "wages" pursuant to an employer-employee relationship. To begin with,
petitioner was the manager of the project and had put substantial sums into the venture in
order to ensure its viability and profitability. By pegging its compensation to profits, petitioner
also stood not to be remunerated in case the mine had no income. It is hard to believe that
petitioner would take the risk of not being paid at all for its services, if it were truly just an
ordinary employee.
Consequently, we find that petitioners "compensation" under paragraph 12 of the agreement
actually constitutes its share in the net profits of the partnership. Indeed, petitioner would not
be entitled to an equal share in the income of the mine if it were just an employee of Baguio
Gold.25 It is not surprising that petitioner was to receive a 50% share in the net profits,
considering that the "Power of Attorney" also provided for an almost equal contribution of the
parties to the St. Nino mine. The "compensation" agreed upon only serves to reinforce the
notion that the parties relations were indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioners advances as investments in a
partnership known as the Sto. Nino mine. The advances were not "debts" of Baguio Gold to

79

petitioner inasmuch as the latter was under no unconditional obligation to return the same to
the former under the "Power of Attorney". As for the amounts that petitioner paid as guarantor
to Baguio Golds creditors, we find no reason to depart from the tax courts factual finding that
Baguio Golds debts were not yet due and demandable at the time that petitioner paid the
same. Verily, petitioner pre-paid Baguio Golds outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record.26
In sum, petitioner cannot claim the advances as a bad debt deduction from its gross income.
Deductions for income tax purposes partake of the nature of tax exemptions and are strictly
construed against the taxpayer, who must prove by convincing evidence that he is entitled to
the deduction claimed.27 In this case, petitioner failed to substantiate its assertion that the
advances were subsisting debts of Baguio Gold that could be deducted from its gross income.
Consequently, it could not claim the advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No.
49385 dated June 30, 2000, which affirmed the decision of the Court of Tax Appeals in C.T.A.
Case No. 5200 is AFFIRMED. Petitioner Philex Mining Corporation is ORDERED to PAY the
deficiency tax on its 1982 income in the amount of P62,811,161.31, with 20% delinquency
interest computed from February 10, 1995, which is the due date given for the payment of the
deficiency income tax, up to the actual date of payment.
SO ORDERED.

G.R. No. 143340

August 15, 2001

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,

vs.
LAMBERTO T. CHUA, respondent.
GONZAGA-REYES, J.:

80

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the
Decision1 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 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
respondent, Erlinda Sy. As compensation, Jacinto would receive a manager's 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 and was profitable. Respondent claimed that he could attest to success of
their business because of the volume of orders and deliveries of filled Shellane cylinder tanks
supplied by Pilipinas Shell Petroleum 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 Jacinto's 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 respondent's consent. Despite respondent's
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 the alibis and
reasons to evade respondent's 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 latter's share in
the partnership, with a promise that the former would make the complete inventory and

81

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 Zamboanga 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 from and substance
denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims,
contending that they are not liable for partnership shares, unreceived income/profits, interests,
damages and attorney's 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 attorney's 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 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 Pre-trial
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 of 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
of the Decision reads:

82

"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 Appliance Center Since the time of death of Jacinto L.
Sunga, from whom they continued the business operations including all
businesses derived from 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 the 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 money's worth, if the properties are not physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan 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 attorney's
(sic) and P25,000.00 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

83

On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by
petitioner.
Hence, this petition wherein petitioner relies upon 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 latter'' 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 Jacinto's death. In
the absence of any written document to show such partnership between respondent and
Jacinto, petitioners argues that these courts were proscribes from hearing the testimonies of
respondent and his witness, Josephine, to prove the alleged partnership three years after
Jacinto's death. To support this argument, petitioners invoke the "Dead Man's 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 deceased person or before such person became of
unsound mind."
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 of real rights
are contributed thereto, in which case a public instrument shall 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 profits that must be
proven to 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 the written
contract of partnership between respondent and Jacinto, respondent resorted to the
introduction of documentary and testimonial evidence to prove said partnership. The crucial

84

issue to settle then is to whether or not the "Dead Man's Statute" applies to this case so as to
render inadmissible respondent's testimony and that of his witness, Josephine.
The "Dead Man's 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 case or persons in whose behalf a
case in 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 of 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 Man's Statute" to this case.
First, petitioners filed a compulsory counterclaim11 against respondents 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 Man's Statute". 12 Well entrenched is the rule
that when it is the executor or administrator or representatives of the estates 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 facts 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 Man's 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 Josephine's testimony lacks probative
value because she was allegedly coerced 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 Josephine's testimony is involuntary when she
did not in any way categorically say that she was forced to be a witness of respondent.

85

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 Man's Statute" to defeat respondent's claim 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 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
respondent's claim, we agree with the trial court and the Court of Appeals that the action for
accounting filed by respondents three (3) years after Jacinto's death was well within the
prescribed period. The Civil Code provides that an action to enforce an oral contract prescribes
in six (6) years20 while the right to demand an accounting for a partner's 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
partnership22, in this case, it was Jacinto's death that respondent as the surviving partner had
the right to an account of his interest as against petitioners. It bears stressing that while
Jacinto's death dissolved the partnership, the dissolution did not immediately terminate the
partnership. The Civil Code23 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 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

86

foregoing, the petition is DENIED and the appealed decision is AFFIRMED. SO

ORDERED.1wphi1.nt
G.R. No. 178782

September 21, 2011

JOSEFINA P. REALUBIT, Petitioner,

vs.
PROSENCIO D. JASO and EDEN G. JASO, Respondents.
DECISION
PEREZ, J.:
The validity as well as the consequences of an assignment of rights in a joint venture are at
issue in this petition for review filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, 1
assailing the 30 April 2007 Decision2 rendered by the Court of Appeals (CA) then Twelfth
Division in CA-G.R. CV No. 73861,3 the dispositive portion of which states:
WHEREFORE, the Decision appealed from is SET ASIDE and we order the dissolution of the joint
venture between defendant-appellant Josefina Realubit and Francis Eric Amaury Biondo and
the subsequent conduct of accounting, liquidation of assets and division of shares of the joint
venture business.
Let a copy hereof and the records of the case be remanded to the trial court for appropriate
proceedings.4
The Facts
On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture
Agreement with Francis Eric Amaury Biondo (Biondo), a French national, for the operation of an
ice manufacturing business. With Josefina as the industrial partner and Biondo as the capitalist
partner, the parties agreed that they would each receive 40% of the net profit, with the
remaining 20% to be used for the payment of the ice making machine which was purchased
for the business.5 For and in consideration of the sum of P500,000.00, however, Biondo
subsequently executed a Deed of Assignment dated 27 June 1997, transferring all his rights
and interests in the business in favor of respondent Eden Jaso (Eden), the wife of respondent
Prosencio Jaso.6 With Biondos eventual departure from the country, the Spouses Jaso caused
their lawyer to send Josefina a letter dated 19 February 1998, apprising her of their acquisition
of said Frenchmans share in the business and formally demanding an accounting and
inventory thereof as well as the remittance of their portion of its profits.7
Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced
the instant suit with the filing of their 3 August 1998 Complaint against Josefina, her husband,
Ike Realubit (Ike), and their alleged dummies, for specific performance, accounting,
examination, audit and inventory of assets and properties, dissolution of the joint venture,
appointment of a receiver and damages. Docketed as Civil Case No. 98-0331 before
respondent Branch 257 of the Regional Trial Court (RTC) of Paraaque City, said complaint
alleged, among other matters, that the Spouses Realubit had no gainful occupation or business
prior to their joint venture with Biondo; that with the income of the business which earned not

87

less than P3,000.00 per day, they were, however, able to acquire the two-storey building as
well as the land on which the joint ventures ice plant stands, another building which they used
as their office and/or residence and six (6) delivery vans; and, that aside from appropriating for
themselves the income of the business, the Spouses Realubit have fraudulently concealed the
funds and assets thereof thru their relatives, associates or dummies.8
Served with summons, the Spouses Realubit filed their Answer dated 21 October 1998,
specifically denying the material allegations of the foregoing complaint. Claiming that they
have been engaged in the tube ice trading business under a single proprietorship even before
their dealings with Biondo, the Spouses Realubit, in turn, averred that their said business
partner had left the country in May 1997 and could not have executed the Deed of Assignment
which bears a signature markedly different from that which he affixed on their Joint Venture
Agreement; that they refused the Spouses Jasos demand in view of the dubious circumstances
surrounding their acquisition of Biondos share in the business which was established at Don
Antonio Heights, Commonwealth Avenue, Quezon City; that said business had already stopped
operations on 13 January 1996 when its plant shut down after its power supply was
disconnected by MERALCO for non-payment of utility bills; and, that it was their own tube ice
trading business which had been moved to 66-C Cenacle Drive, Sanville Subdivision, Project 6,
Quezon City that the Spouses Jaso mistook for the ice manufacturing business established in
partnership with Biondo.9
The issues thus joined and the mandatory pre-trial conference subsequently terminated, the
RTC went on to try the case on its merits and, thereafter, to render its Decision dated 17
September 2001, discounting the existence of sufficient evidence from which the income,
assets and the supposed dissolution of the joint venture can be adequately reckoned. Upon the
finding, however, that the Spouses Jaso had been nevertheless subrogated to Biondos rights in
the business in view of their valid acquisition of the latters share as capitalist partner, 10 the
RTC disposed of the case in the following wise:
WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting and
inventory of the assets and liabilities of the joint venture from its inception to the present, to
allow plaintiffs access to the books and accounting records of the joint venture, to deliver to
plaintiffs their share in the profits, if any, and to pay the plaintiffs the amount of P20,000. for
moral damages. The claims for exemplary damages and attorneys fees are denied for lack of
basis.11
On appeal before the CA, the foregoing decision was set aside in the herein assailed Decision
dated 30 April 2007, upon the following findings and conclusions: (a) the Spouses Jaso validly
acquired Biondos share in the business which had been transferred to and continued its
operations at 66-C Cenacle Drive, Sanville Subdivision, Project 6, Quezon City and not
dissolved as claimed by the Spouses Realubit; (b) absent showing of Josefinas knowledge and
consent to the transfer of Biondos share, Eden cannot be considered as a partner in the
business, pursuant to Article 1813 of the Civil Code of the Philippines; (c) while entitled to
Biondos share in the profits of the business, Eden cannot, however, interfere with the
management of the partnership, require information or account of its transactions and inspect
its books; (d) the partnership should first be dissolved before Eden can seek an accounting of
its transactions and demand Biondos share in the business; and, (e) the evidence adduced
before the RTC do not support the award of moral damages in favor of the Spouses Jaso. 12

88

The Spouses Realubits motion for reconsideration of the foregoing decision was denied for
lack of merit in the CAs 28 June 2007 Resolution, 13 hence, this petition.
The Issues
The Spouses Realubit urge the reversal of the assailed decision upon the negative of the
following issues, to wit:
A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE JOINT
VENTURE.
B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS PARTNER IN
THE JOINT VENTURE TO RENDER [A]N ACCOUNTING TO ONE WHO IS NOT A PARTNER IN
SAID JOINT VENTURE.
C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN THE JOINT
VENTURE AND IN THE SEPARATE ICE BUSINESS OF PETITIONER[S].14
The Courts Ruling
We find the petition bereft of merit.
The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA inordinately
gave premium to the notarization of the 27 June 1997 Deed of Assignment executed by Biondo
in favor of the Spouses Jaso. Calling attention to the latters failure to present before the RTC
said assignor or, at the very least, the witnesses to said document, the Spouses Realubit
maintain that the testimony of Rolando Diaz, the Notary Public before whom the same was
acknowledged, did not suffice to establish its authenticity and/or validity. They insist that
notarization did not automatically and conclusively confer validity on said deed, since it is still
entirely possible that Biondo did not execute said deed or, for that matter, appear before said
notary public.15 The dearth of merit in the Spouses Realubits position is, however, immediately
evident from the settled rule that documents acknowledged before notaries public are public
documents which are admissible in evidence without necessity of preliminary proof as to their
authenticity and due execution.16
It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo executed in
favor of Eden not only enjoys a presumption of regularity17 but is also considered prima facie
evidence of the facts therein stated.18 A party assailing the authenticity and due execution of a
notarized document is, consequently, required to present evidence that is clear, convincing
and more than merely preponderant.19 In view of the Spouses Realubits failure to discharge
this onus, we find that both the RTC and the CA correctly upheld the authenticity and validity of
said Deed of Assignment upon the combined strength of the above-discussed disputable
presumptions and the testimonies elicited from Eden20 and Notary Public Rolando Diaz.21 As for
the Spouses Realubits bare assertion that Biondos signature on the same document appears
to be forged, suffice it to say that, like fraud,22 forgery is never presumed and must likewise be
proved by clear and convincing evidence by the party alleging the same. 23 Aside from not
being borne out by a comparison of Biondos signatures on the Joint Venture Agreement 24 and
the Deed of Assignment,25 said forgery is, moreover debunked by Biondos duly authenticated

89

certification dated 17 November 1998, confirming the transfer of his interest in the business in
favor of Eden.26
Generally understood to mean an organization formed for some temporary purpose, a joint
venture is likened to a particular partnership or one which "has for its object determinate
things, their use or fruits, or a specific undertaking, or the exercise of a profession or
vocation."27 The rule is settled that joint ventures are governed by the law on partnerships 28
which are, in turn, based on mutual agency or delectus personae.29 Insofar as a partners
conveyance of the entirety of his interest in the partnership is concerned, Article 1813 of the
Civil Code provides as follows:
Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself
dissolve the partnership, or, as against the other partners in the absence of agreement, entitle
the assignee, during the continuance of the partnership, to interfere in the management or
administration of the partnership business or affairs, or to require any information or account
of partnership transactions, or to inspect the partnership books; but it merely entitles the
assignee to receive in accordance with his contracts the profits to which the assigning partners
would otherwise be entitled. However, in case of fraud in the management of the partnership,
the assignee may avail himself of the usual remedies.
In the case of a dissolution of the partnership, the assignee is entitled to receive his assignors
interest and may require an account from the date only of the last account agreed to by all the
partners.
From the foregoing provision, it is evident that "(t)he transfer by a partner of his partnership
interest does not make the assignee of such interest a partner of the firm, nor entitle the
assignee to interfere in the management of the partnership business or to receive anything
except the assignees profits. The assignment does not purport to transfer an interest in the
partnership, but only a future contingent right to a portion of the ultimate residue as the
assignor may become entitled to receive by virtue of his proportionate interest in the capital." 30
Since a partners interest in the partnership includes his share in the profits, 31 we find that the
CA committed no reversible error in ruling that the Spouses Jaso are entitled to Biondos share
in the profits, despite Juanitas lack of consent to the assignment of said Frenchmans interest
in the joint venture. Although Eden did not, moreover, become a partner as a consequence of
the assignment and/or acquire the right to require an accounting of the partnership business,
the CA correctly granted her prayer for dissolution of the joint venture conformably with the
right granted to the purchaser of a partners interest under Article 1831 of the Civil Code. 32
1wphi1
Considering that they involve questions of fact, neither are we inclined to hospitably entertain
the Spouses Realubits insistence on the supposed fact that Josefinas joint venture with Biondo
had already been dissolved and that the ice manufacturing business at 66-C Cenacle Drive,
Sanville Subdivision, Project 6, Quezon City was merely a continuation of the same business
they previously operated under a single proprietorship. It is well-entrenched doctrine that
questions of fact are not proper subjects of appeal by certiorari under Rule 45 of the Rules of
Court as this mode of appeal is confined to questions of law.33 Upon the principle that this
Court is not a trier of facts, we are not duty bound to examine the evidence introduced by the
parties below to determine if the trial and the appellate courts correctly assessed and
evaluated the evidence on record.34 Absent showing that the factual findings complained of are

90

devoid of support by the evidence on record or the assailed judgment is based on

misapprehension of facts, the Court will limit itself to reviewing only errors of law. 35
Based on the evidence on record, moreover, both the RTC36 and the CA37 ruled out the
dissolution of the joint venture and concluded that the ice manufacturing business at the
aforesaid address was the same one established by Juanita and Biondo. As a rule, findings of
fact of the CA are binding and conclusive upon this Court, 38 and will not be reviewed or
disturbed on appeal39 unless the case falls under any of the following recognized exceptions:
(1) when the conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3)
where there is a grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the CA, in
making its findings, went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings are contrary to those of the
trial court; (8) when the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as well as in the petitioners'
main and reply briefs are not disputed by the respondents; and, (10) when the findings of fact
of the CA are premised on the supposed absence of evidence and contradicted by the
evidence on record.40 Unfortunately for the Spouses Realubits cause, not one of the foregoing
exceptions applies to the case.
WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision dated 30
April 2007 is, accordingly, AFFIRMED in toto.
SO ORDERED.

