THIRD DIVISION

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.
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.

"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,
another letter stating:

petitioner-appellant

wrote

respondents-appellees

"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."
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;

"I trust that the accountants will be instructed to make the proper liquidation of
my participation in the firm."

"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.

On the same day, petitioner-appellant wrote respondents-appellees another

letter stating:

"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.
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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
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:
"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;
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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 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.
EN BANC
G.R. No. 113375 May 5, 1994
KILOSBAYAN, INCORPORATED, JOVITO R. SALONGA, CIRILO A. RIGOS, ERME
CAMBA, EMILIO C. CAPULONG, JR., JOSE T. APOLO, EPHRAIM TENDERO,
FERNANDO SANTIAGO, JOSE ABCEDE, CHRISTINE TAN, FELIPE L. GOZON,
RAFAEL G. FERNANDO, RAOUL V. VICTORINO, JOSE CUNANAN, QUINTIN S.
DOROMAL, SEN. FREDDIE WEBB, SEN. WIGBERTO TAADA, and REP. JOKER P.
ARROYO, petitioners,
vs.
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TEOFISTO GUINGONA, JR., in his capacity as Executive Secretary, Office of the

President; RENATO CORONA, in his capacity as Assistant Executive Secretary
and Chairman of the Presidential review Committee on the Lotto, Office of the
President; PHILIPPINE CHARITY SWEEPSTAKES OFFICE; and PHILIPPINE GAMING
MANAGEMENT CORPORATION, respondents.

Before August 1993, the PCSO formally issued a Request for Proposal (RFP) for
the Lease Contract of an on-line lottery system for the PCSO. 2 Relevant
provisions of the RFP are the following:

DAVIDE, JR., J.:

xxx

This is a special civil action for prohibition and injunction, with a prayer for a
temporary restraining order and preliminary injunction, which seeks to prohibit
and restrain the implementation of the "Contract of Lease" executed by the
Philippine Charity Sweepstakes Office (PCSO) and the Philippine Gaming
Management Corporation (PGMC) in connection with the on- line lottery
system, also known as "lotto."

1.2.
PCSO is seeking a suitable contractor which shall build, at its own
expense, all the facilities ('Facilities') needed to operate and maintain a
nationwide on-line lottery system. PCSO shall lease the Facilities for a fixed
percentage ofquarterly gross receipts. All receipts from ticket sales shall be
turned over directly to PCSO. All capital, operating expenses and expansion
expenses and risks shall be for the exclusive account of the Lessor.

Petitioner Kilosbayan, Incorporated (KILOSBAYAN) avers that it is a non-stock

domestic corporation composed of civic-spirited citizens, pastors, priests, nuns,
and lay leaders who are committed to the cause of truth, justice, and national
renewal. The rest of the petitioners, except Senators Freddie Webb and
Wigberto Taada and Representative Joker P. Arroyo, are suing in their
capacities as members of the Board of Trustees of KILOSBAYAN and as
taxpayers and concerned citizens. Senators Webb and Taada and
Representative Arroyo are suing in their capacities as members of Congress
and as taxpayers and concerned citizens of the Philippines.

xxx

The pleadings of the parties disclose the factual antecedents which triggered
off the filing of this petition.
Pursuant to Section 1 of the charter of the PCSO (R.A. No. 1169, as amended
by B.P. Blg. 42) which grants it the authority to hold and conduct "charity
sweepstakes races, lotteries and other similar activities," the PCSO decided to
establish an on- line lottery system for the purpose of increasing its revenue
base and diversifying its sources of funds. Sometime before March 1993, after
learning that the PCSO was interested in operating an on-line lottery system,
the Berjaya Group Berhad, "a multinational company and one of the ten largest
public companies in Malaysia," long "engaged in, among others, successful
lottery operations in Asia, running both Lotto and Digit games, thru its
subsidiary, Sports Toto Malaysia," with its "affiliate, the International Totalizator
Systems, Inc., . . . an American public company engaged in the international
sale or provision of computer systems, softwares, terminals, training and other
technical services to the gaming industry," "became interested to offer its
services and resources to PCSO." As an initial step, Berjaya Group Berhad
(through its individual nominees) organized with some Filipino investors in
March 1993 a Philippine corporation known as the Philippine Gaming
Management Corporation (PGMC), which "was intended to be the medium
through which the technical and management services required for the project
would be offered and delivered to PCSO." 1

1.

1.4.

EXECUTIVE SUMMARY
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xxx

xxx

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The lease shall be for a period not exceeding fifteen (15) years.

1.5.
The Lessor is expected to submit a comprehensive nationwide lottery
development plan ("Development Plan") which will include the game, the
marketing of the games, and the logistics to introduce the games to all the
cities and municipalities of the country within five (5) years.
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xxx

xxx

1.7.
The Lessor shall be selected based on its technical expertise,
hardware and software capability, maintenance support, and financial
resources. The Development Plan shall have a substantial bearing on the
choice of the Lessor. The Lessor shall be a domestic corporation, with at least
sixty percent (60%) of its shares owned by Filipino shareholders.
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xxx

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The Office of the President, the National Disaster Control Coordinating Council,
the Philippine National Police, and the National Bureau of Investigation shall be
authorized to use the nationwide telecommunications system of the Facilities
Free of Charge.
1.8.
Upon expiration of the lease, the Facilities shall be owned by PCSO
without any additional consideration. 3
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2.2.

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OBJECTIVES

The objectives of PCSO in leasing the Facilities from a private entity are as
follows:
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xxx

xxx

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2.2.2.
Enable PCSO to operate a nationwide on-line Lottery system at no
expense or risk to the government.
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2.4.
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DUTIES AND RESPONSIBILITIES OF THE LESSOR

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Facilities: All capital equipment, computers, terminals, software, nationwide

telecommunication network, ticket sales offices, furnishings, and fixtures;
printing costs; cost of salaries and wages; advertising and promotion expenses;
maintenance costs; expansion and replacement costs; security and insurance,
and all other related expenses needed to operate nationwide on-line lottery
system. 6
Considering the above citizenship requirement, the PGMC claims that the
Berjaya Group "undertook to reduce its equity stakes in PGMC to 40%," by
selling 35% out of the original 75% foreign stockholdings to local investors.

xxx
On 15 August 1993, PGMC submitted its bid to the PCSO. 7

2.4.2.

THE LESSOR

The Proponent is expected to furnish and maintain the Facilities, including the
personnel needed to operate the computers, the communications network and
sales offices under a build-lease basis. The printing of tickets shall be
undertaken under the supervision and control of PCSO. The Facilities shall
enable PCSO to computerize the entire gaming system.
The Proponent is expected to formulate and design consumer-oriented Master
Games Plan suited to the marketplace, especially geared to Filipino gaming
habits and preferences. In addition, the Master Games Plan is expected to
include a Product Plan for each game and explain how each will be introduced
into the market. This will be an integral part of the Development Plan which
PCSO will require from the Proponent.
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xxx

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The Proponent is expected to provide upgrades to modernize the entire gaming

system over the life ofthe lease contract.
The Proponent is expected to provide technology transfer to PCSO technical
personnel. 4
7.
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GENERAL GUIDELINES FOR PROPONENTS

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16.

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On 21 October 1993, the Office of the President announced that it had given
the respondent PGMC the go-signal to operate the country's on-line lottery
system and that the corresponding implementing contract would be submitted
not later than 8 November 1993 "for final clearance and approval by the Chief
Executive." 10 This announcement was published in the Manila Standard,
Philippine Daily Inquirer, and the Manila Times on 29 October 1993. 11
On 4 November 1993, KILOSBAYAN sent an open letter to Presidential Fidel V.
Ramos strongly opposing the setting up to the on-line lottery system on the
basis of serious moral and ethical considerations. 12
At the meeting of the Committee on Games and Amusements of the Senate on
12 November 1993, KILOSBAYAN reiterated its vigorous opposition to the online lottery on account of its immorality and illegality. 13
On 19 November 1993, the media reported that despite the opposition,
"Malacaang will push through with the operation of an on-line lottery system
nationwide" and that it is actually the respondent PCSO which will operate the
lottery while the winning corporate bidders are merely "lessors." 14

xxx

Finally, the Proponent must be able to stand the acid test of proving that it is
an entity able to take on the role of responsible maintainer of the on-line
lottery system, and able to achieve PSCO's goal of formalizing an on-line
lottery system to achieve its mandated objective. 5
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The bids were evaluated by the Special Pre-Qualification Bids and Awards
Committee (SPBAC) for the on-line lottery and its Bid Report was thereafter
submitted to the Office of the President. 8 The submission was preceded by
complaints by the Committee's Chairperson, Dr. Mita Pardo de Tavera. 9

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On 1 December 1993, KILOSBAYAN requested copies of all documents

pertaining to the lottery award from Executive Secretary Teofisto Guingona, Jr.
In his answer of 17 December 1993, the Executive Secretary informed
KILOSBAYAN that the requested documents would be duly transmitted before
the end of the month. 15. However, on that same date, an agreement
denominated as "Contract of Lease" was finally executed by respondent PCSO
and respondent PGMC. 16 The President, per the press statement issued by the
Office of the President, approved it on 20 December 1993. 17

DEFINITION OF TERMS
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In view of their materiality and relevance, we quote the following salient

provisions of the Contract of Lease:
1.

DEFINITIONS

The following words and terms shall have the following respective meanings:
1.1
Rental Fee Amount to be paid by PCSO to the LESSOR as
compensation for the fulfillment of the obligations of the LESSOR under this
Contract, including, but not limited to the lease of the Facilities.
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xxx

xxx

1.3
Facilities All capital equipment, computers, terminals, software
(including source codes for the On-Line Lottery application software for the
terminals, telecommunications and central systems), technology, intellectual
property rights, telecommunications network, and furnishings and fixtures.
1.4
Maintenance and Other Costs All costs and expenses relating to
printing, manpower, salaries and wages, advertising and promotion,
maintenance, expansion and replacement, security and insurance, and all
other related expenses needed to operate an On-Line Lottery System, which
shall be for the account of the LESSOR. All expenses relating to the setting-up,
operation and maintenance of ticket sales offices of dealers and retailers shall
be borne by PCSO's dealers and retailers.
1.5
Development Plan The detailed plan of all games, the marketing
thereof, number of players, value of winnings and the logistics required to
introduce the games, including the Master Games Plan as approved by PCSO,
attached hereto as Annex "A", modified as necessary by the provisions of this
Contract.
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xxx

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1.8
Escrow Deposit The proposal deposit in the sum of Three Hundred
Million Pesos (P300,000,000.00) submitted by the LESSOR to PCSO pursuant to
the requirements of the Request for Proposals.
2.

SUBJECT MATTER OF THE LEASE

The LESSOR shall build, furnish and maintain at its own expense and risk the
Facilities for the On-Line Lottery System of PCSO in the Territory on an
exclusive basis. The LESSOR shall bear all Maintenance and Other Costs as
defined herein.
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3.

xxx

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For and in consideration of the performance by the LESSOR of its obligations

herein, PCSO shall pay LESSOR a fixed Rental Fee equal to four point nine
percent (4.9%) of gross receipts from ticket sales, payable net of taxes required
by law to be withheld, on a semi-monthly basis. Goodwill, franchise and similar
fees shall belong to PCSO.
4.

LEASE PERIOD

The period of the lease shall commence ninety (90) days from the date of
effectivity of this Contract and shall run for a period of eight (8) years
thereafter, unless sooner terminated in accordance with this Contract.
5.
RIGHTS AND OBLIGATIONS OF PCSO AS OPERATOR OF THE ON-LINE
LOTTERY SYSTEM
PCSO shall be the sole and individual operator of the On-Line Lottery System.
Consequently:
5.1
PCSO shall have sole responsibility to decide whether to implement,
fully or partially, the Master Games Plan of the LESSOR. PCSO shall have the
sole responsibility to determine the time for introducing new games to the
market. The Master Games Plan included in Annex "A" hereof is hereby
approved by PCSO.
5.2
PCSO shall have control over revenues and receipts of whatever
nature from the On-Line Lottery System. After paying the Rental Fee to the
LESSOR, PCSO shall have exclusive responsibility to determine the Revenue
Allocation Plan; Provided, that the same shall be consistent with the
requirement of R.A. No. 1169, as amended, which fixes a prize fund of fifty five
percent (55%) on the average.
5.3
PCSO shall have exclusive control over the printing of tickets,
including but not limited to the design, text, and contents thereof.
5.4
PCSO shall have sole responsibility over the appointment of dealers or
retailers throughout the country. PCSO shall appoint the dealers and retailers in
a timely manner with due regard to the implementation timetable of the OnLine Lottery System. Nothing herein shall preclude the LESSOR from
recommending dealers or retailers for appointment by PCSO, which shall act on
said recommendation within forty-eight (48) hours.
5.5
PCSO shall designate the necessary personnel to monitor and audit
the daily performance of the On-Line Lottery System. For this purpose, PCSO
designees shall be given, free of charge, suitable and adequate space,
furniture and fixtures, in all offices of the LESSOR, including but not limited to
its headquarters, alternate site, regional and area offices.

RENTAL FEE
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5.6
PCSO shall have the responsibility to resolve, and exclusive
jurisdiction over, all matters involving the operation of the On-Line Lottery
System not otherwise provided in this Contract.

6.4
Duly pay and discharge all taxes, assessments and government
charges now and hereafter imposed of whatever nature that may be legally
levied upon it.

5.7
PCSO shall promulgate procedural and coordinating rules governing all
activities relating to the On-Line Lottery System.

6.5
Keep all the Facilities in fail safe condition and, if necessary, upgrade,
replace and improve the Facilities from time to time as new technology
develops, in order to make the On-Line Lottery System more cost-effective
and/or competitive, and as may be required by PCSO shall not impose such
requirements unreasonably nor arbitrarily.

5.8
PCSO will be responsible for the payment of prize monies,
commissions to agents and dealers, and taxes and levies (if any) chargeable to
the operator of the On-Line Lottery System. The LESSOR will bear all other
Maintenance and Other Costs, except as provided in Section 1.4.
5.9

PCSO shall assist the LESSOR in the following:

5.9.1

Work permits for the LESSOR's staff;

5.9.2

Approvals for importation of the Facilities;

5.9.3

Approvals and consents for the On-Line Lottery System; and

5.9.4
Business and premises licenses for all offices of the LESSOR and
licenses for the telecommunications network.
5.10
In the event that PCSO shall pre-terminate this Contract or suspend
the operation of the On-Line Lottery System, in breach of this Contract and
through no fault of the LESSOR, PCSO shall promptly, and in any event not later
than sixty (60) days, reimburse the LESSOR the amount of its total investment
cost associated with the On-Line Lottery System, including but not limited to
the cost of the Facilities, and further compensate the LESSOR for loss of
expected net profit after tax, computed over the unexpired term of the lease.
6.

DUTIES AND RESPONSIBILITIES OF THE LESSOR

The LESSOR is one of not more than three (3) lessors of similar facilities for the
nationwide On-Line Lottery System of PCSO. It is understood that the rights of
the LESSOR are primarily those of a lessor of the Facilities, and consequently,
all rights involving the business aspects of the use of the Facilities are within
the jurisdiction of PCSO. During the term of the lease, the LESSOR shall.
6.1
Maintain and preserve its corporate existence, rights and privileges,
and conduct its business in an orderly, efficient, and customary manner.

6.6
Provide PCSO with management terminals which will allow real-time
monitoring of the On-Line Lottery System.
6.7
Upon effectivity of this Contract, commence the training of PCSO and
other local personnel and the transfer of technology and expertise, such that at
the end of the term of this Contract, PCSO will be able to effectively take-over
the Facilities and efficiently operate the On-Line Lottery System.
6.8
Undertake a positive advertising and promotions campaign for both
institutional and product lines without engaging in negative advertising against
other lessors.
6.9
Bear all expenses and risks relating to the Facilities including, but not
limited to, Maintenance and Other Costs and:
xxx

xxx

xxx

6.10
Bear all risks if the revenues from ticket sales, on an annualized basis,
are insufficient to pay the entire prize money.
6.11
Be, and is hereby, authorized to collect and retain for its own account,
a security deposit from dealers and retailers, in an amount determined with the
approval of PCSO, in respect of equipment supplied by the LESSOR. PCSO's
approval shall not be unreasonably withheld.
xxx

xxx

xxx

6.12

Comply with procedural and coordinating rules issued by PCSO.

7.

REPRESENTATIONS AND WARRANTIES

The LESSOR represents and warrants that:

6.2
Maintain insurance coverage with insurers acceptable to PCSO on all
Facilities.
6.3
Comply with all laws, statues, rules and regulations, orders and
directives, obligations and duties by which it is legally bound.

7.1
The LESSOR is corporation duly organized and existing under the laws
of the Republic of the Philippines, at least sixty percent (60%) of the
outstanding capital stock of which is owned by Filipino shareholders. The
minimum required Filipino equity participation shall not be impaired through
sjbprior| 7

voluntary or involuntary transfer, disposition, or sale of shares of stock by the

present stockholders.
7.2
The LESSOR and its Affiliates have the full corporate and legal power
and authority to own and operate their properties and to carry on their
business in the place where such properties are now or may be conducted. . . .
7.3
The LESSOR has or has access to all the financing and funding
requirements to promptly and effectively carry out the terms of this
Contract. . . .

Within two (2) years from the effectivity of this Contract, the LESSOR shall
cause itself to be listed in the local stock exchange and offer at least twenty
five percent (25%) of its equity to the public.
14.

The LESSOR shall not, directly or indirectly, undertake any activity or business
in competition with or adverse to the On-Line Lottery System of PCSO unless it
obtains the latter's prior written consent thereto.
15.

7.4
The LESSOR has or has access to all the managerial and technical
expertise to promptly and effectively carry out the terms of this Contract. . . .
xxx
10.

xxx

xxx

TELECOMMUNICATIONS NETWORK

The LESSOR shall establish a telecommunications network that will connect all
municipalities and cities in the Territory in accordance with, at the LESSOR's
option, either of the LESSOR's proposals (or a combinations of both such
proposals) attached hereto as Annex "B," and under the following PCSO
schedule:
xxx

xxx

13.

xxx

HOLD HARMLESS CLAUSE

15.1
The LESSOR shall at all times protect and defend, at its cost and
expense, PCSO from and against any and all liabilities and claims for damages
and/or suits for or by reason of any deaths of, or any injury or injuries to any
person or persons, or damages to property of any kind whatsoever, caused by
the LESSOR, its subcontractors, its authorized agents or employees, from any
cause or causes whatsoever.
15.2
The LESSOR hereby covenants and agrees to indemnify and hold
PCSO harmless from all liabilities, charges, expenses (including reasonable
counsel fees) and costs on account of or by reason of any such death or
deaths, injury or injuries, liabilities, claims, suits or losses caused by the
LESSOR's fault or negligence.

xxx

PCSO may, at its option, require the LESSOR to establish the

telecommunications network in accordance with the above Timetable in
provinces where the LESSOR has not yet installed terminals. Provided, that
such provinces have existing nodes. Once a municipality or city is serviced by
land lines of a licensed public telephone company, and such lines are
connected to Metro Manila, then the obligation of the LESSOR to connect such
municipality or city through a telecommunications network shall cease with
respect to such municipality or city. The voice facility will cover the four offices
of the Office of the President, National Disaster Control Coordinating Council,
Philippine National Police and the National Bureau of Investigation, and each
city and municipality in the Territory except Metro Manila, and those cities and
municipalities which have easy telephone access from these four offices. Voice
calls from the four offices shall be transmitted via radio or VSAT to the remote
municipalities which will be connected to this voice facility through wired
network or by radio. The facility shall be designed to handle four private
conversations at any one time.
xxx

NON-COMPETITION

xxx

15.3
The LESSOR shall at all times protect and defend, at its own cost and
expense, its title to the facilities and PCSO's interest therein from and against
any and all claims for the duration of the Contract until transfer to PCSO of
ownership of the serviceable Facilities.
16.

SECURITY

16.1
To ensure faithful compliance by the LESSOR with the terms of the
Contract, the LESSOR shall secure a Performance Bond from a reputable
insurance company or companies acceptable to PCSO.
16.2
The Performance Bond shall be in the initial amount of Three Hundred
Million Pesos (P300,000,000.00), to its U.S. dollar equivalent, and shall be
renewed to cover the duration of the Contract. However, the Performance Bond
shall be reduced proportionately to the percentage of unencumbered terminals
installed; Provided, that the Performance Bond shall in no case be less than
One Hundred Fifty Million Pesos (P150,000,000.00).
16.3
The LESSOR may at its option maintain its Escrow Deposit as the
Performance Bond. . . .

STOCK DISPERSAL PLAN

17.

PENALTIES
sjbprior| 8

17.1
Except as may be provided in Section 17.2, should the LESSOR fail to
take remedial measures within seven (7) days, and rectify the breach within
thirty (30) days, from written notice by PCSO of any wilfull or grossly negligent
violation of the material terms and conditions of this Contract, all
unencumbered Facilities shall automatically become the property of PCSO
without consideration and without need for further notice or demand by PCSO.
The Performance Bond shall likewise be forfeited in favor of PCSO.
17.2
Should the LESSOR fail to comply with the terms of the Timetables
provided in Section 9 and 10, it shall be subject to an initial Penalty of Twenty
Thousand Pesos (P20,000.00), per city or municipality per every month of
delay; Provided, that the Penalty shall increase, every ninety (90) days, by the
amount of Twenty Thousand Pesos (P20,000.00) per city or municipality per
month, whilst shall failure to comply persists. The penalty shall be deducted by
PCSO from the rental fee.
xxx
20.

xxx

xxx

OWNERSHIP OF THE FACILITIES

After expiration of the term of the lease as provided in Section 4, the Facilities
directly required for the On-Line Lottery System mentioned in Section 1.3 shall
automatically belong in full ownership to PCSO without any further
consideration other than the Rental Fees already paid during the effectivity of
the lease.
21.

