CASE LIST

A. Definition/Elements/Existence (1767-1783)
Woodhouse v Halili (93 P 26)
G.R. No. L-4811

July 31, 1953

CHARLES
F.
vs.
FORTUNATO F. HALILI, defendant-appellant.
Taada,
Pelaez
&
Teehankee
for
Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.

WOODHOUSE, plaintiff-appellant,

defendant

and

appellant.

LABRADOR, J.:
On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant,
the most important provisions of which are (1) that they shall organize a partnership for the bottling
and distribution of Mision soft drinks, plaintiff to act as industrial partner or manager, and the
defendant as a capitalist, furnishing the capital necessary therefor; (2) that the defendant was to
decide matters of general policy regarding the business, while the plaintiff was to attend to the
operation and development of the bottling plant; (3) that the plaintiff was to secure the Mission Soft
Drinks franchise for and in behalf of the proposed partnership; and (4) that the plaintiff was to
receive 30 per cent of the net profits of the business. The above agreement was arrived at after
various conferences and consultations by and between them, with the assistance of their respective
attorneys. Prior to entering into this agreement, plaintiff had informed the Mission Dry Corporation of
Los Angeles, California, U.S.A., manufacturers of the bases and ingridients of the beverages bearing
its name, that he had interested a prominent financier (defendant herein) in the business, who was
willing to invest half a million dollars in the bottling and distribution of the said beverages, and
requested, in order that he may close the deal with him, that the right to bottle and distribute be
granted him for a limited time under the condition that it will finally be transferred to the corporation
(Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days" option on exclusive bottling
and distribution rights for the Philippines" (Exhibit J). Formal negotiations between plaintiff and
defendant began at a meeting on November 27, 1947, at the Manila Hotel, with their lawyers
attending. Before this meeting plaintiff's lawyer had prepared the draft of the agreement, Exhibit II or
OO, but this was not satisfactory because a partnership, instead of a corporation, was desired.
Defendant's lawyer prepared after the meeting his own draft, Exhibit HH. This last draft appears to
be the main basis of the agreement, Exhibit A.
The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the
United States without the agreement being not first signed. On that day plaintiff and defendant went
to the United States, and on December 10, 1947, a franchise agreement (Exhibit V) was entered into
the Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granted defendant
the exclusive right, license, and authority to produce, bottle, distribute, and sell Mision beverages in
the Philippines. The plaintiff and the defendant thereafter returned to the Philippines. Plaintiff
reported for duty in January, 1948, but operations were not begun until the first week of February,
1948. In January plaintiff was given as advance, on account of profits, the sum of P2,000, besides

the use of a car; in February, 1948, also P2,000, and in March only P1,000. The car was withdrawn
from plaintiff on March 9, 1948.
When the bottling plant was already on operation, plaintiff demanded of defendant that the
partnership papers be executed. At first defendant executed himself, saying there was no hurry.
Then he promised to do so after the sales of the product had been increased to P50,000. As nothing
definite was forthcoming, after this condition was attained, and as defendant refused to give further
allowances to plaintiff, the latter caused his attorneys to take up the matter with the defendant with a
view to a possible settlement. as none could be arrived at, the present action was instituted.
In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the
profits, and a share thereof of 30 per cent, as well as damages in the amount of P200,000. In his
answer defendant alleges by way of defense (1) that defendant's consent to the agreement, Exhibit
A, was secured by the representation of plaintiff that he was the owner, or was about to become
owner of an exclusive bottling franchise, which representation was false, and plaintiff did not secure
the franchise, but was given to defendant himself; (2) that defendant did not fail to carry out his
undertakings, but that it was plaintiff who failed; (3) that plaintiff agreed to contribute the exclusive
franchise to the partnership, but plaintiff failed to do so. He also presented a counter-claim for
P200,000 as damages. On these issues the parties went to trial, and thereafter the Court of First
Instance rendered judgment ordering defendant to render an accounting of the profits of the bottling
and distribution business, subject of the action, and to pay plaintiff 15 percent thereof. it held that the
execution of the contract of partnership could not be enforced upon the parties, but it also held that
the defense of fraud was not proved. Against this judgment both parties have appealed.
The most important question of fact to be determined is whether defendant had falsely represented
that he had an exclusive franchise to bottle Mission beverages, and whether this false representation
or fraud, if it existed, annuls the agreement to form the partnership. The trial court found that it is
improbable that defendant was never shown the letter, Exhibit J, granting plaintiff had; that the drafts
of the contract prior to the final one can not be considered for the purpose of determining the issue,
as they are presumed to have been already integrated into the final agreement; that fraud is never
presumed and must be proved; that the parties were represented by attorneys, and that if any party
thereto got the worse part of the bargain, this fact alone would not invalidate the agreement. On this
appeal the defendant, as appellant, insists that plaintiff did represent to the defendant that he had an
exclusive franchise, when as a matter of fact, at the time of its execution, he no longer had it as the
same had expired, and that, therefore, the consent of the defendant to the contract was vitiated by
fraud and it is, consequently, null and void.
Our study of the record and a consideration of all the surrounding circumstances lead us to believe
that defendant's contention is not without merit. Plaintiff's attorney, Mr. Laurea, testified that
Woodhouse presented himself as being the exclusive grantee of a franchise, thus:
A. I don't recall any discussion about that matter. I took along with me the file of the office
with regards to this matter. I notice from the first draft of the document which I prepared
which calls for the organization of a corporation, that the manager, that is, Mr. Woodhouse, is
represented as being the exclusive grantee of a franchise from the Mission Dry
Corporation. . . . (t.s.n., p.518)

As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel
conference on November 27th, expressly states that plaintiff had the exclusive franchise. Thus, the
first paragraph states:
Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry
Corporation San Francisco, California, for the bottling of Mission products and their sale to
the public throughout the Philippines; . . . .
3. The manager, upon the organization of the said corporation, shall forthwith transfer to the
said corporation his exclusive right to bottle Mission products and to sell them throughout the
Philippines. . . . .
(Exhibit II; emphasis ours)
The trial court did not consider this draft on the principle of integration of jural acts. We find that the
principle invoked is inapplicable, since the purpose of considering the prior draft is not to vary, alter,
or modify the agreement, but to discover the intent of the parties thereto and the circumstances
surrounding the execution of the contract. The issue of fact is: Did plaintiff represent to defendant
that he had an exclusive franchise? Certainly, his acts or statements prior to the agreement are
essential and relevant to the determination of said issue. The act or statement of the plaintiff was not
sought to be introduced to change or alter the terms of the agreement, but to prove how he induced
the defendant to enter into it to prove the representations or inducements, or fraud, with which or
by which he secured the other party's consent thereto. These are expressly excluded from the parol
evidence rule. (Bough and Bough vs. Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber
Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952 rev. ed.) Fraud and false
representation are an incident to the creation of a jural act, not to its integration, and are not
governed by the rules on integration. Were parties prohibited from proving said representations or
inducements, on the ground that the agreement had already been entered into, it would be
impossible to prove misrepresentation or fraud. Furthermore, the parol evidence rule expressly
allows the evidence to be introduced when the validity of an instrument is put in issue by the
pleadings (section 22, par. (a), Rule 123, Rules of Court),as in this case.
That plaintiff did make the representation can also be easily gleaned from his own letters and his
own testimony. In his letter to Mission Dry Corporation, Exhibit H, he said:.
. . . He told me to come back to him when I was able to speak with authority so that we could
come to terms as far as he and I were concerned. That is the reason why the cable was
sent. Without this authority, I am in a poor bargaining position. . .
I would propose that you grant me the exclusive bottling and distributing rights for a limited
period of time, during which I may consummate my plants. . . .
By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947.
(See Exhibit J.) If this option for an exclusive franchise was intended by plaintiff as an instrument
with which to bargain with defendant and close the deal with him, he must have used his said option
for the above-indicated purpose, especially as it appears that he was able to secure, through its use,
what he wanted.

Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that
when plaintiff called on the latter, the latter answered, "Well, come back to me when you have the
authority to operate. I am definitely interested in the bottling business." (t. s. n., pp. 60-61.) When
after the elections of 1949 plaintiff went to see the defendant (and at that time he had already the
option), he must have exultantly told defendant that he had the authority already. It is improbable
and incredible for him to have disclosed the fact that he had only an option to the exclusive
franchise, which was to last thirty days only, and still more improbable for him to have disclosed that,
at the time of the signing of the formal agreement, his option had already expired. Had he done so,
he would have destroyed all his bargaining power and authority, and in all probability lost the deal
itself.
The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the
agreement "to secure the Mission Dry franchise for and in behalf of the proposed partnership." The
existence of this provision in the final agreement does not militate against plaintiff having
represented that he had the exclusive franchise; it rather strengthens belief that he did actually make
the representation. How could plaintiff assure defendant that he would get the franchise for the latter
if he had not actually obtained it for himself? Defendant would not have gone into the business
unless the franchise was raised in his name, or at least in the name of the partnership. Plaintiff
assured defendant he could get the franchise. Thus, in the draft prepared by defendant's attorney,
Exhibit HH, the above provision is inserted, with the difference that instead of securing the franchise
for the defendant, plaintiff was to secure it for the partnership. To show that the insertion of the above
provision does not eliminate the probability of plaintiff representing himself as the exclusive grantee
of the franchise, the final agreement contains in its third paragraph the following:
. . . and the manager is ready and willing to allow the capitalists to use the exclusive
franchise . . .
and in paragraph 11 it also expressly states:
1. In the event of the dissolution or termination of the partnership, . . . the franchise from
Mission Dry Corporation shall be reassigned to the manager.
These statements confirm the conclusion that defendant believed, or was made to believe, that
plaintiff was the grantee of an exclusive franchise. Thus it is that it was also agreed upon that the
franchise was to be transferred to the name of the partnership, and that, upon its dissolution or
termination, the same shall be reassigned to the plaintiff.
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have
the exclusive franchise, was to reduce, as he himself testified, plaintiff's participation in the net profits
to one half of that agreed upon. He could not have had such a feeling had not plaintiff actually made
him believe that he (plaintiff) was the exclusive grantee of the franchise.
The learned trial judge reasons in his decision that the assistance of counsel in the making of the
contract made fraud improbable. Not necessarily, because the alleged representation took place
before the conferences were had, in other words, plaintiff had already represented to defendant, and
the latter had already believed in, the existence of plaintiff's exclusive franchise before the formal
negotiations, and they were assisted by their lawyers only when said formal negotiations actually
took place. Furthermore, plaintiff's attorney testified that plaintiff had said that he had the exclusive

franchise; and defendant's lawyer testified that plaintiff explained to him, upon being asked for the
franchise, that he had left the papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the
holder of the exclusive franchise. The defendant was made to believe, and he actually believed, that
plaintiff had the exclusive franchise. Defendant would not perhaps have gone to California and
incurred expenses for the trip, unless he believed that plaintiff did have that exclusive privilege, and
that the latter would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew
what defendant believed about his (plaintiff's) exclusive franchise, as he induced him to that belief,
and he may not be allowed to deny that defendant was induced by that belief. (IX Wigmore, sec.
2423; Sec. 65, Rule 123, Rules of Court.)
We now come to the legal aspect of the false representation. Does it amount to a fraud that would
vitiate the contract? It must be noted that fraud is manifested in illimitable number of degrees or
gradations, from the innocent praises of a salesman about the excellence of his wares to those
malicious machinations and representations that the law punishes as a crime. In consequence,
article 1270 of the Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which
may be a ground for the annulment of a contract, and the incidental deceit, which only renders the
party who employs it liable for damages. This Court had held that in order that fraud may vitiate
consent, it must be the causal (dolo causante), not merely the incidental (dolo causante),
inducement to the making of the contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil.
160.) The record abounds with circumstances indicative that the fact that the principal consideration,
the main cause that induced defendant to enter into the partnership agreement with plaintiff, was the
ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the
partnership. The original draft prepared by defendant's counsel was to the effect that plaintiff
obligated himself to secure a franchise for the defendant. Correction appears in this same original
draft, but the change is made not as to the said obligation but as to the grantee. In the corrected
draft the word "capitalist"(grantee) is changed to "partnership." The contract in its final form retains
the substituted term "partnership." The defendant was, therefore, led to the belief that plaintiff had
the exclusive franchise, but that the same was to be secured for or transferred to the partnership.
The plaintiff no longer had the exclusive franchise, or the option thereto, at the time the contract was
perfected. But while he had already lost his option thereto (when the contract was entered into), the
principal obligation that he assumed or undertook was to secure said franchise for the partnership,
as the bottler and distributor for the Mission Dry Corporation. We declare, therefore, that if he was
guilty of a false representation, this was not the causal consideration, or the principal inducement,
that led plaintiff to enter into the partnership agreement.
But, on the other hand, this supposed ownership of an exclusive franchise was actually the
consideration or price plaintiff gave in exchange for the share of 30 percent granted him in the net
profits of the partnership business. Defendant agreed to give plaintiff 30 per cent share in the net
profits because he was transferring his exclusive franchise to the partnership. Thus, in the draft
prepared by plaintiff's lawyer, Exhibit II, the following provision exists:
3. That the MANAGER, upon the organization of the said corporation, shall
forthwith transfer to the said corporation his exclusive right to bottle Mission products and to
sell them throughout the Philippines. As a consideration for such transfer, the CAPITALIST
shall transfer to the Manager fully paid non assessable shares of the said corporation . . .

twenty-five per centum of the capital stock of the said corporation. (Par. 3, Exhibit II;
emphasis ours.)
Plaintiff had never been a bottler or a chemist; he never had experience in the production or
distribution of beverages. As a matter of fact, when the bottling plant being built, all that he
suggested was about the toilet facilities for the laborers.
We conclude from the above that while the representation that plaintiff had the exclusive franchise
did not vitiate defendant's consent to the contract, it was used by plaintiff to get from defendant a
share of 30 per cent of the net profits; in other words, by pretending that he had the exclusive
franchise and promising to transfer it to defendant, he obtained the consent of the latter to give him
(plaintiff) a big slice in the net profits. This is the dolo incidentedefined in article 1270 of the Spanish
Civil Code, because it was used to get the other party's consent to a big share in the profits, an
incidental matter in the agreement.
El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que
significa aqui, el que concurriendoen el consentimiento, o precediendolo, no influyo para
arrancar porsi solo el consentimiento ni en la totalidad de la obligacion, sinoen algun
extremo o accidente de esta, dando lugar tan solo a una accion para reclamar
indemnizacion de perjuicios. (8 Manresa 602.)
Having arrived at the conclusion that the agreement may not be declared null and void, the question
that next comes before us is, May the agreement be carried out or executed? We find no merit in the
claim of plaintiff that the partnership was already a fait accompli from the time of the operation of the
plant, as it is evident from the very language of the agreement that the parties intended that the
execution of the agreement to form a partnership was to be carried out at a later date. They
expressly agreed that they shall form a partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from
the time that the franchise from the Mission Dry Corporation was obtained in California, plaintiff
himself had been demanding that defendant comply with the agreement. And plaintiff's present
action seeks the enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent with
their intention and incompatible with his own conduct and suit.
As the trial court correctly concluded, the defendant may not be compelled against his will to carry
out the agreement nor execute the partnership papers. Under the Spanish Civil Code, the defendant
has an obligation to do, not to give. The law recognizes the individual's freedom or liberty to do an
act he has promised to do, or not to do it, as he pleases. It falls within what Spanish commentators
call a very personal act (acto personalismo), of which courts may not compel compliance, as it is
considered an act of violence to do so.
Efectos de las obligaciones consistentes en hechos personalismo.Tratamos de la
ejecucion de las obligaciones de hacer en el solocaso de su incumplimiento por parte del
deudor, ya sean los hechos personalisimos, ya se hallen en la facultad de un tercero; porque
el complimiento espontaneo de las mismas esta regido por los preceptos relativos al pago, y
en nada les afectan las disposiciones del art. 1.098.
Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser
precisado a realizar el hecho y porque medios.

Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el
principio romanonemo potest precise cogi ad factum. Nadie puede ser obligado
violentamente a haceruna cosa. Los que perciben la posibilidad de la destruccion deeste
principio, aaden que, aun cuando se pudiera obligar al deudor, no deberia hacerse, porque
esto constituiria una violencia, y noes la violenciamodo propio de cumplir las obligaciones
(Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia que obligar
por la violencia seria infrigir la libertad eimponer una especie de esclavitud.
xxx

xxx

xxx

En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza

fisica, no ya precisamente porque seconstituya de este modo una especie de esclavitud,
segun el dichode Antonio Gomez, sino porque se supone que el acreedor tuvo encuenta el
caracter personalisimo del hecho ofrecido, y calculo sobre laposibilidad de que por alguna
razon no se realizase. Repugna,ademas, a la conciencia social el empleo de la fuerza
publica, mediante coaccion sobre las personas, en las relaciones puramente particulares;
porque la evolucion de las ideas ha ido poniendo masde relieve cada dia el respeto a la
personalidad humana, y nose admite bien la violencia sobre el individuo la cual tiene
caracter visiblemente penal, sino por motivos que interesen a la colectividad de ciudadanos.
Es, pues, posible y licita esta violencia cuando setrata de las obligaciones que hemos
llamado ex lege, que afectanal orden social y a la entidad de Estado, y aparecen impuestas
sinconsideracion a las conveniencias particulares, y sin que por estemotivo puedan tampoco
ser modificadas; pero no debe serlo cuandola obligacion reviste un interes puramente
particular, como sucedeen las contractuales, y cuando, por consecuencia, paraceria
salirseel Estado de su esfera propia, entrado a dirimir, con apoyo dela fuerza colectiva, las
diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.)
The last question for us to decide is that of damages,damages that plaintiff is entitled to receive
because of defendant's refusal to form the partnership, and damages that defendant is also entitled
to collect because of the falsity of plaintiff's representation. (Article 1101, Spanish Civil Code.) Under
article 1106 of the Spanish Civil Code the measure of damages is the actual loss suffered and the
profits reasonably expected to be received, embraced in the terms dao emergente and lucro
cesante. Plaintiff is entitled under the terms of the agreement to 30 per cent of the net profits of the
business. Against this amount of damages, we must set off the damage defendant suffered by
plaintiff's misrepresentation that he had obtained a very high percentage of share in the profits. We
can do no better than follow the appraisal that the parties themselves had adopted.
When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he
pretended he had and which he had agreed to transfer to the partnership, his spontaneous reaction
was to reduce plaintiff's share form 30 per cent to 15 per cent only, to which reduction defendant
appears to have readily given his assent. It was under this understanding, which amounts to a virtual
modification of the contract, that the bottling plant was established and plaintiff worked as Manager
for the first three months. If the contract may not be considered modified as to plaintiff's share in the
profits, by the decision of defendant to reduce the same to one-half and the assent thereto of
plaintiff, then we may consider the said amount as a fair estimate of the damages plaintiff is entitled
to under the principle enunciated in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil.
176. Defendant's decision to reduce plaintiff's share and plaintiff's consent thereto amount to an
admission on the part of each of the reasonableness of this amount as plaintiff's share. This same

amount was fixed by the trial court. The agreement contains the stipulation that upon the termination
of the partnership, defendant was to convey the franchise back to plaintiff (Par. 11, Exhibit A). The
judgment of the trial court does not fix the period within which these damages shall be paid to
plaintiff. In view of paragraph 11 of Exhibit A, we declare that plaintiff's share of 15 per cent of the net
profits shall continue to be paid while defendant uses the franchise from the Mission Dry
Corporation.
With the modification above indicated, the judgment appealed from is hereby affirmed. Without
costs.
Paras, C.J., Pablo, Bengzon, Tuason, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur.

Evangelista v Abad-Santos (51 S 416) {1973}

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 Copartnership 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 co-maker 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 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 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.
Zaldivar, Castro, Fernando, Teehankee, Barredo, Makasiar, Antonio and Esguerra, JJ., concur.

Duterte v Rallos (2 P 509)

G.R. No. L-1147

September 24, 1903

ESCOLASTICO DUTERTE Y ROSALES, plaintiff-appellant,

vs.
FLORENTINO RALLOS, defendant-appellee.
Walton J. Wood and Segundo Singson, for appellant.
Early and White, for appellee.
WILLARD, J.:
The plaintiff-appellant claimed that he, the defendant, and one Castro were partners in the
management of a cockpit. The defendant denied this. The court found that no such partnership
existed and ordered judgment for the defendant. The plaintiff moved for a new trial, which was
denied. To this order and the judgment he excepted and has brought here the evidence on which the
court below based its finding. We have examined the evidence and are of the opinion that said
finding, so far as the existence of the copartnership to September 1, 1901, is concerned, is plainly
and manifestly against the evidence.
We reach this conclusion chiefly from the documents written by the defendant and sent to the
plaintiff. It is not contradicted that the plaintiff demanded by letter of the defendant a settlement of
their accounts. These demands the defendant answered with the following letter:
MY DEAR BOY: I am working at these accounts. Perhaps I will have them ready tomorrow
morning. But I have no money, unless Mr. Spitz comes on one of these boats, when we will
have funds.
Yours, FLORENTINO RALLOS.
April 13, 1902.
On May 7 the defendant wrote another letter to the plaintiff which is in part as follows:
CEBU, May 7, 1902.
Seor Don Escolastico Duterte.
DEAR BOY: In your letter which I received this afternoon, you designate me as a little less
than embezzler. I have in my possession the money of no one but myself. If I have not called
you an embezzler or something worse on account of all that you have done and are doing
with me, reflect whether you have reason to write me in the manner you do. I have done you
a favor in admitting you into the cockpit partnership, as the only manner in which I might
collect what you owe me. I think you have made a mistake, and I will frankly refresh your
memory. You are indebted to me clearly one thousand pesos, advanced for your former
market contract.
In the preceding year, the defendant sent to the plaintiff statements of the business for the months of
June, July, and August. They are in legal effect the same. The one for July is as follows:

Receipts of the cockpit of this city during the entire $520.622

month of July

Expenses

Cuotas

$300.00

Rent, 6 days

60.00

Present to Biloy

20.00

380.000

140.622
========

One-third

Ticoy owes for seats

46.873

31.200

15.673

30.000

Ticoy's net share

Ticoy stands for the plaintiff.

45.673

That the plaintiff rendered services in the management of the cockpit, and that the defendant paid
him money on account of the cockpit, is undisputed.
The defendant, after denying that the plaintiff was his partner, testified, among other things, as
follows:
The profits were divided. A portion was given to two friends, Seores Duterte and Castro, but
not as partners. A portion was given to Seor Duterte solely because he was a friend who
aided and encouraged the cockpit. I did not have an agreement with them. As a private
individual, he had no duty to perform, except when he had to preside at the cockpit. I am not
aware that they, or either of them, rendered other services. I did not tell them the reason why
I gave them a share. I paid them for my pleasure, as friends, Duterte had no legal interest.
Seor Duterte had not authority to employ any person in the cockpit; this function was
exercised solely by Seor Isabelo Alburo, since I gave Seor Duterte a portion only as a
friend.
Castro, the other supposed partner, and a witness for the defendant, denied that he was such a
partner, but his testimony is in part as follows:
I do not remember what the profit was, but, as I have said, Seor Rallos sent me $20 or $30.
I did not keep any account. I did not receive money monthly, but on Mondays Seor Rallos
would send me some money. Seor Rallos began to send me money from 20 to 30 pesos,
and this money was what obtained on the preceding Sunday in the cockpit. I think Seor
Rallos sent it to me as a present for the reason that he could not be present at the cockpit. I
am not a servant or employee of the cockpit. I have not any conversation with Seor Rallos
with reference to I am not a servant or employee of the cockpit. I have not the business.
When Seor Rallos sent me that money he sent me no letter. He sent it to me by a
messenger. I think that Seor Rallos sent me that money because I went to the cockpit and
helped the president on account of the former. Seor Rallos asked me to go to the cockpit.
Yes, I have had a conversation with Seor Rallos. In this conversation Seor Rallos said
nothing to me about money. Seor Rallos asked me to go to the cockpit to aid the president.
It is not true, as I went to the cockpit only to do him a favor.
We have, then, the testimony of the plaintiff that he made a verbal contract of partnership with the
defendant for this business, uncontradicted evidence that he performed services in connection with
it; that the defendant paid him the money on account thereof and sent him accounts for three months
showing his interest to be one-third of the profits in addition to the $5 each day, and wrote him a
letter in which he said that he admitted the plaintiff into the partnership in order to collect what the
plaintiff owed him on another transaction.
The reason which the defendant gives for paying the plaintiff money is not credible.
We see no way of explaining the accounts submitted by the defendant to plaintiff on any theory other
than that there was a partnership between them up to September 1, 1901, at least. The letter of the
defendant, in which he says that he admitted the plaintiff into the partnership, can be explained on
no other theory.
That there was an agreement to share the profits is clearly proved by the accounts submitted. The
plaintiff testified that the profits and losses were to be shared equally. But even omitting this
testimony, the case is covered by article 1689 of the Civil Code, which provides that, in the absence
of agreement as to the losses, they shall be shared as the gains are.

Article 1668 of the Civil Code is not applicable to the case. No real estate was contributed by any
member. The partnership did not become the owner of the cockpit. It is undisputed that this was
owned by the defendant and that the partnership paid him ten dollars a day for the use of it.
Neither can the judgment be sustained on the ground stated by the court in its decision and relied
upon by counsel for the appellee here, namely, that Castro should have been joined as a party to the
suit. One of the grounds for demurrer mentioned in section 91 of the Code of Civil Procedure is "that
there is a defect or misjoinder of parties plaintiff or defendants." No demurrer was interposed on this
or in any other ground, and by the terms of section 93 of the same Code, by omitting to demur on
this ground the defendant waived the objection which he now makes.
The finding of fact by the court below, that there was no partnership, at least to September 1, 1901,
was plainly and manifestly against the evidence, and for that reason a new trial of this case must be
had. In this new trial, if the evidence is the same as upon the first trial, the plaintiff will be entitled to
an accounting, at least to September 1, 1901, and for such further term as the proof upon the new
trial shows, in the opinion of the court below, that the partnership existed; that accounting can be had
in this suit and a final judgment rendered for the plaintiff if any balance appears in his favor. No
second or other suit will be necessary.
The judgment of the court below is reversed and the case remanded for a new trial, with the costs of
this instance against the appellee, and after the expiration of twenty days, reckoned from the date of
this decision, judgment shall be rendered accordingly, and the case is returned to the court below for
compliance therewith.
Arellano, C.J., Torres, Cooper, Mapa and McDonough, JJ., concur.

Estanislao, Jr. v CA (160 S 830) {1988}

ELIGIO ESTANISLAO, JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO,respondents.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.

GANCAYCO, J.:
By this petition for certiorari the Court is asked to determine if a partnership exists between members
of the same family arising from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the
corner of Annapolis and Aurora Blvd., QuezonCity which were then being leased to the Shell
Company of the Philippines Limited (SHELL). They agreed to open and operate a gas station thereat
to be known as Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken
from the advance rentals due to them from SHELL for the occupancy of the said lots owned in
common by them. A joint affidavit was executed by them on April 11, 1966 which was prepared
byAtty. Democrito Angeles 1 They agreed to help their brother, petitioner herein, by allowing him to
operate and manage the gasoline service station of the family. They negotiated with SHELL. For practical
purposes and in order not to run counter to the company's policy of appointing only one dealer, it was

agreed that petitioner would apply for the dealership. Respondent Remedios helped in managing the
bussiness with petitioner from May 3, 1966 up to February 16, 1967.

On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL
wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to
cover advances of fuel to petitioner as dealer with a proviso that said agreement "cancels and
supersedes the Joint Affidavit dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of the business
to private respondents, but therafter petitioner failed to render subsequent accounting. Hence
through Atty. Angeles, a demand was made on petitioner to render an accounting of the profits.
The financial report of December 31, 1968 shows that the business was able to make a profit of P
87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was realized. 3
Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal
against petitioner praying among others that the latter be ordered:
1. to execute a public document embodying all the provisions of the partnership
agreement entered into between plaintiffs and defendant as provided in Article 1771
of the New Civil Code;
2. to render a formal accounting of the business operation covering the period from
May 6, 1966 up to December 21, 1968 and from January 1, 1969 up to the time the
order is issued and that the same be subject to proper audit;
3. to pay the plaintiffs their lawful shares and participation in the net profits of the
business in an amount of no less than P l50,000.00 with interest at the rate of 1% per
month from date of demand until full payment thereof for the entire duration of the
business; and
4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the
suit (pp. 13-14 Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary
presiding judge of Branch IV of the trial court, rendered judgment dismissing the complaint and
counterclaim and ordering private respondents to pay petitioner P 3,000.00 attorney's fee and costs.
Private respondent filed a motion for reconsideration of the decision. On December 10, 1975, Hon.
Ricardo Tensuan who was the newly appointed presiding judge of the same branch, set aside the
aforesaid derision and rendered another decision in favor of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby
reconsidered and a new judgment is hereby rendered in favor of the plaintiffs and as
against the defendant:
(1) Ordering the defendant to execute a public instrument embodying all the
provisions of the partnership agreement entered into between plaintiffs and
defendant as provided for in Article 1771, Civil Code of the Philippines;

(2) Ordering the defendant to render a formal accounting of the business operation
from April 1969 up to the time this order is issued, the same to be subject to
examination and audit by the plaintiff,
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the
net profits of the business in the amount of P 150,000.00, with interest thereon at the
rate of One (1%) Per Cent per month from date of demand until full payment thereof;
(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of
attorney's fees of plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record
on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly
committed by the trial court. In due course, a decision was rendered by the Court of Appeals on
November 28,1978 affirming in toto the decision of the lower court with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not
satisfied therewith, the petitioner now comes to this court by way of this petition for certiorari alleging
that the respondent court erred:
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the
Additional Cash Pledge Agreement (Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was established by and among the petitioner and
the private respondents as regards the ownership and or operation of the gasoline
service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the
Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land fully describe in Transfer
Certificates of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon City,
in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES LIMITED a
corporation duly licensed to do business in the Philippines;
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE
LIMITED advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P
l5,000.00) Philippine Currency, so that we can use the said amount to augment our
capital investment in the operation of that gasoline station constructed ,by the said
company on our two lots aforesaid by virtue of an outstanding Lease Agreement we
have entered into with the said company;
(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its
benevolence and desire to help us in aumenting our capital investment in the
operation of the said gasoline station, has agreed to give us the said amount of P
15,000.00, which amount will partake the nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that upon receipt of the said amount of
FIFTEEN THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE
PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be applied as
monthly rentals for the sai two lots under our Lease Agreement starting on the 25th
of May, 1966 until such time that the said of P 15,000.00 be applicable, which time to

our estimate and one-half months from May 25, 1966 or until the 10th of October,
1966 more or less;
(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF
THE PHILIPPINES LIMITED execute an instrument for us to sign embodying our
conformity that the said amount that it will generously grant us as requested be
applied as ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as
doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the
Notarial Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag,
respectively) executed in favour of SHELL by the herein CO-OWNERS and another
Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by
CO-OWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining
portions of two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the CO
OWNERS RECEIVE a total monthly rental of PESOS THREE THOUSAND THREE
HUNDRED EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station
constructed on the leased land, and as Dealer under the Cash Pledge Agreement
dated llth May 1966, he deposited to SHELL in cash the amount of PESOS TEN
THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit of
Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P
25,000, has secured the conformity of his CO-OWNERS to waive and assign to
SHELL the total monthly rentals due to all of them to accumulate the equivalent
amount of P 15,000, commencing 24th May 1966, this P 15,000 shall be treated as
additional cash deposit to SHELL under the same terms and conditions of the
aforementioned Cash Pledge Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of the foregoing premises,and the
mutual covenants among the CO-OWNERS herein and SHELL, said parties have
agreed and hereby agree as follows:
l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to
all CO-OWNERS, collectively, under the above describe two Lease Agreements, one
dated 13th November 1963 and the other dated 19th March 1964 to enable DEALER
to increase his existing cash deposit to SHELL, from P 10,000 to P 25,000, for such
purpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign to
SHELL the monthly rental of P 3,382.29 payable to them respectively as they fall
due, monthly, commencing 24th May 1966, until such time that the monthly rentals
accumulated, shall be equal to P l5,000.
2. The above stated monthly rentals accumulated shall be treated as additional cash
deposit by DEALER to SHELL, thereby in increasing his credit limit from P 10,000 to
P 25,000. This agreement, therefore, cancels and supersedes the Joint affidavit
dated 11 April 1966 executed by the CO-OWNERS.