91

G.R. No. 175885

February 13, 2009

ZENAIDA G. MENDOZA, Petitioner,

vs.
ENGR. EDUARDO PAULE, ENGR. ALEXANDER COLOMA and NATIONAL IRRIGATION
ADMINISTRATION (NIA MUOZ, NUEVA ECIJA), Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 176271

February 13, 2009

MANUEL DELA CRUZ Petitioner,

vs.
ENGR. EDUARDO M. PAULE, ENGR. ALEXANDER COLOMA and NATIONAL IRRIGATION
ADMINISTRATION (NIA MUOZ, NUEVA ECIJA), Respondents.
DECISION
YNARES-SANTIAGO, J.:
These consolidated petitions assail the August 28, 2006 Decision 1 of the Court of Appeals in
CA-G.R. CV No. 80819 dismissing the complaint in Civil Case No. 18-SD (2000), 2 and its
December 11, 2006 Resolution3 denying the herein petitioners motion for reconsideration.
Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M. Paule Construction and Trading
(EMPCT). On May 24, 1999, PAULE executed a special power of attorney (SPA) authorizing
Zenaida G. Mendoza (MENDOZA) to participate in the pre-qualification and bidding of a
National Irrigation Administration (NIA) project and to represent him in all transactions related
thereto, to wit:
1. To represent E.M. PAULE CONSTRUCTION & TRADING of which I (PAULE) am the
General Manager in all my business transactions with National Irrigation Authority,
Muoz, Nueva Ecija.
2. To participate in the bidding, to secure bid bonds and other documents pre-requisite
in the bidding of Casicnan Multi-Purpose Irrigation and Power Plant (CMIPPL 04-99),
National Irrigation Authority, Muoz, Nueva Ecija.
3. To receive and collect payment in check in behalf of E.M. PAULE CONSTRUCTION &
TRADING.
4. To do and perform such acts and things that may be necessary and/or required to
make the herein authority effective.4

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On September 29, 1999, EMPCT, through MENDOZA, participated in the bidding of the NIACasecnan Multi-Purpose Irrigation and Power Project (NIA-CMIPP) and was awarded Packages A10 and B-11 of the NIA-CMIPP Schedule A. On November 16, 1999, MENDOZA received the
Notice of Award which was signed by Engineer Alexander M. Coloma (COLOMA), then Acting
Project Manager for the NIA-CMIPP. Packages A-10 and B-11 involved the construction of a road
system, canal structures and drainage box culverts with a project cost of P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that MENDOZA is in need of heavy equipment for use
in the NIA project, he met up with MENDOZA in Bayuga, Muoz, Nueva Ecija, in an apartment
where the latter was holding office under an EMPCT signboard. A series of meetings followed in
said EMPCT office among CRUZ, MENDOZA and PAULE.
On December 2 and 20, 1999, MENDOZA and CRUZ signed two Job Orders/Agreements 5 for the
lease of the latters heavy equipment (dump trucks for hauling purposes) to EMPCT.
On April 27, 2000, PAULE revoked6 the SPA he previously issued in favor of MENDOZA;
consequently, NIA refused to make payment to MENDOZA on her billings. CRUZ, therefore,
could not be paid for the rent of the equipment. Upon advice of MENDOZA, CRUZ addressed his
demands for payment of lease rentals directly to NIA but the latter refused to acknowledge the
same and informed CRUZ that it would be remitting payment only to EMPCT as the winning
contractor for the project.
In a letter dated April 5, 2000, CRUZ demanded from MENDOZA and/or EMPCT payment of the
outstanding rentals which amounted to P726,000.00 as of March 31, 2000.
On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with Branch 37 of the Regional Trial
Court of Nueva Ecija, for collection of sum of money with damages and a prayer for the
issuance of a writ of preliminary injunction against PAULE, COLOMA and the NIA. PAULE in turn
filed a third-party complaint against MENDOZA, who filed her answer thereto, with a crossclaim against PAULE.
MENDOZA alleged in her cross-claim that because of PAULEs "whimsical revocation" of the
SPA, she was barred from collecting payments from NIA, thus resulting in her inability to fund
her checks which she had issued to suppliers of materials, equipment and labor for the project.
She claimed that estafa and B.P. Blg. 22 cases were filed against her; that she could no longer
finance her childrens education; that she was evicted from her home; that her vehicle was
foreclosed upon; and that her reputation was destroyed, thus entitling her to actual and moral
damages in the respective amounts of P3 million and P1 million.
Meanwhile, on August 23, 2000, PAULE again constituted MENDOZA as his attorney-in-fact
1. To represent me (PAULE), in my capacity as General Manager of the E.M. PAULE
CONSTRUCTION AND TRADING, in all meetings, conferences and transactions
exclusively for the construction of the projects known as Package A-10 of Schedule A
and Package No. B-11 Schedule B, which are 38.61% and 63.18% finished as of June 21,
2000, per attached Accomplishment Reports x x x;

93

2. To implement, execute, administer and supervise the said projects in whatever stage
they are in as of to date, to collect checks and other payments due on said projects and
act as the Project Manager for E.M. PAULE CONSTRUCTION AND TRADING;
3. To do and perform such acts and things that may be necessary and required to make
the herein power and authority effective.7
At the pre-trial conference, the other parties were declared as in default and CRUZ was allowed
to present his evidence ex parte. Among the witnesses he presented was MENDOZA, who was
impleaded as defendant in PAULEs third-party complaint.
On March 6, 2003, MENDOZA filed a motion to declare third-party plaintiff PAULE non-suited
with prayer that she be allowed to present her evidence ex parte.
However, without resolving MENDOZAs motion to declare PAULE non-suited, and without
granting her the opportunity to present her evidence ex parte, the trial court rendered its
decision dated August 7, 2003, the dispositive portion of which states, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows:
1. Ordering defendant Paule to pay the plaintiff the sum of P726,000.00 by way of
actual damages or compensation for the services rendered by him;
2. Ordering defendant Paule to pay plaintiff the sum of P500,000.00 by way of moral
damages;
3. Ordering defendant Paule to pay plaintiff the sum of P50,000.00 by way of reasonable
attorneys fees;
4. Ordering defendant Paule to pay the costs of suit; and
5. Ordering defendant National Irrigation Administration (NIA) to withhold the balance
still due from it to defendant Paule/E.M. Paule Construction and Trading under NIA-CMIPP
Contract Package A-10 and to pay plaintiff therefrom to the extent of defendant Paules
liability herein adjudged.
SO ORDERED.8
In holding PAULE liable, the trial court found that MENDOZA was duly constituted as EMPCTs
agent for purposes of the NIA project and that MENDOZA validly contracted with CRUZ for the
rental of heavy equipment that was to be used therefor. It found unavailing PAULEs assertion
that MENDOZA merely borrowed and used his contractors license in exchange for a
consideration of 3% of the aggregate amount of the project. The trial court held that through
the SPAs he executed, PAULE clothed MENDOZA with apparent authority and held her out to
the public as his agent; as principal, PAULE must comply with the obligations which MENDOZA
contracted within the scope of her authority and for his benefit. Furthermore, PAULE knew of
the transactions which MENDOZA entered into since at various times when she and CRUZ met
at the EMPCT office, PAULE was present and offered no objections. The trial court declared that
it would be unfair to allow PAULE to enrich himself and disown his acts at the expense of CRUZ.

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PAULE and MENDOZA both appealed the trial courts decision to the Court of Appeals.
PAULE claimed that he did not receive a copy of the order of default; that it was improper for
MENDOZA, as third-party defendant, to have taken the stand as plaintiff CRUZs witness; and
that the trial court erred in finding that an agency was created between him and MENDOZA,
and that he was liable as principal thereunder.
On the other hand, MENDOZA argued that the trial court erred in deciding the case without
affording her the opportunity to present evidence on her cross-claim against PAULE; that, as a
result, her cross-claim against PAULE was not resolved, leaving her unable to collect the
amounts of P3,018,864.04, P500,000.00, and P839,450.88 which allegedly represent the
unpaid costs of the project and the amount PAULE received in excess of payments made by
NIA.
On August 28, 2006, the Court of Appeals rendered the assailed Decision which dismissed
CRUZs complaint, as well as MENDOZAs appeal. The appellate court held that the SPAs issued
in MENDOZAs favor did not grant the latter the authority to enter into contract with CRUZ for
hauling services; the SPAs limit MENDOZAs authority to only represent EMPCT in its business
transactions with NIA, to participate in the bidding of the project, to receive and collect
payment in behalf of EMPCT, and to perform such acts as may be necessary and/or required to
make the said authority effective. Thus, the engagement of CRUZs hauling services was done
beyond the scope of MENDOZAs authority.
As for CRUZ, the Court of Appeals held that he knew the limits of MENDOZAs authority under
the SPAs yet he still transacted with her. Citing Manila Memorial Park Cemetery, Inc. v.
Linsangan,9 the appellate court declared that the principal (PAULE) may not be bound by the
acts of the agent (MENDOZA) where the third person (CRUZ) transacting with the agent knew
that the latter was acting beyond the scope of her power or authority under the agency.
With respect to MENDOZAs appeal, the Court of Appeals held that when the trial court
rendered judgment, not only did it rule on the plaintiffs complaint; in effect, it resolved the
third-party complaint as well;10 that the trial court correctly dismissed the cross-claim and did
not unduly ignore or disregard it; that MENDOZA may not claim, on appeal, the amounts of
P3,018,864.04, P500,000.00, and P839,450.88 which allegedly represent the unpaid costs of
the project and the amount PAULE received in excess of payments made by NIA, as these are
not covered by her cross-claim in the court a quo, which seeks reimbursement only of the
amounts of P3 million and P1 million, respectively, for actual damages (debts to suppliers,
laborers, lessors of heavy equipment, lost personal property) and moral damages she claims
she suffered as a result of PAULEs revocation of the SPAs; and that the revocation of the SPAs
is a prerogative that is allowed to PAULE under Article 192011 of the Civil Code.
CRUZ and MENDOZAs motions for reconsideration were denied; hence, these consolidated
petitions:
G.R. No. 175885 (MENDOZA PETITION)
a) The Court of Appeals erred in sustaining the trial courts failure to resolve her motion
praying that PAULE be declared non-suited on his third-party complaint, as well as her
motion seeking that she be allowed to present evidence ex parte on her cross-claim;

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b) The Court of Appeals erred when it sanctioned the trial courts failure to resolve her
cross-claim against PAULE; and,
c) The Court of Appeals erred in its application of Article 1920 of the Civil Code, and in
adjudging that MENDOZA had no right to claim actual damages from PAULE for debts
incurred on account of the SPAs issued to her.
G.R. No. 176271 (CRUZ PETITION)
CRUZ argues that the decision of the Court of Appeals is contrary to the provisions of law on
agency, and conflicts with the Resolution of the Court in G.R. No. 173275, which affirmed the
Court of Appeals decision in CA-G.R. CV No. 81175, finding the existence of an agency relation
and where PAULE was declared as MENDOZAs principal under the subject SPAs and, thus,
liable for obligations (unpaid construction materials, fuel and heavy equipment rentals)
incurred by the latter for the purpose of implementing and carrying out the NIA project
awarded to EMPCT.
CRUZ argues that MENDOZA was acting within the scope of her authority when she hired his
services as hauler of debris because the NIA project (both Packages A-10 and B-11 of the NIACMIPP) consisted of construction of canal structures, which involved the clearing and disposal
of waste, acts that are necessary and incidental to PAULEs obligation under the NIA project;
and that the decision in a civil case involving the same SPAs, where PAULE was found liable as
MENDOZAs principal already became final and executory; that in Civil Case No. 90-SD filed by
MENDOZA against PAULE,12 the latter was adjudged liable to the former for unpaid rentals of
heavy equipment and for construction materials which MENDOZA obtained for use in the
subject NIA project. On September 15, 2003, judgment was rendered in said civil case against
PAULE, to wit:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff (MENDOZA) and against the
defendant (PAULE) as follows:
1. Ordering defendant Paule to pay plaintiff the sum of P138,304.00 representing the
obligation incurred by the plaintiff with LGH Construction;
2. Ordering defendant Paule to pay plaintiff the sum of P200,000.00 representing the
balance of the obligation incurred by the plaintiff with Artemio Alejandrino;
3. Ordering defendant Paule to pay plaintiff the sum of P520,000.00 by way of moral
damages, and further sum of P100,000.00 by way of exemplary damages;
4. Ordering defendant Paule to pay plaintiff the sum of P25,000.00 as for attorneys
fees; and
5. To pay the cost of suit.13
PAULE appealed14 the above decision, but it was dismissed by the Court of Appeals in a
Decision15 which reads, in part:

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As to the finding of the trial court that the principle of agency is applicable in this case, this
Court agrees therewith. It must be emphasized that appellant (PAULE) authorized appellee
(MENDOZA) to perform any and all acts necessary to make the business transaction of EMPCT
with NIA effective. Needless to state, said business transaction pertained to the construction of
canal structures which necessitated the utilization of construction materials and
equipments.1avvphi1 Having given said authority, appellant cannot be allowed to turn its back
on the transactions entered into by appellee in behalf of EMPCT.
The amount of moral damages and attorneys fees awarded by the trial court being justifiable
and commensurate to the damage suffered by appellee, this Court shall not disturb the same.
It is well-settled that the award of damages as well as attorneys fees lies upon the discretion
of the court in the context of the facts and circumstances of each case.
WHEREFORE, the appeal is DISMISSED and the appealed Decision is AFFIRMED.
SO ORDERED.16
PAULE filed a petition to this Court docketed as G.R. No. 173275 but it was denied with finality
on September 13, 2006.
MENDOZA, for her part, claims that she has a right to be heard on her cause of action as
stated in her cross-claim against PAULE; that the trial courts failure to resolve the cross-claim
was a violation of her constitutional right to be apprised of the facts or the law on which the
trial courts decision is based; that PAULE may not revoke her appointment as attorney-in-fact
for and in behalf of EMPCT because, as manager of their partnership in the NIA project, she
was obligated to collect from NIA the funds to be used for the payment of suppliers and
contractors with whom she had earlier contracted for labor, materials and equipment.
PAULE, on the other hand, argues in his Comment that MENDOZAs authority under the SPAs
was for the limited purpose of securing the NIA project; that MENDOZA was not authorized to
contract with other parties with regard to the works and services required for the project, such
as CRUZs hauling services; that MENDOZA acted beyond her authority in contracting with
CRUZ, and PAULE, as principal, should not be made civilly liable to CRUZ under the SPAs; and
that MENDOZA has no cause of action against him for actual and moral damages since the
latter exceeded her authority under the agency.
We grant the consolidated petitions.
Records show that PAULE (or, more appropriately, EMPCT) and MENDOZA had entered into a
partnership in regard to the NIA project. PAULEs contribution thereto is his contractors license
and expertise, while MENDOZA would provide and secure the needed funds for labor, materials
and services; deal with the suppliers and sub-contractors; and in general and together with
PAULE, oversee the effective implementation of the project. For this, PAULE would receive as
his share three per cent (3%) of the project cost while the rest of the profits shall go to
MENDOZA. PAULE admits to this arrangement in all his pleadings. 17
Although the SPAs limit MENDOZAs authority to such acts as representing EMPCT in its
business transactions with NIA, participating in the bidding of the project, receiving and
collecting payment in behalf of EMPCT, and performing other acts in furtherance thereof, the

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evidence shows that when MENDOZA and CRUZ met and discussed (at the EMPCT office in
Bayuga, Muoz, Nueva Ecija) the lease of the latters heavy equipment for use in the project,
PAULE was present and interposed no objection to MENDOZAs actuations. In his pleadings,
PAULE does not even deny this. Quite the contrary, MENDOZAs actions were in accord with
what she and PAULE originally agreed upon, as to division of labor and delineation of functions
within their partnership. Under the Civil Code, every partner is an agent of the partnership for
the purpose of its business;18 each one may separately execute all acts of administration,
unless a specification of their respective duties has been agreed upon, or else it is stipulated
that any one of them shall not act without the consent of all the others. 19 At any rate, PAULE
does not have any valid cause for opposition because his only role in the partnership is to
provide his contractors license and expertise, while the sourcing of funds, materials, labor and
equipment has been relegated to MENDOZA.
Moreover, it does not speak well for PAULE that he reinstated MENDOZA as his attorney-in-fact,
this time with broader powers to implement, execute, administer and supervise the NIA
project, to collect checks and other payments due on said project, and act as the Project
Manager for EMPCT, even after CRUZ has already filed his complaint. Despite knowledge that
he was already being sued on the SPAs, he proceeded to execute another in MENDOZAs favor,
and even granted her broader powers of administration than in those being sued upon. If he
truly believed that MENDOZA exceeded her authority with respect to the initial SPA, then he
would not have issued another SPA. If he thought that his trust had been violated, then he
should not have executed another SPA in favor of MENDOZA, much less grant her broader
authority.
Given the present factual milieu, CRUZ has a cause of action against PAULE and MENDOZA.
Thus, the Court of Appeals erred in dismissing CRUZs complaint on a finding of exceeded
agency. Besides, that PAULE could be held liable under the SPAs for transactions entered into
by MENDOZA with laborers, suppliers of materials and services for use in the NIA project, has
been settled with finality in G.R. No. 173275. What has been adjudged in said case as regards
the SPAs should be made to apply to the instant case. Although the said case involves different
parties and transactions, it finally disposed of the matter regarding the SPAs specifically their
effect as among PAULE, MENDOZA and third parties with whom MENDOZA had contracted with
by virtue of the SPAs a disposition that should apply to CRUZ as well. If a particular point or
question is in issue in the second action, and the judgment will depend on the determination of
that particular point or question, a former judgment between the same parties or their privies
will be final and conclusive in the second if that same point or question was in issue and
adjudicated in the first suit. Identity of cause of action is not required but merely identity of
issues.20
There was no valid reason for PAULE to revoke MENDOZAs SPAs. Since MENDOZA took care of
the funding and sourcing of labor, materials and equipment for the project, it is only logical
that she controls the finances, which means that the SPAs issued to her were necessary for the
proper performance of her role in the partnership, and to discharge the obligations she had
already contracted prior to revocation. Without the SPAs, she could not collect from NIA,
because as far as it is concerned, EMPCT and not the PAULE-MENDOZA partnership is the
entity it had contracted with. Without these payments from NIA, there would be no source of
funds to complete the project and to pay off obligations incurred. As MENDOZA correctly
argues, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the
means of fulfilling an obligation already contracted, or if a partner is appointed manager of a