Any suspension, cancellation or termination of this Contract shall not relieve

the LESSOR of any liability that may have already accrued hereunder.
xxx

xxx

xxx

Considering the denial by the Office of the President of its protest and the
statement of Assistant Executive Secretary Renato Corona that "only a court
injunction can stop Malacaang," and the imminent implementation of the
Contract of Lease in February 1994, KILOSBAYAN, with its co-petitioners, filed
on 28 January 1994 this petition.
In support of the petition, the petitioners claim that:
. . . X X THE OFFICE OF THE PRESIDENT, ACTING THROUGH RESPONDENTS
EXECUTIVE SECRETARY AND/OR ASSISTANT EXECUTIVE SECRETARY FOR LEGAL
AFFAIRS, AND THE PCSO GRAVELY ABUSE[D] THEIR DISCRETION AND/OR
FUNCTIONS TANTAMOUNT TO LACK OF JURISDICTION AND/OR AUTHORITY IN
RESPECTIVELY: (A) APPROVING THE AWARD OF THE CONTRACT TO, AND (B)
ENTERING INTO THE SO-CALLED "CONTRACT OF LEASE" WITH, RESPONDENT
PGMC FOR THE INSTALLATION, ESTABLISHMENT AND OPERATION OF THE ONLINE LOTTERY AND TELECOMMUNICATION SYSTEMS REQUIRED AND/OR
AUTHORIZED UNDER THE SAID CONTRACT, CONSIDERING THAT:
a)
Under Section 1 of the Charter of the PCSO, the PCSO is prohibited
from holding and conducting lotteries "in collaboration, association or joint
venture with any person, association, company or entity";

TERMINATION OF THE LEASE

PCSO may terminate this Contract for any breach of the material provisions of
this Contract, including the following:
21.1
The LESSOR is insolvent or bankrupt or unable to pay its debts, stops
or suspends or threatens to stop or suspend payment of all or a material part
of its debts, or proposes or makes a general assignment or an arrangement or
compositions with or for the benefit of its creditors; or
21.2
An order is made or an effective resolution passed for the winding up
or dissolution of the LESSOR or when it ceases or threatens to cease to carry
on all or a material part of its operations or business; or
21.3
Any material statement, representation or warranty made or furnished
by the LESSOR proved to be materially false or misleading;
said termination to take effect upon receipt of written notice of termination by
the LESSOR and failure to take remedial action within seven (7) days and cure
or remedy the same within thirty (30) days from notice.

b)
Under Act No. 3846 and established jurisprudence, a Congressional
franchise is required before any person may be allowed to establish and
operate said telecommunications system;
c)
Under Section 11, Article XII of the Constitution, a less than 60%
Filipino-owned and/or controlled corporation, like the PGMC, is disqualified from
operating a public service, like the said telecommunications system; and
d)
Respondent PGMC is not authorized by its charter and under the
Foreign Investment Act (R.A. No. 7042) to install, establish and operate the online lotto and telecommunications systems. 18
Petitioners submit that the PCSO cannot validly enter into the assailed Contract
of Lease with the PGMC because it is an arrangement wherein the PCSO would
hold and conduct the on-line lottery system in "collaboration" or "association"
with the PGMC, in violation of Section 1(B) of R.A. No. 1169, as amended by
B.P. Blg. 42, which prohibits the PCSO from holding and conducting charity
sweepstakes races, lotteries, and other similar activities "in collaboration,
association or joint venture with any person, association, company or entity,
foreign or domestic." Even granting arguendo that a lease of facilities is not
within the contemplation of "collaboration" or "association," an analysis,
sjbprior| 9

however, of the Contract of Lease clearly shows that there is a "collaboration,

association, or joint venture between respondents PCSO and PGMC in the
holding of the On-Line Lottery System," and that there are terms and
conditions of the Contract "showing that respondent PGMC is the actual lotto
operator and not respondent PCSO." 19
The petitioners also point out that paragraph 10 of the Contract of Lease
requires or authorizes PGMC to establish a telecommunications network that
will connect all the municipalities and cities in the territory. However, PGMC
cannot do that because it has no franchise from Congress to construct, install,
establish, or operate the network pursuant to Section 1 of Act No. 3846, as
amended. Moreover, PGMC is a 75% foreign-owned or controlled corporation
and cannot, therefore, be granted a franchise for that purpose because of
Section 11, Article XII of the 1987 Constitution. Furthermore, since "the
subscribed foreign capital" of the PGMC "comes to about 75%, as shown by
paragraph EIGHT of its Articles of Incorporation," it cannot lawfully enter into
the contract in question because all forms of gambling and lottery is one of
them are included in the so-called foreign investments negative list under
the Foreign Investments Act (R.A. No. 7042) where only up to 40% foreign
capital is allowed. 20
Finally, the petitioners insist that the Articles of Incorporation of PGMC do not
authorize it to establish and operate an on-line lottery and telecommunications
systems. 21
Accordingly, the petitioners pray that we issue a temporary restraining order
and a writ of preliminary injunction commanding the respondents or any
person acting in their places or upon their instructions to cease and desist from
implementing the challenged Contract of Lease and, after hearing the merits of
the petition, that we render judgment declaring the Contract of Lease void and
without effect and making the injunction permanent. 22
We required the respondents to comment on the petition.
In its Comment filed on 1 March 1994, private respondent PGMC asserts that
"(1) [it] is merely an independent contractor for a piece of work, (i.e., the
building and maintenance of a lottery system to be used by PCSO in the
operation of its lottery franchise); and (2) as such independent contractor,
PGMC is not a co-operator of the lottery franchise with PCSO, nor is PCSO
sharing its franchise, 'in collaboration, association or joint venture' with PGMC
as such statutory limitation is viewed from the context, intent, and spirit of
Republic Act 1169, as amended by Batas Pambansa 42." It further claims that
as an independent contractor for a piece of work, it is neither engaged in
"gambling" nor in "public service" relative to the telecommunications network,
which the petitioners even consider as an "indispensable requirement" of an
on-line lottery system. Finally, it states that the execution and implementation
of the contract does not violate the Constitution and the laws; that the issue on
the "morality" of the lottery franchise granted to the PCSO is political and not

judicial or legal, which should be ventilated in another forum; and that the
"petitioners do not appear to have the legal standing or real interest in the
subject contract and in obtaining the reliefs sought." 23
In their Comment filed by the Office of the Solicitor General, public respondents
Executive Secretary Teofisto Guingona, Jr., Assistant Executive Secretary
Renato Corona, and the PCSO maintain that the contract of lease in question
does not violate Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, and
that the petitioner's interpretation of the phrase "in collaboration, association
or joint venture" in Section 1 is "much too narrow, strained and utterly devoid
of logic" for it "ignores the reality that PCSO, as a corporate entity, is vested
with the basic and essential prerogative to enter into all kinds of transactions
or contracts as may be necessary for the attainment of its purposes and
objectives." What the PCSO charter "seeks to prohibit is that arrangement akin
to a "joint venture" or partnership where there is "community of interest in the
business, sharing of profits and losses, and a mutual right of control," a
characteristic which does not obtain in a contract of lease." With respect to the
challenged Contract of Lease, the "role of PGMC is limited to that of a lessor of
the facilities" for the on-line lottery system; in "strict technical and legal
sense," said contract "can be categorized as a contract for a piece of work as
defined in Articles 1467, 1713 and 1644 of the Civil Code."
They further claim that the establishment of the telecommunications system
stipulated in the Contract of Lease does not require a congressional franchise
because PGMC will not operate a public utility; moreover, PGMC's
"establishment of a telecommunications system is not intended to establish a
telecommunications business," and it has been held that where the facilities
are operated "not for business purposes but for its own use," a legislative
franchise is not required before a certificate of public convenience can be
granted. 24 Even granting arguendo that PGMC is a public utility, pursuant to
Albano S.
Reyes, 25 "it can establish a telecommunications system even without a
legislative franchise because not every public utility is required to secure a
legislative franchise before it could establish, maintain, and operate the
service"; and, in any case, "PGMC's establishment of the telecommunications
system stipulated in its contract of lease with PCSO falls within the exceptions
under Section 1 of Act No. 3846 where a legislative franchise is not necessary
for the establishment of radio stations."
They also argue that the contract does not violate the Foreign Investment Act
of 1991; that the Articles of Incorporation of PGMC authorize it to enter into the
Contract of Lease; and that the issues of "wisdom, morality and propriety of
acts of the executive department are beyond the ambit of judicial review."
Finally, the public respondents allege that the petitioners have no standing to
maintain the instant suit, citing our resolution in Valmonte vs. Philippine
Charity Sweepstakes Office. 26
sjbprior| 10

Several parties filed motions to intervene as petitioners in this case, 27 but

only the motion of Senators Alberto Romulo, Arturo Tolentino, Francisco Tatad,
Gloria Macapagal-Arroyo, Vicente Sotto III, John Osmea, Ramon Revilla, and
Jose Lina 28 was granted, and the respondents were required to comment on
their petition in intervention, which the public respondents and PGMC did.
In the meantime, the petitioners filed with the Securities and Exchange
Commission on 29 March 1994 a petition against PGMC for the nullification of
the latter's General Information Sheets. That case, however, has no bearing in
this petition.
On 11 April 1994, we heard the parties in oral arguments. Thereafter, we
resolved to consider the matter submitted for resolution and pending resolution
of the major issues in this case, to issue a temporary restraining order
commanding the respondents or any person acting in their place or upon their
instructions to cease and desist from implementing the challenged Contract of
Lease.
In the deliberation on this case on 26 April 1994, we resolved to consider only
these issues: (a) the locus standi of the petitioners, and (b) the legality and
validity of the Contract of Lease in the light of Section 1 of R.A. No. 1169, as
amended by B.P. Blg. 42, which prohibits the PCSO from holding and
conducting lotteries "in collaboration, association or joint venture with any
person, association, company or entity, whether domestic or foreign." On the
first issue, seven Justices voted to sustain the locus standi of the petitioners,
while six voted not to. On the second issue, the seven Justices were of the
opinion that the Contract of Lease violates the exception to Section 1(B) of R.A.
No. 1169, as amended by B.P. Blg. 42, and is, therefore, invalid and contrary to
law. The six Justices stated that they wished to express no opinion thereon in
view of their stand on the first issue. The Chief Justice took no part because
one of the Directors of the PCSO is his brother-in-law.
This case was then assigned to this ponente for the writing of the opinion of
the Court.
The preliminary issue on the locus standi of the petitioners should, indeed, be
resolved in their favor. A party's standing before this Court is a procedural
technicality which it may, in the exercise of its discretion, set aside in view of
the importance of the issues raised. In the landmark Emergency Powers Cases,
29 this Court brushed aside this technicality because "the transcendental
importance to the public of these cases demands that they be settled promptly
and definitely, brushing aside, if we must, technicalities of procedure. (Avelino
vs. Cuenco, G.R. No. L-2821)." Insofar as taxpayers' suits are concerned, this
Court had declared that it "is not devoid of discretion as to whether or not it
should be entertained," 30 or that it "enjoys an open discretion to entertain the
same or not." 31 In De La Llana vs. Alba, 32 this Court declared:

1.
The argument as to the lack of standing of petitioners is easily
resolved. As far as Judge de la Llana is concerned, he certainly falls within the
principle set forth in Justice Laurel's opinion in People vs. Vera [65 Phil. 56
(1937)]. Thus: "The unchallenged rule is that the person who impugns the
validity of a statute must have a personal and substantial interest in the case
such that he has sustained, or will sustain, direct injury as a result of its
enforcement [Ibid, 89]. The other petitioners as members of the bar and
officers of the court cannot be considered as devoid of "any personal and
substantial interest" on the matter. There is relevance to this excerpt from a
separate opinion in Aquino, Jr. v. Commission on Elections [L-40004, January
31, 1975, 62 SCRA 275]: "Then there is the attack on the standing of
petitioners, as vindicating at most what they consider a public right and not
protecting their rights as individuals. This is to conjure the specter of the public
right dogma as an inhibition to parties intent on keeping public officials staying
on the path of constitutionalism. As was so well put by Jaffe; "The protection of
private rights is an essential constituent of public interest and, conversely,
without a well-ordered state there could be no enforcement of private rights.
Private and public interests are, both in a substantive and procedural sense,
aspects of the totality of the legal order." Moreover, petitioners have
convincingly shown that in their capacity as taxpayers, their standing to sue
has been amply demonstrated. There would be a retreat from the liberal
approach followed in Pascual v. Secretary of Public Works, foreshadowed by the
very decision of People v. Vera where the doctrine was first fully discussed, if
we act differently now. I do not think we are prepared to take that step.
Respondents, however, would hard back to the American Supreme Court
doctrine in Mellon v. Frothingham, with their claim that what petitioners
possess "is an interest which is shared in common by other people and is
comparatively so minute and indeterminate as to afford any basis and
assurance that the judicial process can act on it." That is to speak in the
language of a bygone era, even in the United States. For as Chief Justice
Warren clearly pointed out in the later case of Flast v. Cohen, the barrier thus
set up if not breached has definitely been lowered.
In Kapatiran ng mga Naglilingkod sa Pamahalaan ng Pilipinas, Inc. vs. Tan, 33
reiterated in Basco vs. Philippine Amusements and Gaming Corporation, 34 this
Court stated:
Objections to taxpayers' suits for lack of sufficient personality standing or
interest are, however, in the main procedural matters. Considering the
importance to the public of the cases at bar, and in keeping with the Court's
duty, under the 1987 Constitution, to determine whether or not the other
branches of government have kept themselves within the limits of the
Constitution and the laws and that they have not abused the discretion given
to them, this Court has brushed aside technicalities of procedure and has taken
cognizance of these petitions.
and in Association of Small Landowners in the Philippines, Inc. vs. Secretary of
Agrarian Reform, 35 it declared:
sjbprior| 11

With particular regard to the requirement of proper party as applied in the

cases before us, we hold that the same is satisfied by the petitioners and
intervenors because each of them has sustained or is in danger of sustaining
an immediate injury as a result of the acts or measures complained of. [Ex
Parte Levitt, 303 US 633]. And even if, strictly speaking, they are not covered
by the definition, it is still within the wide discretion of the Court to waive the
requirement and so remove the impediment to its addressing and resolving the
serious constitutional questions raised.
In the first Emergency Powers Cases, ordinary citizens and taxpayers were
allowed to question the constitutionality of several executive orders issued by
President Quirino although they were invoking only an indirect and general
interest shared in common with the public. The Court dismissed the objective
that they were not proper parties and ruled that the transcendental importance
to the public of these cases demands that they be settled promptly and
definitely, brushing aside, if we must, technicalities of procedure. We have
since then applied this exception in many other cases. (Emphasis supplied)
In Daza vs. Singson, 36 this Court once more said:
. . . For another, we have early as in the Emergency Powers Cases that where
serious constitutional questions are involved, "the transcendental importance
to the public of these cases demands that they be settled promptly and
definitely, brushing aside, if we must, technicalities of procedure." The same
policy has since then been consistently followed by the Court, as in Gonzales
vs. Commission on Elections [21 SCRA 774] . . .
The Federal Supreme Court of the United States of America has also expressed
its discretionary power to liberalize the rule on locus standi. In United States
vs. Federal Power Commission and Virginia Rea Association vs. Federal Power
Commission, 37 it held:
We hold that petitioners have standing. Differences of view, however, preclude
a single opinion of the Court as to both petitioners. It would not further
clarification of this complicated specialty of federal jurisdiction, the solution of
whose problems is in any event more or less determined by the specific
circumstances of individual situations, to set out the divergent grounds in
support of standing in these cases.
In line with the liberal policy of this Court on locus standi, ordinary taxpayers,
members of Congress, and even association of planters, and non-profit civic
organizations were allowed to initiate and prosecute actions before this Court
to question the constitutionality or validity of laws, acts, decisions, rulings, or
orders of various government agencies or instrumentalities. Among such cases
were those assailing the constitutionality of (a) R.A. No. 3836 insofar as it
allows retirement gratuity and commutation of vacation and sick leave to
Senators and Representatives and to elective officials of both Houses of

Congress; 38 (b) Executive Order No. 284, issued by President Corazon C.

Aquino on 25 July 1987, which allowed members of the cabinet, their
undersecretaries, and assistant secretaries to hold other government offices or
positions; 39 (c) the automatic appropriation for debt service in the General
Appropriations Act; 40 (d) R.A. No. 7056 on the holding of desynchronized
elections; 41 (d) R.A. No. 1869 (the charter of the Philippine Amusement and
Gaming Corporation) on the ground that it is contrary to morals, public policy,
and order; 42 and (f) R.A. No. 6975, establishing the Philippine National
Police. 43
Other cases where we have followed a liberal policy regarding locus standi
include those attacking the validity or legality of (a) an order allowing the
importation of rice in the light of the prohibition imposed by R.A. No. 3452; 44
(b) P.D. Nos. 991 and 1033 insofar as they proposed amendments to the
Constitution and P.D. No. 1031 insofar as it directed the COMELEC to supervise,
control, hold, and conduct the referendum-plebiscite on 16 October 1976; 45
(c) the bidding for the sale of the 3,179 square meters of land at Roppongi,
Minato-ku, Tokyo, Japan; 46 (d) the approval without hearing by the Board of
Investments of the amended application of the Bataan Petrochemical
Corporation to transfer the site of its plant from Bataan to Batangas and the
validity of such transfer and the shift of feedstock from naphtha only to
naphtha and/or liquefied petroleum gas; 47 (e) the decisions, orders, rulings,
and resolutions of the Executive Secretary, Secretary of Finance, Commissioner
of Internal Revenue, Commissioner of Customs, and the Fiscal Incentives
Review Board exempting the National Power Corporation from indirect tax and
duties; 48 (f) the orders of the Energy Regulatory Board of 5 and 6 December
1990 on the ground that the hearings conducted on the second provisional
increase in oil prices did not allow the petitioner substantial cross-examination;
49 (g) Executive Order No. 478 which levied a special duty of P0.95 per liter or
P151.05 per barrel of imported crude oil and P1.00 per liter of imported oil
products; 50 (h) resolutions of the Commission on Elections concerning the
apportionment, by district, of the number of elective members of Sanggunians;
51 and (i) memorandum orders issued by a Mayor affecting the Chief of Police
of Pasay City. 52
In the 1975 case of Aquino vs. Commission on Elections, 53 this Court, despite
its unequivocal ruling that the petitioners therein had no personality to file the
petition, resolved nevertheless to pass upon the issues raised because of the
far-reaching implications of the petition. We did no less in De Guia vs.
COMELEC 54 where, although we declared that De Guia "does not appear to
have locus standi, a standing in law, a personal or substantial interest," we
brushed aside the procedural infirmity "considering the importance of the issue
involved, concerning as it does the political exercise of qualified voters affected
by the apportionment, and petitioner alleging abuse of discretion and violation
of the Constitution by respondent."
We find the instant petition to be of transcendental importance to the public.
The issues it raised are of paramount public interest and of a category even
sjbprior| 12

higher than those involved in many of the aforecited cases. The ramifications
of such issues immeasurably affect the social, economic, and moral well-being
of the people even in the remotest barangays of the country and the counterproductive and retrogressive effects of the envisioned on-line lottery system
are as staggering as the billions in pesos it is expected to raise. The legal
standing then of the petitioners deserves recognition and, in the exercise of its
sound discretion, this Court hereby brushes aside the procedural barrier which
the respondents tried to take advantage of.
And now on the substantive issue.
Section 1 of R.A. No. 1169, as amending by B.P. Blg. 42, prohibits the PCSO
from holding and conducting lotteries "in collaboration, association or joint
venture with any person, association, company or entity, whether domestic or
foreign." Section 1 provides:
Sec. 1. The Philippine Charity Sweepstakes Office. The Philippine Charity
Sweepstakes Office, hereinafter designated the Office, shall be the principal
government agency for raising and providing for funds for health programs,
medical assistance and services and charities of national character, and as
such shall have the general powers conferred in section thirteen of Act
Numbered One thousand four hundred fifty-nine, as amended, and shall have
the authority:
A.
To hold and conduct charity sweepstakes races, lotteries and other
similar activities, in such frequency and manner, as shall be determined, and
subject to such rules and regulations as shall be promulgated by the Board of
Directors.
B.
Subject to the approval of the Minister of Human Settlements, to
engage in health and welfare-related investments, programs, projects and
activities which may be profit-oriented, by itself or in collaboration, association
or joint venture with any person, association, company or entity, whether
domestic or foreign, except for the activities mentioned in the preceding
paragraph (A), for the purpose of providing for permanent and continuing
sources of funds for health programs, including the expansion of existing ones,
medical assistance and services, and/or charitable grants: Provided, That such
investment will not compete with the private sector in areas where
investments are adequate as may be determined by the National Economic
and Development Authority. (emphasis supplied)
The language of the section is indisputably clear that with respect to its
franchise or privilege "to hold and conduct charity sweepstakes races, lotteries
and other similar activities," the PCSO cannot exercise it "in collaboration,
association or joint venture" with any other party. This is the unequivocal
meaning and import of the phrase "except for the activities mentioned in the
preceding paragraph (A)," namely, "charity sweepstakes races, lotteries and
other similar activities."