3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to
purchase from SHELL petroleum products, on credit, up to the amount of P 25,000.
4. This increase in the credit shall also be subject to the same terms and conditions
of the above-mentioned Cash Pledge Agreement dated llth May 1966. (Exhs. "B-2,"
"L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that
the P 15,000.00 advance rental due to them from SHELL shall augment their "capital investment" in
the operation of the gasoline station, which advance rentals shall be credited as rentals from May
25, 1966 up to four and one-half months or until 10 October 1966, more or less covering said P
15,000.00.
In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced
(Exhibit 6), the private respondents and petitioners assigned to SHELL the monthly rentals due them
commencing the 24th of May 1966 until such time that the monthly rentals accumulated equal P
15,000.00 which private respondents agree to be a cash deposit of petitioner in favor of SHELL to
increase his credit limit as dealer. As above-stated it provided therein that "This agreement,
therefore, cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the COOWNERS."
Petitioner contends that because of the said stipulation cancelling and superseding that previous
Joint Affidavit, whatever partnership agreement there was in said previous agreement had thereby
been abrogated. We find no merit in this argument. Said cancelling provision was necessary for the
Joint Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter
agreement also refers to advance rentals of the same amount starting May 24, 1966. There is,
therefore, a duplication of reference to the P 15,000.00 hence the need to provide in the subsequent
document that it "cancels and supersedes" the previous one. True it is that in the latter document, it
is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the "capital
investment" of the parties in the gasoline station business and it speaks of petitioner as the sole
dealer, but this is as it should be for in the latter document SHELL was a signatory and it would be
against its policy if in the agreement it should be stated that the business is a partnership with
private respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in fact such partnership agreement
between the parties. This is attested by the testimonies of private respondent Remedies Estanislao
and Atty. Angeles. Petitioner submitted to private respondents periodic accounting of the
business. 4 Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to
examine and audit the books of their "common business' aming negosyo). 5 Respondent Remedios
assisted in the running of the business. There is no doubt that the parties hereto formed a partnership
when they bound themselves to contribute money to a common fund with the intention of dividing the
profits among themselves. 6 The sole dealership by the petitioner and the issuance of all government
permits and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL
and the understanding of the parties of having only one dealer of the SHELL products.
Further, the findings of facts of the respondent court are conclusive in this proceeding, and its
conclusion based on the said facts are in accordancewith the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This
decision is immediately executory and no motion for extension of time to file a motion for
reconsideration shag beentertained.
SO ORDERED.

Narvasa, Cruz and Grio-Aquino, JJ., concur.

Footnotes
1 Exhibit A.
2 Exhibits 6 and 6-A.
3 Exhibit D.
* Penned by then Justice Ramon G. Gaviola, Jr., and concurred in by Justices B.S.
de la Fuente and Edgardo Paras, Fourth Division, Court of Appeals.
4 Exhibits D, D-1, D-2, D-3 and D-4.
5 Exhibit E.
6 Article 1767, New Civil Code.

Moran, Jr. v CA (133 S 88)

G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner,
vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.:

+.wph!1

This is a petition for review on certiorari of the decision of the respondent Court of Appeals which
ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.
As found by the respondent Court of Appeals, the undisputed facts indicate that:

t.hqw

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both
would contribute P15,000 each for the purpose of printing 95,000 posters (featuring
the delegates to the 1971 Constitutional Convention), with Moran actually
supervising the work; that Pecson would receive a commission of P l,000 a month
starting on April 15, 1971 up to December 15, 1971; that on December 15, 1971, a
liquidation of the accounts in the distribution and printing of the 95,000 posters would
be made, that Pecson gave Moran P10,000 for which the latter issued a receipt; that
only a few posters were printed; that on or about May 28, 1971, Moran executed in
favor of Pecson a promissory note in the amount of P20,000 payable in two equal
installments (P10,000 payable on or before June 15, 1971 and P10,000 payable on
or before June 30, 1971), the whole sum becoming due upon default in the payment
of the first installment on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery
of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the
profits that the partnership would have earned, and, payment of unpaid commission; (2) on the
alleged promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages
and attorney's fees.
After the trial, the Court of First Instance held that:

t.hqw

From the evidence presented it is clear in the mind of the court that by virtue of the
partnership agreement entered into by the parties-plaintiff and defendant the plaintiff
did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the
Veteran or Delegate Magazine. Of the expected 95,000 copies of the posters, the
defendant was able to print 2,000 copies only authorized of which, however, were
sold at P5.00 each. Nothing more was done after this and it can be said that the
venture did not really get off the ground. On the other hand, the plaintiff failed to give
his full contribution of P15,000.00. Thus, each party is entitled to rescind the contract
which right is implied in reciprocal obligations under Article 1385 of the Civil Code
whereunder 'rescission creates the obligation to return the things which were the
object of the contract ...
WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C.
Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with
interest at the legal rate from the filing of the complaint on June 19, 1972, and the
costs of the suit.
For insufficiency of evidence, the counterclaim is hereby dismissed.
From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The dispositive portion of the decision reads:
t.hqw

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a
new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to
pay plaintiff- appellant Mariano E. Pecson:
(a) Forty-seven thousand five hundred (P47,500) (the amount that could have
accrued to Pecson under their agreement);
(b) Eight thousand (P8,000), (the commission for eight months);
(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's
Project);
(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the
time payment is made)
The petitioner contends that the respondent Court of Appeals decided questions of substance in a
way not in accord with law and with Supreme Court decisions when it committed the following errors:
I

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.
II
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S
INVESTMENT.
III
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER
ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.
IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT,
THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY
RECEIVED BY PECSON FROM MORAN.
V
THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE
PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.
The first question raised in this petition refers to the award of P47,500.00 as the private respondent's
share in the unrealized profits of the partnership. The petitioner contends that the award is highly
speculative. The petitioner maintains that the respondent court did not take into account the great
risks involved in the business undertaking.
We agree with the petitioner that the award of speculative damages has no basis in fact and law.
There is no dispute over the nature of the agreement between the petitioner and the private
respondent. It is a contract of partnership. The latter in his complaint alleged that he was induced by
the petitioner to enter into a partnership with him under the following terms and conditions:
t.hqw

1. That the partnership will print colored posters of the delegates to the Constitutional
Convention;
2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;
3. That they will print Ninety Five Thousand (95,000) copies of the said posters;
4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a
month starting April 15, 1971 up to December 15, 1971;
5. That upon the termination of the partnership on December 15, 1971, a liquidation
of the account pertaining to the distribution and printing of the said 95,000 posters
shall be made.

The petitioner on the other hand admitted in his answer the existence of the partnership.
The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786,
Civil Code) and for interests and damages from the time he should have complied with his obligation
(Art. 1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil
Code of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the
appellee because the appellant therein was remiss in his obligations as a partner and as prime
contractor of the construction projects in question. This case was decided on a particular set of facts.
We awarded compensatory damages in the Uy case because there was a finding that the
constructing business is a profitable one and that the UP construction company derived some profits
from its contractors in the construction of roads and bridges despite its deficient capital." Besides,
there was evidence to show that the partnership made some profits during the periods from July 2,
1956 to December 31, 1957 and from January 1, 1958 up to September 30, 1959. The profits on two
government contracts worth P2,327,335.76 were not speculative. In the instant case, there is no
evidence whatsoever that the partnership between the petitioner and the private respondent would
have been a profitable venture. In fact, it was a failure doomed from the start. There is therefore no
basis for the award of speculative damages in favor of the private respondent.
Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much
more than what was expected of him. In this case, however, there was mutual breach. Private
respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further
failed to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only
2,000 copies.
Article 1797 of the Civil Code provides:

t.hqw

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

Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in law.
Again, we agree with the petitioner.
The partnership agreement stipulated that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The parties could not
have intended the giving of a commission inspite of loss or failure of the venture. Since the venture
was a failure, the private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in
holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of
investment in a magazine venture.
In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice
of the Veterans" magazine venture, the respondent court ruled that:
t.hqw

xxx xxx xxx

... Moran admittedly signed the promissory note of P20,000 in favor of Pecson.
Moran does not question the due execution of said note. Must Moran therefore pay
the amount of P20,000? The evidence indicates that the P20,000 was assigned by
Moran to cover the following:
t.hqw

(a) P 7,000 the amount of the PNB check given by

Pecson to Moran representing Pecson's investment in
Moran's other project (the publication and printing of
the 'Voice of the Veterans');
(b) P10,000 to cover the return of Pecson's
contribution in the project of the Posters;
(c) P3,000 representing Pecson's commission for
three months (April, May, June, 1971).
Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the
Veterans' project, for this project never left the ground) ...
As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be
reviewed on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the
record or are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332).
However, this rule admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock
Brokerage, Inc., et al., (97 SCRA 734), we held that this Court retains the power to review and rectify
the findings of fact of the Court of Appeals when (1) the conclusion is a finding grounded entirely on
speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken absurd
and impossible; (3) where there is grave abuse of discretion; (4) when the judgment is based on a
misapprehension of facts; and (5) when the court, in making its findings, went beyond the issues of
the case and the same are contrary to the admissions of both the appellant and the appellee.
In this case, there is misapprehension of facts. The evidence of the private respondent himself
shows that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The
remaining P4,000.00 was the amount of profit that the private respondent expected to receive.

The records show the following exhibits-

t.hqw

E Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in
favor of defendant. Defendant admitted the authenticity of this check and of his
receipt of the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being
offered for the purpose of showing plaintiff's capital investment in the printing of the
"Voice of the Veterans" for which he was promised a fixed profit of P8,000. This
investment of P6,000.00 and the promised profit of P8,000 are covered by
defendant's promissory note for P14,000 dated March 31, 1971 marked by defendant
as Exhibit 2 (t.s.n., pp. 20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later,
defendant returned P3,000.00 of the P6,000.00 investment thereby proportionately
reducing the promised profit to P4,000. With the balance of P3,000 (capital) and
P4,000 (promised profit), defendant signed and executed the promissory note for
P7,000 marked Exhibit 3 for the defendant and Exhibit M for plaintiff. Of this P7,000,
defendant paid P4,000 representing full return of the capital investment and P1,000
partial payment of the promised profit. The P3,000 balance of the promised profit
was made part consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov.
29, 1972). It is, therefore, being presented to show the consideration for the P20,000
promissory note.
F Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of
defendant. The authenticity of the check and his receipt of the proceeds thereof were
admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29,
1972), and it is being presented to show the consideration for the P20,000 note and
the existence and validity of the obligation.
xxx xxx xxx
L-Book entitled "Voice of the Veterans" which is being offered for the purpose of
showing the subject matter of the other partnership agreement and in which plaintiff
invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000
made up for the consideration of the P14,000 promissory note (Exhibit 2; Exhibit P).
As explained in connection with Exhibit E. the P3,000 balance of the promised profit
was later made part consideration of the P20,000 promissory note.
M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit
E. This document is being offered for the purpose of further showing the transaction
as explained in connection with Exhibits E and L.
N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his
capital investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P).
This is also defendant's Exhibit 4. This document is being offered in support of
plaintiff's explanation in connection with Exhibits E, L, and M to show the transaction
mentioned therein.
xxx xxx xxx
P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being
offered for the purpose of showing the transaction as explained in connection with
Exhibits E, L, M, and N above.
Explaining the above-quoted exhibits, respondent Pecson testified that:

t.hqw

Q During the pre-trial of this case, Mr. Pecson, the defendant

presented a promissory note in the amount of P14,000.00 which has
been marked as Exhibit 2. Do you know this promissory note?
A Yes, sir.
Q What is this promissory note, in connection with your transaction
with the defendant?
A This promissory note is for the printing of the "Voice of the
Veterans".
Q What is this "Voice of the Veterans", Mr. Pecson?
A It is a book.

t.hqw

(T.S.N., p. 19, Nov. 29, 1972)

Q And what does the amount of P14,000.00 indicated in the
promissory note, Exhibit 2, represent?
A It represents the P6,000.00 cash which I gave to Mr. Moran, as
evidenced by the Philippine National Bank Manager's check and the
P8,000.00 profit assured me by Mr. Moran which I will derive from the
printing of this "Voice of the Veterans" book.
Q You said that the P6,000.00 of this P14,000.00 is covered by, a
Manager's check. I show you Exhibit E, is this the Manager's check
that mentioned?
A Yes, sir.
Q What happened to this promissory note of P14,000.00 which you
said represented P6,000.00 of your investment and P8,000.00
promised profits?
A Latter, Mr. Moran returned to me P3,000.00 which represented onehalf (1/2) of the P6,000.00 capital I gave to him.
Q As a consequence of the return by Mr. Moran of one-half (1/2) of
the P6,000.00 capital you gave to him, what happened to the
promised profit of P8,000.00?
A It was reduced to one-half (1/2) which is P4,000.00.
Q Was there any document executed by Mr. Moran in connection with
the Balance of P3,000.00 of your capital investment and the
P4,000.00 promised profits?
A Yes, sir, he executed a promissory note.

Q I show you a promissory note in the amount of P7,000.00 dated

March 30, 1971 which for purposes of Identification I request the
same to be marked as Exhibit M. . .
Court

t.hqw

Mark it as Exhibit M.
Q (continuing) is this the promissory note which you said was
executed by Mr. Moran in connection with your transaction regarding
the printing of the "Voice of the Veterans"?
A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).
Q What happened to this promissory note executed by Mr. Moran, Mr.
Pecson?
A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by
the promissory note.
Q Was there a receipt issued by you covering this payment of
P4,000.00 in favor of Mr. Moran?
A Yes, sir.
(T.S.N., p. 23, Nov. 29, 1972).
Q You stated that Mr. Moran paid the amount of P4,000.00 on
account of the P7,000.00 covered by the promissory note, Exhibit M.
What does this P4,000.00 covered by Exhibit N represent?
A This P4,000.00 represents the P3,000.00 which he has returned of
my P6,000.00 capital investment and the P1,000.00 represents
partial payment of the P4,000.00 profit that was promised to me by
Mr. Moran.
Q And what happened to the balance of P3,000.00 under the
promissory note, Exhibit M?
A The balance of P3,000.00 and the rest of the profit was applied as
part of the consideration of the promissory note of P20,000.00.
(T.S.N., pp. 23-24, Nov. 29, 1972).
The respondent court erred when it concluded that the project never left the ground because the
project did take place. Only it failed. It was the private respondent himself who presented a copy of
the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error
to state that the project never took place and on this basis decree the return of the private
respondent's investment.
As already mentioned, there are risks in any business venture and the failure of the undertaking
cannot entirely be blamed on the managing partner alone, specially if the latter exercised his best
business judgment, which seems to be true in this case. In view of the foregoing, there is no reason

to pass upon the fourth and fifth assignments of errors raised by the petitioner. We likewise find no
valid basis for the grant of the counterclaim.
WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the
petitioner Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND
(P6,000.00) PESOS representing the amount of the private respondent's contribution to the
partnership but which remained unused; and THREE THOUSAND (P3,000.00) PESOS representing
one half (1/2) of the net profits gained by the partnership in the sale of the two thousand (2,000)
copies of the posters, with interests at the legal rate on both amounts from the date the complaint
was filed until full payment is made.
SO ORDERED.

1wph1.t

Teehankee (Chairman), Melencio-Herrera, Plana and Relova, JJ., concur.

De la Fuente J., took no part.