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partnership in the contract of partnership and his removal from the management is
unjustifiable.21
PAULEs revocation of the SPAs was done in evident bad faith. Admitting all throughout that his
only entitlement in the partnership with MENDOZA is his 3% royalty for the use of his
contractors license, he knew that the rest of the amounts collected from NIA was owing to
MENDOZA and suppliers of materials and services, as well as the laborers. Yet, he deliberately
revoked MENDOZAs authority such that the latter could no longer collect from NIA the
amounts necessary to proceed with the project and settle outstanding obligations.lawphil.net
From the way he conducted himself, PAULE committed a willful and deliberate breach of his
contractual duty to his partner and those with whom the partnership had contracted. Thus,
PAULE should be made liable for moral damages.
Bad faith does not simply connote bad judgment or negligence; it imputes a dishonest purpose
or some moral obliquity and conscious doing of a wrong; a breach of a sworn duty through
some motive or intent or ill-will; it partakes of the nature of fraud (Spiegel v. Beacon
Participation, 8 NE 2nd Series, 895, 1007). It contemplates a state of mind affirmatively
operating with furtive design or some motive of self-interest or ill will for ulterior purposes (Air
France v. Carrascoso, 18 SCRA 155, 166-167). Evident bad faith connotes a manifest deliberate
intent on the part of the accused to do wrong or cause damage.22
Moreover, PAULE should be made civilly liable for abandoning the partnership, leaving
MENDOZA to fend for her own, and for unduly revoking her authority to collect payments from
NIA, payments which were necessary for the settlement of obligations contracted for and
already owing to laborers and suppliers of materials and equipment like CRUZ, not to mention
the agreed profits to be derived from the venture that are owing to MENDOZA by reason of
their partnership agreement. Thus, the trial court erred in disregarding and dismissing
MENDOZAs cross-claim which is properly a counterclaim, since it is a claim made by her as
defendant in a third-party complaint against PAULE, just as the appellate court erred in
sustaining it on the justification that PAULEs revocation of the SPAs was within the bounds of
his discretion under Article 1920 of the Civil Code.
Where the defendant has interposed a counterclaim (whether compulsory or permissive) or is
seeking affirmative relief by a cross-complaint, the plaintiff cannot dismiss the action so as to
affect the right of the defendant in his counterclaim or prayer for affirmative relief. The reason
for that exception is clear. When the answer sets up an independent action against the
plaintiff, it then becomes an action by the defendant against the plaintiff, and, of course, the
plaintiff has no right to ask for a dismissal of the defendants action. The present rule
embodied in Sections 2 and 3 of Rule 17 of the 1997 Rules of Civil Procedure ordains a more
equitable disposition of the counterclaims by ensuring that any judgment thereon is based on
the merit of the counterclaim itself and not on the survival of the main complaint. Certainly, if
the counterclaim is palpably without merit or suffers jurisdictional flaws which stand
independent of the complaint, the trial court is not precluded from dismissing it under the
amended rules, provided that the judgment or order dismissing the counterclaim is premised
on those defects. At the same time, if the counterclaim is justified, the amended rules now
unequivocally protect such counterclaim from peremptory dismissal by reason of the dismissal
of the complaint.23

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Notwithstanding the immutable character of PAULEs liability to MENDOZA, however, the exact
amount thereof is yet to be determined by the trial court, after receiving evidence for and in
behalf of MENDOZA on her counterclaim, which must be considered pending and unresolved.
WHEREFORE, the petitions are GRANTED. The August 28, 2006 Decision of the Court of
Appeals in CA-G.R. CV No. 80819 dismissing the complaint in Civil Case No. 18-SD (2000) and
its December 11, 2006 Resolution denying the motion for reconsideration are REVERSED and
SET ASIDE. The August 7, 2003 Decision of the Regional Trial Court of Nueva Ecija, Branch 37 in
Civil Case No. 18-SD (2000) finding PAULE liable is REINSTATED, with the MODIFICATION that
the trial court is ORDERED to receive evidence on the counterclaim of petitioner Zenaida G.
Mendoza.
SO ORDERED.

G.R. No. 126334

November 23, 2001

EMILIO EMNACE, petitioner,

vs.
COURT OF APPEALS, ESTATE OF VICENTE TABANAO, SHERWIN TABANAO, VICENTE
WILLIAM TABANAO, JANETTE TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA,
ROSELA TABANAO and VINCENT TABANAO, respondents.
YNARES-SANTIAGO, J.:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were partners in a business
concern known as Ma. Nelma Fishing Industry. Sometime in January of 1986, they decided to
dissolve their partnership and executed an agreement of partition and distribution of the
partnership properties among them, consequent to Jacinto Divinagracia's withdrawal from the
partnership.1 Among the assets to be distributed were five (5) fishing boats, six (6) vehicles,
two (2) parcels of land located at Sto. Nio and Talisay, Negros Occidental, and cash deposits in
the local branches of the Bank of the Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente Tabanao's untimely
demise in 1994, petitioner failed to submit to Tabanao's heirs any statement of assets and
liabilities of the partnership, and to render an accounting of the partnership's finances.
Petitioner also reneged on his promise to turn over to Tabanao's heirs the deceased's 1/3 share

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in the total assets of the partnership, amounting to P30,000,000.00, or the sum of

P10,000,000.00, despite formal demand for payment thereof. 2
Consequently, Tabanao' s heirs, respondents herein, filed against petitioner an action for
accounting, payment of shares, division of assets and damages. 3 In their complaint,
respondents prayed as follows:
1. Defendant be ordered to render the proper accounting of all the assets and
liabilities of the partnership at bar; and
2. After due notice and hearing defendant be ordered to
pay/remit/deliver/surrender/yield to the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends, cash,
land(s), fishing vessels, trucks, motor vehicles, and other forms and
substance of treasures which belong and/or should belong, had accrued
and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral
damages;
C. Attorney's fees equivalent to Thirty Percent (30%) of the entire
share/amount/award which the Honorable Court may resolve the plaintiffs
as entitled to plus P1,000.00 for every appearance in court. 4
Petitioner filed a motion to dismiss the complaint on the grounds of improper venue, lack of
jurisdiction over the nature of the action or suit, and lack of capacity of the estate of Tabanao
to sue.5 On August 30, 1994, the trial court denied the motion to dismiss. It held that venue
was properly laid because, while realties were involved, the action was directed against a
particular person on the basis of his personal liability; hence, the action is not only a personal
action but also an action in personam. As regards petitioner's argument of lack of jurisdiction
over the action because the prescribed docket fee was not paid considering the huge amount
involved in the claim, the trial court noted that a request for accounting was made in order
that the exact value of the partnership may be ascertained and, thus, the correct docket fee
may be paid. Finally, the trial court held that the heirs of Tabanao had aright to sue in their
own names, in view of the provision of Article 777 of the Civil Code, which states that the
rights to the succession are transmitted from the moment of the death of the decedent. 6
The following day, respondents filed an amended complaint,7 incorporating the additional
prayer that petitioner be ordered to "sell all (the partnership's) assets and thereafter
pay/remit/deliver/surrender/yield to the plaintiffs" their corresponding share in the proceeds
thereof. In due time, petitioner filed a manifestation and motion to dismiss, 8 arguing that the
trial court did not acquire jurisdiction over the case due to the plaintiffs' failure to pay the
proper docket fees. Further, in a supplement to his motion to dismiss, 9 petitioner also raised
prescription as an additional ground warranting the outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order,10 denying the motion to dismiss inasmuch as
the grounds raised therein were basically the same as the earlier motion to dismiss which has
been denied. Anent the issue of prescription, the trial court ruled that prescription begins to
run only upon the dissolution of the partnership when the final accounting is done. Hence,
prescription has not set in the absence of a final accounting. Moreover, an action based on a
written contract prescribes in ten years from the time the right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals,11 raising the following
issues:

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I.
Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in taking cognizance of a case despite the failure to pay the
required docket fee;
II.
Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in insisting to try the case which involve (sic) a parcel of land
situated outside of its territorial jurisdiction;
III.
Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in allowing the estate of the deceased to appear as party
plaintiff, when there is no intestate case and filed by one who was never
appointed by the court as administratrix of the estates; and
IV.
Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in not dismissing the case on the ground of prescription.
On August 8, 1996, the Court of Appeals rendered the assailed decision, 12 dismissing the
petition for certiorari, upon a finding that no grave abuse of discretion amounting to lack or
excess of jurisdiction was committed by the trial court in issuing the questioned orders denying
petitioner's motions to dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the same issues resolved by
the Court of Appeals, namely:
I.

Failure to pay the proper docket fee;

II.
Parcel of land subject of the case pending before the trial court is outside
the said court's territorial jurisdiction;
III.

Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao; and

IV.

Prescription of the plaintiff heirs' cause of action.

It can be readily seen that respondents' primary and ultimate objective in instituting the action
below was to recover the decedent's 1/3 share in the partnership' s assets. While they ask for
an accounting of the partnership' s assets and finances, what they are actually asking is for the
trial court to compel petitioner to pay and turn over their share, or the equivalent value
thereof, from the proceeds of the sale of the partnership assets. They also assert that until and
unless a proper accounting is done, the exact value of the partnership' s assets, as well as
their corresponding share therein, cannot be ascertained. Consequently, they feel justified in
not having paid the commensurate docket fee as required by the Rules of Court.1wphi1.nt
We do not agree. The trial court does not have to employ guesswork in ascertaining the
estimated value of the partnership's assets, for respondents themselves voluntarily pegged
the worth thereof at Thirty Million Pesos (P30,000,000.00). Hence, this case is one which is
really not beyond pecuniary estimation, but rather partakes of the nature of a simple collection
case where the value of the subject assets or amount demanded is pecuniarily determinable. 13
While it is true that the exact value of the partnership's total assets cannot be shown with
certainty at the time of filing, respondents can and must ascertain, through informed and
practical estimation, the amount they expect to collect from the partnership, particularly from
petitioner, in order to determine the proper amount of docket and other fees. 14 It is thus
imperative for respondents to pay the corresponding docket fees in order that the trial court
may acquire jurisdiction over the action.15

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Nevertheless, unlike in the case of Manchester Development Corp. v. Court of Appeals,16 where
there was clearly an effort to defraud the government in avoiding to pay the correct docket
fees, we see no attempt to cheat the courts on the part of respondents. In fact, the lower
courts have noted their expressed desire to remit to the court "any payable balance or lien on
whatever award which the Honorable Court may grant them in this case should there be any
deficiency in the payment of the docket fees to be computed by the Clerk of Court." 17 There is
evident willingness to pay, and the fact that the docket fee paid so far is inadequate is not an
indication that they are trying to avoid paying the required amount, but may simply be due to
an inability to pay at the time of filing. This consideration may have moved the trial court and
the Court of Appeals to declare that the unpaid docket fees shall be considered a lien on the
judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals erred in condoning the
non-payment of the proper legal fees and in allowing the same to become a lien on the
monetary or property judgment that may be rendered in favor of respondents. There is merit in
petitioner's assertion. The third paragraph of Section 16, Rule 141 of the Rules of Court states
that:
The legal fees shall be a lien on the monetary or property judgment in favor of
the pauper-litigant.
Respondents cannot invoke the above provision in their favor because it specifically applies to
pauper-litigants. Nowhere in the records does it appear that respondents are litigating as
paupers, and as such are exempted from the payment of court fees.18
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules of Court, which
defines the two kinds of claims as: (1) those which are immediately ascertainable; and (2)
those which cannot be immediately ascertained as to the exact amount. This second class of
claims, where the exact amount still has to be finally determined by the courts based on
evidence presented, falls squarely under the third paragraph of said Section 5(a), which
provides:
In case the value of the property or estate or the sum claimed is less or more in
accordance with the appraisal of the court, the difference of fee shall be refunded
or paid as the case may be. (Underscoring ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals,19 this Court pronounced that the
above-quoted provision "clearly contemplates an Initial payment of the filing fees
corresponding to the estimated amount of the claim subject to adjustment as to what later
may be proved."20 Moreover, we reiterated therein the principle that the payment of filing fees
cannot be made contingent or dependent on the result of the case. Thus, an initial payment of
the docket fees based on an estimated amount must be paid simultaneous with the filing of
the complaint. Otherwise, the court would stand to lose the filing fees should the judgment
later turn out to be adverse to any claim of the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These fees are necessary to
defray court expenses in the handling of cases. Consequently, in order to avoid tremendous
losses to the judiciary, and to the government as well, the payment of docket fees cannot be
made dependent on the outcome of the case, except when the claimant is a pauper-litigant.
Applied to the instant case, respondents have a specific claim - 1/3 of the value of all the
partnership assets - but they did not allege a specific amount. They did, however, estimate the
partnership's total assets to be worth Thirty Million Pesos (P30,000,000.00), in a letter 21
addressed to petitioner. Respondents cannot now say that they are unable to make an
estimate, for the said letter and the admissions therein form part of the records of this case.

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They cannot avoid paying the initial docket fees by conveniently omitting the said amount in
their amended complaint. This estimate can be made the basis for the initial docket fees that
respondents should pay. Even if it were later established that the amount proved was less or
more than the amount alleged or estimated, Rule 141, Section 5(a) of the Rules of Court
specifically provides that the court may refund the 'excess or exact additional fees should the
initial payment be insufficient. It is clear that it is only the difference between the amount
finally awarded and the fees paid upon filing of this complaint that is subject to adjustment and
which may be subjected to alien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano Asuncion,22 this Court
held that when the specific claim "has been left for the determination by the court, the
additional filing fee therefor shall constitute a lien on the judgment and it shall be the
responsibility of the Clerk of Court or his duly authorized deputy to enforce said lien and assess
and collect the additional fee." Clearly, the rules and jurisprudence contemplate the initial
payment of filing and docket fees based on the estimated claims of the plaintiff, and it is only
when there is a deficiency that a lien may be constituted on the judgment award until such
additional fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint outright despite
their failure to pay the proper docket fees. Nevertheless, as in other procedural rules, it may be
liberally construed in certain cases if only to secure a just and speedy disposition of an action.
While the rule is that the payment of the docket fee in the proper amount should be adhered
to, there are certain exceptions which must be strictly construed. 23
In recent rulings, this Court has relaxed the strict adherence to the Manchester doctrine,
allowing the plaintiff to pay the proper docket fees within a reasonable time before the
expiration of the applicable prescriptive or reglementary period. 24
In the recent case of National Steel Corp. v. Court of Appeals,25 this Court held that:
The court acquires jurisdiction over the action if the filing of the initiatory
pleading is accompanied by the payment of the requisite fees, or, if the fees are
not paid at the time of the filing of the pleading, as of the time of full payment of
the fees within such reasonable time as the court may grant, unless, of course,
prescription has set in the meantime.
It does not follow, however, that the trial court should have dismissed the
complaint for failure of private respondent to pay the correct amount of docket
fees. Although the payment of the proper docket fees is a jurisdictional
requirement, the trial court may allow the plaintiff in an action to pay the same
within a reasonable time before the expiration of the applicable prescriptive or
reglementary period. If the plaintiff fails to comply within this requirement, the
defendant should timely raise the issue of jurisdiction or else he would be
considered in estoppel. In the latter case, the balance between the appropriate
docket fees and the amount actually paid by the plaintiff will be considered a lien
or any award he may obtain in his favor. (Underscoring ours)
Accordingly, the trial court in the case at bar should determine the proper docket fee based on
the estimated amount that respondents seek to collect from petitioner, and direct them to pay
the same within a reasonable time, provided the applicable prescriptive or reglementary period
has not yet expired, Failure to comply therewith, and upon motion by petitioner, the immediate
dismissal of the complaint shall issue on jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial court and the Court
of Appeals in holding that the case below is a personal action which, under the Rules, may be

104

commenced and tried where the defendant resides or may be found, or where the plaintiffs
reside, at the election of the latter.26
Petitioner, however, insists that venue was improperly laid since the action is a real action
involving a parcel of land that is located outside the territorial jurisdiction of the court a quo.
This contention is not well-taken. The records indubitably show that respondents are asking
that the assets of the partnership be accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the assets of the partnership are parcels of
land does not materially change the nature of the action. It is an action in personam because it
is an action against a person, namely, petitioner, on the basis of his personal liability. It is not
an action in rem where the action is against the thing itself instead of against the person. 27
Furthermore, there is no showing that the parcels of land involved in this case are being
disputed. In fact, it is only incidental that part of the assets of the partnership under liquidation
happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al.,28 settled this issue thus:
The fact that plaintiff prays for the sale of the assets of the partnership, including
the fishpond in question, did not change the nature or character of the action,
such sale being merely a necessary incident of the liquidation of the partnership,
which should precede and/or is part of its process of dissolution.
The action filed by respondents not only seeks redress against petitioner. It also seeks the
enforcement of, and petitioner's compliance with, the contract that the partners executed to
formalize the partnership's dissolution, as well as to implement the liquidation and partition of
the partnership's assets. Clearly, it is a personal action that, in effect, claims a debt from
petitioner and seeks the performance of a personal duty on his part. 29 In fine, respondents'
complaint seeking the liquidation and partition of the assets of the partnership with damages
is a personal action which may be filed in the proper court where any of the parties reside. 30
Besides, venue has nothing to do with jurisdiction for venue touches more upon the substance
or merits of the case.31 As it is, venue in this case was properly laid and the trial court correctly
ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente Tabanao has no legal
capacity to sue since she was never appointed as administratrix or executrix of his estate.
Petitioner's objection in this regard is misplaced. The surviving spouse does not need to be
appointed as executrix or administratrix of the estate before she can file the action. She and
her children are complainants in their own right as successors of Vicente Tabanao. From the
very moment of Vicente Tabanao' s death, his rights insofar as the partnership was concerned
were transmitted to his heirs, for rights to the succession are transmitted from the moment of
death of the decedent.32
Whatever claims and rights Vicente Tabanao had against the partnership and petitioner were
transmitted to respondents by operation of law, more particularly by succession, which is a
mode of acquisition by virtue of which the property, rights and obligations to the extent of the
value of the inheritance of a person are transmitted.33 Moreover, respondents became owners
of their respective hereditary shares from the moment Vicente Tabanao died.34
A prior settlement of the estate, or even the appointment of Salvacion Tabanao as executrix or
administratrix, is not necessary for any of the heirs to acquire legal capacity to sue. As
successors who stepped into the shoes of their decedent upon his death, they can commence
any action originally pertaining to the decedent.35 From the moment of his death, his rights as
a partner and to demand fulfillment of petitioner's obligations as outlined in their dissolution
agreement were transmitted to respondents. They, therefore, had the capacity to sue and seek
the court's intervention to compel petitioner to fulfill his obligations.