B.P. Blg. 42 originated from Parliamentary Bill No. 622, which was covered by
Committee Report No. 103 as reported out by the Committee on SocioEconomic Planning and Development of the Interim Batasang Pambansa. The
original text of paragraph B, Section 1 of Parliamentary Bill No. 622 reads as
follows:
To engage in any and all investments and related profit-oriented projects or
programs and activities by itself or in collaboration, association or joint venture
with any person, association, company or entity, whether domestic or foreign,
for the main purpose of raising funds for health and medical assistance and
services and charitable grants. 55
During the period of committee amendments, the Committee on SocioEconomic Planning and Development, through Assemblyman Ronaldo B.
Zamora, introduced an amendment by substitution to the said paragraph B
such that, as amended, it should read as follows:
Subject to the approval of the Minister of Human Settlements, to engage in
health-oriented investments, programs, projects and activities which may be
profit- oriented, by itself or in collaboration, association, or joint venture with
any person, association, company or entity, whether domestic or foreign, for
the purpose of providing for permanent and continuing sources of funds for
health programs, including the expansion of existing ones, medical assistance
and services and/or charitable grants. 56
Before the motion of Assemblyman Zamora for the approval of the amendment
could be acted upon, Assemblyman Davide introduced an amendment to the
amendment:
MR. DAVIDE.
Mr. Speaker.
THE SPEAKER.
The gentleman from Cebu is recognized.
MR. DAVIDE.
May I introduce an amendment to the committee amendment? The
amendment would be to insert after "foreign" in the amendment just read the
following: EXCEPT FOR THE ACTIVITY IN LETTER (A) ABOVE.
When it is joint venture or in collaboration with any entity such collaboration or
joint venture must not include activity activity letter (a) which is the holding
and conducting of sweepstakes races, lotteries and other similar acts.
sjbprior| 13

MR. ZAMORA.
We accept the amendment, Mr. Speaker.
MR. DAVIDE.
Thank you, Mr. Speaker.
THE SPEAKER.
Is there any objection to the amendment? (Silence) The amendment, as
amended, is approved. 57
Further amendments to paragraph B were introduced and approved. When
Assemblyman Zamora read the final text of paragraph B as further amended,
the earlier approved amendment of Assemblyman Davide became "EXCEPT
FOR THE ACTIVITIES MENTIONED IN PARAGRAPH (A)"; and by virtue of the
amendment introduced by Assemblyman Emmanuel Pelaez, the word
PRECEDING was inserted before PARAGRAPH. Assemblyman Pelaez introduced
other amendments. Thereafter, the new paragraph B was approved. 58
This is now paragraph B, Section 1 of R.A. No. 1169, as amended by B.P. Blg.
42.
No interpretation of the said provision to relax or circumvent the prohibition
can be allowed since the privilege to hold or conduct charity sweepstakes
races, lotteries, or other similar activities is a franchise granted by the
legislature to the PCSO. It is a settled rule that "in all grants by the government
to individuals or corporations of rights, privileges and franchises, the words are
to be taken most strongly against the grantee .... [o]ne who claims a franchise
or privilege in derogation of the common rights of the public must prove his
title thereto by a grant which is clearly and definitely expressed, and he cannot
enlarge it by equivocal or doubtful provisions or by probable inferences.
Whatever is not unequivocally granted is withheld. Nothing passes by mere
implication." 59
In short then, by the exception explicitly made in paragraph B, Section 1 of its
charter, the PCSO cannot share its franchise with another by way of
collaboration, association or joint venture. Neither can it assign, transfer, or
lease such franchise. It has been said that "the rights and privileges conferred
under a franchise may, without doubt, be assigned or transferred when the
grant is to the grantee and assigns, or is authorized by statute. On the other
hand, the right of transfer or assignment may be restricted by statute or the
constitution, or be made subject to the approval of the grantor or a
governmental agency, such as a public utilities commission, exception that an
existing right of assignment cannot be impaired by subsequent legislation." 60

It may also be pointed out that the franchise granted to the PCSO to hold and
conduct lotteries allows it to hold and conduct a species of gambling. It is
settled that "a statute which authorizes the carrying on of a gambling activity
or business should be strictly construed and every reasonable doubt so
resolved as to limit the powers and rights claimed under its authority." 61
Does the challenged Contract of Lease violate or contravene the exception in
Section 1 of R.A. No. 1169, as amended by B.P. Blg. 42, which prohibits the
PCSO from holding and conducting lotteries "in collaboration, association or
joint venture with" another?
We agree with the petitioners that it does, notwithstanding its denomination or
designation as a (Contract of Lease). We are neither convinced nor moved or
fazed by the insistence and forceful arguments of the PGMC that it does not
because in reality it is only an independent contractor for a piece of work, i.e.,
the building and maintenance of a lottery system to be used by the PCSO in
the operation of its lottery franchise. Whether the contract in question is one of
lease or whether the PGMC is merely an independent contractor should not be
decided on the basis of the title or designation of the contract but by the intent
of the parties, which may be gathered from the provisions of the contract itself.
Animus hominis est anima scripti. The intention of the party is the soul of the
instrument. In order to give life or effect to an instrument, it is essential to look
to the intention of the individual who executed it. 62 And, pursuant to Article
1371 of the Civil Code, "to determine the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally considered."
To put it more bluntly, no one should be deceived by the title or designation of
a contract.
A careful analysis and evaluation of the provisions of the contract and a
consideration of the contemporaneous acts of the PCSO and PGMC indubitably
disclose that the contract is not in reality a contract of lease under which the
PGMC is merely an independent contractor for a piece of work, but one where
the statutorily proscribed collaboration or association, in the least, or joint
venture, at the most, exists between the contracting parties. Collaboration is
defined as the acts of working together in a joint project. 63 Association means
the act of a number of persons in uniting together for some special purpose or
business. 64 Joint venture is defined as an association of persons or companies
jointly undertaking some commercial enterprise; generally all contribute assets
and share risks. It requires a community of interest in the performance of the
subject matter, a right to direct and govern the policy in connection therewith,
and duty, which may be altered by agreement to share both in profit and
losses. 65
The contemporaneous acts of the PCSO and the PGMC reveal that the PCSO
had neither funds of its own nor the expertise to operate and manage an online lottery system, and that although it wished to have the system, it would
have it "at no expense or risks to the government." Because of these serious
constraints and unwillingness to bear expenses and assume risks, the PCSO
sjbprior| 14

was candid enough to state in its RFP that it is seeking for "a suitable
contractor which shall build, at its own expense, all the facilities needed to
operate and maintain" the system; exclusively bear "all capital, operating
expenses and expansion expenses and risks"; and submit "a comprehensive
nationwide lottery development plan . . . which will include the game, the
marketing of the games, and the logistics to introduce the game to all the
cities and municipalities of the country within five (5) years"; and that the
operation of the on-line lottery system should be "at no expense or risk to the
government" meaning itself, since it is a government-owned and controlled
agency. The facilities referred to means "all capital equipment, computers,
terminals, software, nationwide telecommunications network, ticket sales
offices, furnishings and fixtures, printing costs, costs of salaries and wages,
advertising and promotions expenses, maintenance costs, expansion and
replacement costs, security and insurance, and all other related expenses
needed to operate a nationwide on-line lottery system."
In short, the only contribution the PCSO would have is its franchise or authority
to operate the on-line lottery system; with the rest, including the risks of the
business, being borne by the proponent or bidder. It could be for this reason
that it warned that "the proponent must be able to stand to the acid test of
proving that it is an entity able to take on the role of responsible maintainer of
the on-line lottery system." The PCSO, however, makes it clear in its RFP that
the proponent can propose a period of the contract which shall not exceed
fifteen years, during which time it is assured of a "rental" which shall not
exceed 12% of gross receipts. As admitted by the PGMC, upon learning of the
PCSO's decision, the Berjaya Group Berhad, with its affiliates, wanted to offer
its services and resources to the PCSO. Forthwith, it organized the PGMC as "a
medium through which the technical and management services required for
the project would be offered and delivered to PCSO." 66
Undoubtedly, then, the Berjaya Group Berhad knew all along that in connection
with an on-line lottery system, the PCSO had nothing but its franchise, which it
solemnly guaranteed it had in the General Information of the RFP. 67
Howsoever viewed then, from the very inception, the PCSO and the PGMC
mutually understood that any arrangement between them would necessarily
leave to the PGMC the technical, operations, and management aspects of the
on-line lottery system while the PCSO would, primarily, provide the franchise.
The words Gaming and Management in the corporate name of respondent
Philippine Gaming Management Corporation could not have been conceived
just for euphemistic purposes. Of course, the RFP cannot substitute for the
Contract of Lease which was subsequently executed by the PCSO and the
PGMC. Nevertheless, the Contract of Lease incorporates their intention and
understanding.

draftsmen to accomplish that purpose easily manifests itself in the Contract of

Lease. It is outstanding for its careful and meticulous drafting designed to give
an immediate impression that it is a contract of lease. Yet, woven therein are
provisions which negate its title and betray the true intention of the parties to
be in or to have a joint venture for a period of eight years in the operation and
maintenance of the on-line lottery system.
Consistent with the above observations on the RFP, the PCSO has only its
franchise to offer, while the PGMC represents and warrants that it has access to
all managerial and technical expertise to promptly and effectively carry out the
terms of the contract. And, for a period of eight years, the PGMC is under
obligation to keep all the Facilities in safe condition and if necessary, upgrade,
replace, and improve them from time to time as new technology develops to
make the on-line lottery system more cost-effective and competitive;
exclusively bear all costs and expenses relating to the printing, manpower,
salaries and wages, advertising and promotion, maintenance, expansion and
replacement, security and insurance, and all other related expenses needed to
operate the on-line lottery system; undertake a positive advertising and
promotions campaign for both institutional and product lines without engaging
in negative advertising against other lessors; bear the salaries and related
costs of skilled and qualified personnel for administrative and technical
operations; comply with procedural and coordinating rules issued by the PCSO;
and to train PCSO and other local personnel and to effect the transfer of
technology and other expertise, such that at the end of the term of the
contract, the PCSO will be able to effectively take over the Facilities and
efficiently operate the on-line lottery system. The latter simply means that,
indeed, the managers, technicians or employees who shall operate the on-line
lottery system are not managers, technicians or employees of the PCSO, but of
the PGMC and that it is only after the expiration of the contract that the PCSO
will operate the system. After eight years, the PCSO would automatically
become the owner of the Facilities without any other further consideration.
For these reasons, too, the PGMC has the initial prerogative to prepare the
detailed plan of all games and the marketing thereof, and determine the
number of players, value of winnings, and the logistics required to introduce
the games, including the Master Games Plan. Of course, the PCSO has the
reserved authority to disapprove them. 68 And, while the PCSO has the sole
responsibility over the appointment of dealers and retailers throughout the
country, the PGMC may, nevertheless, recommend for appointment dealers
and retailers which shall be acted upon by the PCSO within forty-eight hours
and collect and retain, for its own account, a security deposit from dealers and
retailers in respect of equipment supplied by it.
This joint venture is further established by the following:

The so-called Contract of Lease is not, therefore, what it purports to be. Its
denomination as such is a crafty device, carefully conceived, to provide a builtin defense in the event that the agreement is questioned as violative of the
exception in Section 1 (B) of the PCSO's charter. The acuity or skill of its

(a)
Rent is defined in the lease contract as the amount to be paid to the
PGMC as compensation for the fulfillment of its obligations under the contract,
including, but not limited to the lease of the Facilities. However, this rent is not
sjbprior| 15

actually a fixed amount. Although it is stated to be 4.9% of gross receipts from

ticket sales, payable net of taxes required by law to be withheld, it may be
drastically reduced or, in extreme cases, nothing may be due or demandable at
all because the PGMC binds itself to "bear all risks if the revenue from the
ticket sales, on an annualized basis, are insufficient to pay the entire prize
money." This risk-bearing provision is unusual in a lessor-lessee relationship,
but inherent in a joint venture.
(b)
In the event of pre-termination of the contract by the PCSO, or its
suspension of operation of the on-line lottery system in breach of the contract
and through no fault of the PGMC, the PCSO binds itself "to promptly, and in
any event not later than sixty (60) days, reimburse the Lessor the amount of its
total investment cost associated with the On-Line Lottery System, including but
not limited to the cost of the Facilities, and further compensate the LESSOR for
loss of expected net profit after tax, computed over the unexpired term of the
lease." If the contract were indeed one of lease, the payment of the expected
profits or rentals for the unexpired portion of the term of the contract would be
enough.
(c)
The PGMC cannot "directly or indirectly undertake any activity or
business in competition with or adverse to the On-Line Lottery System of PCSO
unless it obtains the latter's prior written consent." If the PGMC is engaged in
the business of leasing equipment and technology for an on-line lottery
system, we fail to see any acceptable reason why it should allow a restriction
on the pursuit of such business.
(d)
The PGMC shall provide the PCSO the audited Annual Report sent to
its stockholders, and within two years from the effectivity of the contract,
cause itself to be listed in the local stock exchange and offer at least 25% of its
equity to the public. If the PGMC is merely a lessor, this imposition is
unreasonable and whimsical, and could only be tied up to the fact that the
PGMC will actually operate and manage the system; hence, increasing public
participation in the corporation would enhance public interest.
(e)
The PGMC shall put up an Escrow Deposit of P300,000,000.00
pursuant to the requirements of the RFP, which it may, at its option, maintain
as its initial performance bond required to ensure its faithful compliance with
the terms of the contract.
(f)
The PCSO shall designate the necessary personnel to monitor and
audit the daily performance of the on-line lottery system; and promulgate
procedural and coordinating rules governing all activities relating to the on-line
lottery system. The first further confirms that it is the PGMC which will operate
the system and the PCSO may, for the protection of its interest, monitor and
audit the daily performance of the system. The second admits the coordinating
and cooperative powers and functions of the parties.

(g)
The PCSO may validly terminate the contract if the PGMC becomes
insolvent or bankrupt or is unable to pay its debts, or if it stops or suspends or
threatens to stop or suspend payment of all or a material part of its debts.
All of the foregoing unmistakably confirm the indispensable role of the PGMC in
the pursuit, operation, conduct, and management of the On-Line Lottery
System. They exhibit and demonstrate the parties' indivisible community of
interest in the conception, birth and growth of the on-line lottery, and, above
all, in its profits, with each having a right in the formulation and
implementation of policies related to the business and sharing, as well, in the
losses with the PGMC bearing the greatest burden because of its assumption
of expenses and risks, and the PCSO the least, because of its confessed
unwillingness to bear expenses and risks. In a manner of speaking, each is wed
to the other for better or for worse. In the final analysis, however, in the light of
the PCSO's RFP and the above highlighted provisions, as well as the "Hold
Harmless Clause" of the Contract of Lease, it is even safe to conclude that the
actual lessor in this case is the PCSO and the subject matter thereof is its
franchise to hold and conduct lotteries since it is, in reality, the PGMC which
operates and manages the on-line lottery system for a period of eight years.
We thus declare that the challenged Contract of Lease violates the exception
provided for in paragraph B, Section 1 of R.A. No. 1169, as amended by B.P.
Blg. 42, and is, therefore, invalid for being contrary to law. This conclusion
renders unnecessary further discussion on the other issues raised by the
petitioners.
WHEREFORE, the instant petition is hereby GRANTED and the challenged
Contract of Lease executed on 17 December 1993 by respondent Philippine
Charity Sweepstakes Office (PCSO) and respondent Philippine Gaming
Management Corporation (PGMC) is hereby DECLARED contrary to law and
invalid.
The Temporary Restraining Order issued on 11 April 1994 is hereby MADE
PERMANENT.
No pronouncement as to costs. SO ORDERED.
EN BANC
August 29, 1960 G.R. No. L-9965
LUCINA BIGLANGAWA and LUCIA ESPIRITU, petitioners-appellees,
vs.
PASTOR B. CONSTANTINO, respondent-appellant.
BARRERA, J.:

sjbprior| 16

The only issue, which is of law, involved in this appeal, is the legality of the
annotation of lis pendens predicated on the complaint of respondent-appellant
Pastor B. Constantino.
On June 25, 1953, respondent Pastor B. Constantino filed with the Court of First
Instance of Rizal an amended complaint (docketed as Civil Case No. 2138)
against petitioners Lucina Biglangawa and Lucia Espiritu, as follows:
AMENDED COMPLAINT

7. Later, in October, 1951, defendants wantonly, oppressively, and in evident

bad faith terminated the agency contracts Exhibits "A" and "B" depriving
plaintiff of his rights to commission fees of 20% on the sale of the remaining
lots and 10% fee on the cash receipts of the business every month.
8. Defendants nevertheless, expressly acknowledge their liability to plaintiff in
the sum of P48,899.20 for unpaid commissions as of October 16, 1951; and
they promised to pay indebtedness to plaintiff in successive monthly
installments beginning November, 1951, as follows: . . .

Plaintiff, by his undersigned counsel, alleges:

As First Cause of Action
1. Plaintiff and defendants are residents of Malabon, Rizal.
2. Defendants Lucina Biglangawa and Lucia Espiritu were or have been the
owners of a parcel of land in Marulas, Polo, Bulacan, more particularly
described in "Transfer Certificate of Title No. 5459 as follows: . . .
3. On January 14, 1950, defendant Lucina Biglangawa, with the consent of her
co-owner Lucia Espiritu, appointed plaintiff their exclusive agent to develop the
area described in paragraph 2 into subdivision lots and to sell them to
prospective homeowners; and as compensation for his services, defendants
promised to pay him a commission of 20% on the gross sales and a fee of 10%
on the collections made by him payable from "the first collections received
from the purchasers in respect to each lot sold . . .
4. The power thus conferred by Lucina Biglangawa to plaintiff was confirmed in
a notarial document executed on March 3, 1950 by her and her co-defendants,
who are husband and wife, with the added stipulation that they could not
revoke the contract of agency without plaintiff's consent. . .

9. Plaintiff consented to the settlement of the balance of his commission in

monthly installments after the termination of the agency in consideration of
defendant's promises that they would compute and faithfully pay the
percentage of monthly installments on the basis of their monthly gross
collections from the operation of "BBB MARULAS SUBDIVISION No. 3", as
stipulated in Exhibit "C", and shall follow that procedure until their total
indebtedness is fully settled.
10. From October 16, 1951 to March 31, 1953, defendants made a total
monthly gross collection of around P52,849.63 from the business, and out of
these receipts plaintiff was entitled to minimum payments of P8,711.13
pursuant to Exhibit "C"; but again defendant wantonly, fraudulently,
oppressively, and in evident bad faith paid plaintiff only the sum of P6,204.13
or P2,507.00 short of what plaintiff should have received during the period.
11. Upon gaining information of the breach of the contract by defendants about
the end of March, 1953 and verifying the existence of such breach, plaintiff
immediately demanded of defendants the difference between the amounts due
to him under the contract Exhibit "C" and those actually paid by them, but
defendants wantonly, fraudulently, and without cause refused to make
necessary settlement.

5. Advancing all the expenses incurred in the development and administration

of the project, plaintiff caused the subdivision of said property into 203 lots and
advertised them for sale under the name "BBB MARULAS SUBDIVISION No. 3';
and up to October, 1951 plaintiff had disposed of more than half of the entire
area at P10.00 and P12.00 per square meter.

xxxxxxxxx

6. Although under the express terms of the contract of January 14, 1950
(Exhibit "A") the commissions of plaintiff for making 37 3 those sales and his
collection fees of 10% were to be paid to him "from the first collections
received from the purchasers in respect to each lot sold", defendants, in
contravention of that agreement, oppressively and in bad faith adopted the
practice of paying the latter's compensation out of 30% only of the gross
monthly collections from the sales, such that, as of October 15, 1951 when a
liquidation was made, there was still a balance on plaintiff's commissions in the
amount of P48,899.20.

As to Second Cause of Action

13. The balance of plaintiff's commissions remaining unpaid as of the filing of

this complaint, excluding the underpayments from November, 1951 to March,
1953, is P39,534.62.

1. Plaintiff reproduces paragraphs 1 to 13 of the first cause 3n 3 of action.

2. For defendants' gross and evident bad faith in refusing plaintiff's valid, just,
and demandable claim against them, plaintiff was forced to prosecute the
present case against them, and became liable for attorney's fees in the sum of
P7,000.00.
sjbprior| 17

WHEREFORE, plaintiff prays for judgment

Acting on said petition, the court issued an order on July 19, 1955, which reads:
(a) Ordering defendants to pay plaintiff the sum of P2,507.00 which is
defendants' underpayments from November, 1951 to March, 1953, with
interest at the legal rate;
(b) Declaring defendants to have lost the right to pay plaintiff in monthly
installments and requiring them to pay plaintiff at once the balance of his
commissions and fees in the amount of P89,543.62, with interest at the legal
rate from the filing of this complaint;
(c) Ordering defendants to pay plaintiff moral damages in the sum of
P40,000.00, exemplary damages in the sum of P30,000.00, and attorney's fees
in the sum of P7,000.00.
(d) Granting costs and such other reliefs as this court may deem just and
equitable in the premises.
To this complaint, petitioners filed their answer on August 25, 1953.
While said Civil Case No. 2138 was pending in said court, respondent, on April
5, 1955, filed with the Office of the Register of deeds of Bulacan, the following
notice of lis pendens:
Please make of record the pendency of a complaint involving, among other
things, rights and interests and claims for services and damages on the
following described property, which has been converted into a subdivision as
shown by the plan Psd-29964, situated in Marulas, Polo, Bulacan, to wit:
(Technical description of the real property mentioned in the complaint) which
property is more particularly described in Transfer Certificate of Title No. 5459
of the Register of Deeds of Bulacan. A copy of the complaint and amended
complaint, marked Appendices A and A-1, are attached hereto and made
integral part hereof.
On April 6, 1955, the Register of Deeds of Bulacan requested petitioners to
surrender their owner's copy of Transfer Certificate of Title No. 5459 for
annotation of said notice of lis pendens, but petitioners refused to do so.
However, on May 17, 1955, when petitioners registered the absolute deed of
sale in favor of Carmelita L. Santos covering some of the lots of the
subdivision, said official without their knowledge and consent, made the
annotation of the lis pendens on petitioners' aforementioned title, as well as on
the title issued to Carmelita L. Santos.
Petitioners, therefore, on June 11, 1955, filed with the Court of First Instance of
Bulacan, a petition praying for the cancellation of said notice of lis pendens. To
this petition, respondent filed his answer on June 17, 1955, to which,
petitioners filed their reply on June 23, 1955. On June 24, 1955, respondent
filed a rejoinder to said reply.

"ORDER
Upon consideration of the petition filed by Lucina Biglangawa and Lucia Espiritu
dated June 11, 1955 and the answer thereto, and it appearing from the
amended complaint of Pastor B. Constantino, plaintiff in Civil Case No. 2138 of
the Court of First Instance of Rizal (respondent herein) that said action is purely
and clearly a claim for money judgment which does not affect the title or the
right of possession of real property covered by Transfer Certificate of Title No.
T-5459 and it being a settled rule in this jurisdiction that a notice of lis pendens
may be invoked as a remedy in cases where the very lis mota of the pending
litigation concerns directly the possession of, or title to a specific real property;
Wherefore, as prayed for, the Register of Deeds of Bulacan is hereby ordered to
cancel Entry No. 28176 for lis pendens on Transfer Certificate of Title No. T5459 of the petitioners as well as the annotation of the same on Transfer
Certificate of Title No. T-014480 of Carmelita L. Santos.
So ordered.
Respondent, on August 8, 1955, filed a motion for reconsideration of the above
order, but the same was denied by the court on September 30, 1955. Hence,
this appeal.
Respondent-appellant claims that the lower court erred in holding that his
pending action (Civil Case No. 2138) in the Court of First Instance of Rizal, is
purely a claim for money judgment which does not affect the title or right of
possession of petitioners' real property, covered by Transfer Certificate of Title
No. T-5459. Instead, he contends that the agreement whereby he was to be
paid a commission of 20% on the gross sales and a fee of 10% on the
collections made by him, converted him into a partner and gave him 1/5
participation in the property itself. Hence, he argues, his suit is one for the
settlement and adjustment of partnership interest or a partition action or
proceeding.
Appellant's theory is neither supported by the allegations of his complaint, nor
borne out by the purpose of his action. There is no word or expression in the
various paragraphs of his amended complaint that suggests any idea of
partnership. On the contrary, appellant expressly averred that petitioners
"appointed plaintiff (appellant) their exclusive agent to develop the area
described in paragraph 2 into subdivision lots and to sell them to prospective
homeowners; and as compensation for his services defendants (appellees)
promised to pay him a commission of 20% on the gross sales and a fee of 10%
on the collections made by him. . . ." (See paragraph 3 of amended complaint.)
Categorically, appellant referred to himself as an agent, not a partner; entitled
sjbprior| 18

to compensation, not participation, in the form of commission or fee, not a

share.
It is true that in paragraph 5 of the amended complaint (supra) appellant
claims to have made advances for the expenses incurred in the development
and administration of the property. But again he never considered these as
contributions to the business as to make him a partner; otherwise, he would
have so stated it in his complaint. In fact, after a liquidation of these advances
and the commissions due to appellant at the time of the termination of the
agency, the whole balance was considered as appellees' indebtedness which
appellant consented to be settled in monthly installments (see paragraphs 6, 8,
and 9 of the amended complaint).

court; not a word is said in regard to the appellate courts disposition of their
petition for annulment of judgment. Verily, petitioners keep on pressing the
idea that a partnership exists on account of the so-called admissions in judicio.
The appellate court acted properly in dismissing the petition for annulment of
judgment, the issue raised therein having been directly litigated in, and passed
upon by, the trial court.