Pascual v CIR (166 S 560)

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents

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

partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject
to the taxes prescribed under Section 24, both of the National Internal Revenue Code 1 that the
unregistered partnership was subject to corporate income tax as distinguished from profits derived from
the partnership by them which is subject to individual income tax; and that the availment of tax amnesty
under P.D. No. 23, as amended, by petitioners relieved petitioners of their individual income tax liabilities
but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA
Case No. 3045. In due course, the respondent court by a majority decision of March 30,
1987, 2 affirmed the decision and action taken by respondent commissioner with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in
fact formed by petitioners which like a corporation was subject to corporate income tax distinct from that
imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the
circumstances of this case, although there might in fact be a co-ownership between the petitioners,
there was no adequate basis for the conclusion that they thereby formed an unregistered partnership
which made "hem liable for corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the
respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE
RESPONDENT COMMISSIONER, TO THE EFFECT THAT PETITIONERS
FORMED AN UNREGISTERED PARTNERSHIP SUBJECT TO CORPORATE
INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN
OPPOSITION THERETO RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE
TRANSACTIONS, THAT AN UNREGISTERED PARTNERSHIP EXISTED THUS
IGNORING THE REQUIREMENTS LAID DOWN BY LAW THAT WOULD WARRANT
THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA
CASE AND THEREFORE SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA
CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS
FROM PAYMENT OF OTHER TAXES FOR THE PERIOD COVERED BY SUCH
AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which together with their own
personal funds they used in buying several real properties. They appointed their brother to manage
their properties with full power to lease, collect, rent, issue receipts, etc. They had the real properties
rented or leased to various tenants for several years and they gained net profits from the rental
income. Thus, the Collector of Internal Revenue demanded the payment of income tax on a
corporation, among others, from them.

In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act No. 466, otherwise known as the
National Internal Revenue Code, as well as to the residence tax for corporations and
the real estate dealers' fixed tax. With respect to the tax on corporations, the issue
hinges on the meaning of the terms corporation and partnership as used in sections
24 and 84 of said Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected,
and paid annually upon the total net income received in the preceding taxable year
from all sources by every corporation organized in, or existing under the laws of the
Philippines, no matter how created or organized but not including duly registered
general co-partnerships (companies collectives), a tax upon such income equal to
the sum of the following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participation),
associations or insurance companies, but does not include duly registered general
co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of dividing the
profits among themselves.
Pursuant to this article, the essential elements of a partnership are two, namely: (a)
an agreement to contribute money, property or industry to a common fund; and (b)
intent to divide the profits among the contracting parties. The first element is
undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to,
and did, contribute money and property to a common fund. Hence, the issue narrows
down to their intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their purpose was to
engage in real estate transactions for monetary gain and then divide the same
among themselves, because:
1. Said common fund was not something they found already in existence. It was not
a property inherited by them pro indiviso. They created it purposely. What is more
they jointly borrowed a substantial portion thereof in order to establish said common
fund.
2. They invested the same, not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3,
1944, they purchased 21 lots for P18,000.00. This was soon followed, on April 23,
1944, by the acquisition of another real estate for P108,825.00. Five (5) days later
(April 28, 1944), they got a fourth lot for P237,234.14. The number of lots (24)
acquired and transcations undertaken, as well as the brief interregnum between
each, particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by petitioners in
February, 1943. In other words, one cannot but perceive a character of habituality
peculiar to business transactions engaged in for purposes of gain.

3. The aforesaid lots were not devoted to residential purposes or to other personal
uses, of petitioners herein. The properties were leased separately to several
persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30 by way
of rentals. Seemingly, the lots are still being so let, for petitioners do not even
suggest that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one
person, namely, Simeon Evangelists, with full power to lease, to collect rents, to
issue receipts, to bring suits, to sign letters and contracts, and to indorse and deposit
notes and checks. Thus, the affairs relative to said properties have been handled as
if the same belonged to a corporation or business enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be
exact, over fifteen (15) years, since the first property was acquired, and over twelve
(12) years, since Simeon Evangelists became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in
creating the set up already adverted to, or on the causes for its continued existence.
They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to
constitute a partnership, the collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in petitioners herein. Only
one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement to contribute
money, property or industry to a common fund, and that they intended to divide the profits among
themselves. Respondent commissioner and/ or his representative just assumed these conditions to
be present on the basis of the fact that petitioners purchased certain parcels of land and became coowners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24)
lots showing that the purpose was not limited to the conservation or preservation of the common
fund or even the properties acquired by them. The character of habituality peculiar to business
transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor
make any improvements thereon. In 1966, they bought another three (3) parcels of land from one
seller. It was only 1968 when they sold the two (2) parcels of land after which they did not make any
additional or new purchase. The remaining three (3) parcels were sold by them in 1970. The
transactions were isolated. The character of habituality peculiar to business transactions for the
purpose of gain was not present.
In Evangelista, the properties were leased out to tenants for several years. The business was under
the management of one of the partners. Such condition existed for over fifteen (15) years. None of
the circumstances are present in the case at bar. The co-ownership started only in 1965 and ended
in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new Civil Code
lays down the rule for determining when a transaction should be deemed a
partnership or a co-ownership. Said article paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether

such co-owners or co-possessors do or do not share any profits made by the use of
the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or
not the persons sharing them have a joint or common right or interest in any property
from which the returns are derived;
From the above it appears that the fact that those who agree to form a co- ownership
share or do not share any profits made by the use of the property held in common
does not convert their venture into a partnership. Or the sharing of the gross returns
does not of itself establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. This only means that, aside
from the circumstance of profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form a partnership, the existence
of a juridical personality different from that of the individual partners, and the freedom
to transfer or assign any interest in the property by one with the consent of the
others (Padilla, Civil Code of the Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons contribute
funds to buy certain real estate for profit in the absence of other circumstances
showing a contrary intention cannot be considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to
share the gross returns of that enterprise in proportion to their contribution, but who
severally retain the title to their respective contribution, are not thereby rendered
partners. They have no common stock or capital, and no community of interest as
principal proprietors in the business itself which the proceeds derived. (Elements of
the Law of Partnership by Flord D. Mechem 2nd Ed., section 83, p. 74.)
A joint purchase of land, by two, does not constitute a co-partnership in respect
thereto; nor does an agreement to share the profits and losses on the sale of land
create a partnership; the parties are only tenants in common. (Clark vs. Sideway, 142
U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of
realty, holding as tenants in common, and to divide the profits of disposing of it, the
brother and the other not being entitled to share in plaintiffs commission, no
partnership existed as between the three parties, whatever their relation may have
been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the
same; (b) generally participating in both profits and losses; (c) and such a community
of interest, as far as third persons are concerned as enables each party to make
contract, manage the business, and dispose of the whole property.-Municipal Paving
Co. vs. Herring 150 P. 1067, 50 III 470.)
The common ownership of property does not itself create a partnership between the
owners, though they may use it for the purpose of making gains; and they may,
without becoming partners, agree among themselves as to the management, and
use of such property and the application of the proceeds therefrom. (Spurlock vs.
Wilson, 142 S.W. 363,160 No. App. 14.) 6

The sharing of returns does not in itself establish a partnership whether or not the persons sharing
therein have a joint or common right or interest in the property. There must be a clear intent to form a
partnership, the existence of a juridical personality different from the individual partners, and the
freedom of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is no
adequate basis to support the proposition that they thereby formed an unregistered partnership. The
two isolated transactions whereby they purchased properties and sold the same a few years
thereafter did not thereby make them partners. They shared in the gross profits as co- owners and
paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the
circumstances, they cannot be considered to have formed an unregistered partnership which is
thereby liable for corporate income tax, as the respondent commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to have
been formed, since there is no such existing unregistered partnership with a distinct personality nor
with assets that can be held liable for said deficiency corporate income tax, then petitioners can be
held individually liable as partners for this unpaid obligation of the partnership p. 7 However, as
petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they
are thereby relieved of any further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax
Appeals of March 30, 1987 is hereby REVERSED and SET ASIDE and another decision is hereby
rendered relieving petitioners of the corporate income tax liability in this case, without
pronouncement as to costs.
SO ORDERED.
Cruz, Grio-Aquino and Medialdea, JJ., concur.
Narvasa, J., took no part.

Footnotes
1 Annex C of the Petition, citing Evangelista v. Collector, G.R. No. 9996, Oct.
15,1957,102 Phil. 140.
2 Penned by Presiding Judge Amante Filler, concurred in by Associate Judge Alex Z.
Reyes, Associate Judge Roaquin dissented in a separate opinion.
3 Supra.
4 Supra.
5 Supra, pp. 144-146; italics supplied.
6 Supra, pp. 150-151; italics supplied.
7 Article 1816. All partners, including industrial ones, shall be liable pro rata with all
their property and after all the partnership assets have been 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. (Civil Code of the Philippines)
See also Articles 1817 and 1818, Supra.

Ang Pue Co. v Sec. of Commerce (5 S 645) {1962}

ANG
PUE
&
COMPANY,
ET
vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.
Felicisimo
E.
Escaran
Office of the Solicitor General for defendant-appellee.

for

AL., plaintiffs-appellants,

plaintiffs-appellants.

DIZON, J.:
Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, Ang
Pue and Tan Siong against the Secretary of Commerce and Industry to secure judgment "declaring
that plaintiffs could extend for five years the term of the partnership pursuant to the provisions of
plaintiffs' Amendment to the Article of Co-partnership."
The answer filed by the defendant alleged, in substance, that the extension for another five years of
the term of the plaintiffs' partnership would be in violation of the provisions of Republic Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the
partnership Ang Pue & Company for a term of five years from May 1, 1953, extendible by their
mutual consent. The purpose of the partnership was "to maintain the business of general
merchandising, buying and selling at wholesale and retail, particularly of lumber, hardware and other
construction materials for commerce, either native or foreign." The corresponding articles of
partnership (Exhibit B) were registered in the Office of the Securities & Exchange Commission on
June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided,
among other things, that, after its enactment, a partnership not wholly formed by Filipinos could
continue to engage in the retail business until the expiration of its term.
On April 15, 1958 prior to the expiration of the five-year term of the partnership Ang Pue &
Company, but after the enactment of the Republic Act 1180, the partners already mentioned
amended the original articles of part ownership (Exhibit B) so as to extend the term of life of the
partnership to another five years. When the amended articles were presented for registration in the
Office of the Securities & Exchange Commission on April 16, 1958, registration was refused upon
the ground that the extension was in violation of the aforesaid Act.
From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this
appeal.
The question before us is too clear to require an extended discussion. To organize a corporation or a
partnership that could claim a juridical personality of its own and transact business as such, is not a
matter of absolute right but a privilege which may be enjoyed only under such terms as the State
may deem necessary to impose. That the State, through Congress, and in the manner provided by
law, had the right to enact Republic Act No. 1180 and to provide therein that only Filipinos and
concerns wholly owned by Filipinos may engage in the retail business can not be seriously disputed.
That this provision was clearly intended to apply to partnership already existing at the time of the

enactment of the law is clearly showing by its provision giving them the right to continue engaging in
their retail business until the expiration of their term or life.
To argue that because the original articles of partnership provided that the partners could extend the
term of the partnership, the provisions of Republic Act 1180 cannot be adversely affect appellants
herein, is to erroneously assume that the aforesaid provision constitute a property right of which the
partners can not be deprived without due process or without their consent. The agreement contain
therein must be deemed subject to the law existing at the time when the partners came to agree
regarding the extension. In the present case, as already stated, when the partners amended the
articles of partnership, the provisions of Republic Act 1180 were already in force, and there can be
not the slightest doubt that the right claimed by appellants to extend the original term of their
partnership to another five years would be in violation of the clear intent and purpose of the law
aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with costs.
Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Regala and Makalintal, JJ., concur.
Bautista Angelo and Reyes, J.B.L., JJ., took no part.

Arbes v Polistico (53 P 489) {1929}

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

Income:

Member's shares............................

97,263.70

Credits paid................................

6,196.55

Interest received...........................

4,569.45

Miscellaneous...............................

1,891.00

P109,620.70

Expenses:

Premiums to members.......................

68,146.25

Loans on real-estate.......................

9,827.00

Loans on promissory notes..............

4,258.55

Salaries....................................

1,095.00

Miscellaneous...............................

1,686.10

85,012.90

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

24,607.80

The defendants objected to the commissioner's report, but the trial court, having examined the
reasons for the objection, found the same sufficiently explained in the report and the evidence, and
accepting it, rendered judgment, holding that the association "Turnuhan Polistico & Co." is unlawful,
and sentencing the defendants jointly and severally to return the amount of P24,607.80, as well as
the documents showing the uncollected credits of the association, to the plaintiffs in this case, and to
the rest of the members of the said association represented by said plaintiffs, with costs against the
defendants.
The defendants assigned several errors as grounds for their appeal, but we believe they can all be
reduced to two points, to wit: (1) That not all persons having an interest in this association are
included as plaintiffs or defendants; (2) that the objection to the commissioner's report should have
been admitted by the court below.
As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed.
With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants,
we are of opinion that, the trial court having examined all the evidence touching the grounds for the
objection and having found that they had been explained away in the commissioner's report, the
conclusion reached by the court below, accepting and adopting the findings of fact contained in said
report, and especially those referring to the disposition of the association's money, should not be
disturbed.
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the findings of facts
made by a referee appointed under the provisions of section 135 of the Code of Civil Procedure
stand upon the same basis, when approved by the Court, as findings made by the judge himself.
And in Kriedt vs. E. C. McCullogh & Co.(37 Phil., 474), the court held: "Under section 140 of the
Code of Civil Procedure it is made the duty of the court to render judgment in accordance with the
report of the referee unless the court shall unless for cause shown set aside the report or recommit it
to the referee. This provision places upon the litigant parties of the duty of discovering and exhibiting
to the court any error that may be contained therein." The appellants stated the grounds for their
objection. The trial examined the evidence and the commissioner's report, and accepted the findings
of fact made in the report. We find no convincing arguments on the appellant's brief to justify a
reversal of the trial court's conclusion admitting the commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39
Phil., 962), but the appellants allege that because it is so, some charitable institution to whom the
partnership funds may be ordered to be turned over, should be included, as a party defendant. The
appellants refer to article 1666 of the Civil Code, which provides:
A partnership must have a lawful object, and must be established for the common benefit of
the partners.
When the dissolution of an unlawful partnership is decreed, the profits shall be given to
charitable institutions of the domicile of the partnership, or, in default of such, to those of the
province.
Appellant's contention on this point is untenable. According to said article, no charitable institution is
a necessary party in the present case of determination of the rights of the parties. The action which
may arise from said article, in the case of unlawful partnership, is that for the recovery of the
amounts paid by the member from those in charge of the administration of said partnership, and it is
not necessary for the said parties to base their action to the existence of the partnership, but on the
fact that of having contributed some money to the partnership capital. And hence, the charitable
institution of the domicile of the partnership, and in the default thereof, those of the province are not
necessary parties in this case. The article cited above permits no action for the purpose of obtaining

the earnings made by the unlawful partnership, during its existence as result of the business in
which it was engaged, because for the purpose, as Manresa remarks, the partner will have to base
his action upon the partnership contract, which is to annul and without legal existence by reason of
its unlawful object; and it is self evident that what does not exist cannot be a cause of action. Hence,
paragraph 2 of the same article provides that when the dissolution of the unlawful partnership is
decreed, the profits cannot inure to the benefit of the partners, but must be given to some charitable
institution.
We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a clear
explanation of the scope and spirit of the provision of the Civil Code which we are concerned.
Commenting on said article Manresa, among other things says:
When the subscriptions of the members have been paid to the management of the
partnership, and employed by the latter in transactions consistent with the purposes of the
partnership may the former demand the return of the reimbursement thereof from the
manager or administrator withholding them?
Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered
juridically non-existent, the contract entered into can have no legal effect; and in that case,
how can it give rise to an action in favor of the partners to judicially demand from the
manager or the administrator of the partnership capital, each one's contribution?
The authors discuss this point at great length, but Ricci decides the matter quite clearly,
dispelling all doubts thereon. He holds that the partner who limits himself to demanding only
the amount contributed by him need not resort to the partnership contract on which to base
his action. And he adds in explanation that the partner makes his contribution, which passes
to the managing partner for the purpose of carrying on the business or industry which is the
object of the partnership; or in other words, to breathe the breath of life into a partnership
contract with an objection forbidden by law. And as said contrast does not exist in the eyes of
the law, the purpose from which the contribution was made has not come into existence, and
the administrator of the partnership holding said contribution retains what belongs to
others, without any consideration; for which reason he is not bound to return it and he who
has paid in his share is entitled to recover it.
But this is not the case with regard to profits earned in the course of the partnership,
because they do not constitute or represent the partner's contribution but are the result of the
industry, business or speculation which is the object of the partnership, and therefor, in order
to demand the proportional part of the said profits, the partner would have to base his action
on the contract which is null and void, since this partition or distribution of the profits is one of
the juridical effects thereof. Wherefore considering this contract asnon-existent, by reason of
its illicit object, it cannot give rise to the necessary action, which must be the basis of the
judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit
from an industry prohibited by it.
Hence the distinction made in the second paragraph of this article of this Code, providing
that the profits obtained by unlawful means shall not enrich the partners, but shall upon the
dissolution of the partnership, be given to the charitable institutions of the domicile of the
partnership, or, in default of such, to those of the province.
This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of
the former law, which did not describe the purpose to which those profits denied the partners
were to be applied, nor state what to be done with them.