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Finally, petitioner contends that the trial court should have dismissed the complaint on the
ground of prescription, arguing that respondents' action prescribed four (4) years after it
accrued in 1986. The trial court and the Court of Appeals gave scant consideration to
petitioner's hollow arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up; and (3)
termination.36 The partnership, although dissolved, continues to exist and its legal personality
is retained, at which time it completes the winding up of its affairs, including the partitioning
and distribution of the net partnership assets to the partners.37 For as long as the partnership
exists, any of the partners may demand an accounting of the partnership's business.
Prescription of the said right starts to run only upon the dissolution of the partnership when the
final accounting is done.38
Contrary to petitioner's protestations that respondents' right to inquire into the business affairs
of the partnership accrued in 1986, prescribing four (4) years thereafter, prescription had not
even begun to run in the absence of a final accounting. Article 1842 of the Civil Code provides:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the
person or partnership continuing the business, at the date of dissolution, in the
absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty to account, the
above-cited provision states that the right to demand an accounting accrues at the date of
dissolution in the absence of any agreement to the contrary. When a final accounting is made,
it is only then that prescription begins to run. In the case at bar, no final accounting has been
made, and that is precisely what respondents are seeking in their action before the trial court,
since petitioner has failed or refused to render an accounting of the partnership's business and
assets. Hence, the said action is not barred by prescription.
In fine, the trial court neither erred nor abused its discretion when it denied petitioner's
motions to dismiss. Likewise, the Court of Appeals did not commit reversible error in upholding
the trial court's orders. Precious time has been lost just to settle this preliminary issue, with
petitioner resurrecting the very same arguments from the trial court all the way up to the
Supreme Court. The litigation of the merits and substantial issues of this controversy is now
long overdue and must proceed without further delay.
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for lack of merit, and
the case is REMANDED to the Regional Trial Court of Cadiz City, Branch 60, which is
ORDERED to determine the proper docket fee based on the estimated amount that plaintiffs
therein seek to collect, and direct said plaintiffs to pay the same within a reasonable time,
provided the applicable prescriptive or reglementary period has not yet expired. Thereafter,
the trial court is ORDERED to conduct the appropriate proceedings in Civil Case No. 416-C.
Costs against petitioner.1wphi1.nt
SO ORDERED.

106

G.R. No. 159810

October 9, 2006

ESTATE OF EDWARD MILLER GRIMM, represented by RAMON J. QUISUMBING and

RANDY GLEAVE LAWYER, as Judicial Administrators, petitioners,
vs.
ESTATE OF CHARLES PARSONS and PATRICK C. PARSONS, G-P AND COMPANY and
MANILA GOLF & COUNTRY CLUB, INC., respondents.
DECISION
GARCIA, J.:
Because legal and situational ambiguities often lead to disagreements even between or
amongst the most agreeable of persons, it behooves all concerned to put their financial affairs
and proprietary interests in order before they depart for the great beyond. Leaving legal loose
ends hanging or allowing clouds to remain on property titles when one can do something about
them before the proverbial thief in the night suddenly comes calling only opens the door to
bruising legal fights and similar distracting inconveniences. So it was here.
In this petition for review under Rule 45 of the Rules of Court, the Estate of Edward Miller
Grimm, represented by its judicial administrators, assails and seeks to set aside the Decision 1
dated September 8, 2003 of the Court of Appeals (CA) in CA-G.R. CV No. 69990, reversing an
earlier decision of the Regional Trial Court (RTC) of Makati City in its Civil Case No. 92-2452.
At the core of the controversy is a stock certificate of the Manila Golf & Country Club, Inc.
("MGCC" or the "Club", for short) covered by Membership Certificate (MC) No. 1088 for
100 units, the playing rights over which the Rizal Commercial Banking Corporation (RCBC), the
court-appointed receiver, had, in the meantime, leased out. The Club issued MC No. 1088 to
replace MC No. 590. Asserting clashing ownership claims over MC No.1088, albeit recorded in
the name of Charles Parsons ("Parsons", hereinafter) are petitioner Estate of Edward Miller
Grimm and respondent G-P and Company ("G-P & Co.", hereinafter).
Parsons and Edward Miller Grimm (Grimm), together with Conrado Y. Simon (Simon), formed in
1952 a partnership for the stated purpose of engaging in the import/export and real estate
business. Per SEC Certificate #3305,2 the partnership was registered under the name G - P and
Company.
Before September 1964, Parsons and Grimm each owned proprietary membership share in
MGCC,3 as evidenced by MC No. 374 for 100 units in the name of Parsons, and MC No. 590,

107

also for 100 units, in the name of Grimm. Per records, the Club issued MC No. 590 to Grimm on
May 25, 1960.4
After Grimm's demise on November 27, 1977, Parsons and Simon continued with the
partnership under the same name, G P and Company, as reflected in Articles of Partnership
dated December 14, 1977.5 The articles of the partnership would later undergo another
amendment to admit Parsons' son, Patrick, in the partnership.6 After Parsons died on May 12,
1988, Amended Articles of Partnership of G-P and Company was executed on September 23,
1988 by and among Parsons' heirs, namely, Patrick, Michael, Peter and Jose, all surnamed
Parsons, albeit the amendment appeared to have been registered with the SEC only on March
18, 1993. 7
The herein legal dispute started when brothers Patrick and Jose, both surnamed Parsons,
responding to a letter8 from the Estate of Grimm, rejected the existence of a trust arrangement
between their father and Grimm involving MC No. 1088. Thus spurned, the Estate of Grimm
filed on August 31, 1992 before the RTC of Makati City, a suit for recovery of MC No. 1088 with
damages against the Estate of Parsons, Patrick Parsons and MGCC. In its complaint,9 docketed
as Civil Case No. 92-2452 and eventually raffled to Branch 135 of the court, the Estate of
Grimm, represented by its judicial administrator, Ramon J. Quisumbing, alleged, among other
things, the following:
1. That on September 7, 1964, Grimm transferred MC No. 590 in trust to Parsons; on
the same day, MGCC cancelled MC No. 590 and issued MC No. 1088 in the name of
Parsons;
2. That in separate letters dated February 28, 1968 addressed to MGCC, both Grimm
and Parsons stated that the transfer of MC No. 590 was temporary. Enclosed in that
Parsons' letter was MC No. 1088 which he was turning over for safekeeping to the Club,
thru E.C. Von Kauffmann and Romeo Alhambra, then MGCC honorary secretary and
assistant manager, respectively;
3. That on June 9, 1978, or after Mr. Kauffman' death and Mr. Alhambra's resignation,
MGCC turned over the possession of MC No. 1088 to Parsons;
4. That in 1977, Grimm died; after a protracted proceedings, his estate was finally
settled in 1988, the year Parsons also died;
5. That Patrick and Jose Parsons had, when reminded of the trust arrangement between
their late father and Grimm, denied the existence of a trust over the Club share and
refused to return the same; and
6. That MGCC had refused, despite demands, to cancel MC No. 1088 and issue a new
certificate in the name of the Estate of Grimm.
Attached to the complaint were the demand letters and other communications which, to the
Estate of Grimm, document the Grimm-Parsons trust arrangement.
In his Answer with counterclaim,10 Patrick Parsons averred that his father was, with respect to
MC No. 1088, a mere trustee of the true owner thereof, G-P & Co., and alleged, by way of

108

affirmative defense, that the claim set forth in the complaint is unenforceable, barred inter alia
by the dead man's statute, prescription or had been waived or abandoned.
Herein respondent G-P & Co., echoing Patrick Parsons' allegation respecting the ownership of
MC No. 1088, moved to intervene and to implead Far East Bank & Trust Co. (FEBTC), as transfer
agent of MGCC, as defendant-in-intervention. Attached to its motion was its COMPLAINT In
Intervention11 therein alleging (a) that on September 1, 1964, Parsons executed a Letter of
Trust, infra, in which he acknowledged the beneficial ownership of G-P & Co. over MC No. 374
and MC No.1088; (b) that Parsons, as required by the partnership, endorsed both certificates in
blank; and (c) that G-P & Co. carried said certificates amongst its assets in its books of
accounts and financial statements and paid the monthly dues of both certificates to the Club
when its membership privileges were not temporarily assigned to others. In the same
complaint-in-intervention, G-P & Co. cited certain tax incidents as reasons why the transfer of
MC No. 374 and MC No. 1088 from Parsons to the intervenor-partnership cannot as yet be
accomplished.
After the usual reply and answer to counterclaims had been filed, the Estate of Grimm filed an
amended complaint to include Randy Gleave Lawyer, the other judicial co-administrator, as
representative of the Estate. On April 28, 1993, the trial court admitted the amended
complaint.
After a lengthy trial, the trial court rendered its May 29, 2000 judgment 12 finding for the Estate
of Grimm, as plaintiff a quo, disposing as follows:
1. Ordering defendants ESTATE OF CHARLES PARSONS and PATRICK C. PARSONS:
1.1 to turn over [MC] No. 1088 to plaintiff ESTATE OF EDWARD MILLER GRIMM;
1.2 jointly and severally to pay damages to plaintiff ESTATE in the amount of
P400,000.00 per annum from September 8, 1989 to November 12, 1998, with
legal interest thereon from the date of this Decision until fully paid;
1.3 Jointly and severally, to pay plaintiff ESTATE attorney's fees in the amount
of P1,000,000.00 and the costs;
2. Ordering defendant [MGCC] and defendant-in-intervention [FEBTC] to cancel [MC] No.
1088 and to issue a new Membership Certificate in lieu thereof in the name of plaintiff
ESTATE .
3. Ordering Receiver RIZAL COMMERCIAL BANKING CORPORATION to turn over to
plaintiff ESTATE all income derived from the lease of the playing rights of [MC] No.
1088, less Receiver's fees and charges.
4. Ordering the dismissal of the counterclaim of the defendants [Parsons]; and
5. Ordering the dismissal of the complaint-in-intervention and the supplemental
counterclaim of intervenor G - P AND COMPANY.
SO ORDERED. (Words in bracket added.)

109

In gist, the trial court predicated its ruling on the postulate that the temporary transfer of
Grimm's original share in MGCC - covered by MC No. 590 whence MC No. 1088 descended to
Parsons, created a trust relationship between the two.
Therefrom, only herein respondents G-P & Co., Patrick Parsons and the Parsons Estate
appealed to the CA, albeit MGCC would, in its brief, reiterate its readiness to issue the
corresponding replacement certificate to whosoever is finally adjudged owner of MC No. 1088.
On September 8, 2003, in CA-G.R.CV No. 69990, the appellate court rendered its herein
assailed Decision,13 disposing as follows:
WHEREFORE, the Decision of the lower court dated May 29, 2000 is hereby
REVERSED and SET ASIDE, and another one rendered:
1. Dismissing the complaint filed by Estate of Edward Miller Grimm for lack of merit;
2. Ordering Manila Golf and Country Club, Inc., and defendant-in-intervention Far East
Bank & Trust Company, as transfer agent, to immediately effect the reconveyance of
[MC] No. 1088 to Intervenor-appellant G-P and Company;
3. Ordering Rizal Commercial Banking Corporation, as receiver, to immediately turn over
to intervenor-appellant G-P and Company all income derived from the lease of the
playing rights of said Membership Certificate, less receiver's fees;
4. Ordering [the] Estate of Edward Miller Grimm to pay appellants the amount of
P800,000.00 as attorney's fees;
5. Ordering Estate of Edward Miller Grimm to pay appellants the costs of suit.
SO ORDERED. (Words in bracket added.)
Hence, this petition for review on the lone submission that the CA erred in finding that
respondent G-P & Co. is the beneficial owner of MC No. 1088.
In their comment to the petition, the respondents urge the outright dismissal thereof on the
ground that it raises only purely factual and evidentiary issues which are beyond the office of
an appeal by certiorari. As argued further, the factual findings of the CA are conclusive on the
parties.
It should be made clear right off that respondent Patrick Parsons, in his individual capacity, and
the Estate of Parsons (collectively, the Parsons) are not claiming beneficial ownership over MC
No. 1088. The same goes for respondent MGCC which went to state on record that "[T]he
ownership of [MC] No. 1088 (previously No. 590) does not belong to the Club and it does not
stand to gain from the determination of its real owner."14
We GRANT the petition.
The respondents' formulation of the grounds for the dismissal of the instant petition is a
statement of the general rule. A resolution of the petition would doubtless entail a review of

110

the facts and evidentiary matters against which the appealed decision is cast, a procedure
which is ordinarily outside the province of the Court and the office of a certiorari review under
Rule 45 of the Rules of Court. For, the rule of long standing is that the Court will not set aside
the factual determinations of the CA lightly nor will it embark in the evaluation of evidence
adduced during trial. This rule, however, admits of several exceptions. Among these are when
the factual conclusions of the CA are manifestly erroneous; are contrary to those of the trial
court; when the judgment of the CA is based on misapprehension of facts or overlooked certain
relevant facts not disputed by the parties which, if properly considered, would justify a
different conclusion.15 Decidedly, this case falls within the recognized exceptions to the rule on
the finality of factual findings or conclusions of the CA.
The principal issue tendered in this case turns on who between petitioner Estate of Grimm and
respondent G.P. & Co. beneficially owns MC No. 1088. Corollary thereto - owing to the
presentation by respondents of a LETTER OF TRUST that Parsons allegedly executed in favor of
G-P and Company with respect to MC No. 1088 - is the question of whether or not the transfer
of MC No. 590 effected on September 7, 1964 by Grimm in favor of Parsons resulted, as the
petitioner would have it, in the formation of a trust relation between the two. Thus formed, the
trust relationship would preclude the trustee from disposing of the trust property, save when
repudiation of the trust had effectively supervened.
The trial court found the September 7, 1964 Grimm- to- Parsons certificate transfer to be only
temporary and without valuable consideration to accommodate a third person and thus
adjudged Grimm to be the real owner of MC No. 590, as later replaced by MC No. 1088.
According to the trial court, such transfer created a trust, with Parsons, as trustee, and Grimm,
as the beneficial owner of the share thus transferred, adding that Parsons, as mere trustee, is
without right to transfer the replacement certificate to G-P & Co.
On the other hand, the CA, while eschewing the alternative affirmative defenses interposed
below by respondents, nonetheless ruled for respondent GP & Co. Citing Article 1448 of the
Civil Code,16 the appellate court held that respondent GP & Co. pertains the beneficial
ownership of MC No. 1088, an implied trust in its favor having been created when MC No. 590
and MC No. 374 were acquired for and placed in the names of Grimm and Parsons,
respectively, albeit the partnership paid for the price therefor. To the appellate court, the fact
that these certificates were carried, as of December 31, 1974, November 27, 1977 and
December 31, 1978 in the books17 of G-P & Co. as investment assets only proves one thing: the
company paid the acquisition costs for the membership certificates. If Grimm was the real
owner of said share, he should have, according to the appellate court, objected to its inclusion
in the partnership assets during his lifetime. Completing its ratiocination, the CA wrote:
xxx. A trust, which derives its strength from the confidence one reposes on another
especially between the partners and the company, does not lose that character simply
because of what appears in a legal document. The transfer therefore of Grimm's [MC]
No. 590 on September 7, 1964 in favor of Charles Parsons resulted merely in the change
of the person of trustee but not of the beneficial owner, the G-P and Company.
The CA's ruling does not commend itself for acceptance. As it were, the assailed decision
started on the wrong foot and thus had to limp all along to arrive at a strained and erroneous
conclusion. We shall explain.

111

A party in whose favor a legal presumption exists may rely on and invoke such legal
presumption to establish a fact in issue. He need not introduce evidence to prove that fact. For,
a presumption is prima facie proof of the fact presumed and to the party against whom it
operates rests the burden of overthrowing by substantial and credible evidence the
presumption.18 Under the law on evidence, it is presumed that "there was sufficient
consideration for a contract."19
Inasmuch as Grimm's name appeared on MC No. 590 as registered owner thereof, he is
deemed to have paid sufficient consideration for it. The onus of proving otherwise would fall on
respondents G-P & Co. and/or the Parsons. Without so much of an explanation, however, the
CA minimized the value of MC No. 590 as arguably the best evidence of ownership. Corollarily,
the appellate court devalued the rule on legal presumption and faulted petitioner Estate of
Grimm for not presenting evidence to prove that Grimm paid for his original acquisition of MC
No. 590. Wrote the CA:
Contrary to the findings of the lower court, [petitioner] failed to establish [its] right over
the said shares. xxx Not a single evidence of proof of payment for the said shares was
ever presented by the [petitioner] to establish ownership. (Words in bracket added.) 20
Ironically, while the CA held it against the petitioner for failing to adduce proof of payment by
Grimm for his MC No. 590, it nonetheless proceeded to declare respondent G-P & Co. to be the
beneficial owner of said certificate even if it, too, had not presented proof for such payment.
Respondent G-P & Co., in its complaint-in-intervention (should have been answer-inintervention), did not allege paying for MC No. 590. Surely, payment cannot be validly
deduced, as the CA did, from the bare fact of such membership certificate being listed in the
books of respondent G -P & Co. as partnership investment assets. For one, the self-serving
book entries in question are, as correctly dismissed by the trial court, not evidentiary of
ownership. Else, anyone can lay a claim, or worse, acquire ownership over a share of stock by
the simple expedience of listing, without more, the same in the partnership or corporate books.
The sheer absurdity of the notion need no belaboring.
For another, what appears or what respondent company uniformly entered as investments are:
"Manila Golf & Country Club, Inc. 2 shares." No reference was made whatsoever in the books or
financial statements about MC No. 590, (MC. No. 1088) and MC. No. 374. In the absence of the
number reference or other similar identifying details, the CA's categorical conclusion that one
of the "2 shares" referred to is MC No. 1088 is at best speculative. This observation becomes
all the more valid given that Michael Parsons had in his name two (2) Club share certificates.
Exhibit "X-4," a September 21, 1964 letter from Parsons to Mr. Kaufmann made specific
reference to Michael's shares:
Under the circumstance, please disregard the previous letter which Michael wrote in
connection with the shares in his name .
In the case of the two shares in the name of Michael, please leave the two in his
name . . . .
As matter now stands, in summary, I shall retain my shares in my name and continue
playing under such shares; Michael will retain two shares assigning one to Mr. Stoner;
and Pete Grimm will assign his playing rights to Mr. Daikichi Yoshida. 21