DECISION
MELO, J.:

While it is true again that the prayer in a complaint does not determine the
nature of the action, it not being a material part of the cause of action, still it
logically indicates, as it does in this case, the purpose of the actor. The four
paragraphs of the prayer seeks the recovery of fixed amounts of
underpayments and commissions and fees; not liquidation or accounting or
partition as now insisted upon by appellant.

Assailed and sought to be set aside by the petition before us is the Resolution
of the Court of Appeals dated June 20, 1991 which dismissed the petition for
annulment of judgment filed by the Spouses Lourdes and Menardo Navarro,
thusly:chanrob1es virtual 1aw library

Appellants's amended complaint, not being "an action affecting the title or the
right of possession of real property",[[1]] nor one "to recover possession of real
estate, or to quiet title thereto, or to remove clouds upon the title thereof, or
for partition or other proceeding of any kind in court affecting the title to real
estate or the use or occupation thereof or the buildings thereon . . .",[[2]] the
same can not be the basis for annotating a notice of lis pendens on the title of
the petitioners-appellees.

1.
Judgments may be annulled only on the ground of extrinsic or
collateral fraud, as distinguished from intrinsic fraud (Canlas v. Court of
Appeals, 164 SCRA 160, 170). No such ground is alleged in the petition.

Having reached the above conclusion, this Court finds it unnecessary to decide
the incidental matters raised by the parties during the pendency of this appeal.

The instant petition for annulment of decision is DISMISSED.

2.
Even if the judgment rendered by the respondent Court were
erroneous, it is not necessarily void (Chereau v. Fuentebella, 43 Phil. 216).
Hence, it cannot be annulled by the proceeding sought to be commenced by
the petitioners.
3.
The petitioners remedy against the judgment enforcement of which is
sought to be stopped should have been appeal.

Wherefore, finding no error in the appealed order of the court a quo, the same
is hereby affirmed, with costs against the respondent-appellant. So ordered.

SO ORDERED. (pp. 24-25, Rollo.)

THIRD DIVISION

The antecedent facts of the case are as follows:chanrob1es virtual 1aw library

[G.R. No. 101847. May 27, 1993.]

On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint
against petitioner Lourdes Navarro for "Delivery of Personal Properties With
Damages." The complaint incorporated an application for a writ of replevin.
The complaint was later docketed as Civil Case No. 716 (12562) of the then
Court of First Instance of Bacolod (Branch 55) and was subsequently amended
to include private respondents husband, Ricardo B. Yanson, as co-plaintiff, and
petitioners husband, as co-defendant.

LOURDES NAVARRO AND MENARDO NAVARRO, Petitioners, v. COURT OF

APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional
Trial Court of Bacolod City, Branch 52, Sixth Judicial Region and Spouses OLIVIA
V. YANSON AND RICARDO B. YANSON, Respondents.
REMEDIAL LAW; SUPREME COURT; JURISDICTION; LIMITED PURELY QUESTIONS
OF LAW AND NOT TO FACTUAL ISSUES PASSED UPON BY THE TRIAL COURT.
Petitioners have come to us in a petition for review. However, the petition is
focused solely on factual issues which can no longer be entertained.
Petitioners arguments are all directed against the decision of the regional trial

On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be

promoted and to retire as Presiding Justice of the Court of Appeals) approved
private respondents application for a writ of replevin. The Sheriffs Return of
sjbprior| 19

Service dated March 3, 1978 affirmed receipt by private respondents of all the
pieces of personal property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a
decision, disposing as follows:chanrob1es virtual 1aw library
Accordingly, in the light of the aforegoing findings, all chattels already
recovered by plaintiff by virtue of the Writ of Replevin and as listed in the
complaint are hereby sustained to belong to plaintiff being the owner of these
properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and
which had remain in the possession of the defendant is likewise declared to
belong to her, however, said defendant is hereby ordered to reimburse plaintiff
the sum of P6,500.00 representing the amount advanced to pay part of the
price therefor; and said defendant is likewise hereby ordered to return to
plaintiff such other equipment[s] as were brought by the latter to and during
the operation of their business as were listed in the complaint and not
recovered as yet by virtue of the previous Writ of Replevin. (p. 12, Rollo.)
Petitioner received a copy of the decision on January 10, 1991 (almost 9
months after its rendition) and filed on January 16, 1991 a "Motion for
Extension of Time To File a Motion for Reconsideration." This was granted on
January 18, 1991. Private respondents filed their opposition, citing the ruling in
the case of Habaluyas Enterprises, Inc. v. Japson (142 SCRA 208 [1986]
proscribing the filing of any motion for extension of time to file a motion for
new trial or reconsideration. The trial judge vacated the order dated January
18, 1991 and declared the decision of April 30, 1990 as final and executory.
(Petitioners motion for reconsideration was subsequently filed on February 1,
1991 or 22 days after the receipt of the decision).
On February 4, 1991, the trial judge issued a writ of execution (Annex "5", p.
79, Rollo). The Sheriffs Return of Service (Annex "6", p. 82, Rollo) declared that
the writ was "duly served and satisfied." A receipt for the amount of P6,500.00
issued by Mrs. Lourdes Yanson, co-petitioner in this case, was likewise
submitted by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent court a petition for
annulment of the trial courts decision, claiming that the trial judge erred in
declaring the non-existence of a partnership, contrary to the evidence on
record.
The appellate court, as aforesaid, outrightly dismissed the petition due to
absence of extrinsic or collateral fraud, observing further that an appeal was
the proper remedy.
In the petition before us, petitioners claim that the trial
that would show that the parties "clearly intended
actually formed a verbal partnership engaged in the
Service Agency in Bacolod" ; and that the decision

judge ignored evidence

to form, and (in fact)
business of Air Freight
sustaining the writ of

replevin is void since "the properties belonging to the partnership do not

actually belong to any of the parties until the final disposition and winding up
of the partnership" (p. 15, Rollo). These issues, however, were extensively
discussed by the trial judge in her 16-page, single-spaced decision.
We agree with respondents that the decision in this case has become final. In
fact a writ of execution had been issued and was promptly satisfied by the
payment of P6,500.00 to private respondents.chanrobles virtual lawlibrary
Having lost their right of appeal, petitioners resorted to annulment proceedings
to justify a belated judicial review of their case. This was, however, correctly
thrown out by the Court of Appeals because petitioners failed to cite extrinsic
or collateral fraud to warrant the setting aside of the trial courts decision. We
respect the appellate courts finding in this regard.
Petitioners have come to us in a petition for review. However, the petition is
focused solely on factual issues which can no longer be entertained.
Petitioners arguments are all directed against the decision of the regional trial
court; not a word is said in regard to the appellate courts disposition of their
petition for annulment of judgment. Verily, petitioners keep on pressing the
idea that a partnership exists on account of the so-called admissions in judicio.
But the factual premises of the trial court were more than enough to suppress
and negate petitioners submissions along this line:chanrob1es virtual 1aw
library
To be resolved by this Court factually involved the issue of whether there was a
partnership that existed between the parties based on their verbal contention;
whether the properties that were commonly used in the operation of Allied Air
Freight belonged to this alleged partnership business; and the status of the
parties in this transaction of alleged partnership. On the other hand, the legal
issue revolves on the dissolution and winding up in case a partnership so
existed as well as the issue of ownership over the properties subject matter of
recovery.
As a premise, Article 1767 of the New Civil Code defines the contract of
partnership to quote:jgc:chanrobles.com.ph
"ART. 1767.
By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund, with
the intention of dividing the proceeds among themselves.
x

x"

Corollary to this definition is the provision in determining whether a partnership

exist as so provided under Article 1769, to wit:chanrob1es virtual 1aw library
x

x
sjbprior| 20

Furthermore, the Code provides under Article 1771 and 1772 that while a
partnership may be constituted in any form, a public instrument is necessary
where immovables or any rights is constituted. Likewise, if the partnership
involves a capitalization of P3,000.00 or more in money or property, the same
must appear in a public instrument which must be recorded in the Office of the
Securities and Exchange Commission. Failure to comply with these
requirements shall not affect liability of the partners to third
persons.chanrobles lawlibrary : rednad
In consideration of the above, it is undeniable that both the plaintiff and the
defendant-wife made admission to have entered into an agreement of
operating this Allied Air Freight Agency of which the plaintiff personally
constituted with the Manila Office in a sense that the plaintiff did supply the
necessary equipments and money while her brother Atty. Rodolfo Villaflores
was the Manger and the defendant the Cashier. It was also admitted that part
of this agreement was an equal sharing of whatever proceeds realized.
Consequently, the plaintiff brought into this transaction certain chattels in
compliance with her obligation. The same has been done by the herein brother
and the herein defendant who started to work in the business. A cursory
examination of the evidences presented no proof that a partnership, whether
oral or written had been constituted at the inception of this transaction. True it
is that even up to the filing of this complaint whose movables brought by
plaintiff for the use in the operation of the business remain registered in her
name.
While there may have been co-ownership or co-possession of some items
and/or any sharing of proceeds by way of advances received by both plaintiff
and the defendant, these are not indicative and supportive of the existence of
any partnership between them. Article 1769 of the New Civil Code is explicit.
Even the books and records retrieved by the Commissioner appointed by the
Court did not show proof of the existence of a partnership as conceptualized by
law. Such that if assuming that there were profits realized in 1975 after the
two-year deficits were compensated, this could only be subject to an equal
sharing consonant to the agreement to equally divide any profit realized.
However, this Court cannot overlook the fact that the Audit Report of the
appointed Commissioner was not highly reliable in the sense that it was more
of his personal estimate of what is available on hand. Besides, the alleged
profits was a difference found after valuating the assets and not arising from
the real operation of the business. In accounting procedures, strictly, this could
not be profit but a net worth.
In view of the above factual findings of the Court it follows inevitably therefore
that there being no partnership that existed, any dissolution, liquidation or
winding up is beside the point. The plaintiff herself had summarily ceased from
her contract of agency and it is a personal prerogative to desist. On the other
hand, the assumption by the defendant in negotiating for herself the
continuance of the Agency with the principal in Manila is comparable to

plaintiffs. Any account of plaintiff with the principal as alleged, bore no

evidence as no collection was ever demanded of from her. The alleged
P20,000.00 assumption specifically, as would have been testified to by the
defendants husband remain a mere allegation.cralawnad
As to the properties sought to be recovered, the Court sustains the possession
by plaintiff of all equipments and chattels recovered by virtue of the Writ of
Replevin. Considering the other vehicle which appeared registered in the name
of the defendant, and to which even she admitted that part of the purchase
price came from the business claimed mutually operated, although the Court
have not as much considered all entries in the Audit report as totally reliable to
be sustained insofar as the operation of the business is concerned,
nevertheless, with this admission of the defendant and the fact that as borne
out in said Report there has been disbursed and paid for this vehicle out of the
business funds in the total sum of P6,500.00, it is only fitting and proper that
validity of these disbursements must be sustained as true (Exhs. M-1 to M-3, p.
180, Records). In this connection and taking into account the earlier agreement
that only profits were to be shared equally, the plaintiff must be reimbursed of
this cost if only to allow the defendant continuous possession of the vehicle in
question. It is a fundamental, moral . . . another. (pp. 71-75, Rollo.)
Withal, the appellate court acted properly in dismissing the petition for
annulment of judgment, the issue raised therein having been directly litigated
in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals
dated June 20, 1991 is AFFIRMED in all respects.
No special pronouncement is made as to costs.
SO ORDERED.
SECOND DIVISION
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.
Demosthenes B. Gadioma for petitioners.

AQUINO, J.:
sjbprior| 21

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 coowners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners
resold them to the Walled City Securities Corporation and Olga Cruz Canda for
the total sum of P313,050 (Exh. C and D). They derived from the sale a total
profit of P134,341.88 or P33,584 for each of them. They treated the profit as a
capital gain and paid an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive
period, the Commissioner of Internal Revenue required the four petitioners to
pay corporate income tax on the total profit of P134,336 in addition to
individual income tax on their shares thereof He assessed P37,018 as
corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42%
accumulated interest, or a total of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the
sum of P33,584 as a " taxable in full (not a mere capital gain of which is
taxable) and required them to pay deficiency income taxes aggregating
P56,707.20 including the 50% fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and
penalties totalling P127,781.76 on their profit of P134,336, in addition to the
tax on capital gains already paid by them.
The Commissioner acted on the theory that the four petitioners had formed an
unregistered partnership or joint venture within the meaning of sections 24(a)
and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans.
Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court
sustained the same. Judge Roaquin dissented. Hence, the instant appeal.
We hold that it is error to consider the petitioners as having formed a
partnership under article 1767 of the Civil Code simply because they allegedly
contributed P178,708.12 to buy the two lots, resold the same and divided the
profit among themselves.

To regard the petitioners as having formed a taxable unregistered partnership

would result in oppressive taxation and confirm the dictum that the power to
tax involves the power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were coowners 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.

sjbprior| 22

The instant case is distinguishable from the cases where the parties engaged
in joint ventures for profit. Thus, in Oa vs.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The
assessments are cancelled. No costs.

** This view is supported by the following rulings of respondent Commissioner:

SO ORDERED.

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).

EN BANC

All co-ownerships are not deemed unregistered pratnership.Co-Ownership

who own properties which produce income should not automatically be
considered partners of an unregistered partnership, or a corporation, within the
purview of the income tax law. To hold otherwise, would be to subject the
income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if
a property does not produce an income at all, it is not subject to any kind of
income tax, whether the income tax on individuals or the income tax on
corporation. (De Leon vs. CI R, CTA Case No. 738, September 11, 1961, cited in
Araas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where
after an extrajudicial settlement the co-heirs used the inheritance or the
incomes derived therefrom as a common fund to produce profits for
themselves, it was held that they were taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24
SCRA 198, where father and son purchased a lot and building, entrusted the
administration of the building to an administrator and divided equally the net
income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140,
where the three Evangelista sisters bought four pieces of real property which
they leased to various tenants and derived rentals therefrom. Clearly, the
petitioners in these two cases had formed an unregistered partnership.
In the instant case, what the Commissioner should have investigated was
whether the father donated the two lots to the petitioners and whether he paid
the donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It
might have already prescribed.

July 29, 1968

G.R. Nos. L-24020-21
FLORENCIO REYES and ANGEL REYES, petitioners,
vs.
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX APPEALS,
respondents.
FERNANDO, J.:
Petitioners in this case were assessed by respondent Commissioner of Internal
Revenue the sum of P46,647.00 as income tax, surcharge and compromise for
the years 1951 to 1954, an assessment subsequently reduced to P37,528.00.
This assessment sought to be reconsidered unsuccessfully was the subject of
an appeal to respondent Court of Tax Appeals. Thereafter, another assessment
was made against petitioners, this time for back income taxes plus surcharge
and compromise in the total sum of P25,973.75, covering the years 1955 and
1956. There being a failure on their part to have such assessments
reconsidered, the matter was likewise taken to the respondent Court of Tax
Appeals. The two cases[[1]] involving as they did identical issues and
ultimately traceable to facts similar in character were heard jointly with only
one decision being rendered.
In that joint decision of respondent Court of Tax Appeals, the tax liability for the
years 1951 to 1954 was reduced to P37,128.00 and for the years 1955 and
1956, to P20,619.00 as income tax due "from the partnership formed" by
petitioners.[[2]] The reduction was due to the elimination of surcharge, the
failure to file the income tax return being accepted as due to petitioners honest
belief that no such liability was incurred as well as the compromise penalties
for such failure to file.[[3]] A reconsideration of the aforesaid decision was
sought and denied by respondent Court of Tax Appeals. Hence this petition for
review.
The facts as found by respondent Court of Tax Appeals, which being supported
by substantial evidence, must be respected[[4]] follow: "On October 31, 1950,
petitioners, father and son, purchased a lot and building, known as the Gibbs
Building, situated at 671 Dasmarias Street, Manila, for P835,000.00, of which
they paid the sum of P375,000.00, leaving a balance of P460,000.00,
representing the mortgage obligation of the vendors with the China Banking
Corporation, which mortgage obligations were assumed by the vendees. The
initial payment of P375,000.00 was shared equally by petitioners. At the time
sjbprior| 23

of the purchase, the building was leased to various tenants, whose rights under
the lease contracts with the original owners, the purchasers, petitioners herein,
agreed to respect. The administration of the building was entrusted to an
administrator who collected the rents; kept its books and records and rendered
statements of accounts to the owners; negotiated leases; made necessary
repairs and disbursed payments, whenever necessary, after approval by the
owners; and performed such other functions necessary for the conservation
and preservation of the building. Petitioners divided equally the income of
operation and maintenance. The gross income from rentals of the building
amounted to about P90,000.00 annually."[[5]]
From the above facts, the respondent Court of Tax Appeals applying the
appropriate provisions of the National Internal Revenue Code, the first of which
imposes an income tax on corporations "organized in, or existing under the
laws of the Philippines, no matter how created or organized but not including
duly registered general co-partnerships (companias colectivas), ...,"[[6]] a
term, which according to the second provision cited, includes partnerships "no
matter how created or organized, ...,"[[7]] and applying the leading case of
Evangelista v. Collector of Internal Revenue,[[8]] sustained the action of
respondent Commissioner of Internal Revenue, but reduced the tax liability of
petitioners, as previously noted.
Petitioners maintain the view that the Evangelista ruling does not apply; for
them, the situation is dissimilar. Consequently they allege that the reliance by
respondent Court of Tax Appeals was unwarranted and the decision should be
set aside. If their interpretation of the authoritative doctrine therein set forth
commands assent, then clearly what respondent Court of Tax Appeals did fails
to find shelter in the law. That is the crux of the matter. A perusal of the
Evangelista decision is therefore unavoidable.
As noted in the opinion of the Court, penned by the present Chief Justice, the
issue was whether petitioners are subject to the tax on corporations provided
for in section 24 of Commonwealth Act No. 466, otherwise known as the
National Internal Revenue Code, ..."[[9]] After referring to another section of
the National Internal Revenue Code, which explicitly provides that the term
corporation "includes partnerships" and then to Article 1767 of the Civil Code
of the Philippines, defining what a contract of partnership is, the opinion goes
on to state that "the essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting parties. The first
element is undoubtedly present in the case at bar, for, admittedly, petitioners
have agreed to and did, contribute money and property to a common fund.
Hence, the issue narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances surrounding the case, we are
fully satisfied that their purpose was to engage in real estate transactions for
monetary gain and then divide the same among themselves, ..."[[10]]

In support of the above conclusion, reference was made to the following

circumstances, namely, the common fund being created purposely not
something already found in existence, the investment of the same not merely
in one transaction but in a series of transactions; the lots thus acquired not
being devoted to residential purposes or to other personal uses of petitioners
in that case; such properties having been under the management of one
person with full power to lease, to collect rents, to issue receipts, to bring suits,
to sign letters and contracts and to endorse notes and checks; the above
conditions having existed for more than 10 years since the acquisition of the
above properties; and no testimony having been introduced as to the purpose
"in creating the set up already adverted to, or on the causes for its continued
existence."[[11]] The conclusion that emerged had all the imprint of
inevitability. Thus: "Although, taken singly, they might not suffice to establish
the intent necessary to constitute a partnership, the collective effect of these
circumstances is such as to leave no room for doubt on the existence of said
intent in petitioners herein."[[12]]
It may be said that there could be a differentiation made between the
circumstances above detailed and those existing in the present case. It does
not suffice though to preclude the applicability of the Evangelista decision.
Petitioners could harp on these being only one transaction. They could stress
that an affidavit of one of them found in the Bureau of Internal Revenue
records would indicate that their intention was to house in the building
acquired by them the respective enterprises, coupled with a plan of effecting a
division in 10 years. It is a little surprising then that while the purchase was
made on October 31, 1950 and their brief as petitioners filed on October 20,
1965, almost 15 years later, there was no allegation that such division as
between them was in fact made. Moreover, the facts as found and as
submitted in the brief made clear that the building in question continued to be
leased by other parties with petitioners dividing "equally the income ... after
deducting the expenses of operation and maintenance ..."[[13]] Differences of
such slight significance do not call for a different ruling.
It is obvious that petitioners' effort to avoid the controlling force of the
Evangelista ruling cannot be deemed successful. Respondent Court of Tax
Appeals acted correctly. It yielded to the command of an authoritative decision;
it recognized its binding character. There is clearly no merit to the second error
assigned by petitioners, who would deny its applicability to their situation.
The first alleged error committed by respondent Court of Tax Appeals in holding
that petitioners, in acquiring the Gibbs Building, established a partnership
subject to income tax as a corporation under the National Internal Revenue
Code is likewise untenable. In their discussion in their brief of this alleged error,
stress is laid on their being co-owners and not partners. Such an allegation was
likewise made in the Evangelista case.
This is the way it was disposed of in the opinion of the present Chief Justice:
"This pretense was correctly rejected by the Court of Tax Appeals."[[14]] Then
sjbprior| 24

came the explanation why: "To begin with, the tax in question is one imposed
upon "corporations", which, strictly speaking, are distinct and different from
"partnerships". When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude,
therefore, to organizations which are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance, section 24 of said Code
exempts from the aforementioned tax "duly registered general partnerships",
which constitute precisely one of the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term
corporation includes partnerships, no matter how created or organized." This
qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one could be deemed
constituted for purposes of the tax on corporations. Again, pursuant to said
section 84(b), the term "corporation" includes, among others, "joint accounts,
(cuentas en participacion)" and "associations", none of which has a legal
personality of its own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a condition essential to
the existence of the partnerships therein referred to. In fact, as above stated,
"duly registered general copartnerships" which are possessed of the
aforementioned personality - have been expressly excluded by law (sections 24
and 84[b]) from the connotation of the term "corporation"."[[15]] The opinion
went on to summarize the matter aptly: "For purposes of the tax on
corporations, our National Internal Revenue Code, include these partnerships
with the exception only of duly registered general co-partnerships within the
purview of the term "corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said Code is concerned,
and are subject to the income tax for corporations."[[16]]
In the light of the above, it cannot be said that the respondent Court of Tax
Appeals decided the matter incorrectly. There is no warrant for the assertion
that it failed to apply the settled law to uncontroverted facts. Its decision
cannot be successfully assailed. Moreover, an observation made in Alhambra
Cigar & Cigarette Manufacturing Co. v. Commissioner of Internal Revenue,[[17]]
is well-worth recalling. Thus: "Nor as a matter of principle is it advisable for this
Court to set aside the conclusion reached by an agency such as the Court of
Tax Appeals which is, by the very nature of its functions, dedicated exclusively
to the study and consideration of tax problems and has necessarily developed
an expertise on the subject, unless, as did not happen here, there has been an
abuse or improvident exercise of its authority."
WHEREFORE, the decision of the respondent Court of Tax Appeals ordering
petitioners "to pay the sums of P37,128.00 as income tax due from the
partnership formed by herein petitioners for the years 1951 to 1954 and
P20,619.00 for the years 1955 and 1956 within thirty days from the date this
decision becomes final, plus the corresponding surcharge and interest in case
of delinquency," is affirmed. With costs against petitioners.