The profits are so applied, and not the contributions, because this would be an excessive
and unjust sanction for, as we have seen, there is no reason, in such a case, for depriving
the partner of the portion of the capital that he contributed, the circumstances of the two
cases being entirely different.
Our Code does not state whether, upon the dissolution of the unlawful partnership, the
amounts contributed are to be returned by the partners, because it only deals with the
disposition of the profits; but the fact that said contributions are not included in the disposal
prescribed profits, shows that in consequences of said exclusion, the general law must be
followed, and hence the partners should reimburse the amount of their respective
contributions. Any other solution is immoral, and the law will not consent to the latter
remaining in the possession of the manager or administrator who has refused to return them,
by denying to the partners the action to demand them. (Manresa, Commentaries on the
Spanish Civil Code, vol. XI, pp. 262-264)
The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with
costs against the appellants; provided, however, the defendants shall pay the legal interest on the
sum of P24,607.80 from the date of the decision of the court, and provided, further, that the
defendants shall deposit this sum of money and other documents evidencing uncollected credits in
the office of the clerk of the trial court, in order that said court may distribute them among the
members of said association, upon being duly identified in the manner that it may deem proper. So
ordered.
Avancea, C.J., Johnson, Street, Johns, Romualdez, and Villa-Real, JJ., concur.

Deluao v Casteel (26 S 475) {1968}

NOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,
vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.
Ruiz Law Offices for defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of May
21, 1956, all of the Court of First Instance of Davao, in civil case 629. The basic action is for specific
performance, and damages resulting from an alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio of
Malalag (now the Municipality of Malalag), Municipality of Padada, Davao. No action was taken
thereon by the authorities concerned. During the Japanese occupation, he filed another fishpond
application for the same area, but because of the conditions then prevailing, it was not acted upon
either. On December 12, 1945 he filed a third fishpond application for the same area, which, after a
survey, was found to contain 178.76 hectares. Upon investigation conducted by a representative of
the Bureau of Forestry, it was discovered that the area applied for was still needed for firewood
production. Hence on May 13, 1946 this third application was disapproved.

Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. While
this motion was pending resolution, he was advised by the district forester of Davao City that no
further action would be taken on his motion, unless he filed a new application for the area
concerned. So he filed on May 27, 1947 his fishpond application 1717.
Meanwhile, several applications were submitted by other persons for portions of the area covered by
Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of land
found inside the area applied for by Casteel; he was later granted fishpond permit F-289-C covering
9.3 hectares certified as available for fishpond purposes by the Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the land
applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed on December 26, 1946,
was given due course on December 9, 1947 with the issuance to him of fishpond permit F-539-C to
develop 30 hectares of land comprising a portion of the area applied for by Casteel, upon
certification of the Bureau of Forestry that the area was likewise available for fishpond purposes. On
November 17, 1948 Felipe Deluao filed his own fishpond application for the area covered by
Casteel's application.
Because of the threat poised upon his position by the above applicants who entered upon and
spread themselves within the area, Casteel realized the urgent necessity of expanding his
occupation thereof by constructing dikes and cultivating marketable fishes, in order to prevent old
and new squatters from usurping the land. But lacking financial resources at that time, he sought
financial aid from his uncle Felipe Deluao who then extended loans totalling more or less P27,000
with which to finance the needed improvements on the fishpond. Hence, a wide productive fishpond
was built.
Moreover, upon learning that portions of the area applied for by him were already occupied by rival
applicants, Casteel immediately filed the corresponding protests. Consequently, two administrative
cases ensued involving the area in question, to wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now
Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio,
applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor
Casteel, applicant-protestant versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C,
Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above administrative cases that
Casteel had already introduced improvements on portions of the area applied for by him in the form
of dikes, fishpond gates, clearings, etc., the Director of Fisheries nevertheless rejected Casteel's
application on October 25, 1949, required him to remove all the improvements which he had
introduced on the land, and ordered that the land be leased through public auction. Failing to secure
a favorable resolution of his motion for reconsideration of the Director's order, Casteel appealed to
the Secretary of Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our
discussion of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and
Nicanor Casteel as party of the second part, executed a contract denominated a "contract of
service" the salient provisions of which are as follows:
That the Party of the First Part in consideration of the mutual covenants and agreements
made herein to the Party of the Second Part, hereby enter into a contract of service,

whereby the Party of the First Part hires and employs the Party of the Second Part on the
following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the sum of TWENTY
SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second
Part who renders only his services for the construction and improvements of a fishpond at
Barrio Malalag, Municipality of Padada, Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all the produce of
the fish that will be produced from said fishpond;
That the Party of the First Part will be the administrator of the same she having financed the
construction and improvement of said fishpond;
That this contract was the result of a verbal agreement entered into between the Parties
sometime in the month of November, 1947, with all the above-mentioned conditions
enumerated; ...
On the same date the above contract was entered into, Inocencia Deluao executed a special power
of attorney in favor of Jesus Donesa, extending to the latter the authority "To represent me in the
administration of the fishpond at Malalag, Municipality of Padada, Province of Davao, Philippines,
which has been applied for fishpond permit by Nicanor Casteel, but rejected by the Bureau of
Fisheries, and to supervise, demand, receive, and collect the value of the fish that is being
periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on
November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the
two administrative cases (DANR Cases 353 and 353-B) and asked for reinvestigation of the
application of Nicanor Casteel over the subject fishpond. However, by letter dated March 15, 1950
sent to the Secretary of Commerce and Agriculture and Natural Resources (now Secretary of
Agriculture and Natural Resources), Deluao withdrew his petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in
DANR Case 353, the dispositive portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor
Casteel should be, as hereby it is, reinstated and given due course for the area indicated in
the sketch drawn at the back of the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio
shall remain rejected.
On the same date, the same official issued a decision in DANR Case 353-B, the dispositive portion
stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No.
F-539-C of Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor
Casteel is required to pay the improvements introduced thereon by said permittees in
accordance with the terms and dispositions contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the
fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and
Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of
First Instance of Davao for specific performance and damages against Nicanor Casteel and Juan

Depra (who, they alleged, instigated Casteel to violate his contract), praying inter alia, (a) that
Casteel be ordered to respect and abide by the terms and conditions of said contract and that
Inocencia Deluao be allowed to continue administering the said fishpond and collecting the proceeds
from the sale of the fishes caught from time to time; and (b) that the defendants be ordered to pay
jointly and severally to plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary injunction,
praying among other things, that during the pendency of the case and upon their filling the requisite
bond as may be fixed by the court, a preliminary injunction be issued to restrain Casteel from doing
the acts complained of, and that after trial the said injunction be made permanent. The lower court
on April 26, 1951 granted the motion, and, two days later, it issued a preliminary mandatory
injunction addressed to Casteel, the dispositive portion of which reads as follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado
y todos usu abogados, agentes, mandatarios y demas personas que obren en su ayuda,
desista de impedir a la demandante Inocencia R. Deluao que continue administrando
personalmente la pesqueria objeto de esta causa y que la misma continue recibiendo los
productos de la venta de los pescados provenientes de dicha pesqueria, y que, asimismo,
se prohibe a dicho demandado Nicanor Casteel a desahuciar mediante fuerza al encargado
de los demandantes llamado Jesus Donesa de la pesqueria objeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he
was the owner, lawful applicant and occupant of the fishpond in question. This motion, opposed by
the plaintiffs on June 15, 1951, was denied by the lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952,
denying the material averments of the plaintiffs' complaint. A reply to the defendants' amended
answer was filed by the plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4,
1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs'
complaint failed to state a claim upon which relief may be granted. The motion, opposed by the
plaintiffs on October 12, 1951, was denied for lack of merit by the lower court in its order of October
22, 1951. The defendants' motion for reconsideration filed on October 31, 1951 suffered the same
fate when it was likewise denied by the lower court in its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of postponements. The
lower court (Branch I, presided by Judge Enrique A. Fernandez) finally issued on March 21, 1956 an
order in open court, reading as follows: .
Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of this
case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in the morning.
This case was filed on April 3, 1951 and under any circumstance this Court will not entertain
any other transfer of hearing of this case and if the parties will not be ready on that day set
for hearing, the court will take the necessary steps for the final determination of this case.
(emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956, issued
by the office of the Clerk of Court (thru the special deputy Clerk of Court) of the Court of First
Instance of Davao, setting the hearing of the case for May 2 and 3, 1956 before Judge Amador
Gomez of Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion for

postponement. Acting on this motion, the lower court (Branch II, presided by Judge Gomez) issued
an order dated April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The
motion is filed by the counsel for the defendants and has the conformity of the counsel for
the plaintiffs.
An examination of the records of this case shows that this case was initiated as early as April
1951 and that the same has been under advisement of the Honorable Enrique A. Fernandez,
Presiding Judge of Branch No. I, since September 24, 1953, and that various incidents have
already been considered and resolved by Judge Fernandez on various occasions. The last
order issued by Judge Fernandez on this case was issued on March 21, 1956, wherein he
definitely states that the Court will not entertain any further postponement of the hearing of
this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and
termination of any incident referring to this case should be referred back to Branch I, so that
the same may be disposed of therein. (emphasis supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge
Fernandez presiding), when informed about the defendants' motion for postponement filed on April
26, 1956, issued an order reiterating its previous order handed down in open court on March 21,
1956 and directing the plaintiffs to introduce their evidence ex parte, there being no appearance on
the part of the defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was
rendered on May 4, 1956 the dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del
demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;
(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad
() del "fishpond" en cuestion con todas las mejoras existentes dentro de la misma;
(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en
concepto de danos a contar de la fecha de la expiracion de los 30 dias de la promulgacion
de esta decision hasta que entregue la posesion y administracion de la porcion del
"fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los
pescado beneficiados, mas los intereses legales de la fecha de la incoacion de la demanda
de autos hasta el completo pago de la obligacion principal;
(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos
incurridos por aquella durante la pendencia de esta causa;
(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma
de P2,000.00;
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en
cuanto se refiere al demandado Juan Depra;

(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas;

(i) Con las costas contra del demandado, Casteel.
The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack
of knowledge of the order of the court a quo setting the case for trial. The petition, however, was
denied by the lower court in its order of May 21, 1956, the pertinent portion of which reads as
follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case
has been transferred or not, but to inquire from the presiding Judge, particularly because his
motion asking the transfer of this case was not set for hearing and was not also acted upon.
Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as
follows:
Upon petition of the plaintiff without any objection on the part of the defendants, the
hearing of this case is hereby transferred to May 2 and 3, 1956, at 8:30 o'clock in the
morning.
This case was filed on April 3, 1951, and under any circumstance this Court will not
entertain any other transfer of the hearing of this case, and if the parties will not be
ready on the day set for hearing, the Court will take necessary steps for the final
disposition of this case.
In view of the order above-quoted, the Court will not accede to any transfer of this case and
the duty of Atty. Ruiz is no other than to be present in the Sala of this Court and to call the
attention of the same to the existence of his motion for transfer.
Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken,
the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to
us for final determination on the ground that it involves only questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of discretion when it ordered reception of
the appellees' evidence in the absence of the appellant at the trial on May 2, 1956, thus
depriving the appellant of his day in court and of his property without due process of law;
(2) Whether the lower court committed grave abuse of discretion when it denied the verified
petition for relief from judgment filed by the appellant on May 11, 1956 in accordance with
Rule 38, Rules of Court; and
(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary
injunction against defendant-appellant, and in not dismissing appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March 21, 1956, the lower
court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and empathically

stated that, since the case had been pending since April 3, 1951, it would not entertain any further
motion for transfer of the scheduled hearing.
An order given in open court is presumed received by the parties on the very date and time of
promulgation,1 and amounts to a legal notification for all legal purposes.2 The order of March 21,
1956, given in open court, was a valid notice to the parties, and the notice of hearing dated April 21,
1956 or one month thereafter, was a superfluity. Moreover, as between the order of March 21, 1956,
duly promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by a
"special deputy clerk of court" setting the hearing in another branch of the same court, the former's
order was the one legally binding. This is because the incidents of postponements and adjournments
are controlled by the court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3,
Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the court or to transfer the
cage from one sala to another without authority or order from the court where the case originated
and was being tried. He had neither the duty nor prerogative to re-assign the trial of the case to a
different branch of the same court. His duty as such clerk of court, in so far as the incident in
question was concerned, was simply to prepare the trial calendar. And this duty devolved upon the
clerk of court and not upon the "special deputy clerk of court" who purportedly signed the notice of
hearing.
It is of no moment that the motion for postponement had the conformity of the appellees' counsel.
The postponement of hearings does not depend upon agreement of the parties, but upon the court's
discretion.3
The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom
had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March 21, 1956 intransferably
setting the case for hearing for May 2 and 3, 1956, was sufficient notice to all the appellant's eleven
other counsel of record. This is a well-settled rule in our jurisdiction.4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to
appear before Judge Fernandez on the scheduled dates of hearing Parties and their lawyers have
no right to presume that their motions for postponement will be granted. 5 For indeed, the appellant
and his 12 lawyers cannot pretend ignorance of the recorded fact that since September 24, 1953
until the trial held on May 2, 1956, the case was under the advisement of Judge Fernandez who
presided over Branch I. There was, therefore, no necessity to "re-assign" the same to Branch II
because Judge Fernandez had exclusive control of said case, unless he was legally inhibited to try
the case and he was not.
There is truth in the appellant's contention that it is the duty of the clerk of court not of the Court
to prepare the trial calendar. But the assignment or reassignment of cases already pending in one
sala to another sala, and the setting of the date of trial after the trial calendar has been prepared, fall
within the exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of the clerk of
court of the Court of First Instance of Davao was located directly below Branch I. If the appellant and
his counsel had exercised due diligence, there was no impediment to their going upstairs to the
second storey of the Court of First Instance building in Davao on May 2, 1956 and checking if the
case was scheduled for hearing in the said sala. The appellant after all admits that on May 2, 1956
his counsel went to the office of the clerk of court.
The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct. But
he was properly accorded this right. He was notified in open court on March 21, 1956 that the case
was definitely and intransferably set for hearing on May 2 and 3, 1956 before Branch I. He cannot

argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice
of the denial of his motion for postponement. In the cited case the motion for postponement was the
first one filed by the defendant; in the case at bar, there had already been a series of
postponements. Unlike the case at bar, the Siochi case was not intransferably set for hearing.
Finally, whereas the cited case did not spend for a long time, the case at bar was only finally and
intransferably set for hearing on March 21, 1956 after almost five years had elapsed from the
filing of the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare
for trial is unacceptable because between March 21, 1956 and May 2, 1956, they had one month
and ten days to do so. In effect, the appellant had waived his right to appear at the trial and therefore
he cannot be heard to complain that he has been deprived of his property without due process of
law.7 Verily, the constitutional requirements of due process have been fulfilled in this case: the lower
court is a competent court; it lawfully acquired jurisdiction over the person of the defendant
(appellant) and the subject matter of the action; the defendant (appellant) was given an opportunity
to be heard; and judgment was rendered upon lawful hearing.8
2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex
parte of a writ of preliminary injunction against him, and in not dismissing the appellee's complaint.
We find this contention meritorious.
Apparently, the court a quo relied on exhibit A the so-called "contract of service" and the
appellees' contention that it created a contract of co-ownership and partnership between Inocencia
Deluao and the appellant over the fishpond in question.
Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed
to know the law. It must be assumed, conformably to such rule, that the parties entered into the socalled "contract of service" cognizant of the mandatory and prohibitory laws governing the filing of
applications for fishpond permits. And since they were aware of the said laws, it must likewise be
assumed in fairness to the parties that they did not intend to violate them. This view must
perforce negate the appellees' allegation that exhibit A created a contract of co-ownership between
the parties over the disputed fishpond. Were we to admit the establishment of a co-ownership
violative of the prohibitory laws which will hereafter be discussed, we shall be compelled to declare
altogether the nullity of the contract. This would certainly not serve the cause of equity and justice,
considering that rights and obligations have already arisen between the parties. We shall therefore
construe the contract as one of partnership, divided into two parts namely, a contract of
partnership to exploit the fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and
a contract of partnership to divide the fishpond between them after such award. The first is valid, the
second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant entered into the socalled "contract of service" on November 25, 1949, there were two pending applications over the
fishpond. One was Casteel's which was appealed by him to the Secretary of Agriculture and Natural
Resources after it was disallowed by the Director of Fisheries on October 25, 1949. The other was
Felipe Deluao's application over the same area which was likewise rejected by the Director of
Fisheries on November 29, 1949, refiled by Deluao and later on withdrawn by him by letter dated
March 15, 1950 to the Secretary of Agriculture and Natural Resources. Clearly, although the
fishpond was then in the possession of Casteel, neither he nor, Felipe Deluao was the holder of a
fishpond permit over the area. But be that as it may, they were not however precluded from
exploiting the fishpond pending resolution of Casteel's appeal or the approval of Deluao's application
over the same area whichever event happened first. No law, rule or regulation prohibited them
from doing so. Thus, rather than let the fishpond remain idle they cultivated it.