112

And for a significant third, respondent G-P & Co. is not the same G-P & Co. that Parsons, Grimm
and Simon organized in 1952, the former being an entity that came into existence only on
September 23, 1988. It is thus well-nigh impossible for respondent company to have
participated in a transaction that occurred years before it acquired juridical personality. In the
concrete, it is not physically possible for respondent G-P & Co. to have paid the price for the
purchase of Grimm's MC No. 590, the same having been acquired in 1960 or some 28 years
before the respondent company was established by the execution of the Articles of Partnership
on September 23, 1988. The trial court depicted the incongruity of the situation in the
following fashion:
Intervenor [respondent G-P & Co.] is not the same partnership originally formed by
Grimm, Parsons and Simon. When Grimm died on November 27, 1977, the original
partnership was dissolved. The death of a partner causes dissolution of a partnership
[Article 1829, Civil Code]. A new partnership was formed with Parsons and Simon as
partners. Besides this new partnership formed after the death of Grimm, there were five
(5) others formed [Exhibit DD, EE, FF, GG, HH and II] carrying the name, G-P and
Company. 22 (Words in bracket in the original)
Independent of the cited Article 1829 of the Civil Code on the matter of partnership dissolution,
however, it bears to state that Parsons and Simon executed on December 13, 1977 a joint
affidavit23 wherein they declared the dissolution of the original 3-man G-P & Co., owing to the
death of Grimm. The registration on December 14, 1977 of a new Articles of Partnership of G-P
& Co. followed the execution by Parsons and Simon of said affidavit. 24
It may be, as respondents rationalize, that the succeeding G-P & Co. partnerships merely
continued with the business started by the original G-P & Co. 25 This element of continuity,
assuming to be true, does not, however, detract from the fact that the partnerships of the
same name formed after Grimm's demise are entities altogether different and with
personalities distinct from the original partnership.
This brings us to the next issue of whether or not the transfer to Parsons of MC No. 590, as
replaced by MC No. 1088, partook of the nature of a trust transaction.
Trust is the legal relationship between one having an equitable ownership in property and
another person owning the legal title to such property, the equitable ownership of the former
entitling him to the performance of certain duties and the exercise of certain powers by the
latter.26 Trust relations between parties may be express, as when the trust is created by the
intention of the trustor.27 An express trust is created by the direct and positive acts of the
parties, by some writing or deed or by words evidencing an intention to create a trust; the use
of the word trust is not required or essential to its constitution, it being sufficient that a trust is
clearly intended.28 Implied trust comes into existence by operation of law, either through
implication of an intention to create a trust as a matter of law or through the imposition of the
trust irrespective of, and even contrary to any such intention. 29
Judging from their documented acts immediately before and subsequent to the actual transfer
on September 7, 1964 of MC No. 590, Parsons, as transferee, and Grimm, as transferor,
indubitably contemplated a trust arrangement. Consider:

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There can be no quibbling, owing to the letter exchanges between the Club, in particular its
Honorary Secretary E. C. Von Kauffman, and Parsons, that the reason Grimm transferred his MC
No. 590 to Parsons was because of the latter's wish to accommodate one Daikichi Yoshida.
Earlier, Parsons recommended to Club management the approval of Mr. Yoshida's "Application
For Waiting List Eligible To [Club] Proprietary Membership."30 In a letter of August 10, 196431 to
the MGCC's Board of Directors, Parsons endorsed the application of Yoshida as Club member.
While the Club's response does not appear in its files, it is quite apparent that Parsons
addressed a letter to Kauffman requesting that Yoshida be taken in as a Company assignee. In
his reply-letter32 of August 29, 1964, Kauffman explained why he cannot, under Club rules,
favorably act on Parsons' specific request, but suggested a viable solution, as follows:
Reference to your letter dated August 25th, there is a hitch of assigning the playing
rights to Mr. Daikichi Yoshida, as a company assignee.
xxx xxx xxx
The only solution that I see is that you transfer Pete Grimm's 100 units to your name
and leave the other 100 units in your name, then you may assign the playing rights of
one of the certificates for 100 units to Mr. Yoshida. Mr. Yoshida was approved by the
Board but not as a Company assignee. (Emphasis added.)
Parsons' response to Kauffman's August 29, 1964 letter partly reads as follows:
Thank you for your letter of the 29th .
Under the circumstances, please disregard the previous letter which I wrote with
reference to Pete Grimm's and my shares .
xxx xxx xxx
As matter now stands, in summary, I shall retain in my name and continue playing
under such shares . And Pete Grimm will assign his playing rights to Mr. Daikichi
Yoshida.
The conclusion easily deductible from the foregoing exchanges is that, given existing Club
restrictions, the simplest way to accommodate and qualify Yoshida for Club membership was
for Grimm to transfer his 100-unit share to Parsons who will then assign the playing rights of
that share to Yoshida.33 The RTC aptly described the relevant factual situation, viz.:
With these exchanges between Parsons and Kauffman , it is apparent that since the
shares held by Parsons and Grimm are individual shares and not company shares, their
shares may not be assigned . The proposal of Parsons that "Pete Grimm will assign his
playing rights to Yoshida" was rejected by Kauffman in his letter dated September 5,
1964 [Exhibit X-5 / 27] that "Pete Grimm's assignment to him (Yoshida) cannot be made
as the rules are that only members who holds (sic) 200 units may assign 100 units to an
individual." A letter of the same date [Exhibit X-6 / 28] was sent by Kauffman to Mr.
Yoshida informing him of his election to the Club apologizing for the delay . Kauffman
wrote further " Mr. Charles Parsons has made arrangement for to play (sic) as
assignee of extra membership which he now holds."

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The election of Yoshida as assignee of a proprietary member and the resignation of

Grimm were approved by the Club's Board on August 27, 1964. Kauffman and Parsons
were still discussing the ways Mr Yoshida can be accommodated as of September
5, 1964, but the resignation of Grimm and election of Yoshida was already approved
more than a week before. 34 (Words in bracket in the original; Underscoring added.)
Even on the above factual perspective alone, it is not difficult to characterize, as did the trial
court, the certificate transfer from Grimm to Parsons, as temporary, there being no evidence
whatsoever that the transfer was for value. Such transfer was doubtless meant only to
accommodate Yoshida whose stay in the country was obviously temporary. As it were,
Yoshida's application35 for Club membership juxtaposed with the August 10, 1964
endorsement- letter36 of Parsons, yielded the information that he (Yoshida) is the manager of
the Manila Liaison Office of Mitsubishi Shoji Kaisha desiring to acquire Company membership in
the name of his employer Mitsubishi to enable future representatives to avail themselves of
Club facilities. Since Club membership did not seem possible at the time, Yoshida had to come
in as an assignee of a proprietary member.
Other compelling evidence attest to the temporary nature of the transfer in question. The trial
court cited two in its Decision. Wrote that court:
Even a witness for the (respondents) intervenor and the Parsons, Celso Jamias, Chief
Accountant of G-P and Company, confirmed that the transfer of the share to Parsons
was temporary. In a letter [Exhibit 7-GG] dated 10 August 1991 addressed to Atty.
Patricia Cecilia B. Bisda, counsel for G-P and Company, Jamais wrote:
". . . please be informed that the accommodation for Mr. Yoshida to have playing
rights has not bearing on the ownership of the share. The share of Grimm
(EMG) was transferred to Mr. Charles Parsons (CP) to accommodate Mr. Yoshida
due to Manila Golf club requirements.
Atty. Patricia Cecilia B. Bisda echoed the view of Jamias, in a letter [Exhibit Y] dated 30
August 1991 addressed to (the) then General Manager of the Club: She wrote:
"Also, we would like to clarify . That the accommodation of Mr. Yoshida to enjoy
the playing rights has no bearing to the ownership of the shares. The share of
Edward Grimm was transferred to Charles Parsons to accommodate D. Yoshida
due to club requirements."37
Any lingering doubt, however, as to the temporary nature of the Grimm-to-Parsons transfer
should, in our view, be put to rest by what MGCC records-file contained and the testimony of
its former records custodian, Romeo Alhambra. In his affidavit of May 12, 1989, 38 Alhambra
stated that "[A]ccording to Club records, the transfer of [MC] # 580 was only temporary, and
that Mr. Grimm was and, according to club records, is in fact the owner of [MC] # 1088" and
that after the transfer, "Mr. Charles Parsons endorsed the share certificate and turned it over to
Kauffmann for safekeeping." Forming parts of the same records were letters both dated
February 28, 1968 the day the share certificate transfer was effected separately
submitted by Grimm and Parsons, to inform MGCC of the temporary nature of the transfer. In
his letter, Grimm stated that MC No. 1088 "is still my property and I wish it recorded as such in
the Club's file."39 Parsons' letter40 was just as simple as it was revealing, thus:

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Reference to the transfer of [MC] #590 in the name of Mr. E.M. Grimm to my name, for
which I now have the new Certification No. 1088 , please be advised that this transfer
was made on a temporary basis and that said new certificate is still the property of Mr.
E.M. Grimm and I enclose the certificate duly endorsed by me for safekeeping.
At bottom then, documented events immediately before and after the February 28, 1968 share
certificate conveyance in question veritably confirm the trust arrangement Parsons had or
intended to have with Grimm and vice versa, vis--vis MC No. 1088. If, as herein respondent GP & Co. posits at every turn, Parsons was its trustee, then the latter's act of endorsing MC No.
1088 in blank and then delivering the same to the Club for safekeeping instead of directly to
the G-P & Co. was without sense.
The trial court correctly described the relationship that was formed between Grimm and
Parsons, and the consequence of such relationship, as follows:
Since the transfer of Grimm's share to Parsons was temporary, a trust was created with
Parsons as the trustee, and Grimm, the beneficial owner of the share. The duties of
trustees have been said, in general terms, to be: "to protect and preserve the trust
property, and to see to it that it is employed solely for the benefit of the cestui que
trust." xxx Parsons as a mere trustee, it is not within his rights to transfer the share to
G-P and Company (sic).
The Court has, to be sure, considered the Letter of Trust41 dated September 1, 1964 largely
because, in respondents' own words, it "provides the answer to the question of who the real
owner of MC #1088 is."42 In the Letter he purportedly signed, Parsons declared holding MC No.
374 and MC No. 1088 as "NOMINEE IN TRUST for and in behalf of G-P AND COMPANY or its
nominee." This piece of document is not, however, a winning card for the respondents. The
trial court mentioned two compelling reasons why not, both reasons bearing on the due
execution and genuineness of the document. Wrote the court:
This "LETTER OF TRUST" was purportedly signed by Parsons on September 1, 1964.
But the transfer of [MC] No. 590 was recorded (and MC No. 1088 issued) only on
September 7, 1964 in the Club's Proprietary Membership Card No. 144 [Exhibit 8].
With the testimony of Celso B. Jamias, a long time employee of G-P and Company, the
doubt as to the genuineness of the signature of Parsons on the "LETTER OF TRUST" was
brought to light. Jamias was cross-examined on the signatures of Parsons on several
documents including the signature of the LETTER OF TRUST":
Q:

How about the signature appearing on Exhibit CC-1 ?

A:

This is Charles Parsons, sir.

Q:
A:

You are familiar with the signature?

Yes, sir.

Q:
I'm showing you Exhibit I which is a letter of trust dated September 1, 1964,
comparing those signatures which you identified above the printed name C. Parsons
there are, two signatures, the signatures you identified earlier and the one appearing on

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the letter of trust are similar in the sense that the "s" of Parsons is elevated and it
slopes down, is that correct?
xxx xxx xxx
A:
Based on how I see, this doesn't seem to be the signature of Parsons, it looks
like but it is not, sir. [TSN, May 4, 1999, pp 5-6]. (Words in parenthesis added.)
And lest it be overlooked, Parsons had previously acknowledged Grimm to be the owner of MC
No. 1088, after his earlier repeated declarations that the transfer of the replaced MC No. 580
was temporary. Parsons was thus in contextually in estoppel to deny, thru the Letter of Trust
aforementioned, hypothetically assuming its authenticity, Grimm's ownership of the
replacement certificate.
Summing up, the Court finds the evidence adduced and admitted by the trial court more than
adequately supporting a conclusion that MC No. 1088 was issued to and held by Parsons as the
trustee thereof of Grimm or his estate. The fact that respondent G-P & Co. may have paid,
starting 1992, as evidence discloses, the membership fees due on MC No. 1088 does not make
Grimm less of a beneficial owner. Such payment, needless to stress, is not a mode of acquiring
ownership.
Parenthetically, the CA is observed to have said that in the settlement of the estate of Parsons,
MC No. 1088 was not included in the list of stocks owned by him. And from this inconsequential
event, the appellate court would conclude that the estate administrator recognized Parsons to
be a mere trustee of such certificate. While the decision does quite say so, the implication is
that Parsons was the trustee of G -P & Co.
We cannot agree with this non-sequitur approach which, at bottom, clearly tends to lower the
evidentiary bar for respondents. Needless to stress, it is not for the CA and all courts for that
matter to compensate for a burden of proof not discharged or a quantum of evidence not met.
The Court cannot, for two reasons, also lend cogency to the CA's observation that the heirs of
Grimm may have had waived, abandoned or denounced their rights to the trust property when,
for P100,000.00, they executed a Deed of Acknowledgment of Satisfaction of Partnership
Interests.43 Firstly, the deed, as a quitclaim instrument, did not mention any share certificate at
all, which is only logical since MC No. 1088 was not a partnership asset in the first place.
Secondly, the intention to waive a known right must be clear and unequivocal. In this case, the
intent to renounce beneficial ownership of MC No. 1088 cannot reasonably be drawn from the
tenor of the quitclaim document. For perspective, what the heirs of Grimm stated in the Deed
of Acknowledgment is that the amount of P100,000.00 they received "represents the total
liquidation and complete settlement of the entire partnership interests pertaining to the late
Edward Miller Grimm as partner in G-P AND COMPANY." If, to borrow from Thompson v. Court of
Appeals,44 we apply the standard norm on how a waiver must be formulated, then clearly the
general terms of the aforementioned deed merely indicate a clearance from general
accountability, not specifically an abandonment of ownership of the disputed share. For:
xxx. Settled is the rule that a waiver to be valid and effective must, in the first place, be
couched in clear and unequivocal terms which leave no doubt as to the intention of a
party to give up a right or benefit which legally pertains to him. xxx A waiver may not

117

be attributed to a person when the terms thereof do not explicitly and clearly evidence
an intent to abandon a right vested in such person. If we apply the standard rule that
waiver must be cast in clear and unequivocal terms, then clearly the general terms of
the cited release and quitclaim indicates merely a clearance from general
accountability, not specifically a waiver of Amcham's beneficial ownership of the
disputed shares.45
In all, the facts and circumstances attendant militate against the CA's finding pointing to G-P &
Co. as the beneficial owner of MC No. 1088. What the evidence adduced instead proved
beyond cavil is that Grimm or his estate is such owner. We therefore reverse.
WHEREFORE, the herein assailed decision of the Court of Appeals is REVERSED and SET
ASIDE, and the Decision of the Regional Trial Court of Makati City in Civil Case No. 92-2452 is
REINSTATED.
Costs against the respondents.
SO ORDERED.

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G.R. No. 143307

April 26, 2006

LU DO AND LU YM CORPORATION, Complainant,

vs.
AZNAR BROTHERS REALTY CO., Respondent.
DECISION
YNARES-SANTIAGO, J.:
Assailed in this petition for review on certiorari is the May 24, 2000 Decision 1 of the Court of
Appeals in CA-G.R. SP No. 43642, which dismissed the petition filed by herein petitioner Lu Do
and Lu Ym Corporation and sustained the January 9, 1997 Resolution 2 of the Office of the
President (OP) dismissing petitioners appeal from the November 22, 1995 Order 3 of the
Department of Environment and Natural Resources (DENR).
The issue to be resolved in this case is whether there exist supervening circumstances that
would justify suspension of the enforcement of, or the quashal of the alias writ of execution
issued to implement the September 18, 1986 Decision 4 of the then Minister of Natural
Resources in MNR Case No. 4096,5 which this Court sustained in a resolution dated July 20,
1994, in G.R. No. 116342 (hereafter referred to as the first Lu Do case).
The settled facts in the first Lu Do case show that an 8,485 square meter land located in
Sawang, San Nicolas, Cebu City, was the subject of both an award of Foreshore Lease in favor
of herein respondent Aznar Brothers Realty Company, a partnership engaged in buying and
selling real properties and in livestock and agriculture business; and of the subsequent
Miscellaneous Sales Application filed by petitioner, a manufacturer and exporter of coconut oil
products.6 This controversy gave rise to an administrative case docketed before the Bureau of
Lands as B.L. Conflict No. 45, D.L.O. Conflict No. 126. 7
Meanwhile, on July 21, 1965, petitioner took possession of the coveted land. Since then and up
to the present, it introduced improvements on the land, such as, bodega for copra, cylindrical
tank for coconut oil and automotive shop. Petitioners occupation of the land was by virtue of a
purported provisional permit alleged to have been issued by the Bureau of Lands. Such permit,
however, was found to be inexistent in the records, hence, the improvements introduced by
petitioner were held to have been made in bad faith. 8