EN BANC
G.R. No. L-2484 April 11, 1906
JOHN FORTIS,Plaintiff-Appellee,
Appellants.

vs.

GUTIERREZ

HERMANOS,Defendants-

WILLARD, J.:
Plaintiff, an employee of defendants during the years 1900, 1901, and 1902,
brought this action to recover a balance due him as salary for the year 1902.
He alleged that he was entitled, as salary, to 5 per cent of the net profits of the
business of the defendants for said year. The complaint also contained a cause
of action for the sum of 600 pesos, money expended by plaintiff for the
defendants during the year 1903. The court below, in its judgment, found that
the contract had been made as claimed by the plaintiff; that 5 per cent of the
net profits of the business for the year 1902 amounted to 26,378.68 pesos,
Mexican currency; that the plaintiff had received on account of such salary
12,811.75 pesos, Mexican currency, and ordered judgment against the
defendants for the sum 13,566.93 pesos, Mexican currency, with interest
thereon from December 31, 1904. The court also ordered judgment against the
defendants for the 600 pesos mentioned in the complaint, and intereat
thereon. The total judgment rendered against the defendants in favor of the
plaintiff, reduced to Philippine currency, amounted to P13,025.40. The
defendants moved for a new trial, which was denied, and they have brought
the case here by bill of exceptions.chanroblesvirtualawlibrary chanrobles
virtual law library
(1)
The evidence is sufifcient to support the finding of the court below to
the effect that the plaintiff worked for the defendants during the year 1902
under a contract by which he was to receive as compensation 5 per cent of the
net profits of the business. The contract was made on the part of the
defendants by Miguel Alonzo Gutierrez. By the provisions of the articles of
partnership he was made one of the managers of the company, with full power
to transact all of the business thereof. As such manager he had authority to
make a contract of employment with the plaintiff.chanroblesvirtualawlibrary
chanrobles virtual law library
(2)
Before answering in the court below, the defendants presented a
motion that the complaint be made more definite and certain. This motion was
denied. To the order denying it the defendants excepted, and they have
assigned as error such ruling of the court below. There is nothing in the record
to show that the defendants were in any way prejudiced by this ruling of the
court below. If it were error it was error without prejudice, and not ground for
reversal. (Sec. 503, Code of Civil Procedure.)chanrobles virtual law library
(3)
It is claimed by the appellants that the contract alleged in the
complaint made the plaintiff a copartner of the defendants in the business
sjbprior| 25

which they were carrying on. This contention can not bo sustained. It was a
mere contract of employnent. The plaintiff had no voice nor vote in the
management of the affairs of the company. The fact that the compensation
received by him was to be determined with reference to the profits made by
the defendants in their business did not in any sense make by a partner
therein. The articles of partnership between the defendants provided that the
profits should be divided among the partners named in a certain proportion.
The contract made between the plaintiff and the then manager of the
defendant partnership did not in any way vary or modify this provision of the
articles of partnership. The profits of the business could not be determined
until all of the expenses had been paid. A part of the expenses to be paid for
the year 1902 was the salary of the plaintiff. That salary had to be deducted
before the net profits of the business, which were to be divided among the
partners, could be ascertained. It was undoubtedly necessary in order to
determine what the salary of the plaintiff was, to determine what the profits of
the business were, after paying all of the expenses except his, but that
determination was not the final determination of the net profits of the business.
It was made for the purpose of fixing the basis upon which his compensation
should be determined.chanroblesvirtualawlibrary chanrobles virtual law library
(4)
It was no necessary that the contract between the plaintiff and the
defendants should be made in writing. (Thunga Chui vs. Que Bentec, 1 1 Off.
Gaz., 818, October 8, 1903.)chanrobles virtual law library
(5)
It appearred that Miguel Alonzo Gutierrez, with whom the plaintiff had
made the contract, had died prior to the trial of the action, and the defendants
claim that by reasons of the provisions of section 383, paragraph 7, of the
Code of Civil Procedure, plaintiff could not be a witness at the trial. That
paragraph provides that parties to an action against an executor or
aministrator upon a claim or demand against the estate of a deceased person
can not testify as to any matter of fact occurring before the death of such
deceased person. This action was not brought against the administrator of
Miguel Alonzo, nor was it brought upon a claim against his estate. It was
brought against a partnership which was in existence at the time of the trial of
the action, and which was juridical person. The fact that Miguel Alonzo had
been a partner in this company, and that his interest therein might be affected
by the result of this suit, is not sufficient to bring the case within the provisions
of the section above cited.chanroblesvirtualawlibrary chanrobles virtual law
library
(6)
The plaintiff was allowed to testify against the objection and exception
of the defendants, that he had been paid as salary for the year 1900 a part of
the profits of the business. This evidence was competent for the purpose of
corroborating the testimony of the plaintiff as to the existence of the contract
set out in the complaint.chanroblesvirtualawlibrary chanrobles virtual law
library

(7)
The plaintiff was allowed to testify as to the contents of a certain
letter written by Miguel Glutierrez, one of the partners in the defendant
company, to Miguel Alonzo Gutierrez, another partner, which letter was read to
plaintiff by Miguel Alonzo. It is not necessary to inquire whether the court
committed an error in admitting this evidence. The case already made by the
plaintiff was in itself sufficient to prove the contract without reference to this
letter. The error, if any there were, was not prejudicial, and is not ground for
revesal. (Sec. 503, Code of Civil Procedure.)chanrobles virtual law library
(8)
For the purpose of proving what the profits of the defendants were for
the year 1902, the plaintiff presented in evidence the ledger of defendants,
which contained an entry made on the 31st of December, 1902, as follows:
Perdidas y Ganancias ...................................... a Varios Ps. 527,573.66
Utilidades liquidas obtenidas durante el ano y que abonamos conforme a la
proporcion que hemos establecido segun el convenio de sociedad.
The defendant presented as a witness on, the subject of profits Miguel
Gutierrez, one of the defendants, who testiffied, among other things, that there
were no profits during the year 1902, but, on the contrary, that the company
suffered considerable loss during that year. We do not think the evidence of
this witnees sufficiently definite and certain to overcome the positive evidence
furnished
by
the
books
of
the
defendants
themselves.chanroblesvirtualawlibrary chanrobles virtual law library
(9)
In reference to the cause of action relating to the 600 pesos, it
appears that the plaintiff left the employ of the defendants on the 19th of
Macrh, 1903; that at their request he went to Hongkong, and was there for
about two months looking after the business of the defendants in the matter of
the repair of a certain steamship. The appellants in their brief say that the
plaintiff is entitled to no compensation for his services thus rendered, because
by the provisions of article 1711 of the Civil Code, in the absence of an
agreement to the contrary, the contract of agency is supposed to be
gratuitous. That article i not applicable to this case, because the amount of 600
pesos not claimed as compensation for services but as a reimbursment for
money expended by the plaintiff in the business of the defendants. The article
of the code that is applicable is article 1728.chanroblesvirtualawlibrary
chanrobles virtual law library
The judgment of the court below is affirmed, with the costs, of this instance
against the appellants. After the expiration of twenty days from the date of this
decision let final judgment be entered herein, and ten days thereafter let the
case be remanded to the lower court for execution. So ordered.

EN BANC
G.R. No. L-45425

April 29, 1939

sjbprior| 26

JOSE
GATCHALIAN,
ET
AL., plaintiffs-appellants,
vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant Collector of
Internal Revenue the sum of P1,863.44, with legal interest thereon, which they
paid under protest by way of income tax. They appealed from the decision
rendered in the case on October 23, 1936 by the Court of First Instance of the
City of Manila, which dismissed the action with the costs against them.
The case was submitted for decision upon the following stipulation of facts:
Come now the parties to the above-mentioned case, through their
respective undersigned attorneys, and hereby agree to respectfully
submit to this Honorable Court the case upon the following statement
of facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan,
and that defendant is the Collector of Internal Revenue of the
Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them
to purchase one sweepstakes ticket valued at two pesos (P2),
subscribed and paid therefor the amounts as follows:
1. Jose Gatchalian ....................................................................................................

P0.18

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

.18

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

.08

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

.13

5. Jesus Legaspi ......................................................................................................

.15

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

.07

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

.08

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

.13

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

.13

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

.16

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

.13

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

.14

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

.17

14. Buenaventura Guzman ......................................................................................

.13

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

.14

Total ........................................................................................................

2.00

3. That immediately thereafter but prior to December 15, 1934,

plaintiffs purchased, in the ordinary course of business, from one of
the duly authorized agents of the National Charity Sweepstakes Office
one ticket bearing No. 178637 for the sum of two pesos (P2) and that
the said ticket was registered in the name of Jose Gatchalian and
Company;
4. That as a result of the drawing of the sweepstakes on December
15, 1934, the above-mentioned ticket bearing No. 178637 won one of
the third prizes in the amount of P50,000 and that the corresponding
check covering the above-mentioned prize of P50,000 was drawn by
the National Charity Sweepstakes Office in favor of Jose Gatchalian &
Company against the Philippine National Bank, which check was
cashed during the latter part of December, 1934 by Jose Gatchalian &
Company;
5. That on December 29, 1934, Jose Gatchalian was required by
income tax examiner Alfredo David to file the corresponding income
tax return covering the prize won by Jose Gatchalian & Company and
that on December 29, 1934, the said return was signed by Jose
Gatchalian, a copy of which return is enclosed as Exhibit A and made
a part hereof;
6. That on January 8, 1935, the defendant made an assessment
against Jose Gatchalian & Company requesting the payment of the
sum of P1,499.94 to the deputy provincial treasurer of Pulilan,
Bulacan, giving to said Jose Gatchalian & Company until January 20,
1935 within which to pay the said amount of P1,499.94, a copy of
which letter marked Exhibit B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent
to defendant a reply, a copy of which marked Exhibit C is attached
and made a part hereof, requesting exemption from payment of the
income tax to which reply there were enclosed fifteen (15) separate
individual income tax returns filed separately by each one of the
plaintiffs, copies of which returns are attached and marked Exhibit D-1
to D-15, respectively, in order of their names listed in the caption of
this case and made parts hereof; a statement of sale signed by Jose
Gatchalian showing the amount put up by each of the plaintiffs to
cover up the attached and marked as Exhibit E and made a part
hereof; and a copy of the affidavit signed by Jose Gatchalian dated
December 29, 1934 is attached and marked Exhibit F and made part
thereof;
sjbprior| 27

8. That the defendant in his letter dated January 28, 1935, a copy of
which marked Exhibit G is enclosed, denied plaintiffs' request of
January 20, 1935, for exemption from the payment of tax and
reiterated his demand for the payment of the sum of P1,499.94 as
income tax and gave plaintiffs until February 10, 1935 within which to
pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax
demanded by the defendant, notwithstanding subsequent demand
made by defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is enclosed,
defendant on May 13, 1935 issued a warrant of distraint and levy
against the property of the plaintiffs, a copy of which warrant marked
Exhibit I is enclosed and made a part hereof;
10. That to avoid embarrassment arising from the embargo of the
property of the plaintiffs, the said plaintiffs on June 15, 1935, through
Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under
protest the sum of P601.51 as part of the tax and penalties to the
municipal treasurer of Pulilan, Bulacan, as evidenced by official receipt
No. 7454879 which is attached and marked Exhibit J and made a part
hereof, and requested defendant that plaintiffs be allowed to pay
under protest the balance of the tax and penalties by monthly
installments;

15. That in order to avoid annoyance and embarrassment arising from

the levy of their property, the plaintiffs on August 28, 1936, through
Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano
Santiago, paid under protest to the municipal treasurer of Pulilan,
Bulacan the sum of P1,260.93 representing the unpaid balance of the
income tax and penalties demanded by defendant as evidenced by
income tax receipt No. 35811 which is attached and marked Exhibit N
and made a part hereof; and that on September 3, 1936, the plaintiffs
formally protested to the defendant against the payment of said
amount and requested the refund thereof, copy of which is attached
and marked Exhibit O and made part hereof; but that on September 4,
1936, the defendant overruled the protest and denied the refund
thereof; copy of which is attached and marked Exhibit P and made a
part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total
sum of one thousand eight hundred and sixty three pesos and fortyfour centavos (P1,863.44) paid under protest by them but that
defendant refused and still refuses to refund the said amount
notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present other and
additional evidence if necessary.
Exhibit E referred to in the stipulation is of the following tenor:

11. That plaintiff's request to pay the balance of the tax and penalties
was granted by defendant subject to the condition that plaintiffs file
the usual bond secured by two solvent persons to guarantee prompt
payment of each installments as it becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which
marked Exhibit K is enclosed and made a part hereof, to guarantee
the payment of the balance of the alleged tax liability by monthly
installments at the rate of P118.70 a month, the first payment under
protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against
the payment of the sum of P602.51, a copy of which protest is
attached and marked Exhibit L, but that defendant in his letter dated
August 1, 1935 overruled the protest and denied the request for
refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly
installments in accordance with the terms and conditions of bond filed
by them, the defendant in his letter dated July 23, 1935, copy of which
is attached and marked Exhibit M, ordered the municipal treasurer of
Pulilan, Bulacan to execute within five days the warrant of distraint
and levy issued against the plaintiffs on May 13, 1935;

To whom it may concern:

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

Amount

Address

1. Mariano Santos ...........................................

P0.14

Pulilan, Bulacan.

2. Buenaventura Guzman ...............................

.13

- Do -

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

.17

- Do -

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

.14

- Do -

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

.13

- Do -

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

.16

- Do -

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

.13

- Do -

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

.13

- Do -

sjbprior| 28

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

.07

- Do -

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

.08

- Do -

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

.15

- Do -

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

.13

- Do -

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

.08

- Do -

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

.18

- Do -

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

.18
2.00

8. Julio Gatchalian
Guzman .......

D-8

.13

3,150

240

2,910

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

D-9

.13

3,325

360

2,965

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

D-10

.16

4,100

960

3,140

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

D-11

.13

3,325

360

2,965

- Do -

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

D-12

.14

3,325

360

2,965

Total cost of said

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

D-13

.17

4,350

360

3,990

14.
Buenaventura
Guzman ...........................

D-14

.13

3,325

360

2,965

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

D-15

.14

3,325

360

2,965

ticket; and that, therefore, the persons named above are entitled to
the parts of whatever prize that might be won by said ticket.
Pulilan, Bulacan, P.I.
(Sgd.) JOSE GATCHALIAN

2.00

And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as

follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934
ALL DATED JANUARY 19, 1935 SUBMITTED TO THE COLLECTOR OF
INTERNAL REVENUE.

Name

Exhibit
No.

Purchase
Price

Price
Won

Expenses

Net
prize

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

D-1

P0.18

P4,425

P 480

3,945

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

D-2

.18

4,575

2,000

2,575

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

D-3

.08

1,875

360

1,515

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

D-4

.13

3,325

360

2,965

5. Jesus Legaspi
Cristobal .........

D-5

.15

3,825

720

3,105

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

D-6

.08

1,875

360

1,515

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

D-7

.07

1,875

360

1,515

by

Maria

by Beatriz

50,000

<="" td="" style="font-size:

14px;
text-decoration:
none; color: rgb(0, 0, 128);
font-family:
arial,
verdana;">

The legal questions raised in plaintiffs-appellants' five assigned errors may

properly be reduced to the two following: (1) Whether the plaintiffs formed a
partnership, or merely a community of property without a personality of its
own; in the first case it is admitted that the partnership thus formed is liable for
the payment of income tax, whereas if there was merely a community of
property, they are exempt from such payment; and (2) whether they should
pay the tax collectively or whether the latter should be prorated among them
and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act No.
2833, as last amended by section 2 of Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding calendar
year from all sources by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association or
insurance company, organized in the Philippine Islands, no matter how
created or organized, but not including duly registered general
copartnership (compaias colectivas), a tax of three per centum upon
such income; and a like tax shall be levied, assessed, collected, and
paid annually upon the total net income received in the preceding
calendar year from all sources within the Philippine Islands by every
corporation, joint-stock company, partnership, joint account (cuenta
en participacion), association, or insurance company organized,
authorized, or existing under the laws of any foreign country,
including interest on bonds, notes, or other interest-bearing
sjbprior| 29

obligations
of
residents,
corporate
or
otherwise: Provided,
however, That nothing in this section shall be construed as permitting
the taxation of the income derived from dividends or net profits on
which the normal tax has been paid.

THE HONORABLE
respondents.

The gain derived or loss sustained from the sale or other disposition
by a corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained in accordance
with subsections (c) and (d) of section two of Act Numbered Two
thousand eight hundred and thirty-three, as amended by Act
Numbered Twenty-nine hundred and twenty-six.

This is a petition to annul and set aside the decision of the Court of Appeals
rendered on May 26, 1987, upholding the validity of the sale of a parcel of land
by petitioner Segundo Dalion (hereafter, "Dalion") in favor of private
respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje"), described thus:

The foregoing tax rate shall apply to the net income received by every
taxable corporation, joint-stock company, partnership, joint account
(cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year
thereafter.
There is no doubt that if the plaintiffs merely formed a community of property
the latter is exempt from the payment of income tax under the law. But
according to the stipulation facts the plaintiffs organized a partnership of a civil
nature because each of them put up money to buy a sweepstakes ticket for the
sole purpose of dividing equally the prize which they may win, as they did in
fact in the amount of P50,000 (article 1665, Civil Code). The partnership was
not only formed, but upon the organization thereof and the winning of the
prize, Jose Gatchalian personally appeared in the office of the Philippines
Charity Sweepstakes, in his capacity as co-partner, as such collection the prize,
the office issued the check for P50,000 in favor of Jose Gatchalian and
company, and the said partner, in the same capacity, collected the said check.
All these circumstances repel the idea that the plaintiffs organized and formed
a community of property only.
Having organized and constituted a partnership of a civil nature, the said entity
is the one bound to pay the income tax which the defendant collected under
the aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of Act
No. 3761. There is no merit in plaintiff's contention that the tax should be
prorated among them and paid individually, resulting in their exemption from
the tax.
In view of the foregoing, the appealed decision is affirmed, with the costs of
this instance to the plaintiffs appellants. So ordered.
FIRST DIVISION
G.R. No. 78903

February 28, 1990

SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION, petitioners,

vs.

COURT

OF

APPEALS

AND

RUPERTO

SABESAJE,

JR.,

MEDIALDEA, J.:

A parcel of land located at Panyawan, Sogod, Southern Leyte, declared in the

name of Segundo Dalion, under Tax Declaration No. 11148, with an area of
8947 hectares, assessed at P 180.00, and bounded on the North, by Sergio
Destriza and Titon Veloso, East, by Feliciano Destriza, by Barbara Bonesa (sic);
and West, by Catalino Espina. (pp. 36-37, Rollo)
The decision affirms in toto the ruling of the trial court 1 issued on January 17,
1984, the dispositive portion of which provides as follows:
WHEREFORE, IN VIEW OF THE FOREGOING, the Court hereby renders
judgment.
(a)
Ordering the defendants to deliver to the plaintiff the parcel of land
subject of this case, declared in the name of Segundo Dalion previously under
Tax Declaration No. 11148 and lately under Tax Declaration No. 2297 (1974)
and to execute the corresponding formal deed of conveyance in a public
document in favor of the plaintiff of the said property subject of this case,
otherwise, should defendants for any reason fail to do so, the deed shall be
executed in their behalf by the Provincial Sheriff or his Deputy;
(b)
Ordering the defendants to pay plaintiff the amount of P2,000.00 as
attorney's fees and P 500.00 as litigation expenses, and to pay the costs; and
(c)

Dismissing the counter-claim. (p. 38, Rollo)

The facts of the case are as follows:

On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land,
based on a private document of absolute sale, dated July 1, 1965 (Exhibit "A"),
allegedly executed by Dalion, who, however denied the fact of sale, contending
that the document sued upon is fictitious, his signature thereon, a forgery, and
that subject land is conjugal property, which he and his wife acquired in 1960
from Saturnina Sabesaje as evidenced by the "Escritura de Venta Absoluta"
(Exhibit "B"). The spouses denied claims of Sabesaje that after executing a
deed of sale over the parcel of land, they had pleaded with Sabesaje, their
relative, to be allowed to administer the land because Dalion did not have any
means of livelihood. They admitted, however, administering since 1958, five
(5) parcels of land in Sogod, Southern Leyte, which belonged to Leonardo
Sabesaje, grandfather of Sabesaje, who died in 1956. They never received their
agreed 10% and 15% commission on the sales of copra and abaca,
sjbprior| 30

respectively. Sabesaje's suit, they countered, was intended merely to harass,

preempt and forestall Dalion's threat to sue for these unpaid commissions.
From the adverse decision of the trial court, Dalion appealed, assigning errors
some of which, however, were disregarded by the appellate court, not having
been raised in the court below. While the Court of Appeals duly recognizes Our
authority to review matters even if not assigned as errors in the appeal, We are
not inclined to do so since a review of the case at bar reveals that the lower
court has judicially decided the case on its merits.
As to the controversy regarding the identity of the land, We have no reason to
dispute the Court of Appeals' findings as follows:
To be sure, the parcel of land described in Exhibit "A" is the same property
deeded out in Exhibit "B". The boundaries delineating it from adjacent lots are
identical. Both documents detail out the following boundaries, to wit:
On the North-property of Sergio Destriza and Titon Veloso;
On the East-property of Feliciano Destriza;
On the South-property of Barbara Boniza and
On the West-Catalino Espina.
(pp. 41-42, Rollo)
The issues in this case may thus be limited to: a) the validity of the contract of
sale of a parcel of land and b) the necessity of a public document for transfer
of ownership thereto.
The appellate court upheld the validity of the sale on the basis of Secs. 21 and
23 of Rule 132 of the Revised Rules of Court.
SEC. 21. Private writing, its execution and authenticity, how proved.-Before any
private writing may be received in evidence, its due execution and authenticity
must be proved either:
(a)