The evidence preponderates in favor of the view that the initial intention of the parties was not to
form a co-ownership but to establish a partnership Inocencia Deluao as capitalist partner and
Casteel as industrial partner the ultimate undertaking of which was to divide into two equal parts
such portion of the fishpond as might have been developed by the amount extended by the plaintiffsappellees, with the further provision that Casteel should reimburse the expenses incurred by the
appellees over one-half of the fishpond that would pertain to him. This can be gleaned, among
others, from the letter of Casteel to Felipe Deluao on November 15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use your money, same will redound to your benefit
because you are the ones interested in half of the work we have done so far, besides I did
not insist on our being partners in my fishpond permit, but it was you "Tatay" Eping the one
who wanted that we be partners and it so happened that we became partners because I am
poor, but in the midst of my poverty it never occurred to me to be unfair to you. Therefore so
that each of us may be secured, let us have a document prepared to the effect that we are
partners in the fishpond that we caused to be made here in Balasinon, but it does not mean
that you will treat me as one of your "Bantay" (caretaker) on wage basis but not earning
wages at all, while the truth is that we are partners. In the event that you are not amenable to
my proposition and consider me as "Bantay" (caretaker) instead, do not blame me if I
withdraw all my cases and be left without even a little and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their
partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which, although
denominated a "contract of service," was actually the memorandum of their partnership agreement.
That it was not a contract of the services of the appellant, was admitted by the appellees themselves
in their letter10 to Casteel dated December 19, 1949 wherein they stated that they did not employ him
in his (Casteel's) claim but because he used their money in developing and improving the fishpond,
his right must be divided between them. Of course, although exhibit A did not specify any wage or
share appertaining to the appellant as industrial partner, he was so entitled this being one of the
conditions he specified for the execution of the document of partnership. 11
Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond.
In a letter,12dated March 24, 1950, the appellant suggested that they divide the fishpond and the
remaining capital, and offered to pay the Deluaos a yearly installment of P3,000 presumably as
reimbursement for the expenses of the appellees for the development and improvement of the onehalf that would pertain to the appellant. Two days later, the appellee Felipe Deluao
replied,13expressing his concurrence in the appellant's suggestion and advising the latter to ask for a
reconsideration of the order of the Director of Fisheries disapproving his (appellant's) application, so
that if a favorable decision was secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to
maintain his petition for the reinvestigation of Casteel's application. Thus by letter 14 dated March 15,
1950 addressed to the Secretary of Agriculture and Natural Resources, he withdrew his petition on
the alleged ground that he was no longer interested in the area, but stated however that he wanted
his interest to be protected and his capital to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the decisions both dated
September 15, 1950 were issued by the Secretary of Agriculture and Natural Resources in DANR
Cases 353 and 353-B. This development, by itself, brought about the dissolution of the partnership.
Moreover, subsequent events likewise reveal the intent of both parties to terminate the partnership
because each refused to share the fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership,
"... any event which makes it unlawful for the business of the partnership to be carried on or for the

members to carry it on in partnership." The approval of the appellant's fishpond application by the
decisions in DANR Cases 353 and 353-B brought to the fore several provisions of law which made
the continuation of the partnership unlawful and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him, without the previous consent or approval of the
Secretary of Agriculture and Natural Resources.15 To the same effect is Condition No. 3 of the
fishpond permit which states that "The permittee shall not transfer or sublet all or any area herein
granted or any rights acquired therein without the previous consent and approval of this Office."
Parenthetically, we must observe that in DANR Case 353-B, the permit granted to one of the parties
therein, Leoncio Aradillos, was cancelled not solely for the reason that his permit covered a portion
of the area included in the appellant's prior fishpond application, but also because, upon
investigation, it was ascertained thru the admission of Aradillos himself that due to lack of capital, he
allowed one Lino Estepa to develop with the latter's capital the area covered by his fishpond permit
F-289-C with the understanding that he (Aradillos) would be given a share in the produce thereof. 16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that
The lessee shall not assign, encumber, or sublet his rights without the consent of the
Secretary of Agriculture and Commerce, and the violation of this condition shall avoid the
contract; Provided, That assignment, encumbrance, or subletting for purposes of speculation
shall not be permitted in any case:Provided, further, That nothing contained in this section
shall be understood or construed to permit the assignment, encumbrance, or subletting of
lands leased under this Act, or under any previous Act, to persons, corporations, or
associations which under this Act, are not authorized to lease public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural
Resources issued in August 1937, prohibits a transfer or sublease unless first approved by the
Director of Lands and under such terms and conditions as he may prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be allowed. If the permittee
or lessee had, unless otherwise specifically provided, held the permit or lease and actually
operated and made improvements on the area for at least one year, he/she may request
permission to sub-lease or transfer the area and improvements under certain conditions.
(a) Transfer subject to approval. A sub-lease or transfer shall only be valid when first
approved by the Director under such terms and conditions as may be prescribed, otherwise
it shall be null and void. A transfer not previously approved or reported shall be considered
sufficient cause for the cancellation of the permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as provided in subsection (r) of Sec. 33 of
this Order.
Since the partnership had for its object the division into two equal parts of the fishpond between the
appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged
the unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was
dissolved by the approval of his application and the award to him of the fishpond. The approval was
an event which made it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership.
The appellees, however, argue that in approving the appellant's application, the Secretary of
Agriculture and Natural Resources likewise recognized and/or confirmed their property right to onehalf of the fishpond by virtue of the contract of service, exhibit A. But the untenability of this argument
would readily surface if one were to consider that the Secretary of Agriculture and Natural Resources

did not do so for the simple reason that he does not possess the authority to violate the
aforementioned prohibitory laws nor to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the
foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership,
succeeding events reveal the intent of both parties to terminate the partnership by refusing to share
the fishpond with the other.
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to
divide the fishpond so that he could administer his own share, such division to be subject to the
approval of the Secretary of Agriculture and Natural Resources. By letter dated December 29,
1950,18 the appellee Felipe Deluao demurred to Casteel's proposition because there were allegedly
no appropriate grounds to support the same and, moreover, the conflict over the fishpond had not
been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the
former expressed his determination to administer the fishpond himself because the decision of the
Government was in his favor and the only reason why administration had been granted to the
Deluaos was because he was indebted to them. In the same letter, the appellant forbade Felipe
Deluao from sending the couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe
Deluao wrote a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the
administration of the fishpond to the appellant, stating as a ground his belief "that only the competent
agencies of the government are in a better position to render any equitable arrangement relative to
the present case; hence, any action we may privately take may not meet the procedure of legal
order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions
not to share the fishpond with each other in direct violation of the undertaking for which they have
established their partnership each must be deemed to have expressly withdrawn from the
partnership, thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code which
provides, inter alia, that dissolution is caused "by the express will of any partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and
administrative powers with regard to the survey, classification, lease, sale or any other form of
concession or disposition and management of the lands of the public domain, and, more specifically,
with regard to the grant or withholding of licenses, permits, leases and contracts over portions of the
public domain to be utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414,
June 30, 1960), and reiterated in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources)
by law regarding the disposition of public lands such as granting of licenses, permits, leases,
and contracts, or approving, rejecting, reinstating, or cancelling applications, or deciding
conflicting applications, are all executive and administrative in nature. It is a well-recognized
principle that purely administrative and discretionary functions may not be interfered with by
the courts (Coloso v. Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general,
courts have no supervising power over the proceedings and action of the administrative
departments of the government. This is generally true with respect to acts involving the
exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-559) Findings of fact
by an administrative board or official, following a hearing, are binding upon the courts and
will not be disturbed except where the board or official has gone beyond his statutory
authority, exercised unconstitutional powers or clearly acted arbitrarily and without regard to
his duty or with grave abuse of discretion... (emphasis supplied)

In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the
appellant's fishpond application 1717 and awarded to him the possession of the area in question. In
view of the finality of the Secretary's decision in DANR Cases 353 and 353-B, and considering the
absence of any proof that the said official exceeded his statutory authority, exercised unconstitutional
powers, or acted with arbitrariness and in disregard of his duty, or with grave abuse of discretion, we
can do no less than respect and maintain unfettered his official acts in the premises. It is a salutary
rule that the judicial department should not dictate to the executive department what to do with
regard to the administration and disposition of the public domain which the law has entrusted to its
care and administration. Indeed, courts cannot superimpose their discretion on that of the land
department and compel the latter to do an act which involves the exercise of judgment and
discretion.22
Therefore, with the view that we take of this case, and even assuming that the injunction was
properly issued because present all the requisite grounds for its issuance, its continuation, and,
worse, its declaration as permanent, was improper in the face of the knowledge later acquired by the
lower court that it was the appellant's application over the fishpond which was given due course.
After the Secretary of Agriculture and Natural Resources approved the appellant's application, he
became to all intents and purposes the legal permittee of the area with the corresponding right to
possess, occupy and enjoy the same. Consequently, the lower court erred in issuing the preliminary
mandatory injunction. We cannot overemphasize that an injunction should not be granted to take
property out of the possession and control of one party and place it in the hands of another whose
title has not been clearly established by law.23
However, pursuant to our holding that there was a partnership between the parties for the
exploitation of the fishpond before it was awarded to Casteel, this case should be remanded to the
lower court for the reception of evidence relative to an accounting from November 25, 1949 to
September 15, 1950, in order for the court to determine (a) the profits realized by the partnership, (b)
the share (in the profits) of Casteel as industrial partner, (e) the share (in the profits) of Deluao as
capitalist partner, and (d) whether the amounts totalling about P27,000 advanced by Deluao to
Casteel for the development and improvement of the fishpond have already been liquidated.
Besides, since the appellee Inocencia Deluao continued in possession and enjoyment of the
fishpond even after it was awarded to Casteel, she did so no longer in the concept of a capitalist
partner but merely as creditor of the appellant, and therefore, she must likewise submit in the lower
court an accounting of the proceeds of the sales of all the fishes harvested from the fishpond from
September 16, 1950 until Casteel shall have been finally given the possession and enjoyment of the
same. In the event that the appellee Deluao has received more than her lawful credit of P27,000 (or
whatever amounts have been advanced to Casteel), plus 6% interest thereon per annum, then she
should reimburse the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered:
(1) dissolving the injunction issued against the appellant, (2) placing the latter back in possession of
the fishpond in litigation, and (3) remanding this case to the court of origin for the reception of
evidence relative to the accounting that the parties must perforce render in the premises, at the
termination of which the court shall render judgment accordingly. The appellant's counterclaim is
dismissed. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando and Capistrano,
JJ., concur.

Footnotes

Landicho vs. Tan, 87 Phil. 601.

Venturina vs. Court of First Instance of Nueva Ecija, et al., 75 Phil. 804.

Philippine Air Lines, Inc. vs. Ceniza, et al., 93 Phil. 1011.

Ortega, et al. vs. Pacho, 98 Phil. 618.

Bautista vs. Municipal Council of Mandaluyong, et al., 98 Phil. 409; Fenis, et al. vs.
Cordero, et al., 98 Phil. 335; Parina vs. Cobangcobang, et al., L-8398, March 21, 1956.
5

99 Phil. 462.

Siojo vs. Tecson, 88 Phil. 531; Sandejas vs. Robles, 81 Phil. 421; Pajarillo vs. Manahan, 99
Phil. 1000.
7

Banco Espaol vs. Palanca, 37 Phil. 921..

Quoted in full in the Record on Appeal, pp. 444-445.

10

Quoted in full in the Record on Appeal, pp. 168-169.

11

See Casteel's letter to the Deluaos dated November 15, 1949, supra.

12

Quoted in full in the Record on Appeal, pp. 445-446.

13

Quoted in full in the Record on Appeal, pp. 169-170.

14

Quoted in full in the Record on Appeal, pp. 170-171.

15

Memorandum Order No. 4, January 24, 1933, Department of Agriculture and Commerce.

16

See the full text of the decision in the Record on Appeal, pp. 27-34..

17

Quoted in full in the Record on Appeal, pp. 457-458.

18

Quoted in full in the Record on Appeal, pp. 458-459.

19

Quoted in full in the Record on Appeal, pp. 459-460.

20

Quoted in full in the Record on Appeal, pp. 460-461.

See Secs. 3 and 4 of C.A. 141, the Public Land Act, and Secs. 3 and 4 of Public Act 4003,
the Fisheries Act.
21

22

Gonzales vs. Director of Lands, 43 Phil. 227.

Devea vs. Arbes, 13 Phil. 273; Palafox vs. Madamba, 19 Phil. 444; Evangelista vs.
Pedrenos, 27 Phil. 648; Gilchrist vs. Cuddy, 29 Phil. 542; Asombra vs. Dorado & Gesmundo,
36 Phil. 883; Golding vs. Balatbat, 36 Phil. 942; Lacassagne vs. Chapuis, 144 U.S. 119, 12
Sup. Ct. 659, 36
L. Ed. 368; Roy vs. Moore, 85 Conn. 159, 82 At. 233.
23

Aurbach v Sanitary Wares Mfg Corp. (180 S 130) {1989}

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES
CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO
R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN
YOUNG and AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE
B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V.
CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM,
CHARLES CHAMSAY and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO
R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN
YOUNG, AVELINO V. CRUZ and the COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals in
CA-G.R. SP Nos. 05604 and 05617 which set aside the earlier decision dated June 5, 1986, of the
then Intermediate Appellate Court and directed that in all subsequent elections for directors of
Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot
nominate more than three (3) directors; that the Filipino stockholders shall not interfere in ASI's
choice of its three (3) nominees; that, on the other hand, the Filipino stockholders can nominate only
six (6) candidates and in the event they cannot agree on the six (6) nominees, they shall vote only
among themselves to determine who the six (6) nominees will be, with cumulative voting to be
allowed but without interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of
manufacturing and marketing sanitary wares. One of the incorporators, Mr. Baldwin Young went
abroad to look for foreign partners, European or American who could help in its expansion plans. On
August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an
Agreement with Saniwares and some Filipino investors whereby ASI and the Filipino investors
agreed to participate in the ownership of an enterprise which would engage primarily in the business
of manufacturing in the Philippines and selling here and abroad vitreous china and sanitary wares.