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On July 21, 1974, the Director of Lands rendered a decision revoking the award in favor of
respondent and directing the reauction of the subject land.9 Respondent filed a motion for
reconsideration but was denied.
Respondent appealed to the Minister of Natural Resources. On September 18, 1986, the
Minister acting through the Assistant Secretary for Legal Affairs, rendered a decision in MNR
CASE No. 4096, reversing the decision of the Director of Lands; upholding the award of the
land in favor of respondent; and ordering petitioner to remove the improvements on the land,
otherwise, the same would be forfeited in favor of the government. The dispositive portion
thereof, states:
WHEREFORE, the decision dated 21 June 1977 should be, as hereby it is, SET ASIDE, and the
award of the area in question in favor of Aznar Brothers Realty Company shall continue to be
given DUE COURSE. Lu Do and Lu Ym Corporation shall remove the improvements it has
introduced in the area consisting of structures such as bodega, water tank, etc.; otherwise, the
same shall be forfeited in favor of the government,
SO ORDERED.10
Petitioner elevated the case11 to the Court of Appeals which directly addressed respondents
qualification as an awardee of a foreshore lease as well as the issue of who as between
petitioner and respondent has a better right over the litigated land. Ruling in favor of
respondent, the appellate tribunal dismissed the petition for lack of merit and for failure to
state the material dates in the petition to show the timeliness of its filing.
A petition for review, docketed as G.R. No. L-115342 was filed by petitioner before this Court.
On July 20, 1994, we issued a resolution dismissing the petition for: (a) failure to pay the
correct amount of sherriffs fees and clerks commission; and (b) failure to show that a
reversible error was committed by the Court of Appeals. The decretal portion thereof provides:
ACCORDINGLY, the Court Resolved to DENY the petition for review on certiorari with prayer for
a writ of preliminary injunction and/or temporary restraining order of the decision dated April
29, 1994 of the Court of appeals in CA G.R. Sp. No. 29944 for failure to comply with
requirement no. one (1), as the payment of fees lacks P200.00 deposit for sheriffs fee and
P2.00 for clerks commission or a total of P202.00.
Besides, even if the petition complied with the aforesaid requirement, it would still be denied,
as petitioners failed to show that a reversible error was committed by the appellate court. 12
Said decision became final and executory on October 10, 1994. 13
On February 13, 1995, petitioner filed with the Lands Management Bureau, the instant Motion
to Suspend Enforcement of Decision, To Rebid Land in Dispute and/or To Quash Order of
Execution.14 It contended that the improvements it introduced in the land since 1965, in the
form of automotive shop, bodega for copra, cylindrical tank for coconut oil, increased to not
less than P9,335,400.00, and it would be unfair for the government to forfeit said
improvements in its favor. Petitioner further argued that the land in question should be
rebidded in view of dissolution of respondent partnership by reason of the death of two of its
partners; and because the questioned land is no longer a proper subject of a foreshore

120

application, it, having ceased to be a foreshore land and having been transformed into an area
suitable for industrial/commercial purposes.
The Director of the Lands Management Bureau referred15 petitioners Motion to Suspend
Enforcement of Decision to the Secretary of the DENR which on November 22, 1995, held that
said motion is a mere dilatory ploy and an attempt to relitigate settled issues. The dispositive
portion thereof, reads:
WHEREFORE, in view of the foregoing considerations, the instant Motion is hereby DENIED. Let
the entire records of the case be forwarded to the Regional Executive Director, DENR Region
VII, for immediate execution of the 18 September 1986 Decision of this Office as affirmed by
the Decision of the Court of Appeals dated 29 April 1994 and by the Resolution of the Supreme
Court dated 20 July 1994.
SO ORDERED.16
A motion for reconsideration of the foregoing order was denied on February 27, 1996. 17
On appeal, the Office of the President dismissed petitioners recourse for lack of merit. 18 Its
motion for reconsideration suffered the same fate.19
Unfazed, petitioner sought relief with the Court of Appeals. In addition to its arguments
advanced in the Motion to Suspend Enforcement of Decision, petitioner averred that the award
in favor of respondent should be revoked because it failed to commence introduction of
improvements within six months from the date of the award, a requirement under Section 64
(d) of Commonwealth Act No. 141 or the Public Land Act. It also argued that the June 21, 1974
Decision of the Director of Lands which was favorable to it and which revoked the award of the
lease to respondent had already become final and executory because the former counsel of
respondent failed to file an appeal memorandum within the reglementary period; hence, the
Minister of Natural Resources can no longer reverse the same in its decision dated September
18, 1986.
On May 24, 2000, the Court of Appeals dismissed the petition for lack of merit. It held that the
invalid service of the order to file memorandum on respondents former counsel prevented the
June 21, 1974 decision of the Director of Lands from becoming final and executory. The
reversal of said decision by the Minister of Natural Resources is therefore proper. The appellate
court further ruled that the death of some of the partners of respondent did not dissolve the
partnership because the award was transmitted to the deceased partners heirs; and that the
conversion of the land into one suited for commercial purposes will not frustrate the award in
favor of respondent because the same land was a foreshore land at the time it was awarded to
the latter. The Court of Appeals also held that the failure of respondent to introduce
improvements in the land will not warrant the revocation of the award because it was in fact
petitioner who brought possessory instability over the land by questioning every facet of the
award to respondent.
Hence, this petition raising the following arguments:
a. The court of appeals committed serious and reversible error of law and acted with
grave abuse of discretion when it disregarded the fact that the decision of the director

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of lands dated June 21, 1974, which was favorable to petitioner and which revoked the
award in favor of respondent aznar brothers realty company of the land in dispute, had
already become final and executory.
b. The court of appeals committed serious and reversible error of law and acted with
grave abuse of discretion when it failed to appreciate that the decision of the director of
lands dated June 21, 1974 is correct.
c. In any case, The court of appeals committed serious and reversible error of law and
acted with grave abuse of discretion in ruling that the decision dated September 18,
1986 of the minister of natural resources has become irrevocable and in thereby
disregarding and ignoring facts and circumstances which supervened after the award in
favor of respondent and which have an effect on said award.
d. The court of appeals committed serious and reversible error of law and acted with
grave abuse of discretion when it disregarded and ignored the fact that the subject land
had already been converted into land suited mainly for commercial and industrial
purposes and may no longer be classified as foreshore land.
e. The court of appeals committed serious and reversible error of law and acted with
grave abuse of discretion in not holding that the failure of respondent to introduce
improvements on the subject property is fatal to its application.
f. The court of appeals committed serious and reversible error of law and acted with
grave abuse of discretion in not holding that the death of two of the partners of
respondent aznar brothers realty co. rendered impossible the giving of due course to the
foreshore lease award in favor of respondent, and that in any case, respondent was not
qualified to be an awardee of public land.
g. The court of appeals committed serious and reversible error of law and acted with
grave abuse of discretion in not resolving the other issues, grounds, arguments raised
by petitioner in its petition for review, and in relying instead on the decision of the
minister of natural resources dated September 18, 1986, on the decision of the court in
ca-g.r. SP no. 29944, and on the resolution of the executive secretary dated January 9,
1997.
h. The court of appeals committed serious and reversible error of law and acted with
grave abuse of discretion in not resolving petitioners "motion to suspend enforcement
of decision, to rebid land in dispute, and/or to quash order of execution (if any)" dated
February 10, 1995.
i. The court of appeals committed serious and reversible error of law and acted with
grave abuse of discretion when it disregarded and ignored the vast, substantial and
valuable improvements introduced by petitioner on the land in dispute.
j. The court of appeals committed serious and reversible error of law and acted with
grave abuse of discretion in not ruling that implementation of the decision of September
18, 1986 of the minister of natural resources will be most unfair and inequitable to
petitioner.20

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The petition is devoid of merit.

At the outset, it should be stressed that the arguments raised by petitioner cannot wheedle
this Court to re-examine factual matters that had already become final and executory more
than a decade ago. Under the doctrine of conclusiveness of judgment which is also known as
"preclusion of issues" or "collateral estoppel," issues actually and directly resolved in a former
suit cannot again be raised in any future case between the same parties involving a different
cause of action.21 Once a judgment attains finality it becomes immutable and unalterable. It
may no longer be modified in any respect, even if the modification is meant to correct what is
perceived to be an erroneous conclusion of fact or law, and regardless of whether the
modification is attempted to be made by the court rendering it or by the highest court of the
land.22 Hence, no amount of legal maneuvers could reinstate the Director of Lands July 21,
1974 Decision which is favorable to petitioner nor set aside the Minister of Natural Resources
September 18, 1986 Decision which upheld the respondents right and qualifications to lease
the contested land. In a resolution dated July 20, 1994, we categorically held that the Court of
Appeals committed no reversible error in dismissing the recourse filed by petitioner
questioning the September 18, 1986 Decision of the Minister of Natural Resources. This
resolution of the Court is an adjudication both on the technical issues and on the substantial
issues raised, particularly on the qualification of respondent and on the validity of the award in
its favor.23 Thus, only the supervening events that would allegedly justify the suspension of the
execution of the September 18, 1986 Decision of the Minister of Natural Resources will be
addressed here.
Petitioner claims that the following material changes in the circumstances since the time the
award was given to respondent, justify the suspension of the execution of the decision, to wit:
(1) the death of two of respondents partners; (2) the substantial improvements introduced by
petitioner on the land; (3) the failure of respondent to commence introduction of
improvements within six months from the date of the award; and (4) the conversion of the
subject property from foreshore land to commercial/industrial land.
In ruling that the death of two partners of respondent did not disqualify the latter from being
an awardee of a foreshore lease, the Court of Appeals correctly cited the case of Eusebio v.
Sociedad Agricola de Balarin.24 The issue in the said case was whether Sociedad Agricola de
Balarin, a partnership, became extinct by reason of the death of all the partners, making the
heirs of the deceased partners without legal personality to pursue the Sales Application
previously filed by the said deceased partners before the Bureau of Lands. Holding that the
death of the partners did not automatically forfeit the rights they acquired over the land and
that their heirs and the new association established by them should be considered subrogated
in the place of the original partners, the Court explained that:
There is no question that, under the Civil Code of 1889 then in force, the death of any one of
the partners dissolved the old partnership (Art. 1700, old Civil Code; Bearneza vs. Dequilla, 43
Phil. 237), the case not being one where there are surviving partners continuing the
partnership with the heirs of deceased partners. Hence, technically, the old Sociedad Agricola
de Balarin organized by Lacalle and registered in 1923 and the new partnership of the same
name and registered in 1955 are separate and distinct juridical persons.
But the dissolution of the original Sociedad Agricola de Balarin did not automatically entail the
forfeiture of the rights it had acquired in the lots in dispute, through its improvements and

123

occupancy, continued without interruption by the heirs of the original partners. The heirs
remained in possession until 1943 when, as a consequence of war operations and later due to
bloody encounters between government forces and the dissident bands, they had to vacate
and stay out until 1951, when the area was declared once more safe for reoccupation and
settlement. It is but equitable, as declared in the decision of the Director of Lands and of the
Secretary of Agriculture, that the heirs of the original partners, as well as the new association
established by them, should be considered subrogated in place of the original partners, as well
as the new association established by them, should be considered subrogated in place of the
original "Sociedad Agricola de Balarin", and allowed to continue with the sales application
despite the distinct personality of the heir[s] new association despite the distinct personality
of the heirs' new partnership. Under section 105 of the Public Land Act, the heirs-at- law of a
natural person, who dies before the final grant, are subrogated to his rights and obligations,
and entitled to have issued to them the patent or final concession upon proof of compliance
with the requirements of the law. There is no cogent reason why the provisions of this section
should not be made to apply in favor of the heirs of the partners of the original Sociedad
Agricola, since a partnership is, in the ultimate analysis, but a collectivity of natural persons
banded together for a common purpose; provided, of course, the aforementioned heirs cleave
to the original ends of the association, as they have done in this case.25
Contrary to the claim of petitioner, said doctrine is applicable in the instant case because
despite the death of two26 of respondents partners, the seven surviving partners continued the
operations and businesses of the partnership.27 If in Eusebio v. Sociedad Agricola de Balarin,
where all the partners died, the Court did not forfeit the acquired rights of the heirs over the
cotroverted land, with more reason that we should not forfeit the award in favor of respondent
which was survived by seven partners who continued the operations of the partnership,
pursued their lease application and defended their right against petitioner.
Neither will the improvements introduced on the land forestall the execution of the Minister of
Natural Resources September 18, 1986 Decision. That petitioner was in bad faith in
introducing said improvements is a matter already settled in the first Lu Do case. In the said
controversy, we sustained the findings of the Court of Appeals and of the then Minister of
Natural Resources that petitioner had no authority to occupy the land because the alleged
provisional permit issued by the Bureau of Lands does not exist in the records. The introduction
of improvements on the land was therefore held to have been made in bad faith. 28 Under the
doctrine of immutability of judgments, this conclusion can no longer be reviewed in the present
suit.29 Besides, the right to lease the land is subject of a pending case and any improvement
introduced thereon, if not removed, is at the risk of being forfeited in favor of the government.
Petitioner should be made to bear the outcome of this case which turned out to be adverse to
it.
Moreover, even granting that petitioner truly has a provisional permit to use and occupy the
land, forfeiture of the permanent improvements introduced thereon is still proper. Under
Section 38 of the Public Land Act, at the expiration of the lease, all buildings and other
permanent improvements made by the lessee shall become the property of the government.
Leases of public lands run for a period of 25 years, renewable once for another period of not to
exceed 25 years. Thus, SEC. 38. Leases shall run for a period of not more than twenty-five years, but may be renewed
once for another period of not to exceed twenty-five years, in case the lessee shall have made

124

important improvements which, in the discretion of the Secretary of [the Department of

Environment and Natural resources], justify a renewal. Upon final expiration of the lease, all
buildings and other permanent improvements made by the lessee, his heirs, executors,
administrators, successors, or assigns shall become the property of the Government, and the
land together with the said improvements shall be disposed of in accordance with the
provisions of Chapter five of this Act.
In the instant case, the purported temporary or provisional permit of petitioner enabled it to
use the subject land since 1965 up to the present, or for more than 40 years. It was able to
occupy the land for a period equivalent to a full term of a lease, and for almost the entire
duration of the maximum period allowed for a renewal thereof. Petitioner cannot therefore
pretend that the September 18, 1986 Decision of the Minister of Natural Resources ordering it
to remove the improvements on the land, is greatly disadvantageous to it. Petitioner is in fact
placed in a better position because it was allowed to remove its improvements, unlike
legitimate awardees of the right to lease a public land whose improvements become
government property at the expiration of the lease. Hence, the motion to suspend the
execution of the decision based on the existence of said improvements, the value of which was
not even substantiated, is utterly without basis.
Then too, the alleged failure of respondent to satisfy the requirement of Section 64 (d) of the
Public Land Act, will not frustrate the execution of the final decision in the first Lu Do case.
Section 64 (d), provides:
(d) The lessee shall construct permanent improvements appropriate for the purpose for which
the lease is granted, shall commence the construction thereof within six months from the date
of the award of the right to lease the land, and shall complete the said construction within
eighteen months from said date.
Petitioner attempts to impress upon this Court that the failure to comply with the aforecited
condition unqualifiedly revokes the award. This, however, is not the tenor of this condition
considering that the government may even waive rescission on this ground. This is clear from
the last paragraph of Section 64 of the Public Land Act which states:
The violation of one or any of the conditions specified in the contract shall give rise to the
rescission of said contract. The Secretary of Agriculture and Natural Resources [now the
Secretary of the DENR] may, however, subject to such conditions as he may prescribe, waive
the rescission arising from a violation of the conditions of subsection (d), or extend the time
within which the construction of the improvements shall be commenced and completed.
Furthermore, respondent cannot be made to suffer any adverse consequence of the failure to
introduce improvements because it never had a real opportunity to take possession of the land
which, since 1965 up to the present, is under the control and possession of petitioner who
successfully evaded the execution of the September 18, 1986 Decision of the Minister of
Natural Resources. Said judgment had been the subject of several alias writs of execution but
to no avail. In fact, there is a pending ejectment suit filed by respondent against petitioner to
enable it to legally recover possession of the subject land. 30
In the same vein, there is no merit in the contention of petitioner that the questioned foreshore
lease should be revoked because the land is no longer a foreshore land having been converted

125

by it (petitioner) to a commercial/industrial land. Indeed, the Court of Appeals correctly held

that since the said land was a foreshore land at the time the application was filed, the right to
lease the same should still be awarded to respondent. To forfeit the right of respondent would
be the height of injustice as it would reward petitioner for successfully stalling the enforcement
of a final and executory decision.
Even assuming that there exist supervening circumstances authorizing the revocation of the
award in favor of respondent, the petition is still dismissible considering that petitioner has no
legal personality to file an action for such revocation or for the rebidding of the contested land.
In actions where the ultimate relief sought is the reversion of the land to the government, it is
the latter which has the legal personality to file the suit. The rationale is that since the land
subject of the action originated from a grant by the government, its cancellation is a matter
between the grantor and the grantee.31 By parity of reasoning, in actions to revoke an award in
favor of a grantee which would result in the reversion of the possessory right over the land to
the government and not the disposition thereof to any private person or entity, the proper
party is the government who gave the grantee the right to occupy the land.
In the instant case, the final and executory resolution of the Court which sustained the award
of the grant to lease the contested land in favor of respondent effectively obliterated any right
which petitioner might have had as an applicant of a grant over the land. As far as any suit to
disqualify or revoke the award to respondent is concerned, petitioner is a stranger with no
legal personality to maintain such action. This is because the revocation of the award will not
vest any right on petitioner.
Under Section 2, Rule 3 of the Rules of Court, every action must be prosecuted or defended in
the name of the real party-in-interest, or one who stands to be benefited or injured by the
judgment in the suit. Real interest means present and substantial interest, as distinguished
from a mere expectancy or a future, contingent, subordinate consequential interest. 32 Thus,
mere applicants of sales patents over a public land or lessees hoping to be given the right to
purchase the same were held not proper parties to institute a case for cancellation of the
grantees award or title.33
Here, the suit filed by petitioner should be dismissed for lack of the requisite real interest. For
one, the only interest it has is the hope that it would emerge as the highest bidder in the
sought reauction of the questioned land. For another, it has no right to insist on the reauction
of subject land which remains to be part of the public domain and which the government, in
the exercise of its discretion, may reclassify and/or dispose of by modes other than by sale or
lease to private individuals or entities.
And even granting that petitioner is a legitimate holder of a temporary permit to occupy the
land, said permit will not vest him legal personality to seek the revocation of respondents
award. Being merely temporary, its permit may be revoked at any time by the Secretary of the
DENR. Section 68 of the Public land Act reads:
SEC. 68. The Secretary of Agriculture and Natural Resources [now the Secretary of the DENR]
may grant to qualified persons temporary permission, upon payment of a reasonable charge,
for the use of any portion of the lands covered by this chapter for any lawful private purpose,
subject to the revocation at any time when, in his judgment, the public interest shall require it.