By anyone who saw the writing executed;

(b)

By evidence of the genuineness of the handwriting of the maker; or

(c)

By a subscribing witness

xxx

xxx

xxx

SEC. 23. Handwriting, how proved. The handwriting of a person may be

proved by any witness who believes it to be the handwriting of such person,
and has seen the person write, or has seen writing purporting to be his upon
which the witness has acted or been charged, and has thus acquired
knowledge of the handwriting of such person. Evidence respecting the
handwriting may also be given by a comparison, made by the witness or the

court, with writings admitted or treated as genuine by the party against whom
the evidence is offered, or proved to be genuine to the satisfaction of the
judge. (Rule 132, Revised Rules of Court)
And on the basis of the findings of fact of the trial court as follows:
Here, people who witnessed the execution of subject deed positively testified
on the authenticity thereof. They categorically stated that it had been executed
and signed by the signatories thereto. In fact, one of such witnesses, Gerardo
M. Ogsoc, declared on the witness stand that he was the one who prepared
said deed of sale and had copied parts thereof from the "Escritura De Venta
Absoluta" (Exhibit B) by which one Saturnina Sabesaje sold the same parcel of
land to appellant Segundo Dalion. Ogsoc copied the bounderies thereof and the
name of appellant Segundo Dalion's wife, erroneously written as "Esmenia" in
Exhibit "A" and "Esmenia" in Exhibit "B". (p. 41, Rollo)
xxx

xxx

xxx

Against defendant's mere denial that he signed the document, the positive
testimonies of the instrumental Witnesses Ogsoc and Espina, aside from the
testimony of the plaintiff, must prevail. Defendant has affirmatively alleged
forgery, but he never presented any witness or evidence to prove his claim of
forgery. Each party must prove his own affirmative allegations (Section 1, Rule
131, Rules of Court). Furthermore, it is presumed that a person is innocent of a
crime or wrong (Section 5 (a), Idem), and defense should have come forward
with clear and convincing evidence to show that plaintiff committed forgery or
caused said forgery to be committed, to overcome the presumption of
innocence. Mere denial of having signed, does not suffice to show forgery.
In addition, a comparison of the questioned signatories or specimens (Exhs. A2 and A-3) with the admitted signatures or specimens (Exhs. X and Y or 3-C)
convinces the court that Exhs. A-2 or Z and A-3 were written by defendant
Segundo Dalion who admitted that Exhs. X and Y or 3-C are his signatures. The
questioned signatures and the specimens are very similar to each other and
appear to be written by one person.
Further comparison of the questioned signatures and the specimens with the
signatures Segundo D. Dalion appeared at the back of the summons (p. 9,
Record); on the return card (p. 25, Ibid.); back of the Court Orders dated
December 17, 1973 and July 30, 1974 and for October 7, 1974 (p. 54 & p. 56,
respectively, Ibid.), and on the open court notice of April 13, 1983 (p. 235,
Ibid.) readily reveal that the questioned signatures are the signatures of
defendant Segundo Dalion.
It may be noted that two signatures of Segundo D. Dalion appear on the face of
the questioned document (Exh. A), one at the right corner bottom of the
document (Exh. A-2) and the other at the left hand margin thereof (Exh. A-3).
The second signature is already a surplusage. A forger would not attempt to
forge another signature, an unnecessary one, for fear he may commit a
revealing error or an erroneous stroke. (Decision, p. 10) (pp. 42-43, Rollo)

sjbprior| 31

We see no reason for deviating from the appellate court's ruling (p. 44, Rollo)
as we reiterate that

contract affecting real rights once the contract appearing in a private

instrument hag been perfected (See Art. 1357).

Appellate courts have consistently subscribed to the principle that conclusions

and findings of fact by the trial courts are entitled to great weight on appeal
and should not be disturbed unless for strong and cogent reasons, since it is
undeniable that the trial court is in a more advantageous position to examine
real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case (Chase v. Buencamino, Sr., G.R. No. L-20395, May 13,
1985, 136 SCRA 365; Pring v. Court of Appeals, G.R. No. L-41605, August 19,
1985, 138 SCRA 185)

... . (p. 12, Decision, p. 272, Records)

Assuming authenticity of his signature and the genuineness of the document,

Dalion nonetheless still impugns the validity of the sale on the ground that the
same is embodied in a private document, and did not thus convey title or right
to the lot in question since "acts and contracts which have for their object the
creation, transmission, modification or extinction of real rights over immovable
property must appear in a public instrument" (Art. 1358, par 1, NCC).
This argument is misplaced. The provision of Art. 1358 on the necessity of a
public document is only for convenience, not for validity or enforceability. It is
not a requirement for the validity of a contract of sale of a parcel of land that
this be embodied in a public instrument.
A contract of sale is a consensual contract, which means that the sale is
perfected by mere consent. No particular form is required for its validity. Upon
perfection of the contract, the parties may reciprocally demand performance
(Art. 1475, NCC), i.e., the vendee may compel transfer of ownership of the
object of the sale, and the vendor may require the vendee to pay the thing sold
(Art. 1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the
parcel of land and to execute corresponding formal deed of conveyance in a
public document. Under Art. 1498, NCC, when the sale is made through a
public instrument, the execution thereof is equivalent to the delivery of the
thing. Delivery may either be actual (real) or constructive. Thus delivery of a
parcel of land may be done by placing the vendee in control and possession of
the land (real) or by embodying the sale in a public instrument (constructive).
As regards petitioners' contention that the proper action should have been one
for specific performance, We believe that the suit for recovery of ownership is
proper. As earlier stated, Art. 1475 of the Civil Code gives the parties to a
perfected contract of sale the right to reciprocally demand performance, and to
observe a particular form, if warranted, (Art. 1357). The trial court, aptly
observed that Sabesaje's complaint sufficiently alleged a cause of action to
compel Dalion to execute a formal deed of sale, and the suit for recovery of
ownership, which is premised on the binding effect and validity inter partes of
the contract of sale, merely seeks consummation of said contract.
... . A sale of a real property may be in a private instrument but that contract is
valid and binding between the parties upon its perfection. And a party may
compel the other party to execute a public instrument embodying their

ACCORDINGLY, the petition is DENIED and the decision of the Court of Appeals
upholding the ruling of the trial court is hereby AFFIRMED. No costs.
SO ORDERED.
OSCAR ANGELES and EMERITA ANGELES, petitioners, vs. THE HON. SECRETARY
OF JUSTICE and FELINO MERCADO, respondents.
DECISION
CARPIO, J.:
The Case
This is a petition for certiorari[1] to annul the letter-resolution[2] dated 1
February 2000 of the Secretary of Justice in Resolution No. 155.[3] The
Secretary of Justice affirmed the resolution[4] in I.S. No. 96-939 dated 28
February 1997 rendered by the Provincial Prosecution Office of the Department
of Justice in Santa Cruz, Laguna (Provincial Prosecution Office). The Provincial
Prosecution Office resolved to dismiss the complaint for estafa filed by
petitioners Oscar and Emerita Angeles (Angeles spouses) against respondent
Felino Mercado (Mercado).
Antecedent Facts
On 19 November 1996, the Angeles spouses filed a criminal complaint for
estafa under Article 315 of the Revised Penal Code against Mercado before the
Provincial Prosecution Office. Mercado is the brother-in-law of the Angeles
spouses, being married to Emerita Angeles sister Laura.
In their affidavits, the Angeles spouses claimed that in November 1992,
Mercado convinced them to enter into a contract of antichresis,[5] colloquially
known as sanglaang-perde, covering eight parcels of land (subject land)
planted with fruit-bearing lanzones trees located in Nagcarlan, Laguna and
owned by Juana Suazo. The contract of antichresis was to last for five years
with P210,000 as consideration. As the Angeles spouses stay in Manila during
weekdays and go to Laguna only on weekends, the parties agreed that
Mercado would administer the lands and complete the necessary paperwork.
[6]
After three years, the Angeles spouses asked for an accounting from Mercado.
Mercado explained that the subject land earned P46,210 in 1993, which he
used to buy more lanzones trees. Mercado also reported that the trees bore no
fruit in 1994. Mercado gave no accounting for 1995. The Angeles spouses
claim that only after this demand for an accounting did they discover that
Mercado had put the contract of sanglaang-perde over the subject land under
sjbprior| 32

Mercado and his spouses names.[7] The relevant portions of the contract of
sanglaang-perde, signed by Juana Suazo alone, read:
xxx
Na alang-alang sa halagang DALAWANG DAAN AT SAMPUNG LIBONG PISO
(P210,000), salaping gastahin, na aking tinanggap sa mag[-]asawa nila G. AT
GNG. FELINO MERCADO, mga nasa hustong gulang, Filipino, tumitira at may
pahatirang sulat sa Bgy. Maravilla, bayan ng Nagcarlan, lalawigan ng Laguna,
ay aking ipinagbili, iniliwat at isinalin sa naulit na halaga, sa nabanggit na
mag[-] asawa nila G. AT GNG. FELINO MERCADO[,] sa kanila ay magmamana,
kahalili at ibang dapat pagliwatan ng kanilang karapatan, ang lahat na
ibubunga ng lahat na puno ng lanzones, hindi kasama ang ibang halaman na
napapalooban nito, ng nabanggit na WALONG (8) Lagay na Lupang CocalLanzonal, sa takdang LIMA (5) NA [sic] TAON, magpapasimula sa taong 1993,
at magtatapos sa taong 1997, kayat pagkatapos ng lansonesan sa taong
1997, ang pamomosision at pakikinabang sa lahat na puno ng lanzones sa
nabanggit na WALONG (8) Lagay na Lupang Cocal-Lanzonal ay manunumbalik
sa akin, sa akin ay magmamana, kahalili at ibang dapat pagliwatan ng aking
karapatan na ako ay walang ibabalik na ano pa mang halaga, sa mag[-] asawa
nila G. AT GNG. FELINO MERCADO.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo
na ako ay bibigyan nila ng LIMA (5) na [sic] kaing na lanzones taon-taon sa
loob ng LIMA (5) na [sic] taon ng aming kasunduang ito.
Na ako at ang mag[-]asawa nila G. AT GNG. FELINO MERCADO ay nagkasundo
na silang mag[-]asawa nila G. AT GNG. FELINO MERCADO ang magpapaalis ng
dapo sa puno ng lansones taon-taon [sic] sa loob ng LIMA (5) [sic] taonng [sic]
aming kasunduang ito.[8]
In his counter-affidavit, Mercado denied the Angeles spouses allegations.
Mercado claimed that there exists an industrial partnership, colloquially known
as sosyo industrial, between him and his spouse as industrial partners and the
Angeles spouses as the financiers. This industrial partnership had existed since
1991, before the contract of antichresis over the subject land. As the years
passed, Mercado used his and his spouses earnings as part of the capital in
the business transactions which he entered into in behalf of the Angeles
spouses. It was their practice to enter into business transactions with other
people under the name of Mercado because the Angeles spouses did not want
to be identified as the financiers.
Mercado attached bank receipts showing deposits in behalf of Emerita Angeles
and contracts under his name for the Angeles spouses. Mercado also attached
the minutes of the barangay conciliation proceedings held on 7 September
1996. During the barangay conciliation proceedings, Oscar Angeles stated that
there was a written sosyo industrial agreement: capital would come from the
Angeles spouses while the profit would be divided evenly between Mercado
and the Angeles spouses.[9]
The Ruling of the Provincial Prosecution Office

On 3 January 1997, the Provincial Prosecution Office issued a resolution

recommending the filing of criminal information for estafa against Mercado.
This resolution, however, was issued without Mercados counter-affidavit.
Meanwhile, Mercado filed his counter-affidavit on 2 January 1997. On receiving
the 3 January 1997 resolution, Mercado moved for its reconsideration. Hence,
on 26 February 1997, the Provincial Prosecution Office issued an amended
resolution dismissing the Angeles spouses complaint for estafa against
Mercado.
The Provincial Prosecution Office stated thus:
The subject of the complaint hinges on a partnership gone sour.
The
partnership was initially unsaddled [with] problems. Management became the
source of misunderstanding including the accounting of profits, which led to
further misunderstanding until it was revealed that the contract with the
orchard owner was only with the name of the respondent, without the names of
the complainants.
The accusation of estafa here lacks enough credible evidentiary support to
sustain a prima facie finding.
Premises considered, it is respectfully recommended that the complaint for
estafa be dismissed.
RESPECTFULLY SUBMITTED.[10]
The Angeles spouses filed a motion for reconsideration, which the Provincial
Prosecution Office denied in a resolution dated 4 August 1997.
The Ruling of the Secretary of Justice
On appeal to the Secretary of Justice, the Angeles spouses emphasized that the
document evidencing the contract of sanglaang-perde with Juana Suazo was
executed in the name of the Mercado spouses, instead of the Angeles spouses.
The Angeles spouses allege that this document alone proves Mercados
misappropriation of their P210,000.
The Secretary of Justice found otherwise. Thus:
Reviewing the records of the case, we are of the opinion that the indictment of
[Mercado] for the crime of estafa cannot be sustained. [The Angeles spouses]
failed to show sufficient proof that [Mercado] deliberately deceived them in the
sanglaang perde transaction. The document alone, which was in the name
of [Mercado and his spouse], failed to convince us that there was deceit or
false representation on the part of [Mercado] that induced the [Angeles
spouses] to part with their money. [Mercado] satisfactorily explained that the
[Angeles spouses] do not want to be revealed as the financiers. Indeed, it is
difficult to believe that the [Angeles spouses] would readily part with their
money without holding on to some document to evidence the receipt of
money, or at least to inspect the document involved in the said transaction.
Under the circumstances, we are inclined to believe that [the Angeles spouses]
sjbprior| 33

knew from the very start that the questioned document was not really in their
names.
In addition, we are convinced that a partnership truly existed between the
[Angeles spouses] and [Mercado]. The formation of a partnership was clear
from the fact that they contributed money to a common fund and divided the
profits among themselves. Records would show that [Mercado] was able to
make deposits for the account of the [Angeles spouses]. These deposits
represented their share in the profits of their business venture. Although the
[Angeles spouses] deny the existence of a partnership, they, however, never
disputed that the deposits made by [Mercado] were indeed for their account.
The transcript of notes on the dialogue between the [Angeles spouses] and
[Mercado] during the hearing of their barangay conciliation case reveals that
the [Angeles spouses] acknowledged their joint business ventures with
[Mercado] although they assailed the manner by which [Mercado] conducted
the business and handled and distributed the funds. The veracity of this
transcript was not raised in issued [sic] by [the Angeles spouses]. Although the
legal formalities for the formation of a partnership were not adhered to, the
partnership relationship of the [Angeles spouses] and [Mercado] is evident in
this case. Consequently, there is no estafa where money is delivered by a
partner to his co-partner on the latters representation that the amount shall
be applied to the business of their partnership. In case of misapplication or
conversion of the money received, the co-partners liability is civil in nature
(People v. Clarin, 7 Phil. 504)
WHEREFORE, the appeal is hereby DISMISSED.[11]
Hence, this petition.
Issues
The Angeles spouses ask us to consider the following issues:
1. Whether the Secretary of Justice committed grave abuse of discretion
amounting to lack of jurisdiction in dismissing the appeal of the Angeles
spouses;
2. Whether a partnership existed between the Angeles spouses and Mercado
even without any documentary proof to sustain its existence;
3. Assuming that there was a partnership, whether there was misappropriation
by Mercado of the proceeds of the lanzones after the Angeles spouses
demanded an accounting from him of the income at the office of the barangay
authorities on 7 September 1996, and Mercado failed to do so and also failed
to deliver the proceeds to the Angeles spouses;
4. Whether the Secretary of Justice should order the filing of the information
for estafa against Mercado.[12]
The Ruling of the Court

The petition has no merit.

Whether the Secretary of Justice Committed
Grave Abuse of Discretion
An act of a court or tribunal may constitute grave abuse of discretion when the
same is performed in a capricious or whimsical exercise of judgment
amounting to lack of jurisdiction. The abuse of discretion must be so patent
and gross as to amount to an evasion of positive duty, or to a virtual refusal to
perform a duty enjoined by law, as where the power is exercised in an arbitrary
and despotic manner because of passion or personal hostility.[13]
The Angeles spouses fail to convince us that the Secretary of Justice committed
grave abuse of discretion when he dismissed their appeal. Moreover, the
Angeles spouses committed an error in procedure when they failed to file a
motion for reconsideration of the Secretary of Justices resolution. A previous
motion for reconsideration before the filing of a petition for certiorari is
necessary unless: (1) the issue raised is one purely of law; (2) public interest is
involved; (3) there is urgency; (4) a question of jurisdiction is squarely raised
before and decided by the lower court; and (5) the order is a patent nullity.[14]
The Angeles spouses failed to show that their case falls under any of the
exceptions. In fact, this present petition for certiorari is dismissible for this
reason alone.
Whether a Partnership Existed
Between Mercado and the Angeles Spouses
The Angeles spouses allege that they had no partnership with Mercado. The
Angeles spouses rely on Articles 1771 to 1773 of the Civil Code, which state
that:
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 requirements 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.
The Angeles spouses position that there is no partnership because of the lack
of a public instrument indicating the same and a lack of registration with the
Securities and Exchange Commission (SEC) holds no water. First, the
Angeles spouses contributed money to the partnership and not immovable
property. Second, mere failure to register the contract of partnership with the
SEC does not invalidate a contract that has the essential requisites of a
sjbprior| 34

partnership. The purpose of registration of the contract of partnership is to

give notice to third parties. Failure to register the contract of partnership does
not affect the liability of the partnership and of the partners to third persons.
Neither does such failure to register affect the partnerships juridical
personality. A partnership may exist even if the partners do not use the words
partner or partnership.
Indeed, the Angeles spouses admit to facts that prove the existence of a
partnership: a contract showing a sosyo industrial or industrial partnership,
contribution of money and industry to a common fund, and division of profits
between the Angeles spouses and Mercado.
Whether there was
Misappropriation by Mercado
The Secretary of Justice adequately explained the alleged misappropriation by
Mercado: The document alone, which was in the name of [Mercado and his
spouse], failed to convince us that there was deceit or false representation on
the part of [Mercado] that induced the [Angeles spouses] to part with their
money. [Mercado] satisfactorily explained that the [Angeles spouses] do not
want to be revealed as the financiers.[15]
Even Branch 26 of the Regional Trial Court of Santa Cruz, Laguna which
decided the civil case for damages, injunction and restraining order filed by the
Angeles spouses against Mercado and Leo Cerayban, stated:
xxx [I]t was the practice to have all the contracts of antichresis of their
partnership secured in [Mercados] name as [the Angeles spouses] are
apprehensive that, if they come out into the open as financiers of said
contracts, they might be kidnapped by the New Peoples Army or their business
deals be questioned by the Bureau of Internal Revenue or worse, their assets
and unexplained income be sequestered, as xxx Oscar Angeles was then
working with the government.[16]
Furthermore, accounting of the proceeds is not a proper subject for the present
case.
For these reasons, we hold that the Secretary of Justice did not abuse his
discretion in dismissing the appeal of the Angeles spouses.
WHEREFORE, we AFFIRM the decision of the Secretary of Justice. The present
petition for certiorari is DISMISSED.
SO ORDERED.
ANTONIA TORRES, assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES,
respondents.
DECISION
PANGANIBAN, J.:

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] Second Division 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.
The project did not push through, and the land was subsequently foreclosed by
the bank.
According to petitioners, the project failed because of respondents 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 Councils 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
sjbprior| 35

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.

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 courts 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]

Hence, this Petition.[6]

The pertinent portions of the Joint Venture Agreement read as follows:

Ruling of the Court of Appeals

KNOW ALL MEN BY THESE PRESENTS:

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 courts 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:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th
day of March, 1969, by and between MR. MANUEL R. TORRES, x x x the FIRST
PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x
the SECOND PARTY:

Article 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.
The Issue
Petitioners impute to the Court of Appeals the following error:
x x x [The] Court of Appeals erred in concluding that the transaction x x x
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 Courts Ruling
The Petition is bereft of merit.
Main Issue: Existence of a Partnership

W I T N E S S E T H:
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 x x x dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED
THIRTEEN & 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
sub-divided 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
sjbprior| 36

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 subdivision 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 subdivision 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 x x x 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.
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 lowcost housing units on the property.

Respondents 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.
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.
sjbprior| 37

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 [petitioners] participation
therein.
x x x 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 respondent 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.
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 Petition is hereby DENIED and the challenged Decision
AFFIRMED. Costs against petitioners.