The parties agreed that the business operations in the Philippines shall be carried on by an
incorporated enterprise and that the name of the corporation shall initially be "Sanitary Wares
Manufacturing Corporation."
The Agreement has the following provisions relevant to the issues in these cases on the nomination
and election of the directors of the corporation:
3. Articles of Incorporation
(a) The Articles of Incorporation of the Corporation shall be substantially in the form
annexed hereto as Exhibit A and, insofar as permitted under Philippine law, shall
specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be vested in a Board of Directors,
which shall consist of nine individuals. As long as American-Standard shall own at
least 30% of the outstanding stock of the Corporation, three of the nine directors
shall be designated by American-Standard, and the other six shall be designated by
the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a minority group,
including the grant of veto powers over a number of corporate acts and the right to designate certain
officers, such as a member of the Executive Committee whose vote was required for important
corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with
the Board of Investments for availment of incentives with the condition that at least 60% of the
capital stock of the corporation shall be owned by Philippine nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation
prospered. Unfortunately, with the business successes, there came a deterioration of the initially
harmonious relations between the two groups. According to the Filipino group, a basic disagreement
was due to their desire to expand the export operations of the company to which ASI objected as it
apparently had other subsidiaries of joint joint venture groups in the countries where Philippine
exports were contemplated. On March 8, 1983, the annual stockholders' meeting was held. The
meeting was presided by Baldwin Young. The minutes were taken by the Secretary, Avelino Cruz.
After disposing of the preliminary items in the agenda, the stockholders then proceeded to the
election of the members of the board of directors. The ASI group nominated three persons namely;
Wolfgang Aurbach, John Griffin and David P. Whittingham. The Philippine investors nominated six,
namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn
nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of
order on the basis of section 5 (a) of the Agreement, the consistent practice of the parties during the
past annual stockholders' meetings to nominate only nine persons as nominees for the nine-member
board of directors, and the legal advice of Saniwares' legal counsel. The following events then,
transpired:
... There were protests against the action of the Chairman and heated arguments
ensued. An appeal was made by the ASI representative to the body of stockholders

present that a vote be taken on the ruling of the Chairman. The Chairman, Baldwin
Young, declared the appeal out of order and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary to cast all the votes present and
represented by proxy equally for the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr.
Jaqua protested the decision of the Chairman and announced that all votes accruing
to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being
cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed
the Secretary to so vote. Luciano E. Salazar and other proxy holders announced that
all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, ACG.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar.
The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes
equally in favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin
and David Whittingham and the six originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo,
George F. Lee, and Baldwin Young. The Secretary then certified for the election of
the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo,
Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan,
Baldwin Young. The representative of ASI then moved to recess the meeting which
was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP
No. 05617). This motion to adjourn was accepted by the Chairman, Baldwin Young,
who announced that the motion was carried and declared the meeting adjourned.
Protests against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The Chairman
then threatened to have the stockholders who did not agree to the decision of the
Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E.
Salazar and other stockholders, allegedly representing 53 or 54% of the shares of
Saniwares, decided to continue the meeting at the elevator lobby of the American
Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E. Salazar
voted for himself, thus the said five directors were certified as elected directors by the
Acting Secretary, Andres Gatmaitan, with the explanation that there was a tie among
the other six (6) nominees for the four (4) remaining positions of directors and that
the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and
Exchange Commission (SEC). The first petition filed was for preliminary injunction by Saniwares,
Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique
Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case was
denominated as SEC Case No. 2417. The second petition was for quo warranto and application for
receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E. Salazar and Charles
Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for
Avelino Cruz claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision
upholding the election of the Lagdameo Group and dismissing the quo warranto petition of Salazar
and Chamsay. The ASI Group and Salazar appealed the decision to the SEC en banc which affirmed
the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by
Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay (docketed as AC-G.R. SP
No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP No. 05617). The petitions were
consolidated and the appellate court in its decision ordered the remand of the case to the Securities
and Exchange Commission with the directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court
(Court of Appeals) rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John
Griffin, David P. Whittingham and Charles Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF
SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM
EXERCISING THEIR FULL VOTING RIGHTS REPRESENTED BY THE NUMBER
OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT
DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS
INTO THE AGREEMENT OF THE PARTIES WHICH WERE NOT THERE, WHICH
ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following
grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual
agreements entered into by stockholders and the replacement of the conditions of
such agreements with terms never contemplated by the stockholders but merely
dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the property
rights of stockholders without due process of law in order that a favored group of
stockholders may be illegally benefitted and guaranteed a continuing monopoly of
the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE
RECOGNIZING THAT THE STOCKHOLDERS OF SANIWARES ARE DIVIDED
INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC INTENT OF THE
AGREEMENT AND THE LAW.
II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE
PETITIONERS HEREIN WERE THE DULY ELECTED DIRECTORS DURING THE 8
MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF SANTWARES. (P. 24,
Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during
its annual stockholders' meeting held on March 8, 1983. To answer this question the following factors
should be determined: (1) the nature of the business established by the parties whether it was a joint
venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity
during elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among
themselves a joint venture or some other relation depends upon their actual intention which is
determined in accordance with the rules governing the interpretation and construction of contracts.
(Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp.
v. California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the
parties should be viewed strictly on the "Agreement" dated August 15,1962 wherein it is clearly
stated that the parties' intention was to form a corporation and not a joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto
partners or joint venturers in respect of any transaction hereunder. (At P. 66, RolloGR No. 75875)
They object to the admission of other evidence which tends to show that the parties' agreement was
to establish a joint venture presented by the Lagdameo and Young Group on the ground that it
contravenes the parol evidence rule under section 7, Rule 130 of the Revised Rules of Court.
According to them, the Lagdameo and Young Group never pleaded in their pleading that the
"Agreement" failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:
Evidence of written agreements-When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and therefore,
there can be, between the parties and their successors in interest, no evidence of the
terms of the agreement other than the contents of the writing, except in the following
cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the true
intent and agreement of the parties or the validity of the agreement is put in issue by
the pleadings.
(b) When there is an intrinsic ambiguity in the writing.
Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer
to Counterclaim in SEC Case No. 2417 that the Agreement failed to express the true intent of the
parties, to wit:
xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that the parties
thereto disclaim being partners or joint venturers such disclaimer is directed at third
parties and is not inconsistent with, and does not preclude, the existence of two
distinct groups of stockholders in Saniwares one of which (the Philippine Investors)
shall constitute the majority, and the other ASI shall constitute the minority
stockholder. In any event, the evident intention of the Philippine Investors and ASI in
entering into the Agreement is to enter into ajoint venture enterprise, and if some
words in the Agreement appear to be contrary to the evident intention of the parties,
the latter shall prevail over the former (Art. 1370, New Civil Code). The various
stipulations of a contract shall be interpreted together attributing to the doubtful ones
that sense which may result from all of them taken jointly (Art. 1374, New Civil
Code). Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art. 1371,
New Civil Code). (Part I, Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined
their efforts in furtherance of an enterprise for their joint profit, the question whether
they intended by their agreement to create a joint adventure, or to assume some
other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George,
27 Wyo, 423, 200 P 96 33 C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as the
testimonial evidence presented by the Lagdameo and Young Group shows that the parties agreed to
establish a joint venture and not a corporation. The history of the organization of Saniwares and the
unusual arrangements which govern its policy making body are all consistent with a joint venture and
not with an ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the
Agreement with ASI in behalf of the Philippine nationals. He testified that ASI agreed
to accept the role of minority vis-a-vis the Philippine National group of investors, on
the condition that the Agreement should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that certain provisions were included to
protect the interests of ASI as the minority. For example, the vote of 7 out of 9
directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii) (a) of the
Agreement]. ASI is contractually entitled to designate a member of the Executive
Committee and the vote of this member is required for certain transactions [Sec. 3
(b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the
articles and by-laws of Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the
right to designate the president and plant manager [Sec. 5 (6)]. The Agreement
further provides that the sales policy of Saniwares shall be that which is normally
followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard"
products otherwise than through ASI's Export Marketing Services [Sec. 13 (6)].
Under the Agreement, ASI agreed to provide technology and know-how to Saniwares
and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes
of the board of directors for certain actions, in effect gave ASI (which designates 3
directors under the Agreement) an effective veto power. Furthermore, the grant to
ASI of the right to designate certain officers of the corporation; the super-majority
voting requirements for amendments of the articles and by-laws; and most
significantly to the issues of tms case, the provision that ASI shall designate 3 out of
the 9 directors and the other stockholders shall designate the other 6, clearly indicate
that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the
capital stock and the Philippine National stockholders who own the balance of 60%,
and that 2) ASI is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of
stockholders who established a corporation with provisions for a special contractual
relationship between the parties, i.e., ASI and the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the
selection of the nine directors on a six to three ratio. Each group is assured of a fixed number of
directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also
testified that Section 16(c) of the Agreement that "Nothing herein contained shall be construed to
constitute any of the parties hereto partners or joint venturers in respect of any transaction
hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax
purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing
capacities of a local firm are constrained to seek the technology and marketing assistance of huge
multinational corporations of the developed world. Arrangements are formalized where a foreign
group becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its
brand names, and other such assistance. However, there is always a danger from such
arrangements. The foreign group may, from the start, intend to establish its own sole or monopolistic
operations and merely uses the joint venture arrangement to gain a foothold or test the Philippine
waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its
operations and becomes profitable, the foreign group undermines the local majority ownership and
actively tries to completely or predominantly take over the entire company. This undermining of joint
ventures is not consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in industries where
constitutional and legal requirements reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to
enter into agreements regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the
parties thereto, may provide that in exercising any voting rights, the shares held by
them shall be voted as therein provided, or as they may agree, or as determined in
accordance with a procedure agreed upon by them.

Appellants contend that the above provision is included in the Corporation Code's
chapter on close corporations and Saniwares cannot be a close corporation because
it has 95 stockholders. Firstly, although Saniwares had 95 stockholders at the time of
the disputed stockholders meeting, these 95 stockholders are not separate from
each other but are divisible into groups representing a single Identifiable interest. For
example, ASI, its nominees and lawyers count for 13 of the 95 stockholders. The
YoungYutivo family count for another 13 stockholders, the Chamsay family for 8
stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders,
etc. If the members of one family and/or business or interest group are considered as
one (which, it is respectfully submitted, they should be for purposes of determining
how closely held Saniwares is there were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees'
Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation
because it has more than 20 stockholders, the undeniable fact is that it is a closeheld corporation. Surely, appellants cannot honestly claim that Saniwares is a public
issue or a widely held corporation.
In the United States, many courts have taken a realistic approach to joint venture
corporations and have not rigidly applied principles of corporation law designed
primarily for public issue corporations. These courts have indicated that express
arrangements between corporate joint ventures should be construed with less
emphasis on the ordinary rules of law usually applied to corporate entities and with
more consideration given to the nature of the agreement between the joint venturers
(Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago,
M & St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry
v. Atlantic Coast Line Ry; 240 N.C. 495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md.,
212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich. 90, 90, 295 N.W.
571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture
Corporations", 11 Vand Law Rev. p. 680,1958). These American cases dealt with
legal questions as to the extent to which the requirements arising from the corporate
form of joint venture corporations should control, and the courts ruled that substantial
justice lay with those litigants who relied on the joint venture agreement rather than
the litigants who relied on the orthodox principles of corporation law.
As correctly held by the SEC Hearing Officer:
It is said that participants in a joint venture, in organizing the joint venture deviate
from the traditional pattern of corporation management. A noted authority has pointed
out that just as in close corporations, shareholders' agreements in joint venture
corporations often contain provisions which do one or more of the following: (1)
require greater than majority vote for shareholder and director action; (2) give certain
shareholders or groups of shareholders power to select a specified number of
directors; (3) give to the shareholders control over the selection and retention of
employees; and (4) set up a procedure for the settlement of disputes by arbitration
(See I O' Neal, Close Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of
SEC Hearing Officer, P. 16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply
that agreements regarding the exercise of voting rights are allowed only in close
corporations. As Campos and Lopez-Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does this

provision necessarily imply that these agreements can be valid only in close
corporations as defined by the Code? Suppose that a corporation has twenty five
stockholders, and therefore cannot qualify as a close corporation under section 96,
can some of them enter into an agreement to vote as a unit in the election of
directors? It is submitted that there is no reason for denying stockholders of
corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit any
wrong, or fraud on the other stockholders not parties to the agreement. Of course,
voting or pooling agreements are perhaps more useful and more often resorted to in
close corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close corporations
to those which comply with the requisites laid down by section 96, it is entirely
possible that a corporation which is in fact a close corporation will not come within
the definition. In such case, its stockholders should not be precluded from entering
into contracts like voting agreements if these are otherwise valid. (Campos & LopezCampos, op cit, p. 405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or
nomination of directors restricts the right of the Agreement's signatories to vote for
directors, such contractual provision, as correctly held by the SEC, is valid and
binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp.
90-94)
In regard to the question as to whether or not the ASI group may vote their additional equity during
elections of Saniwares' board of directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the
management of the corporation is spelled out in the Agreement. Section 5(a) hereof
says that three of the nine directors shall be designated by ASI and the remaining six
by the other stockholders, i.e., the Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the
parties should honor and adhere to their respective rights and obligations thereunder.
Appellants seem to contend that any allocation of board seats, even in joint venture
corporations, are null and void to the extent that such may interfere with the
stockholder's rights to cumulative voting as provided in Section 24 of the Corporation
Code. This Court should not be prepared to hold that any agreement which curtails in
any way cumulative voting should be struck down, even if such agreement has been
freely entered into by experienced businessmen and do not prejudice those who are
not parties thereto. It may well be that it would be more cogent to hold, as the
Securities and Exchange Commission has held in the decision appealed from, that
cumulative voting rights may be voluntarily waived by stockholders who enter into
special relationships with each other to pursue and implement specific purposes, as
in joint venture relationships between foreign and local stockholders, so long as such
agreements do not adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule on
this question. Rather, all that needs to be done is to give life and effect to the
particular contractual rights and obligations which the parties have assumed for
themselves.

On the one hand, the clearly established minority position of ASI and the contractual
allocation of board seats Cannot be disregarded. On the other hand, the rights of the
stockholders to cumulative voting should also be protected.
In our decision sought to be reconsidered, we opted to uphold the second over the
first. Upon further reflection, we feel that the proper and just solution to give due
consideration to both factors suggests itself quite clearly. This Court should recognize
and uphold the division of the stockholders into two groups, and at the same time
uphold the right of the stockholders within each group to cumulative voting in the
process of determining who the group's nominees would be. In practical terms, as
suggested by appellant Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During this voting, each Filipino
stockholder can cumulate his votes. ASI, however, should not be allowed to interfere
in the voting within the Filipino group. Otherwise, ASI would be able to designate
more than the three directors it is allowed to designate under the Agreement, and
may even be able to get a majority of the board seats, a result which is clearly
contrary to the contractual intent of the parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (Rollo-75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to
vote their additional equity pursuant to Section 24 of the Corporation Code which gives the
stockholders of a corporation the right to cumulate their votes in electing directors. Petitioner Salazar
adds that this right if granted to the ASI Group would not necessarily mean a violation of the AntiDummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors
or governing body of corporations or associations engaging in partially nationalized
activities shall be allowed in proportion to their allowable participation or share in the
capital of such entities. (amendments introduced by Presidential Decree 715, section
1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The
point of query, however, is whether or not that provision is applicable to a joint venture with clearly
defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal
definition but it has been generally understood to mean an organization formed for
some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It is in fact hardly
distinguishable from the partnership, since their elements are similar community of
interest in the business, sharing of profits and losses, and a mutual right of control.
Blackner v. Mc Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d.,
1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdictions is
that the partnership contemplates a general business with some degree of continuity,
while the joint venture is formed for the execution of a single transaction, and is thus
of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon
v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811