126

In seeking the cancellation of respondents award, even as a holder of a temporary permit to

occupy the land, petitioners interest is also based on a mere expectancy. That is, a hope that
should said award be cancelled, the DENR Secretary would refrain from exercising his/her
judgment to revoke the temporary permit. Indeed, this contingent interest will not vest legal
personality on petitioner to challenge the award in favor of respondent.
WHEREFORE, the instant petition is DENIED and the May 24, 2000 Decision of the Court of
Appeals in CA-G.R. No. SP No. 43642 is AFFIRMED. Let the records of the case be remanded to
the Regional Executive Director, DENR, Region VII for the execution of the September 18, 1986
Decision of the Minister of Natural Resources in MNR CASE No. 4096.
SO ORDERED.

G.R. No. 152262

February 15, 2012

FELIMON MANGUIOB, Petitioner,

vs.

127

JUDGE PAUL T. ARCANGEL, RTC, BRANCH 12, DAVAO CITY and ALEJANDRA VELASCO,
Respondents.
DECISION
LEONARDO-DE CASTRO, J.:
This is a petition for review on certiorari1 seeking to modify the August 31, 2001 Decision2 and
January 25, 2002 Resolution3 of the Court of Appeals in CA-G.R. CV No. 64147, which affirmed
with modification the March 5, 1999 Decision4 of the Regional Trial Court (RTC) of Davao City,
Branch 12 in Civil Case No. 23,313-94.
On May 3, 1994, Felimon Manguiob (Manguiob) and Alejandra Velasco (Velasco) entered into a
partnership under the name of "Baculin Enterprises," for the purchase and sale of agricultural
and forest products, and the operation of a general merchandise store at Baculin, Baganga,
Davao Oriental.5 Velasco provided the capital requirements of the partnership, including the
warehouse and the store needed for the business, while Manguiob, being the industrial
partner, managed the partnership's operations.6
On September 14, 1994, the partnership ceased to operate and was considered dissolved for
all intents and purposes.7
On December 12, 1994, Velasco filed a Complaint8 for Sum of Money, Accounting, and
Damages against Manguiob, before the RTC, Branch 12 of Davao City. Velasco alleged that
while Baculin Enterprises appeared to have flourished on record, the actual cash on hand,
which was mostly with Manguiob, did not reflect such financial profitability. Thus, Velasco
decided to dissolve the partnership, as allowed in their Articles of Partnership, 9 and had the
records of the partnership audited. Velasco claimed that her fears were confirmed when the
audit report showed that Baculin Enterprises made a net profit of at least P 252,673.50 from
May 1994 to September 14, 1994. According to Velasco, she was entitled to 60% of this,
amounting to P 151,604.10, while Manguiob was entitled to 40%, equivalent to P 101,069.40.
Velasco also asked that Manguiob return the amount of P 203,156.30, representing the balance
of her P 320,000.00 capital investment, as Manguiob returned only the amount of P 116,843.20
to her. Velasco averred that Manguiob not only refused to return the above amounts, but also
refused to make an accounting of his management of Baculin Enterprises. Velasco further
alleged that Manguiob, in bad faith, had used the partnership funds to start his own buy and
sell business even before their partnership was dissolved. Because of this, Velasco prayed for
the trial court to direct Manguiob to do the following:
1. To pay plaintiff the amount of P 354,760.00 as plaintiff's contribution and share in the
profits of the partnership;
2. To pay plaintiff the amount of 10% a month of P 354,760.00 as unrealized profit of the
partnership;
3. To account for the money of the partnership used for the personal business of the
defendant;
4. To pay plaintiff the amount of P 25,000.00 as attorney's fees.

10

128

Velasco likewise prayed for the trial court to grant her such other relief as may be warranted
by the circumstances.11
Manguiob, in his Answer,12 denied having received P 320,000.00 from Velasco and alleged that
she only infused the sum of P 200,000.00 into their partnership. He contended that he did not
have possession of the partnership's cash, and that it was Velasco who had received the
proceeds of the deliveries he made to Interco Davao as shown by the various receipts 13
attached to his Answer. Manguiob also averred that if the records of Baculin Enterprises had
already been audited, then that audit was not based on the records he had submitted to
Velasco. Manguiob further claimed that it was not then known if the partnership had gained
profit, that there was no basis for the return of Velasco's capital investment, and that the
amount of P 116,843.20 was not part of Velasco's capital investment but was the total amount
of the remittances he made to Velasco from the proceeds of his deliveries. Manguiob said
Velasco's monetary claim had no basis especially since she was practically in control of the
partnership's finances.14
On October 18, 1995, Velasco and Manguiob jointly submitted to the RTC a "Partial Stipulation
of Facts and Statement of the Issues,"15 with the pertinent section quoted as follows:
The Facts
1. That, the plaintiff and defendant established a Partnership on May 3, 1994 to engage
in the Buy and Sell of Agricultural products and operation of a General Merchandise
Store at Baculin, Baganga, Davao Oriental, and for which purpose the parties executed
an Articles of Partnership, a copy of which is attached to the complaint as Annex "A"
thereof;
2. That, the partnership has ceased to operate and [for] all intents and purposes
considered dissolved as of September 14, 1994;
3. That, as per records submitted by the defendant, from May 8, 1994 to September 9,
1994 the amount of copra purchased is P 1,261,418.45 as shown in the statement, a
copy of which is hereto attached or Annex "A" hereof;
4. That, from May 31, 1994 up to September 10, 1994, the total copra sales amounted
to P 1,430,904.40, net of hauling expenses, as shown in the statement attached hereto
and marked as Annex "B" hereof;
5. That, from May 1994 to September 14, 1994 the total sales of General Merchandise
as per records of defendant is P 930,640.50 as shown in the statement hereto attached
as Annex "C" hereof;
The Issues
1. How much was the capital contribution of plaintiff in the Partnership?
2. How much of the proceeds from the sales of copra from May 31, 1994 to August 24,
1994 were returned by plaintiff to defendant[?]

129

3. How much net profit, if any, was realized by the Partnership during its operation from
May 1994 up to September 14, 1994[?]
4. Are the parties entitled to their respective claims for [damages][?]
On March 5, 1999, the RTC rendered its Decision, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to pay to the former the sum of P 498,245.52, as the
principal account; plus interest thereon at the rate of 12% per annum from September 15,
1994 until the full account is paid, the sum of P 25,000.00 as attorney's fees and the costs of
suit.
The other claims of the parties are hereby denied.16
The RTC found that the capital contributed by Velasco to the partnership was P 400,000.00, as
established by clear, convincing, and competent evidence.17 Anent the second issue, the RTC
averred that while Velasco may have received the proceeds of the sales of copra from May 31,
1994 to August 24, 1994, such proceeds were returned to Manguiob to be used in the purchase
of more copra and other merchandise for their business, as evidenced by receipts 18 signed by
Manguiob or his wife. Thus, the RTC said that "except for the proceeds of the sales of copra on
September 10, 1994, in the amount of P 116,954.40, all the proceeds of the sales of copra
were either retained by, or returned to, [Manguiob]." 19 As for the net profit earned by the
partnership, the RTC proclaimed that it was P 191,999.98, as declared by Manguiob's own
accountant. Thus, the RTC ruled that Velasco was entitled to the amount of P 498,245.52
representing her capital contribution less the proceeds from the copra sales made on
September 10, 1994, which she retained, plus her 60% share in the net profit. 20
Manguiob appealed this decision to the Court of Appeals, assigning the following errors:
I. THAT THE LOWER COURT GRAVELY ERRED IN ORDERING DEFENDANT TO PAY
PLAINTIFF THE SUM OF P 498,245.52 AS THE PROCEEDS OF COPRA SALES WHICH THE
PLAINTIFF HAD TAKEN FROM DEFENDANT AMOUNTED TO P 453,859.10 AND THAT THE
NET INCOME OF THE PARTNERSHIP OF THE PLAINTIFF AND DEFENDANT AMOUNTED TO P
191,999.88 TO WHICH PLAINTIFF'S SHARE IS 60% AND THE SHARE OF THE DEFENDANT
FROM SAID NET INCOME IS 40% AND, FURTHERMORE, THE TOTAL ASSETS IN THE
POSSESSION OF THE PLAINTIFF AT THE CLOSURE OF THE BUSINESS OF PLAINTIFF AND
DEFENDANT, THE BACULIN MARKETING AS OF SEPTEMBER 14, 1994 AND AVAILABLE
FOR DISTRIBUTION, AMOUNTED TO P 215,559.06;
II. THAT THE LOWER COURT GRAVELY ERRED IN ORDERING DEFENDANT TO PAY
PLAINTIFF THE INTEREST ON THE ALLEGED PRINCIPAL ACCOUNT OF P 498,245.52 AT
THE RATE OF 12% PER ANNUM FROM SEPTEMBER 15, 1994 UNTIL THE FULL ACCOUNT IS
PAID, AS THERE IS NO WRITTEN STIPULATION AS TO THE PAYMENT OF INTEREST IN
ACCORDANCE WITH ARTICLE 1956 OF THE NEW CIVIL CODE OF THE PHILIPPINES; AND
III. THAT THE LOWER COURT GRAVELY ERRED IN ORDERING DEFENDANT TO PAY
PLAINTIFF THE [AMOUNT] OF P 25,000.00 AS ATTORNEY'S FEES, AS NO RIGHT TO SUCH

130

FEE ACCRUE IN THE CASE AT BAR IN ACCORDANCE WITH ART. 2208 OF THE NEW CIVIL
CODE OF THE PHILIPPINES.21
On August 31, 2001, the Court of Appeals modified the RTC's decision with respect to the
amount due Velasco, the rate of interest imposable, and the award of attorney's fees, to wit:
IN THE LIGHT OF ALL THE FOREGOING, the Decision appealed from is AFFIRMED with the
following modifications:
(1) The Appellant is obliged to pay to Appellee the amount of P 401,640.97 with interest
thereon at the rate of 6% per annum computed from the time the Court a quo's Decision
and, an interest at the rate of 12 per annum from the time of the finality of this Decision
up to the time that the obligation of the Appellant to pay Appellee is paid in full:
(2) The award of attorney's fees is deleted.22
The Court of Appeals, after analyzing the records, concluded that while Velasco withheld the
total net amount of P 113,558.95, Manguiob received and retained a total of P 432,067.05,
inclusive of the P 400,000.00 capital infused by Velasco. The Court of Appeals agreed with the
findings of the RTC that the partnership generated a profit of P 191,999.98, and from this, held
that Velasco was entitled to 60% or P 115,199.92, according to her agreement with Manguiob.
The Court of Appeals said that since Velasco retained P 113,558.95 out of the P 115,199.92
due her, Manguiob should only remit to her the difference of P 1,640.97, in addition to her P
400,000.00 capital investment.23
On October 11, 2001, Manguiob moved24 for the Court of Appeals to reconsider its Decision.
This, however, was denied in a Resolution dated January 25, 2002, to wit:
After due consideration of the "Motion for Reconsideration" of the Appellant and the
"Comment" thereon of the Appellee, We find said motion barren of merit and hereby deny the
same.25
Manguiob is now positing the following assignment of errors:
(1)
THE HONORABLE 13th DIVISION OF THE COURT OF APPEALS GRAVELY AND SERIOUSLY
ERRED IN NOT CORRECTLY CONSIDERING IN THE ASSAILED DECISION, THE NON-CASH
ASSETS OF BACULIN ( MARKETING ) ENTERPRISE AS OF SEPTEMBER 14, 1994 AND THE
JOINT VALUATION IN THE AMOUNT OF P 215,559.06 PLACED ON THE SAID NON-CASH
ASSETS BY THE CERTIFIED PUBLIC ACCOUNTANTS OF THE PETITIONER AND THE PRIVATE
RESPONDENT WHICH WERE DETERMINED BY BOTH ACCOUNTANTS IN COMPLIANCE
WITH ORDERS OF THE HONORABLE COURT A QUO, THE REGIONAL TRIAL COURT, 11th
JUDICIAL REGION, BRANCH 12, DAVAO CITY.
(2)
THE HONORABLE 13th DIVISION OF THE COURT OF APPEALS SERIOUSLY ERRED IN NOT
CONSIDERING THE NON-CASH ASSETS OF BACULIN ( MARKETING ) ENTERPRISE VALUED

131

AT P 215,559.06 WHICH HAS BEEN IN THE CUSTODY AND CONTROL OF THE PRIVATE
RESPONDENT SINCE SEPTEMBER 14, 1994 AS RETAINED BY THE PRIVATE RESPONDENT
HERSELF.26
Manguiob says he does not wish to further challenge the Court of Appeals' computation, but
asks that the value of the non-cash assets, as determined by the parties' accountants,
pursuant to the RTC's orders,27 be deducted from the amount he is obligated to return to
Velasco, to wit:
Obligation of the petitioner per
Court of Appeals Decision

P 401,640.97

Less: Non Cash assets in the custody

and control of Alejandra Velasco

P 215,559.06

Obligations to be paid by the petitioner to

private respondent as sought by this petition

P 186,081.91

Velasco, in her Comment,29 says that this petition is without merit and should be dismissed.
She avers that while Manguiob claims that he is before us on a question of law, i.e., the
construction or interpretation of the documentary evidence submitted before the RTC, he is in
fact referring to matters of fact, which he was unable to establish with competent proof during
the trial of the case. Velasco further argues that the rulings of the lower courts are with respect
to her capital contribution and no evidence was presented to prove the existence of any asset
aside from the partnership's net income of P 191,999.98.
Discussion
The crux of the present controversy boils down to the role of the value of the non-cash assets
in the determination of how much Manguiob should return to Velasco.
Both the RTC and the Court of Appeals found that a partnership had indeed existed between
Manguiob and Velasco, and that it was dissolved, upon Velasco's option, on September 14,
1994. The lower courts ordered Manguiob to return to Velasco her capital contribution of P
400,000.00, as established during the trial and evidenced by receipts signed by Manguiob or
his wife; and the amount of P 115,199.92, representing her 60% share in the net profits, based
on the income statement prepared by the parties' accountants, to wit:
BACULIN MARKETING
AMENDED INCOME STATEMENT
For the Period May 8, 1994 to
September 14, 1994
Exh. "B"
----------------Sales:

132

28

Copra (Net of Hauling), Sch. 4

P 1,430,904.40

General Merchandise, Sch. 7

930,640.50

Charcoal

--------------------

Total

P 2,361,544.90

Less: Cost of Sales:

Purchases:
Copra, Sch. 2

P 1,261,418.45

Gen. Mdse., Sch. 5

880,243.08

Charcoal

21,143.60
-----------------

Total Goods Available

2,162,805.13

Less: Inventory, end

Gen. Mdse.

P 41,120.71

Charcoal

21,143.60
-----------------

62,264.31
-----------------

Gross Profit

2,100,540.82
----------------P 261,004.08

Less: Operating Expenses: (see sch. 5)

Subsistence

P 9,083.00

Miscellaneous

13,503.50

Truck repairs

21,894.20

Freight & other expenses

Salaries and wages
Inauguration expenses

7,332.50
12,550.00
4,641.00

69,004.02

133

----------------Net Income, to capital

----------------P 191,999.88
===============

30

Aside from the foregoing, the parties' accountants also submitted to the RTC a list of the noncash assets of the partnership as of September 14, 1994, its date of dissolution:
BACULIN MARKETING
LIST OF NON-CASH ASSETS
(F. Manguiob's Report)
Sch. 8
Particulars

Amount

Accounts Receivable

P 88,340.50

Inventories:
General Mdse.
Charcoal
Refundable deposit
Bodega equipment and facilities
Total

P 41,120.71
21,143.60

62,264.31
----------------30,265.00
34,689.25
----------------P 215,559.06 31
===========

Neither party questions the figures jointly prepared by their respective accountants. Manguiob,
nonetheless, insists that the value of the non-cash assets, as determined by their accountants,
should be deducted from the amount he was adjudged to pay Velasco. The lower courts,
however, did not rule on how these non-cash assets should be distributed between Velasco
and Manguiob.
The issue raised by Manguiob is clearly a question of fact, which not only requires a review of
the evidence already presented, but a reception of new evidence as well. A perusal of the
records of the case shows that no evidence was introduced or received for the purpose of
ascertaining the actual status of the non-cash assets despite the parties' admission of their
existence, and their conformity to the values assigned to them by their accountants. A proper
resolution on the distribution of the non-cash assets obviously necessitates, inter alia, a
determination of the proceeds or whereabouts of these non-cash assets.
This issue, unfortunately, is factual matter, which is beyond the province of a Rule 45 petition,
as expressed under the version of Section 1, Rule 45 in force at the time Manguiob filed this
petition to wit:

134

Section 1. Filing of petition with Supreme Court. - A party desiring to appeal by certiorari from
a judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall raise only questions of
law which must be distinctly set forth.32
The distinction between a question of law and one of fact has long been settled. In Binay v.
Odea33 we said:
A question of law arises when there is doubt as to what the law is on a certain state of facts,
while there is a question of fact when the doubt arises as to the truth or falsity of the alleged
facts. For a question to be one of law, the same must not involve an examination of the
probative value of the evidence presented by the litigants or any of them. The resolution of the
issue must rest solely on what the law provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence presented, the question posed is one of
fact. Thus, the test of whether a question is one of law or of fact is not the appellation given to
such question by the party raising the same; rather, it is whether the appellate court can
determine the issue raised without reviewing or evaluating the evidence, in which case, it is a
question of law; otherwise it is a question of fact.34
Thus, since this Court is required to review and evaluate the evidence on record, and even
receive new evidence to decide the issue of whether the value of the non-cash assets should
be deducted from what Manguiob was adjudged to pay Velasco, the issue then is definitely one
of fact, 35 and one that is impermissible, as this Court is not a trier of facts.
Furthermore, records show that this issue was not even submitted by the parties during the
trial of the case despite their conflicting allegations on these assets' condition. In Keng Hua
Paper Products Co., Inc. v. Court of Appeals36 this Court held:
[A]n issue raised for the first time on appeal and not raised timely in the proceedings in the
lower court is barred by estoppel. Questions raised on appeal must be within the issues framed
by the parties and, consequently, issues not raised in the trial court cannot be raised for the
first time on appeal.37
It is settled that issues not raised timely in the proceedings before the trial court cannot be
considered on review or appeal as to do so would be to trample on the basic rules of fair play,
justice, and due process.38
However, this Court noticed that while both lower courts agreed on the values and figures the
parties' accountants submitted to the RTC, they differed in the amount supposedly retained by
Velasco, and thus eventually deducted from the capital investment Manguiob was ordered to
return to her. This Court is inclined to agree with the RTC's computation, except for the total
amount, which is erroneously higher by P 100,000.00, to wit:
60% of P 191,999.88 is

P 115,199.92

Capital Contribution ----

P 400,000.00

135

Total ----

P 515,199.92

Less Money in Plaintiff's

hands for sale of copra
on September 10, 1994 ----

P 116,954.40

Net amount due to ----

P 498,245.52

39

Plaintiff
The above values and figures, save for the erroneous total, were amply supported by the
evidence on record. Moreover, Velasco herself, on several occasions, admitted that she
retained the amount of P 116,954.40, contrary to the Court of Appeals' finding that she only
withheld the amount of P 113,558.95.40
Exhibit C, Velasco's own documentary evidence which she verified and signed, showed that
she had retained the amount of P 116,954.40.
There is likewise an admission in Velasco's memorandum submitted to the RTC that she had in
her possession the amount of P 116,954.40.
Thus, using the same figures that were definitely determined during the trial, the amount due
Velasco, from her capital contribution and share in the net profits should be computed as
follows:
P Velasco's capital contribution
400,000.00
+ P Velasco's 60% share in the net income
115,199.92
- P the proceeds of the sales of copra on September 10, 1994, which Velasco
116,954.40 retained (P 56,362.40 + P 60,592.00)

=P
398,245.5
2 Amount due Velasco
As for the unchallenged rulings of the Court of Appeals, including the deletion of the award of
attorney's fees, we find no reason to disturb the same.1wphi1
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 64147 is hereby
AFFIRMED with the MODIFICATION that petitioner is obliged to pay private respondent the

136

amount of P 398,245.52 representing the balance of the latter's capital contribution plus her
60% share in the net profits of Baculin Enterprises.
SO ORDERED.