SO ORDERED.
G.R. No. L-31684 June 28, 1973
EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO
and LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of
"Evangelista & Co." On June 7, 1955 the Articles of Co-partnership was
amended as to include herein respondent, Estrella Abad Santos, as industrial
partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza
Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining
in that capacity, with a contribution of P17,500 each. The amended Articles
provided, inter alia, that "the contribution of Estrella Abad Santos consists of
her industry being an industrial partner", and that the profits and losses "shall
be divided and distributed among the partners ... in the proportion of 70% for
the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and
Leonardo Atienza Abad Santos to be divided among them equally; and 30% for
the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other
partners in the Court of First Instance of Manila, alleging that the partnership,
which was also made a party-defendant, had been paying dividends to the
partners except to her; and that notwithstanding her demands the defendants
had refused and continued to refuse and let her examine the partnership books
or to give her information regarding the partnership affairs to pay her any
share in the dividends declared by the partnership. She therefore prayed that
the defendants be ordered to render accounting to her of the partnership
business and to pay her corresponding share in the partnership profits after
such accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or
distributed profits of the partnership; denied likewise that the plaintiff ever
demanded that she be allowed to examine the partnership books; and byway
of affirmative defense alleged that the amended Articles of Co-partnership did
not express the true agreement of the parties, which was that the plaintiff was
not an industrial partner; that she did not in fact contribute industry to the
partnership; and that her share of 30% was to be based on the profits which
might be realized by the partnership only until full payment of the loan which it
had obtained in December, 1955 from the Rehabilitation Finance Corporation in
the sum of P30,000, for which the plaintiff had signed a promisory note as comaker and mortgaged her property as security.
The parties are in agreement that the main issue in this case is "whether the
plaintiff-appellee (respondent here) is an industrial partner as claimed by her
or merely a profit sharer entitled to 30% of the net profits that may be realized
by the partnership from June 7, 1955 until the mortgage loan from the
sjbprior| 38

Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants

(herein petitioners)." On that issue the Court of First Instance found for the
plaintiff and rendered judgement "declaring her an industrial partner of
Evangelista & Co.; ordering the defendants to render an accounting of the
business operations of the (said) partnership ... from June 7, 1955; to pay the
plaintiff such amounts as may be due as her share in the partnership profits
and/or dividends after such an accounting has been properly made; to pay
plaintiff attorney's fees in the sum of P2,000.00 and the costs of this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed
judgments of the court a quo.
In the petition before Us the petitioners have assigned the following errors:
I.
The Court of Appeals erred in the finding that the respondent is an
industrial partner of Evangelista & Co., notwithstanding the admitted fact that
since 1954 and until after promulgation of the decision of the appellate court
the said respondent was one of the judges of the City Court of Manila, and
despite its findings that respondent had been paid for services allegedly
contributed by her to the partnership. In this connection the Court of Appeals
erred:
(A)
In finding that the "amended Articles of Co-partnership," Exhibit "A" is
conclusive evidence that respondent was in fact made an industrial partner of
Evangelista & Co.
(B)
In not finding that a portion of respondent's testimony quoted in the
decision proves that said respondent did not bind herself to contribute her
industry, and she could not, and in fact did not, because she was one of the
judges of the City Court of Manila since 1954.
(C)
In finding that respondent did not in fact contribute her industry,
despite the appellate court's own finding that she has been paid for the
services allegedly rendered by her, as well as for the loans of money made by
her to the partnership.
II.
The lower court erred in not finding that in any event the respondent
was lawfully excluded from, and deprived of, her alleged share, interests and
participation, as an alleged industrial partner, in the partnership Evangelista &
Co., and its profits or net income.
III.
The Court of Appeals erred in affirming in toto the decision of the trial
court whereby respondent was declared an industrial partner of the petitioner,
and petitioners were ordered to render an accounting of the business operation
of the partnership from June 7, 1955, and to pay the respondent her alleged
share in the net profits of the partnership plus the sum of P2,000.00 as
attorney's fees and the costs of the suit, instead of dismissing respondent's
complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to
the facts as found by the Court of Appeals. The evidence presented by the
parties as the trial in support of their respective positions on the issue of

whether or not the respondent was an industrial partner was thoroughly

analyzed by the Court of Appeals on its decision, to the extent of reproducing
verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence
all over again, its jurisdiction being limited to reviewing errors of law that might
have been commited by the lower court. It should be observed, in this regard,
that the Court of Appeals did not hold that the Articles of Co-partnership,
identified in the record as Exhibit "A", was conclusive evidence that the
respondent was an industrial partner of the said company, but considered it
together with other factors, consisting of both testimonial and documentary
evidences, in arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first
assignment of error are hereunder reproduced if only to demonstrate that the
same were made after a through analysis of then evidence, and hence are
beyond this Court's power of review.
The aforequoted findings of the lower Court are assailed under Appellants' first
assigned error, wherein it is pointed out that "Appellee's documentary
evidence does not conclusively prove that appellee was in fact admitted by
appellants as industrial partner of Evangelista & Co." and that "The grounds
relied upon by the lower Court are untenable" (Pages 21 and 26, Appellant's
Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint
being that "In finding that the appellee is an industrial partner of appellant
Evangelista & Co., herein referred to as the partnership the lower court
relied mainly on the appellee's documentary evidence, entirely disregarding
facts and circumstances established by appellants" evidence which contradict
the said finding' (Page 21, Appellants' Brief). The lower court could not have
done otherwise but rely on the exhibits just mentioned, first, because
appellants have admitted their genuineness and due execution, hence they
were admitted without objection by the lower court when appellee rested her
case and, secondly the said exhibits indubitably show the appellee is an
industrial partner of appellant company. Appellants are virtually estopped from
attempting to detract from the probative force of the said exhibits because
they all bear the imprint of their knowledge and consent, and there is no
credible showing that they ever protested against or opposed their contents
prior of the filing of their answer to appellee's complaint. As a matter of fact, all
the appellant Evangelista, Jr., would have us believe as against the
cumulative force of appellee's aforesaid documentary evidence is the
appellee's Exhibit "A", as confirmed and corroborated by the other exhibits
already mentioned, does not express the true intent and agreement of the
parties thereto, the real understanding between them being the appellee would
be merely a profit sharer entitled to 30% of the net profits that may be realized
between the partners from June 7, 1955, until the mortgage loan of P30,000.00
to be obtained from the RFC shall have been fully paid. This version, however,
is discredited not only by the aforesaid documentary evidence brought forward
by the appellee, but also by the fact that from June 7, 1955 up to the filing of
their answer to the complaint on February 8, 1964 or a period of over eight
(8) years appellants did nothing to correct the alleged false agreement of
sjbprior| 39

the parties contained in Exhibit "A". It is thus reasonable to suppose that, had
appellee not filed the present action, appellants would not have advanced this
obvious afterthought that Exhibit "A" does not express the true intent and
agreement of the parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that
'there is an overriding fact which proves that the parties to the Amended
Articles of Partnership, Exhibit "A", did not contemplate to make the appellee
Estrella Abad Santos, an industrial partner of Evangelista & Co. It is an
admitted fact that since before the execution of the amended articles of
partnership, Exhibit "A", the appellee Estrella Abad Santos has been, and up to
the present time still is, one of the judges of the City Court of Manila, devoting
all her time to the performance of the duties of her public office. This fact
proves beyond peradventure that it was never contemplated between the
parties, for she could not lawfully contribute her full time and industry which is
the obligation of an industrial partner pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this
point, quoting it in the decision, and then concluded as follows:
One cannot read appellee's testimony just quoted without gaining the very
definite impression that, even as she was and still is a Judge of the City Court
of Manila, she has rendered services for appellants without which they would
not have had the wherewithal to operate the business for which appellant
company was organized. Article 1767 of the New Civil Code which provides
that "By 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, 'does not specify the kind of industry
that a partner may thus contribute, hence the said services may legitimately
be considered as appellee's contribution to the common fund. Another article
of the same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless
the partnership expressly permits him to do so; and if he should do so, the
capitalist partners may either exclude him from the firm or avail themselves of
the benefits which he may have obtained in violation of this provision, with a
right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in
business for himself seeks to prevent any conflict of interest between the
industrial partner and the partnership, and to insure faithful compliance by said
partner with this prestation. There is no pretense, however, even on the part of
the appellee is engaged in any business antagonistic to that of appellant
company, since being a Judge of one of the branches of the City Court of
Manila can hardly be characterized as a business. That appellee has faithfully
complied with her prestation with respect to appellants is clearly shown by the
fact that it was only after filing of the complaint in this case and the answer
thereto appellants exercised their right of exclusion under the codal art just
mentioned by alleging in their Supplemental Answer dated June 29, 1964 or
after around nine (9) years from June 7, 1955 subsequent to the filing of
defendants' answer to the complaint, defendants reached an agreement
whereby the herein plaintiff been excluded from, and deprived of, her alleged

share, interests or participation, as an alleged industrial partner, in the

defendant partnership and/or in its net profits or income, on the ground
plaintiff has never contributed her industry to the partnership, instead she has
been and still is a judge of the City Court (formerly Municipal Court) of the City
of Manila, devoting her time to performance of her duties as such judge and
enjoying the privilege and emoluments appertaining to the said office, aside
from teaching in law school in Manila, without the express consent of the
herein defendants' (Record On Appeal, pp. 24-25). Having always knows as a
appellee as a City judge even before she joined appellant company on June 7,
1955 as an industrial partner, why did it take appellants many yearn before
excluding her from said company as aforequoted allegations? And how can
they reconcile such exclusive with their main theory that appellee has never
been such a partner because "The real agreement evidenced by Exhibit "A"
was to grant the appellee a share of 30% of the net profits which the appellant
partnership may realize from June 7, 1955, until the mortgage of P30,000.00
obtained from the Rehabilitation Finance Corporal shall have been fully paid."
(Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that appellee
is an industrial partner of appellant company, with the right to demand for a
formal accounting and to receive her share in the net profit that may result
from such an accounting, which right appellants take exception under their
second assigned error. Our said holding is based on the following article of the
New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to
partnership affairs:
(1)
If he is wrongfully excluded from the partnership business or
possession of its property by his co-partners;
(2)

If the right exists under the terms of any agreement;

(3)

As provided by article 1807;

(4)

Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's
appellate jurisdiction to reviewing only errors of law, accepting as conclusive
the factual findings of the lower court upon its own assessment of the
evidence.
The judgment appealed from is affirmed, with costs.
Catalan Vs. Gatchalian 105 Phil 1270
G.R. No. L-11648 April 22, 1959
Facts:
Catalan and Gatchalian are partners. They mortgaged two lots to Dr.
Marave together with the improvements thereon to secure a credit from the
sjbprior| 40

latter. The partnership failed to pay the obligation. The properties were sold to
Dr. Marave at a public auction. Catalan redeemed the property and he
contends that title should be cancelled and a new one must be issued in his
name.
Issue:
Did Catalans redemption of the properties make him the absolute
owner of the lands?
Ruling:
No. Under Article 1807 of the NCC every partner becomes a trustee for his
copartner with regard to any benefits or profits derived from his act as a
partner. Consequently, when Catalan redeemed the properties in question, he
became a trustee and held the same in trust for his copartner Gatchalian,
subject to his right to demand from the latter his contribution to the amount of
redemption.
Art. 1830. The marriage of the general partner to a limited partner did not
result in the dissolution of the partnership.

EN BANC
G.R. No. 5840
September 17, 1910
THE UNITED STATES, plaintiff-appellee,
vs.
EUSEBIO CLARIN, defendant-appellant.
ARELLANO, C.J.:
Pedro Larin delivered to Pedro Tarug P172, in order that the latter, in company
with Eusebio Clarin and Carlos de Guzman, might buy and sell mangoes, and,
believing that he could make some money in this business, the said Larin made
an agreement with the three men by which the profits were to be divided
equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in fact trade in
mangoes and obtained P203 from the business, but did not comply with the
terms of the contract by delivering to Larin his half of the profits; neither did
they render him any account of the capital.
Larin charged them with the crime of estafa, but the provincial fiscal filed an
information only against Eusebio Clarin in which he accused him of
appropriating to himself not only the P172 but also the share of the profits that
belonged to Larin, amounting to P15.50.

Pedro Tarug and Carlos de Guzman appeared in the case as witnesses and
assumed that the facts presented concerned the defendant and themselves
together.
The trial court, that of First Instance of Pampanga, sentenced the defendant,
Eusebio Clarin, to six months' arresto mayor, to suffer the accessory penalties,
and to return to Pedro Larin P172, besides P30.50 as his share of the profits, or
to subsidiary imprisonment in case of insolvency, and to pay the costs. The
defendant appealed, and in deciding his appeal we arrive at the following
conclusions:
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, a contract is formed which is called partnership. (Art. 1665, Civil
Code.)
When Larin put the P172 into the partnership which he formed with Tarug,
Clarin, and Guzman, he invested his capital in the risks or benefits of the
business of the purchase and sale of mangoes, and, even though he had
reserved the capital and conveyed only the usufruct of his money, it would not
devolve upon of his three partners to return his capital to him, but upon the
partnership of which he himself formed part, or if it were to be done by one of
the three specifically, it would be Tarug, who, according to the evidence, was
the person who received the money directly from Larin.
The P172 having been received by the partnership, the business commenced
and profits accrued, the action that lies with the partner who furnished the
capital for the recovery of his money is not a criminal action for estafa, but a
civil one arising from the partnership contract for a liquidation of the
partnership and a levy on its assets if there should be any.
No. 5 of article 535 of the Penal Code, according to which those are guilty of
estafa "who, to the prejudice of another, shall appropriate or misapply any
money, goods, or any kind of personal property which they may have received
as a deposit on commission for administration or in any other character
producing the obligation to deliver or return the same," (as, for example, in
commodatum, precarium, and other unilateral contracts which require the
return of the same thing received) does not include money received for a
partnership; otherwise the result would be that, if the partnership, instead of
obtaining profits, suffered losses, as it could not be held liable civilly for the
share of the capitalist partner who reserved the ownership of the money
brought in by him, it would have to answer to the charge of estafa, for which it
would be sufficient to argue that the partnership had received the money
under obligation to return it.
We therefore freely acquit Eusebio Clarin, with the costs de oficio. The
complaint for estafa is dismissed without prejudice to the institution of a civil
action.
EN BANC
G.R. No. L-45624

April 25, 1939

sjbprior| 41

GEORGE LITTON, petitioner-appellant,

vs.
HILL & CERON, ET AL., respondents-appellees.
CONCEPCION, J.:
This is a petition to review on certiorari the decision of the Court of Appeals in
a case originating from the Court of First Instance of Manila wherein the herein
petitioner George Litton was the plaintiff and the respondents Hill & Ceron,
Robert Hill, Carlos Ceron and Visayan Surety & Insurance Corporation were
defendants.
The facts are as follows: On February 14, 1934, the plaintiff sold and delivered
to Carlos Ceron, who is one of the managing partners of Hill & Ceron, a certain
number of mining claims, and by virtue of said transaction, the defendant
Carlos Ceron delivered to the plaintiff a document reading as follows:
Feb. 14, 1934
Received from Mr. George Litton share certificates Nos. 4428, 4429 and 6699
for 5,000, 5,000 and 7,000 shares respectively total 17,000 shares of Big
Wedge Mining Company, which we have sold at P0.11 (eleven centavos) per
share or P1,870.00 less 1/2 per cent brokerage.
HILL & CERON
By: (Sgd.) CARLOS CERON
Ceron paid to the plaintiff the sum or P1,150 leaving an unpaid balance of
P720, and unable to collect this sum either from Hill & Ceron or from its surety
Visayan Surety & Insurance Corporation, Litton filed a complaint in the Court of
First Instance of Manila against the said defendants for the recovery of the said
balance. The court, after trial, ordered Carlos Ceron personally to pay the
amount claimed and absolved the partnership Hill & Ceron, Robert Hill and the
Visayan Surety & Insurance Corporation. On appeal to the Court of Appeals, the
latter affirmed the decision of the court on May 29, 1937, having reached the
conclusion that Ceron did not intend to represent and did not act for the firm
Hill & Ceron in the transaction involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the Court of
Appeals as to the question of fact just mentioned, namely, that Ceron
individually entered into the transaction with the plaintiff, but in view, however,
of certain undisputed facts and of certain regulations and provisions of the
Code of Commerce, we reach the conclusion that the transaction made by
Ceron with the plaintiff should be understood in law as effected by Hill & Ceron
and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified at the
trial that he and Ceron, during the partnership, had the same power to buy and

sell; that in said partnership Hill as well as Ceron made the transaction as
partners in equal parts; that on the date of the transaction, February 14, 1934,
the partnership between Hill and Ceron was in existence. After this date, or on
February 19th, Hill & Ceron sold shares of the Big Wedge; and when the
transaction was entered into with Litton, it was neither published in the
newspapers nor stated in the commercial registry that the partnership Hill &
Ceron had been dissolved.
Hill testified that a few days before February 14th he had a conversation with
the plaintiff in the course of which he advised the latter not to deliver shares
for sale or on commission to Ceron because the partnership was about to be
dissolved; but what importance can be attached to said advice if the
partnership was not in fact dissolved on February 14th, the date when the
transaction with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a commercial
association shall not cause any prejudice to third parties until it has been
recorded in the commercial registry. (See also Cardell vs. Maeru, 14 Phil.,
368.) The Supreme Court of Spain held that the dissolution of a partnership by
the will of the partners which is not registered in the commercial registry, does
not prejudice third persons. (Opinion of March 23, 1885.)
Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and selling
shares on their own account. Said order reads:
The stock and/or bond broker is, therefore, merely an agent or an intermediary,
and as such, shall not be allowed. . . .
(c) To buy or to sell shares of stock or bonds on his own account for purposes of
speculation and/or for manipulating the market, irrespective of whether the
purchase or sale is made from or to a private individual, broker or brokerage
firm.
In its decision the Court of Appeals states:
But there is a stronger objection to the plaintiff's attempt to make the firm
responsible to him. According to the articles of copartnership of 'Hill & Ceron,'
filed in the Bureau of Commerce.
Sixth. That the management of the business affairs of the copartnership shall
be entrusted to both copartners who shall jointly administer the business
affairs, transactions and activities of the copartnership, shall jointly open a
current account or any other kind of account in any bank or banks, shall jointly
sign all checks for the withdrawal of funds and shall jointly or singly sign, in the
latter case, with the consent of the other partner. . . .
Under this stipulation, a written contract of the firm can only be signed by one
of the partners if the other partner consented. Without the consent of one
partner, the other cannot bind the firm by a written contract. Now, assuming
for the moment that Ceron attempted to represent the firm in this contract with
the plaintiff (the plaintiff conceded that the firm name was not mentioned at
sjbprior| 42

that time), the latter has failed to prove that Hill had consented to such
contract.
It follows from the sixth paragraph of the articles of partnership of Hill &n
Ceron above quoted that the management of the business of the partnership
has been entrusted to both partners thereof, but we dissent from the view of
the Court of Appeals that for one of the partners to bind the partnership the
consent of the other is necessary. Third persons, like the plaintiff, are not
bound in entering into a contract with any of the two partners, to ascertain
whether or not this partner with whom the transaction is made has the consent
of the other partner. The public need not make inquires as to the agreements
had between the partners. Its knowledge, is enough that it is contracting with
the partnership which is represented by one of the managing partners.
There is a general presumption that each individual partner is an authorized
agent for the firm and that he has authority to bind the firm in carrying on the
partnership transactions. (Mills vs. Riggle, 112 Pac., 617.)
The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of members of the firm acting apparently in
its behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U. S.
[Law. ed.], 391.)
The second paragraph of the articles of partnership of Hill & Ceron reads in
part:
Second: That the purpose or object for which this copartnership is organized is
to engage in the business of brokerage in general, such as stock and bond
brokers, real brokers, investment security brokers, shipping brokers, and other
activities pertaining to the business of brokers in general.
The kind of business in which the partnership Hill & Ceron is to engage being
thus determined, none of the two partners, under article 130 of the Code of
Commerce, may legally engage in the business of brokerage in general as
stock brokers, security brokers and other activities pertaining to the business of
the partnership. Ceron, therefore, could not have entered into the contract of
sale of shares with Litton as a private individual, but as a managing partner of
Hill & Ceron.
The respondent argues in its brief that even admitting that one of the partners
could not, in his individual capacity, engage in a transaction similar to that in
which the partnership is engaged without binding the latter, nevertheless there
is no law which prohibits a partner in the stock brokerage business for
engaging in other transactions different from those of the partnership, as it
happens in the present case, because the transaction made by Ceron is a mere
personal loan, and this argument, so it is said, is corroborated by the Court of
Appeals. We do not find this alleged corroboration because the only finding of
fact made by the Court of Appeals is to the effect that the transaction made by
Ceron with the plaintiff was in his individual capacity.
The appealed decision is reversed and the defendants are ordered to pay to
the plaintiff, jointly and severally, the sum of P720, with legal interest, from the

date of the filing of the complaint, minus the commission of one-half per cent
(%) from the original price of P1,870, with the costs to the respondents. So
ordered.
EN BANC
G.R. No. L-22442

August 1, 1924

ANTONIO PARDO, petitioner,

vs.
THE HERCULES LUMBER CO., INC., and IGNACIO FERRER, respondents.
STREET, J.:
The petitioner, Antonio Pardo, a stockholder in the Hercules Lumber Company,
Inc., one of the respondents herein, seeks by this original proceeding in the
Supreme Court to obtain a writ of mandamus to compel the respondents to
permit the plaintiff and his duly authorized agent and representative to
examine the records and business transactions of said company. To this
petition the respondents interposed an answer, in which, after admitting
certain allegations of the petition, the respondents set forth the facts upon
which they mainly rely as a defense to the petition. To this answer the
petitioner in turn interposed a demurrer, and the cause is now before us for
determination of the issue thus presented.
It is inferentially, if not directly admitted that the petitioner is in fact a
stockholder in the Hercules Lumber Company, Inc., and that the respondent,
Ignacio Ferrer, as acting secretary of the said company, has refused to permit
the petitioner or his agent to inspect the records and business transactions of
the said Hercules Lumber Company, Inc., at times desired by the petitioner. No
serious question is of course made as to the right of the petitioner, by himself
or proper representative, to exercise the right of inspection conferred by
section 51 of Act No. 1459. Said provision was under the consideration of this
court in the case of Philpotts vs. Philippine Manufacturing Co., and Berry (40
Phil., 471), where we held that the right of examination there conceded to the
stockholder may be exercised either by a stockholder in person or by any duly
authorized agent or representative.
The main ground upon which the defense appears to be rested has reference
to the time, or times, within which the right of inspection may be exercised. In
this connection the answer asserts that in article 10 of the By-laws of the
respondent corporation it is declared that "Every shareholder may examine the
books of the company and other documents pertaining to the same upon the
days which the board of directors shall annually fix." It is further averred that at
the directors' meeting of the respondent corporation held on February 16,
1924, the board passed a resolution to the following effect:
The board also resolved to call the usual general (meeting of shareholders) for
March 30 of the present year, with notice to the shareholders that the books of
the company are at their disposition from the 15th to 25th of the same month
for examination, in appropriate hours.
sjbprior| 43

The contention for the respondent is that this resolution of the board
constitutes a lawful restriction on the right conferred by statute; and it is
insisted that as the petitioner has not availed himself of the permission to
inspect the books and transactions of the company within the ten days thus
defined, his right to inspection and examination is lost, at least for this year.
We are entirely unable to concur in this contention. The general right given by
the statute may not be lawfully abridged to the extent attempted in this
resolution. It may be admitted that the officials in charge of a corporation may
deny inspection when sought at unusual hours or under other improper
conditions; but neither the executive officers nor the board of directors have
the power to deprive a stockholder of the right altogether. A by-law unduly
restricting the right of inspection is undoubtedly invalid. Authorities to this
effect are too numerous and direct to require extended comment. (14 C.J., 859;
7 R.C.L., 325; 4 Thompson on Corporations, 2nd ed., sec. 4517; Harkness vs.
Guthrie, 27 Utah, 248; 107 Am., St. Rep., 664. 681.) Under a statute similar to
our own it has been held that the statutory right of inspection is not affected by
the adoption by the board of directors of a resolution providing for the closing
of transfer books thirty days before an election. (State vs. St. Louis Railroad
Co., 29 Mo., Ap., 301.)
It will be noted that our statute declares that the right of inspection can be
exercised "at reasonable hours." This means at reasonable hours on business
days throughout the year, and not merely during some arbitrary period of a
few days chosen by the directors.
In addition to relying upon the by-law, to which reference is above made, the
answer of the respondents calls in question the motive which is supposed to
prompt the petitioner to make inspection; and in this connection it is alleged
that the information which the petitioner seeks is desired for ulterior purposes
in connection with a competitive firm with which the petitioner is alleged to be
connected. It is also insisted that one of the purposes of the petitioner is to
obtain evidence preparatory to the institution of an action which he means to
bring against the corporation by reason of a contract of employment which
once existed between the corporation and himself. These suggestions are
entirely apart from the issue, as, generally speaking, the motive of the
shareholder exercising the right is immaterial. (7 R.C.L., 327.)
We are of the opinion that, upon the allegations of the petition and the
admissions of the answer, the petitioner is entitled to relief. The demurrer is,
therefore, sustained; and the writ of mandamus will issue as prayed, with the
costs against the respondent. So ordered.
THIRD DIVISION
G.R. No. 70926 January 31, 1989
DAN FUE LEUNG, petitioner,
vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