[1920]). This observation is not entirely accurate in this jurisdiction, since under the
Civil Code, a partnership may be particular or universal, and a particular partnership
may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint venture is a form of partnership and should
thus be governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that
although a corporation cannot enter into a partnership contract, it may however
engage in a joint venture with others. (At p. 12, Tuazon v. Bolanos, 95 Phil. 906
[1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts generally apply to
a contract of joint venture. (O' Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the question of
whether or not the ASI Group may vote their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the
allocation of director seats under Section 5 (a) of the "Agreement," and the right of each group of
stockholders to cumulative voting in the process of determining who the group's nominees would be
under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement
relates to the manner of nominating the members of the board of directors while Section 3 (a) (1)
relates to the manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of members
of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would
be beholden to them would obliterate their minority status as agreed upon by the parties. As aptly
stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino
group. Otherwise, ASI would be able to designate more than the three directors it is
allowed to designate under the Agreement, and may even be able to get a majority of
the board seats, a result which is clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of the board seats and the
stockholder's right to cumulative voting. Moreover, this ruling will also give due
consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the
nationalization requirements of the Constitution and the laws if ASI is allowed to
nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the consideration as
regards the possible domination by the foreign investors of the enterprise in violation of the
nationalization requirements enshrined in the Constitution and circumvention of the Anti-Dummy Act.
In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect
board directors in proportion to their share in the capital of the entity. It is to be noted, however, that
the same law also limits the election of aliens as members of the board of directors in proportion to
their allowance participation of said entity. In the instant case, the foreign Group ASI was limited to
designate three directors. This is the allowable participation of the ASI Group. Hence, in future
dealings, this limitation of six to three board seats should always be maintained as long as the joint
venture agreement exists considering that in limiting 3 board seats in the 9-man board of directors

there are provisions already agreed upon and embodied in the parties' Agreement to protect the
interests arising from the minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly
affirmed by the appellate court declaring Messrs. Wolfgang Aurbach, John Griffin, David P
Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan, Emesto V. Lagdameo, Jr.,
Enrique Lagdameo, and George F. Lee as the duly elected directors of Saniwares at the March
8,1983 annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a
cumulative voting during the election of the board of directors of the enterprise as ruled by the
appellate court and submits that the six (6) directors allotted the Filipino stockholders should be
selected by consensus pursuant to section 5 (a) of the Agreement which uses the word "designate"
meaning "nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino
stockholders are allowed to select their nominees separately and not as a common slot determined
by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors
should not be interpreted in isolation. This should be construed in relation to section 3 (a) (1) of the
Agreement. As we stated earlier, section 3(a) (1) relates to the manner of voting for these nominees
which is cumulative voting while section 5(a) relates to the manner of nominating the members of the
board of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot
now impugn its legality.
The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting
procedure cannot, however, be ignored. The validity of the cumulative voting procedure is dependent
on the directors thus elected being genuine members of the Filipino group, not voters whose interest
is to increase the ASI share in the management of Saniwares. The joint venture character of the
enterprise must always be taken into account, so long as the company exists under its original
agreement. Cumulative voting may not be used as a device to enable ASI to achieve stealthily or
indirectly what they cannot accomplish openly. There are substantial safeguards in the Agreement
which are intended to preserve the majority status of the Filipino investors as well as to maintain the
minority status of the foreign investors group as earlier discussed. They should be maintained.
WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the
petition in G.R. No. 75951 is partly GRANTED. The amended decision of the Court of Appeals is
MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David Whittingham Emesto V. Lagdameo,
Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee
are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders'
meeting. In all other respects, the questioned decision is AFFIRMED. Costs against the petitioners in
G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.
Fernan, C.J., (Chairman), Bidin and Cortes, JJ., concur.
Feliciano, J., took no part.

Evangelista v CIR (102 P 140) {1957}

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA,

petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and
Solicitor Felicisimo R. Rosete for Respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for
review of a decision of the Court of Tax Appeals, the dispositive part of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real
estate dealer's tax and the residence tax for the years 1945 to 1949, inclusive, in accordance
with the respondent's assessment for the same in the total amount of P6,878.34, which is
hereby affirmed and the petition for review filed by petitioner is hereby dismissed with costs
against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount
together with their personal monies was used by them for the purpose of buying real
properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of
3,713.40 sq. m. including improvements thereon from the sum of P100,000.00; this property
has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an
aggregate area of 3,718.40 sq. m. including improvements thereon for P130,000.00; this
property has an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq.
m. including improvements thereon for P108,825.00. This property has an assessed value of
P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m.
including improvements thereon for P237,234.34. This property has an assessed value of
P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their brother Simeon
Evangelista to 'manage their properties with full power to lease; to collect and receive rents;
to issue receipts therefor; in default of such payment, to bring suits against the defaulting
tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and deposit
all notes and checks for them;
7. That after having bought the above-mentioned real properties the petitioners had the
same rented or leases to various tenants;

8. That from the month of March, 1945 up to an including December, 1945, the total amount
collected as rents on their real properties was P9,599.00 while the expenses amounted to
P3,650.00 thereby leaving them a net rental income of P5,948.33;
9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of
which amount was deducted in the sum of P16,288.27 for expenses thereby leaving them a
net rental income of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 out of the which amount
was deducted the sum of P4,837.65 as expenses, thereby leaving them a net rental income
of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded
the payment of income tax on corporations, real estate dealer's fixed tax and corporation residence
tax for the years 1945-1949, computed, according to assessment made by said officer, as follows:

INCOME TAXES

1945

14.84

1946

1,144.71

1947

10.34

1948

1,912.30

1949

1,575.90

Total including surcharge and

compromise

P6,157.09

REAL ESTATE DEALER'S FIXED TAX

1946

P37.50

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

RESIDENCE TAXES OF CORPORATION

1945

P38.75

1946

38.75

1947

38.75

1948

38.75

1949

38.75

Total including surcharge

P193.75

TOTAL TAXES DUE

P6,878.34.

Said letter of demand and corresponding assessments were delivered to petitioners on December 3,
1954, whereupon they instituted the present case in the Court of Tax Appeals, with a prayer that "the
decision of the respondent contained in his letter of demand dated September 24, 1954" be
reversed, and that they be absolved from the payment of the taxes in question, with costs against
the respondent.

After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the
respondent, and a petition for reconsideration and new trial having been subsequently denied, the
case is now before Us for review at the instance of the petitioners.
The issue in this case whether petitioners are subject to the tax on corporations provided for in
section 24 of Commonwealth Act. No. 466, otherwise known as the National Internal Revenue Code,
as well as to the residence tax for corporations and the real estate dealers fixed tax. With respect to
the tax on corporations, the issue hinges on the meaning of the terms "corporation" and
"partnership," as used in section 24 and 84 of said Code, the pertinent parts of which read:
SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding taxable year from all sources by
every corporation organized in, or existing under the laws of the Philippines, no matter how
created or organized but not including duly registered general co-partnerships (compaias
colectivas), a tax upon such income equal to the sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts (cuentas en participacion), associations or
insurance companies, but does not include duly registered general copartnerships.
(compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money,
properly, or industry to a common fund, with the intention of dividing the profits among
themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly,
petitioners have agreed to, and did, contribute money and property to a common fund. Hence, the
issue narrows down to their intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real
estate transactions for monetary gain and then divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not property
inherited by them pro indiviso. They created it purposely. What is more they jointly
borrowed a substantial portion thereof in order to establish said common fund.
2. They invested the same, not merely not merely in one transaction, but in a series of
transactions. On February 2, 1943, they bought a lot for P100,000.00. On April 3, 1944, they
purchased 21 lots for P18,000.00. This was soon followed on April 23, 1944, by the
acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they
got a fourth lot for P237,234.14. The number of lots (24) acquired and transactions
undertaken, as well as the brief interregnum between each, particularly the last three
purchases, is strongly indicative of a pattern or common design that was not limited to the
conservation and preservation of the aforementioned common fund or even of the property
acquired by the petitioners in February, 1943. In other words, one cannot but perceive a
character of habitually peculiar to business transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of
petitioners herein. The properties were leased separately to several persons, who, from 1945
to 1948 inclusive, paid the total sum of P70,068.30 by way of rentals. Seemingly, the lots are

still being so let, for petitioners do not even suggest that there has been any change in the
utilization thereof.
4. Since August, 1945, the properties have been under the management of one person,
namely Simeon Evangelista, with full power to lease, to collect rents, to issue receipts, to
bring suits, to sign letters and contracts, and to indorse and deposit notes and checks. Thus,
the affairs relative to said properties have been handled as if the same belonged to a
corporation or business and enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over
fifteen (15) years, since the first property was acquired, and over twelve (12) years, since
Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in
creating the set up already adverted to, or on the causes for its continued existence. They
did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave no room for doubt on the
existence of said intent in petitioners herein. Only one or two of the aforementioned circumstances
were present in the cases cited by petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the
acts performed by them, a legal entity, with a personality independent of that of its members, did not
come into existence, and some of the characteristics of partnerships are lacking in the case at bar.
This pretense was correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax "duly registered general
partnerships which constitute precisely one of the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one could be deemed constituted for purposes
of the tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes,
among other, joint accounts, (cuentas en participation)" and "associations," none of which has a
legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not
have regarded that personality as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general copartnerships" which are
possessed of the aforementioned personality have been expressly excluded by law (sections 24
and 84 [b] from the connotation of the term "corporation" It may not be amiss to add that petitioners'
allegation to the effect that their liability in connection with the leasing of the lots above referred to,
under the management of one person even if true, on which we express no opinion tends
to increase the similarity between the nature of their venture and that corporations, and is, therefore,
an additional argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from
"partnerships". By specific provisions of said laws, such "corporations" include "associations, jointstock companies and insurance companies." However, the term "association" is not used in the
aforementioned laws.

. . . in any narrow or technical sense. It includes any organization, created for the transaction
of designed affairs, or the attainment of some object, which like a corporation, continues
notwithstanding that its members or participants change, and the affairs of which, like
corporate affairs, are conducted by a single individual, a committee, a board, or some other
group, acting in a representative capacity. It is immaterial whether such organization is
created by an agreement, a declaration of trust, a statute, or otherwise. It includes a
voluntary association, a joint-stock corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust, and 'investment' trust (whether of the fixed or the
management type), an interinsuarance exchange operating through an attorney in fact, a
partnership association, and any other type of organization (by whatever name known) which
is not, within the meaning of the Code, a trust or an estate, or a partnership. (7A Mertens
Law of Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it includes not only
a partnership as known at common law but, as well, a syndicate, group, pool, joint venture or
other unincorporated organizations which carries on any business financial operation, or
venture, and which is not, within the meaning of the Code, a trust, estate, or a corporation. . .
(7A Merten's Law of Federal Income taxation, p. 789; emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income Taxation, p. 562
Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue Code, includes these
partnerships with the exception only of duly registered general copartnerships within the
purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465 provides in
part:
Entities liable to residence tax.-Every corporation, no matter how created or organized,
whether domestic or resident foreign, engaged in or doing business in the Philippines shall
pay an annual residence tax of five pesos and an annual additional tax which in no case,
shall exceed one thousand pesos, in accordance with the following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock company, partnership, joint
account (cuentas en participacion), association or insurance company, no matter how
created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of
our National Internal Revenue Code (commonwealth Act No. 466), and that the latter was approved
on June 15, 1939, the day immediately after the approval of said Commonwealth Act No. 465 (June
14, 1939), it is apparent that the terms "corporation" and "partnership" are used in both statutes with
substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax for
corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the properties above
mentioned for a period of over twelve years, and that the yearly gross rentals of said properties from
June 1945 to 1948 ranged from P9,599 to P17,453. Thus, they are subject to the tax provided in

section 193 (q) of our National Internal Revenue Code, for "real estate dealers," inasmuch as,
pursuant to section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling,
exchanging, leasing, or renting property or his own account as principal and holding himself
out as a full or part time dealer in real estate or as an owner of rental property or properties
rented or offered to rent for an aggregate amount of three thousand pesos or more a year. . .
(emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against
the petitioners herein. It is so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L., Endencia and Felix, JJ., concur.

BAUTISTA ANGELO, J., concurring:

I agree with the opinion that petitioners have actually contributed money to a common fund with
express purpose of engaging in real estate business for profit. The series of transactions which they
had undertaken attest to this. This appears in the following portion of the decision:
2. They invested the same, not merely in one transaction, but in a series of transactions. On
February 2, 1943, they bought a lot for P100,000. On April 3, 1944, they purchase 21 lots for
P18,000. This was soon followed on April 23, 1944, by the acquisition of another real state
for P108,825. Five (5) days later (April 28, 1944), they got a fourth lot for P237,234.14. The
number of lots (24) acquired and transactions undertaken, as well as the brief interregnum
between each, particularly the last three purchases, is strongly indicative of a pattern or
common design that was not limited to the conservation and preservation of the
aforementioned common fund or even of the property acquired by the petitioner in February,
1943, In other words, we cannot but perceive a character of habitually peculiar
to business transactions engaged in for purposes of gain.
I wish however to make to make the following observation:
Article 1769 of the new Civil Code lays down the rule for determining when a transaction should be
deemed a partnership or a co-ownership. Said article paragraphs 2 and 3, provides:
(2) Co-ownership or co-possession does not of itself establish a partnership, whether such
co-owners or co-possessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish partnership, whether or not the
person sharing them have a joint or common right or interest in any property from which the
returns are derived;
From the above it appears that the fact that those who agree to form a co-ownership shared or do
not share any profits made by the use of property held in common does not convert their venture into
a partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or
not the persons sharing therein have a joint or common right or interest in the property. This only
means that, aside from the circumstance of profit, the presence of other elements constituting
partnership is necessary, such as the clear intent to form a partnership, the existence of a judicial
personality different from that of the individual partners, and the freedom to transfer or assign any

interest in the property by one with the consent of the others (Padilla, Civil Code of the Philippines
Annotated, Vol. I, 1953 ed., pp. 635- 636).
It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain
real estate for profit in the absence of other circumstances showing a contrary intention cannot be
considered a partnership.
Persons who contribute property or funds for a common enterprise and agree to share the
gross returns of that enterprise in proportion to their contribution, but who severally retain the
title to their respective contribution, are not thereby rendered partners. They have no
common stock or capital, and no community of interest as principal proprietors in the
business itself which the proceeds derived. (Elements of the law of Partnership by Floyd R.
Mechem, 2n Ed., section 83, p. 74.)
A joint venture purchase of land, by two, does not constitute a copartnership in respect
thereto; nor does not agreement to share the profits and loses on the sale of land create a
partnership; the parties are only tenants in common. (Clark vs. Sideway, 142 U.S. 682, 12 S
Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of reality,
holding as tenants in common, and to divide the profits of disposing of it, the brother and the
other not being entitled to share in plaintiff's commissions, no partnership existed as between
the parties, whatever relation may have been as to third parties. (Magee vs. Magee, 123 N.
E. 6763, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the same;
(b) generally a participating in both profits and losses; (c) and such a community of interest,
as far as third persons are concerned as enables each party to make contract, manage the
business, and dispose of the whole property. (Municipal Paving Co. vs Herring, 150 P. 1067,
50 Ill. 470.)
The common ownership of property does not itself create a partnership between the owners,
though they may use it for purpose of making gains; and they may, without becoming
partners, agree among themselves as to the management and use of such property and the
application of the proceeds therefrom. (Spurlock vs. Wilson, 142 S. W. 363, 160 No. App.
14.)
This is impliedly recognized in the following portion of the decision: "Although, taken singly, they
might not suffice to establish the intent necessary to constitute a partnership, the collective effect of
these circumstances (referring to the series of transactions) such as to leave no room for doubt on
the existence of said intent in petitioners herein."

Fortis v Guiterrez (6 P 100)

JOHN FORTIS, plaintiff-appellee,
vs.
GUTIERREZ HERMANOS, defendants-appellants.
Hartigan, Rohde and Gutierrez, for appellants.
W. A. Kincaid, for appellee.
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.
(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.
(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.)
(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 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.
(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.)
(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.
(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.
(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.)
(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.
(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.
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.
Arellano, C.J., Torres, Mapa, Johnson and Carson, JJ., concur.
Footnotes
1

2 Phil. Rep., 561.

Pastor v Gaspar (2 P 592)

Aguila v CA (319 S 246) {1999}

Tuason v Bolanos (95 P 106) {1954}

In Re: Ozaela & Sycip (92 S 1)
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Tocao vs CA {342 SCRA 20} (2000)
Mendiola vs CA {497 SCRA 346} (2006)
Lim Tong Lim vs Phil. Fishing Gear Industries, Inc. {317 SCRA 728} (1999)
Tacao vs CA (365 SCRA 463) 2001
Tai Tong Chuache & Co. vs Insurance Commission, 158 SCRA 366 (1988)
Heirs of Tan Eng Kec vs Court of Appeals, 341 SCRA 740 (2000)
Heirs of J. Lim vs Lim, 614 SCRA 141 (2010)
Ona vs CIR 45 SCRA, 74 (1972)
Orbillos, Jr. vs CIR, 1395 436 (1985)
Philex Mining Corp. vs CIR, 551 SCRA 428 (2008)
Sardane vs CA 167 SCRA, 524 (1988)
Litonjua, Jr. vs Litonjua, Sr., 477 SCRA 576 (2005)