G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T. BACORRO,
petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.

137

VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26
February 1993, in CA-G.R. SP No. 24638 and No. 24648 affirming in toto that of the Securities
and Exchange Commission ("SEC") in SEC AC 254.
The antecedents of the controversy, summarized by respondent Commission and quoted at
length by the appellate court in its decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered
in the Mercantile Registry on 4 January 1937 and reconstituted with the
Securities and Exchange Commission on 4 August 1948. The SEC records show
that there were several subsequent amendments to the articles of partnership on
18 September 1958, to change the firm [name] to ROSS, SELPH and
CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO
& MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4
December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 11 March
1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO, MISA &
LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and
Mariano M. Lozada associated themselves together, as senior partners with
respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin
Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a
letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and
Lozada, effective at the end of this month.
"I trust that the accountants will be instructed to make the proper
liquidation of my participation in the firm."
On the same day, petitioner-appellant wrote respondents-appellees another
letter stating:
"Further to my letter to you today, I would like to have a meeting
with all of you with regard to the mechanics of liquidation, and
more particularly, my interest in the two floors of this building. I
would like to have this resolved soon because it has to do with my
own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another
letter stating:
"The partnership has ceased to be mutually satisfactory because of
the working conditions of our employees including the assistant
attorneys. All my efforts to ameliorate the below subsistence level
of the pay scale of our employees have been thwarted by the other
partners. Not only have they refused to give meaningful increases
to the employees, even attorneys, are dressed down publicly in a
loud voice in a manner that deprived them of their self-respect. The
result of such policies is the formation of the union, including the
assistant attorneys."

138

On 30 June 1988, petitioner filed with this Commission's Securities Investigation

and Clearing Department (SICD) a petition for dissolution and liquidation of
partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate
liquidation of (the partnership of) Bito, Misa & Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in
the partnership assets plus the profits, rent or interest attributable
to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa &
Lozada in any of their correspondence, checks and pleadings and to
pay petitioners damages for the use thereof despite the dissolution
of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner
attorney's fees and expense of litigation in such amounts as maybe
proven during the trial and which the Commission may deem just
and equitable under the premises but in no case less than ten
(10%) per cent of the value of the shares of petitioner or
P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the
amount of P500,000.00 and exemplary damages in the amount of
P200,000.00.
"Petitioner likewise prayed for such other and further reliefs that
the Commission may deem just and equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did
not dissolve the said law partnership. Accordingly, the petitioner
and respondents are hereby enjoined to abide by the provisions of
the Agreement relative to the matter governing the liquidation of
the shares of any retiring or withdrawing partner in the partnership
interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada."
The Commission ruled that, being a partnership at will, the law firm could be dissolved by any
partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith,
since no partner can be forced to continue in the partnership against his will. In its decision,
dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is
hereby REVERSED insofar as it concludes that the partnership of Bito, Misa &
Lozada has not been dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and obligations of the parties. 2

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The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked
for an appointment of a receiver to take over the assets of the dissolved partnership and to
take charge of the winding up of its affairs. On 4 April 1991, respondent SEC issued an order
denying reconsideration, as well as rejecting the petition for receivership, and reiterating the
remand of the case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638
and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney
Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The
death of the two partners, as well as the admission of new partners, in the law firm prompted
Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648). He expressed
concern over the need to preserve and care for the partnership assets. The other partners
opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court held,
per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had
changed the relation of the parties and inevitably caused the dissolution of the partnership; (b)
that such withdrawal was not in bad faith; (c) that the liquidation should be to the extent of
Attorney Misa's interest or participation in the partnership which could be computed and paid
in the manner stipulated in the partnership agreement; (d) that the case should be remanded
to the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's
share in the partnership assets; and (e) that the appointment of a receiver was unnecessary as
no sufficient proof had been shown to indicate that the partnership assets were in any such
danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to
the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership
of Bito, Misa & Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at
will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal
of private respondent dissolved the partnership regardless of his good or bad
faith; and
3. Whether or not the Court of Appeals has erred in holding that private
respondent's demand for the dissolution of the partnership so that he can get a
physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.
A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa &
Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be
unduly belabored. We quote, with approval, like did the appellate court, the findings and
disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not
provide for a specified period or undertaking. The "DURATION" clause simply
states:

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"5. DURATION. The partnership shall continue so long as mutually

satisfactory and upon the death or legal incapacity of one of the
partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific
undertaking and hence not a partnership at will, citing paragraph 2 of the
Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to
act as legal adviser and representative of any individual, firm and
corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons
and entities with respect to their legal and other affairs; and to
appear for and represent their principals and client in all courts of
justice and government departments and offices in the Philippines,
and elsewhere when legally authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the
law. Otherwise, all partnerships, which necessarily must have a purpose, would
all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would
so exist. Apparently what the law contemplates, is a specific undertaking or
"project" which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes to associate himself is the very
foundation and essence of that partnership. Its continued existence is, in turn, dependent on
the constancy of that mutual resolve, along with each partner's capability to give it, and the
absence of a cause for dissolution provided by the law itself. Verily, any one of the partners
may, at his sole pleasure, dictate a dissolution of the partnership at will. He must, however, act
in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will of
a partner. 6 Among partners, 7 mutual agency arises and the doctrine of delectus personae
allows them to have the power, although not necessarily the right, to dissolve the partnership.
An unjustified dissolution by the partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any
partner ceasing to be associated in the carrying on, as might be distinguished from the
winding up of, the business. 8 Upon its dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its business culminating in its
termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by various
provisions of the Civil Code; 10 however, an agreement of the partners, like any other contract,
is binding among them and normally takes precedence to the extent applicable over the
Code's general provisions. We here take note of paragraph 8 of the "Amendment to Articles of
Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the
partnership shall be liquidated and paid in accordance with the existing
agreements and his partnership participation shall revert to the Senior Partners
for allocation as the Senior Partners may determine; provided, however, that with

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respect to the two (2) floors of office condominium which the partnership is now
acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140
Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time of
such death or retirement shall be determined by two (2) independent appraisers,
one to be appointed (by the partnership and the other by the) retiring partner or
the heirs of a deceased partner, as the case may be. In the event of any
disagreement between the said appraisers a third appraiser will be appointed by
them whose decision shall be final. The share of the retiring or deceased partner
in the aforementioned two (2) floor office condominium shall be determined upon
the basis of the valuation above mentioned which shall be paid monthly within
the first ten (10) days of every month in installments of not less than P20,000.00
for the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners
and P5,000.00 in the case of the new Junior Partner. 11
The term "retirement" must have been used in the articles, as we so hold, in a generic sense to
mean the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership
that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent
Commission on their common factual finding, i.e., that Attorney Misa did not act in bad faith.
Public respondents viewed his withdrawal to have been spurred by "interpersonal conflict"
among the partners. It would not be right, we agree, to let any of the partners remain in the
partnership under such an atmosphere of animosity; certainly, not against their will. 12 Indeed,
for as long as the reason for withdrawal of a partner is not contrary to the dictates of justice
and fairness, nor for the purpose of unduly visiting harm and damage upon the partnership,
bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no
different from its normal concept of a conscious and intentional design to do a wrongful act for
a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.

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G.R. No. 144214

July 14, 2003

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, petitioners,

vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C.
RAMIREZ, respondents.
PANGANIBAN, J.:
A share in a partnership can be returned only after the completion of the latter's dissolution,
liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision 1 and
the July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The
assailed Decision disposed as follows:
"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992
rendered by the Regional Trial Court, Branch 148, Makati City is hereby SET
ASIDE and NULLIFIED and in lieu thereof a new decision is rendered ordering the
[petitioners] jointly and severally to pay and reimburse to [respondents] the
amount of P253,114.00. No pronouncement as to costs."4
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership
with a capital of P750,000 for the operation of a restaurant and catering business under the
name "Aquarius Food House and Catering Services."5 Villareal was appointed general manager
and Carmelito Jose, operations manager.

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Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5,

1984. His capital contribution of P250,000 was paid by his parents, Respondents Cesar and
Carmelita Ramirez.6
After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of
P250,000 was refunded to him in cash by agreement of the partners. 7
In the same month, without prior knowledge of respondents, petitioners closed down the
restaurant, allegedly because of increased rental. The restaurant furniture and equipment were
deposited in the respondents' house for storage.8
On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer
interested in continuing their partnership or in reopening the restaurant, and that they were
accepting the latter's offer to return their capital contribution. 9
On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the
deterioration of the restaurant furniture and equipment stored in their house. She also
reiterated the request for the return of their one-third share in the equity of the partnership.
The repeated oral and written requests were, however, left unheeded.10
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a
Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a desire to withdraw
from the partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil
Code; that respondents had been paid, upon the turnover to them of furniture and equipment
worth over P400,000; and that the latter had no right to demand a return of their equity
because their share, together with the rest of the capital of the partnership, had been spent as
a result of irreversible business losses.12
In their Reply, respondents alleged that they did not know of any loan encumbrance on the
restaurant. According to them, if such allegation were true, then the loans incurred by
petitioners should be regarded as purely personal and, as such, not chargeable to the
partnership. The former further averred that they had not received any regular report or
accounting from the latter, who had solely managed the business. Respondents also alleged
that they expected the equipment and the furniture stored in their house to be removed by
petitioners as soon as the latter found a better location for the restaurant.13
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant
Furniture and Equipment14 on July 8, 1988. The furniture and the equipment stored in their
house were inventoried and appraised at P29,000.15 The display freezer was sold for P5,000
and the proceeds were paid to them.16
After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which
could be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped
operating the restaurant. Hence, the trial court, in its July 21, 1992 Decision, held there liable
as follows:18
"WHEREFORE, judgment is hereby rendered in favor of [respondents] and against
the [petitioners] ordering the [petitioners] to pay jointly and severally the
following:
(a) Actual damages in the amount of P250,000.00

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(b) Attorney's fee in the amount of P30,000.00

(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had no right to demand the return of their capital
contribution, the partnership was nonetheless dissolved when petitioners lost interest in
continuing the restaurant business with them. Because petitioners never gave a proper
accounting of the partnership accounts for liquidation purposes, and because no sufficient
evidence was presented to show financial losses, the CA. computed their liability as follows:
"Consequently, since what has been proven is only the outstanding obligation of
the partnership in the amount of P240,658.00, although contracted by the
partnership before [respondents'] have joined the partnership but in accordance
with Article 1826 of the New Civil Code, they are liable which must have to be
deducted from the remaining capitalization of the said partnership which is in the
amount of P1,000,000.00 resulting in the amount of P759,342.00, and in order to
get the share of [respondents], this amount of P759,342.00 must be divided into
three (3) shares or in the amount of P253,114.00 for each share and which is the
only amount which [petitioner] will return to [respondents'] representing the
contribution to the partnership minus the outstanding debt thereof."19
Hence, this Petition.20
Issues
In their Memorandum,21 petitioners submit the following issues for our consideration:
"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution
of the capital contribution, instead of the net capital after the dissolution and
liquidation of a partnership, thereby treating the capital contribution like a loan,
is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners
to jointly and severally pay and reimburse the amount of [P]253,114.00 is
supported by the evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs."22
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents
for the latter's share in the partnership; (2) whether the CA's computation of P253,114 as
respondents' share is correct; and (3) whether the CA was likewise correct in not assessing
costs.
This Court's Ruling
The Petition has merit.
First Issue:
Share in Partnership

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Both the trial and the appellate courts found that a partnership had indeed existed, and that it
was dissolved on March 1, 1987. They found that the dissolution took place when respondents
informed petitioners of the intention to discontinue it because of the former's dissatisfaction
with, and loss of trust in, the latter's management of the partnership affairs. These findings
were amply supported by the evidence on record. Respondents consequently demanded from
petitioners the return of their one-third equity in the partnership.
We hold that respondents have no right to demand from petitioners the return of their equity
share. Except as managers of the partnership, petitioners did not personally hold its equity or
assets. "The partnership has a juridical personality separate and distinct from that of each of
the partners."23 Since the capital was contributed to the partnership, not to petitioners, it is the
partnership that must refund the equity of the retiring partners.24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words,
it can only pay out what it has in its coffers, which consists of all its assets. However, before
the partners can be paid their shares, the creditors of the partnership must first be
compensated.25 After all the creditors have been paid, whatever is left of the partnership
assets becomes available for the payment of the partners' shares.
Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third
share in the partnership cannot be determined until all the partnership assets will have been
liquidated in other words, sold and converted to cash and all partnership creditors, if any,
paid. The CA's computation of the amount to be refunded to respondents as their share was
thus erroneous.
First, it seems that the appellate court was under the misapprehension that the total capital
contribution was equivalent to the gross assets to be distributed to the partners at the time of
the dissolution of the partnership. We cannot sustain the underlying idea that the capital
contribution at the beginning of the partnership remains intact, unimpaired and available for
distribution or return to the partners. Such idea is speculative, conjectural and totally without
factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either increased by profits
earned or decreased by losses sustained. It does not remain static and unaffected by the
changing fortunes of the business. In the present case, the financial statements presented
before the trial court showed that the business had made meager profits. 26 However, notable
therefrom is the omission of any provision for the depreciation27 of the furniture and the
equipment. The amortization of the goodwill28 (initially valued at P500,000) is not reflected
either. Properly taking these non-cash items into account will show that the partnership was
actually sustaining substantial losses, which consequently decreased the capital of the
partnership. Both the trial and the appellate courts in fact recognized the decrease of the
partnership assets to almost nil, but the latter failed to recognize the consequent
corresponding decrease of the capital.
Second, the CA's finding that the partnership had an outstanding obligation in the amount of
P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which
had rejected the contention that the obligation belonged to the partnership for the following
reason:
"x x x [E]vidence on record failed to show the exact loan owed by the partnership
to its creditors. The balance sheet (Exh. '4') does not reveal the total loan. The

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Agreement (Exh. 'A') par. 6 shows an outstanding obligation of P240,055.00

which the partnership owes to different creditors, while the Certification issued
by Mercator Finance (Exh. '8') shows that it was Sps. Diogenes P. Villareal and
Luzviminda J. Villareal, the former being the nominal party defendant in the
instant case, who obtained a loan of P355,000.00 on Oct. 1983, when the original
partnership was not yet formed."
Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by
the partnership to Jesus Jose when he withdrew from the partnership.
Because of the above-mentioned transactions, the partnership capital was actually reduced.
When petitioners and respondents ventured into business together, they should have prepared
for the fact that their investment would either grow or shrink. In the present case, the
investment of respondents substantially dwindled. The original amount of P250,000 which they
had invested could no longer be returned to them, because one third of the partnership
properties at the time of dissolution did not amount to that much.
It is a long established doctrine that the law does not relieve parties from the effects of unwise,
foolish or disastrous contracts they have entered into with all the required formalities and with
full awareness of what they were doing. Courts have no power to relieve them from obligations
they have voluntarily assumed, simply because their contracts turn out to be disastrous deals
or unwise investments.29
Petitioners further argue that respondents acted negligently by permitting the partnership
assets in their custody to deteriorate to the point of being almost worthless. Supposedly, the
latter should have liquidated these sole tangible assets of the partnership and considered the
proceeds as payment of their net capital. Hence, petitioners argue that the turnover of the
remaining partnership assets to respondents was precisely the manner of liquidating the
partnership and fully settling the latter's share in the partnership.
We disagree. The delivery of the store furniture and equipment to private respondents was for
the purpose of storage. They were unaware that the restaurant would no longer be reopened
by petitioners. Hence, the former cannot be faulted for not disposing of the stored items to
recover their capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided in
these rules, costs shall be allowed to the prevailing party as a matter of course,
but the court shall have power, for special reasons, to adjudge that either party
shall pay the costs of an action, or that the same be divided, as may be
equitable. No costs shall be allowed against the Republic of the Philippines unless
otherwise provided by law."
Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for
special reasons," to decree otherwise. When a lower court is reversed, the higher court
normally does not award costs, because the losing party relied on the lower court's judgment
which is presumed to have been issued in good faith, even if found later on to be erroneous.
Unless shown to be patently capricious, the award shall not be disturbed by a reviewing
tribunal.

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WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE.
This disposition is without prejudice to proper proceedings for the accounting, the liquidation
and the distribution of the remaining partnership assets, if any. No pronouncement as to costs.
SO ORDERED.

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