GUTIERREZ, JR., J.:

The petitioner asks for the reversal of the decision of the then Intermediate
Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of the
then Court of First Instance of Manila, Branch II in Civil Case No. 116725
declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung
in the business of Sun Wah Panciteria and ordering the petitioner to pay to the
private respondent his share in the annual profits of the said restaurant.
This case originated from a complaint filed by respondent Leung Yiu with the
then Court of First Instance of Manila, Branch II to recover the sum equivalent
to twenty-two percent (22%) of the annual profits derived from the operation of
Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta.
Cruz, Manila, was established sometime in October, 1955. It was registered as
a single proprietorship and its licenses and permits were issued to and in favor
of petitioner Dan Fue Leung as the sole proprietor. Respondent Leung Yiu
adduced evidence during the trial of the case to show that Sun Wah Panciteria
was actually a partnership and that he was one of the partners having
contributed P4,000.00 to its initial establishment.
The private respondents evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the
private respondent gave P4,000.00 as his contribution to the partnership. This
is evidenced by a receipt identified as Exhibit "A" wherein the petitioner
acknowledged his acceptance of the P4,000.00 by affixing his signature
thereto. The receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of Ms. Florence Yap to translate its
contents into English. Florence Yap issued a certification and testified that the
translation to the best of her knowledge and belief was correct. The private
respondent identified the signature on the receipt as that of the petitioner
(Exhibit A-3) because it was affixed by the latter in his (private respondents')
presence. Witnesses So Sia and Antonio Ah Heng corroborated the private
respondents testimony to the effect that they were both present when the
receipt (Exhibit "A") was signed by the petitioner. So Sia further testified that
he himself received from the petitioner a similar receipt (Exhibit D) evidencing
delivery of his own investment in another amount of P4,000.00 An examination
was conducted by the PC Crime Laboratory on orders of the trial court granting
the private respondents motion for examination of certain documentary
exhibits. The signatures in Exhibits "A" and 'D' when compared to the signature
of the petitioner appearing in the pay envelopes of employees of the
restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed
that the signatures in the two receipts were indeed the signatures of the
petitioner.
Furthermore, the private respondent received from the petitioner the amount
of P12,000.00 covered by the latter's Equitable Banking Corporation Check No.
13389470-B from the profits of the operation of the restaurant for the year
1974. Witness Teodulo Diaz, Chief of the Savings Department of the China
sjbprior| 44

Banking Corporation testified that said check (Exhibit B) was deposited by and
duly credited to the private respondents savings account with the bank after it
was cleared by the drawee bank, the Equitable Banking Corporation. Another
witness Elvira Rana of the Equitable Banking Corporation testified that the
check in question was in fact and in truth drawn by the petitioner and debited
against his own account in said bank. This fact was clearly shown and indicated
in the petitioner's statement of account after the check (Exhibit B) was duly
cleared. Rana further testified that upon clearance of the check and pursuant
to normal banking procedure, said check was returned to the petitioner as the
maker thereof.
The petitioner denied having received from the private respondent the amount
of P4,000.00. He contested and impugned the genuineness of the receipt
(Exhibit D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the Sun
Wah Panciteria. He used his savings from his salaries as an employee at Camp
Stotsenberg in Clark Field and later as waiter at the Toho Restaurant amounting
to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria. To
bolster his contention that he was the sole owner of the restaurant, the
petitioner presented various government licenses and permits showing the Sun
Wah Panciteria was and still is a single proprietorship solely owned and
operated by himself alone. Fue Leung also flatly denied having issued to the
private respondent the receipt (Exhibit G) and the Equitable Banking
Corporation's Check No. 13389470 B in the amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiffs. Hence, the court ruled in favor of the private
respondent. The dispositive portion of the decision reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against
the defendant, ordering the latter to deliver and pay to the former, the sum
equivalent to 22% of the annual profit derived from the operation of Sun Wah
Panciteria from October, 1955, until fully paid, and attorney's fees in the
amount of P5,000.00 and cost of suit. (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the nature
of a motion for new trial and, as supplement to the said motion, he requested
that the decision rendered should include the net profit of the Sun Wah
Panciteria which was not specified in the decision, and allow private
respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further litigation.
The motion was granted over the objections of the petitioner. After hearing the
trial court rendered an amended decision, the dispositive portion of which
reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration
filed by the plaintiff, which was granted earlier by the Court, is hereby
reiterated and the decision rendered by this Court on September 30, 1980, is
hereby amended. The dispositive portion of said decision should read now as
follows:

WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and

against the defendant, ordering the latter to pay the former the sum equivalent
to 22% of the net profit of P8,000.00 per day from the time of judicial demand,
until fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs
of suit. (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further modified by
the appellate court. The dispositive portion of the appellate court's decision
reads:
WHEREFORE, the decision appealed from is modified, the dispositive portion
thereof reading as follows:
1. Ordering the defendant to pay the plaintiff by way of temperate damages
22% of the net profit of P2,000.00 a day from judicial demand to May 15, 1971;
2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day
from May 16, 1971 to August 30, 1975;
3. And thereafter until fully paid the sum equivalent to 22% of the net profit of
P8,000.00 a day.
Except as modified, the decision of the court a quo is affirmed in all other
respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed
the lower court's decision. The dispositive portion of the resolution reads:
WHEREFORE, the dispositive portion of the amended judgment of the court a
quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the
defendant, ordering the latter to pay to the former the sum equivalent to 22%
of the net profit of P8,000.00 per day from the time of judicial demand, until
fully paid, plus the sum of P5,000.00 as and for attorney's fees and costs of
suit.
is hereby retained in full and affirmed in toto it being understood that the date
of judicial demand is July 13, 1978. (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was
denied.
Both the trial court and the appellate court found that the private respondent is
a partner of the petitioner in the setting up and operations of the panciteria.
While the dispositive portions merely ordered the payment of the respondents
share, there is no question from the factual findings that the respondent
invested in the business as a partner. Hence, the two courts declared that the
private petitioner is entitled to a share of the annual profits of the restaurant.
The petitioner, however, claims that this factual finding is erroneous. Thus, the
sjbprior| 45

petitioner argues: "The complaint avers that private respondent extended

'financial assistance' to herein petitioner at the time of the establishment of
the Sun Wah Panciteria, in return of which private respondent allegedly will
receive a share in the profits of the restaurant. The same complaint did not
claim that private respondent is a partner of the business. It was, therefore, a
serious error for the lower court and the Hon. Intermediate Appellate Court to
grant a relief not called for by the complaint. It was also error for the Hon.
Intermediate Appellate Court to interpret or construe 'financial assistance' to
mean the contribution of capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
2. That on or about the latter (sic) of September, 1955, defendant sought the
financial assistance of plaintiff in operating the defendant's eatery known as
Sun Wah Panciteria, located in the given address of defendant; as a return for
such financial assistance. plaintiff would be entitled to twenty-two percentum
(22%) of the annual profit derived from the operation of the said panciteria;
3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four
thousand pesos (P4,000.00), Philippine Currency, of which copy for the receipt
of such amount, duly acknowledged by the defendant is attached hereto as
Annex "A", and form an integral part hereof; (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria was
established, he gave P4,000.00 to the petitioner with the understanding that
he would be entitled to twenty-two percent (22%) of the annual profit derived
from the operation of the said panciteria. These allegations, which were
proved, make the private respondent and the petitioner partners in the
establishment of Sun Wah Panciteria because Article 1767 of the Civil Code
provides that "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".
Therefore, the lower courts did not err in construing the complaint as one
wherein the private respondent asserted his rights as partner of the petitioner
in the establishment of the Sun Wah Panciteria, notwithstanding the use of the
term financial assistance therein. We agree with the appellate court's
observation to the effect that "... given its ordinary meaning, financial
assistance is the giving out of money to another without the expectation of any
returns therefrom'. It connotes an ex gratia dole out in favor of someone driven
into a state of destitution. But this circumstance under which the P4,000.00
was given to the petitioner does not obtain in this case.' (p. 99, Rollo) The
complaint explicitly stated that "as a return for such financial assistance,
plaintiff (private respondent) would be entitled to twenty-two percentum (22%)
of the annual profit derived from the operation of the said panciteria.' (p. 107,
Rollo) The well-settled doctrine is that the '"... nature of the action filed in court
is determined by the facts alleged in the complaint as constituting the cause of
action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger
Electric, Inc. v. Court of Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant
case was whether or not the private respondent is a partner of the petitioner in
the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in giving
probative value to the PC Crime Laboratory Report (Exhibit "J") on the ground
that the alleged standards or specimens used by the PC Crime Laboratory in
arriving at the conclusion were never testified to by any witness nor has any
witness identified the handwriting in the standards or specimens belonging to
the petitioner. The supposed standards or specimens of handwriting were
marked as Exhibits "H" "H-1" to "H-24" and admitted as evidence for the
private respondent over the vigorous objection of the petitioner's counsel.
The records show that the PC Crime Laboratory upon orders of the lower court
examined the signatures in the two receipts issued separately by the petitioner
to the private respondent and So Sia (Exhibits "A" and "D") and compared the
signatures on them with the signatures of the petitioner on the various pay
envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong,
employees of the restaurant. After the usual examination conducted on the
questioned documents, the PC Crime Laboratory submitted its findings (Exhibit
J) attesting that the signatures appearing in both receipts (Exhibits "A" and "D")
were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H24") were presented by the private respondent for marking as exhibits, the
petitioner did not interpose any objection. Neither did the petitioner file an
opposition to the motion of the private respondent to have these exhibits
together with the two receipts examined by the PC Crime Laboratory despite
due notice to him. Likewise, no explanation has been offered for his silence nor
was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be
rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He argues: The Hon. Respondent
Intermediate Appellate Court gravely erred in not resolving the issue of
prescription in favor of petitioner. The alleged receipt is dated October 1, 1955
and the complaint was filed only on July 13, 1978 or after the lapse of twentytwo (22) years, nine (9) months and twelve (12) days. From October 1, 1955 to
July 13, 1978, no written demands were ever made by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which
provides:
Art. 1144. The following actions must be brought within ten years from the
time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
sjbprior| 46

(3) Upon a judgment.

ATTY. HIPOLITO (direct examination to Mrs. Licup).

in relation to Article 1155 thereof which provides:

Q Mrs. Witness, you stated that among your duties was that you were in charge
of the custody of the cashier's box, of the money, being the cashier, is that
correct?

Art. 1155. The prescription of actions is interrupted when they are filed before
the court, when there is a written extra-judicial demand by the creditor, and
when there is any written acknowledgment of the debt by the debtor.'
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria. The
requisites of a partnership which are 1) two or more persons bind
themselves to contribute money, property, or industry to a common fund; and
2) intention on the part of the partners to divide the profits among themselves
(Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been
established. As stated by the respondent, a partner shares not only in profits
but also in the losses of the firm. If excellent relations exist among the partners
at the start of 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. It would be incorrect to state that if a partner does
not assert his rights anytime within ten years from the start of operations, such
rights are irretrievably lost. The private respondent's cause of action is
premised upon the failure of the petitioner to give him the agreed profits in the
operation of Sun Wah Panciteria. In effect the private respondent was asking
for an accounting of his interests in the partnership.

Yes, sir.

Q
So that every time there is a customer who pays, you were the one
who accepted the money and you gave the change, if any, is that correct?
A

Yes.

Q
Now, after 11:30 (P.M.) which is the closing time as you said, what do
you do with the money?
A We balance it with the manager, Mr. Dan Fue Leung.
ATTY. HIPOLITO:
I see.
Q

So, in other words, after your job, you huddle or confer together?

Yes, count it all. I total it. We sum it up.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155
which is applicable. Article 1842 states:

Q
Now, Mrs. Witness, in an average day, more or less, will you please
tell us, how much is the gross income of the restaurant?

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 or any agreement to the contrary.

A For regular days, I received around P7,000.00 a day during my shift alone
and during pay days I receive more than P10,000.00. That is excluding the
catering outside the place.

Regarding the prescriptive period within which the private respondent may
demand an accounting, Articles 1806, 1807, and 1809 show that the right to
demand an accounting exists as long as the partnership exists. Prescription
begins to run only upon the dissolution of the partnership when the final
accounting is done.

Q What about the catering service, will you please tell the Honorable Court how
many times a week were there catering services?
A Sometimes three times a month; sometimes two times a month or more.
xxx

xxx

xxx

Finally, the petitioner assails the appellate court's monetary awards in favor of
the private respondent for being excessive and unconscionable and above the
claim of private respondent as embodied in his complaint and testimonial
evidence presented by said private respondent to support his claim in the
complaint.

Now more or less, do you know the cost of the catering service?

Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup, to
testify on the income of the restaurant.

That ranges from two thousand to six thousand pesos, sir.

Per service?

Mrs. Licup stated:

Per service, Per catering.

A Yes, because I am the one who receives the payment also of the catering.
Q

How much is that?

sjbprior| 47

Q
So in other words, Mrs. witness, for your shift alone in a single day
from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an income of
P7,000.00 in a regular day?
A

Yes.

And ten thousand pesos during pay day.?

Yes.

(TSN, pp. 53 to 59, inclusive, November 15,1978)

xxx

xxx

xxx

COURT:
Any cross?
ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978). (Rollo,
pp. 127-128)
The statements of the cashier were not rebutted. Not only did the petitioner's
counsel waive the cross-examination on the matter of income but he failed to
comply with his promise to produce pertinent records. When a subpoena duces
tecum was issued to the petitioner for the production of their records of sale,
his counsel voluntarily offered to bring them to court. He asked for sufficient
time prompting the court to cancel all hearings for January, 1981 and reset
them to the later part of the following month. The petitioner's counsel never
produced any books, prompting the trial court to state:
Counsel for the defendant admitted that the sales of Sun Wah were registered
or recorded in the daily sales book. ledgers, journals and for this purpose,
employed a bookkeeper. This inspired the Court to ask counsel for the
defendant to bring said records and counsel for the defendant promised to
bring those that were available. Seemingly, that was the reason why this case
dragged for quite sometime. To bemuddle the issue, defendant instead of
presenting the books where the same, etc. were recorded, presented witnesses
who claimed to have supplied chicken, meat, shrimps, egg and other poultry
products which, however, did not show the gross sales nor does it prove that
the same is the best evidence. This Court gave warning to the defendant's
counsel that if he failed to produce the books, the same will be considered a
waiver on the part of the defendant to produce the said books inimitably
showing decisive records on the income of the eatery pursuant to the Rules of
Court (Sec. 5(e) Rule 131). "Evidence willfully suppressed would be adverse if
produced." (Rollo, p. 145)
The records show that the trial court went out of its way to accord due process
to the petitioner.

The defendant was given all the chance to present all conceivable witnesses,
after the plaintiff has rested his case on February 25, 1981, however, after
presenting several witnesses, counsel for defendant promised that he will
present the defendant as his last witness. Notably there were several
postponement asked by counsel for the defendant and the last one was on
October 1, 1981 when he asked that this case be postponed for 45 days
because said defendant was then in Hongkong and he (defendant) will be back
after said period. The Court acting with great concern and understanding reset
the hearing to November 17, 1981. On said date, the counsel for the defendant
who again failed to present the defendant asked for another postponement,
this time to November 24, 1981 in order to give said defendant another judicial
magnanimity and substantial due process. It was however a condition in the
order granting the postponement to said date that if the defendant cannot be
presented, counsel is deemed to have waived the presentation of said witness
and will submit his case for decision.
On November 24, 1981, there being a typhoon prevailing in Manila said date
was declared a partial non-working holiday, so much so, the hearing was reset
to December 7 and 22, 1981. On December 7, 1981, on motion of defendant's
counsel, the same was again reset to December 22, 1981 as previously
scheduled which hearing was understood as intransferable in character. Again
on December 22, 1981, the defendant's counsel asked for postponement on
the ground that the defendant was sick. the Court, after much tolerance and
judicial magnanimity, denied said motion and ordered that the case be
submitted for resolution based on the evidence on record and gave the parties
30 days from December 23, 1981, within which to file their simultaneous
memoranda. (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front
of the Republic Supermarket. It is near the corner of Claro M. Recto Street.
According to the trial court, it is in the heart of Chinatown where people who
buy and sell jewelries, businessmen, brokers, manager, bank employees, and
people from all walks of life converge and patronize Sun Wah.
There is more than substantial evidence to support the factual findings of the
trial court and the appellate court. If the respondent court awarded damages
only from judicial demand in 1978 and not from the opening of the restaurant
in 1955, it is because of the petitioner's contentions that all profits were being
plowed back into the expansion of the business. There is no basis in the
records to sustain the petitioners contention that the damages awarded are
excessive. Even if the Court is minded to modify the factual findings of both the
trial court and the appellate court, it cannot refer to any portion of the records
for such modification. There is no basis in the records for this Court to change
or set aside the factual findings of the trial court and the appellate court. The
petitioner was given every opportunity to refute or rebut the respondent's
submissions but, after promising to do so, it deliberately failed to present its
books and other evidence.
The resolution of the Intermediate Appellate Court ordering the payment of the
petitioner's obligation shows that the same continues until fully paid. The
question now arises as to whether or not the payment of a share of profits shall
continue into the future with no fixed ending date.
sjbprior| 48

Considering the facts of this case, the Court may decree a dissolution of the
partnership under Article 1831 of the Civil Code which, in part, provides:
Art. 1831. On application by or for a partner the court shall decree a dissolution
whenever:
xxx xxx xxx
(3) A partner has been guilty of such conduct as tends to affect prejudicially
the carrying on of the business;
(4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
xxx xxx xxx
(6) Other circumstances render a dissolution equitable.
There shall be a liquidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The
decision of the respondent court is AFFIRMED with a MODIFICATION that as
indicated above, the partnership of the parties is ordered dissolved.
SO ORDERED.
SECOND DIVISION
G.R. No. L-22493 July 31, 1975
ISLAND SALES, INC., plaintiff-appellee,
vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants.
BENJAMIN C. DACO, defendant-appellant.
CONCEPCION JR., J.:
This is an appeal interposed by the defendant Benjamin C. Daco from the
decision of the Court of First Instance of Manila, Branch XVI, in Civil Case No.
50682, the dispositive portion of which reads:
WHEREFORE, the Court sentences defendant United Pioneer General
Construction Company to pay plaintiff the sum of P7,119.07 with interest at the
rate of 12% per annum until it is fully paid, plus attorney's fees which the Court
fixes in the sum of Eight Hundred Pesos (P800.00) and costs.

The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto
Palisoc are sentenced to pay the plaintiff in this case with the understanding
that the judgment against these individual defendants shall be enforced only if
the defendant company has no more leviable properties with which to satisfy
the judgment against it. .
The individual defendants shall also pay the costs.
On April 22, 1961, the defendant company, a general partnership duly
registered under the laws of the Philippines, purchased from the plaintiff a
motor vehicle on the installment basis and for this purpose executed a
promissory note for P9,440.00, payable in twelve (12) equal monthly
installments of P786.63, the first installment payable on or before May 22,
1961 and the subsequent installments on the 22nd day of every month
thereafter, until fully paid, with the condition that failure to pay any of said
installments as they fall due would render the whole unpaid balance
immediately due and demandable.
Having failed to receive the installment due on July 22, 1961, the plaintiff sued
the defendant company for the unpaid balance amounting to P7,119.07.
Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim, Romulo B. Lumauig, and
Augusto Palisoc were included as co-defendants in their capacity as general
partners of the defendant company.
Daniel A. Guizona failed to file an answer and was consequently declared in
default. 1
Subsequently, on motion of the plaintiff, the complaint was dismissed insofar
as the defendant Romulo B. Lumauig is concerned. 2
When the case was called for hearing, the defendants and their counsels failed
to appear notwithstanding the notices sent to them. Consequently, the trial
court authorized the plaintiff to present its evidence ex-parte 3 , after which
the trial court rendered the decision appealed from.
The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the
decision claiming that since there are five (5) general partners, the joint and
subsidiary liability of each partner should not exceed one-fifth ( 1/ 5 ) of the
obligations of the defendant company. But the trial court denied the said
motion notwithstanding the conformity of the plaintiff to limit the liability of the
defendants Daco and Sim to only one-fifth ( 1/ 5 ) of the obligations of the
defendant company. 4 Hence, this appeal.
The only issue for resolution is whether or not the dismissal of the complaint to
favor one of the general partners of a partnership increases the joint and
subsidiary liability of each of the remaining partners for the obligations of the
partnership.
Article 1816 of the Civil Code provides:
Art. 1816.
All partners including industrial ones, shall be liable pro rata
with all their property and after all the partnership assets have been
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exhausted, for the contracts which may be entered into in the name and for
the account of the partnership, under its signature and by a person authorized
to act for the partnership. However, any partner may enter into a separate
obligation to perform a partnership contract.
In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:
The partnership of Yulo and Palacios was engaged in the operation of a sugar
estate in Negros. It was, therefore, a civil partnership as distinguished from a
mercantile partnership. Being a civil partnership, by the express provisions of
articles l698 and 1137 of the Civil Code, the partners are not liable each for the
whole debt of the partnership. The liability is pro rata and in this case Pedro
Yulo is responsible to plaintiff for only one-half of the debt. The fact that the
other partner, Jaime Palacios, had left the country cannot increase the liability
of Pedro Yulo.
In the instant case, there were five (5) general partners when the promissory
note in question was executed for and in behalf of the partnership. Since the
liability of the partners is pro rata, the liability of the appellant Benjamin C.
Daco shall be limited to only one-fifth ( 1/ 5 ) of the obligations of the
defendant company. The fact that the complaint against the defendant Romulo
B. Lumauig was dismissed, upon motion of the plaintiff, does not unmake the
said Lumauig as a general partner in the defendant company. In so moving to
dismiss the complaint, the plaintiff merely condoned Lumauig's individual
liability to the plaintiff.
WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED,
without pronouncement as to costs.
SO ORDERED.

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