Contents

1. Lyons v. Rosentock, 56 Phil 632 (1932)....................................2

2. Tuazon v. Bolanos,..............................................................8
3. Lim Tong Lim vs. Phil. Fishing............................................13
4. Litonjua v. Litonjua...........................................................23
5. AFISCO v. CA.................................................................36
6. Arbes vs. Polistico............................................................45
7. Evangelista vs. CIR...........................................................51
8. Pascual v. CIR.................................................................58
9. Heirs of Jose Lim and Juliet Lim,.........................................66
10. Lilibeth Sunga-Chan........................................................73
11. CIR v. Suter...................................................................80
12. Aurbach v. Sanitary Wares.................................................86
G.R. No. 174149..................................................................102
13 . J. Tiosejo VInvestment v. Spouses Ang.............................102
DECISION............................................................................104
14. Gatchalian v. Collector...................................................111
15. Yulo v. Yang Chiao Seng.................................................119
16. Pioneer Insurance & Surety Corp. v. Court of Appeals............125
17. Yu v. National Labor Relations Commission.........................139
18. ISABELO MORAN, JR vs. THE HON. CA and PECSON......146
19.Rojas v. Maglana...........................................................156
20. Aldecoa and Co. v. Warner, Barnes and Co..........................164
21. Antonio Lim v TANPUT.................................................175
22. US vs Clarin................................................................213
23. Celino v. CA................................................................215
1

IV. OBLIGATIONS OF PARTNERSHIPS/ PARTNERS TO THIRD PERSONS (ART. 1815- 1827) 219
24. Torres v CA & M. Torres................................................219
25. Sharruf & Co. v. Baloise Fire Insurance Co.,........................226
26 In the Matter of the Petition for Authority to Continue Use of Firm Name Sycip, Salazar &Castillo,

233

Agency (Full Text& DIGEST)

Cases : Articles 1767-1783
1. Lyons v. Rosentock, 56 Phil 632 (1932)
G.R. No. L-35469
March 17, 1932 E. S.
LYONS, plaintiff-appellant, vs. C. W. ROSENSTOCK,
Executor of the Estate of Henry W. Elser,
deceased, defendant-appellee.
Digest: FACTS:
Henry W. Elser was engaged in buying, selling, and
administering real estate. E. S.Lyons joined with him, the
profits being shared by the 2 in equal parts.
Lyons, whose regular vocation was that of a missionary or
missionary agent, of the Methodist Episcopal Church, went
on leave to the United States and was gone for nearly a year
and a half. Elser made written statements showing that
Lyons was, at that time, half owner with Elser of 3 particular
pieces of real property.
Concurrently with this act Lyons execute in favor of Elser a
general power of attorney empowering him to manage and
dispose of said properties at will and to represent Lyons
fully and amply, to the mutual advantage of both. The
attention of Elser was drawn to a piece of land, referred to as
the San Juan Estate. He obtained the loan of P50,000 to
complete the amount needed for the first payment on the San
Juan Estate. The lender insisted that he should procure the
signature of the Fidelity & Surety Co. on the note to be
given for said loan. Elser mortgaged to the Fidelity & Surety
Co. the equity of redemption in the property owned by

himself and Lyons on Carriedo Street to secure the liability

thus assumed by it.The case for the plaintiff supposes that,
when Elser placed a mortgage for P50,000upon the equity of
redemption in the Carriedo property, Lyons, as half owner of
said property, became, as it were, involuntarily the owner of
an undivided interest in the property acquired partly by that
money; and it is insisted for him that, in consideration of this
fact, he is entitled to the four hundred forty-six and twothirds shares of J. K.Pickering & Company, with the
earnings thereon, as claimed in his complaint.
ISSUE: Whether there was a general relation of partnership.
RULING: NO, The position of the appellant is, in our
opinion, untenable. If Elser had used any money actually
belonging to Lyons in this deal, he would under article
1724of the Civil Code and article 264 of the Code of
Commerce, be obligated to pay interest upon the money so
applied to his own use. Under the law prevailing in
this jurisdiction a trust does not ordinarily attach with
respect to property acquired by a person who uses money
belonging to another (Martinez vs. Martinez, 1 Phil.,
647;Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an
actual relation of partnership had existed in the money used,
the case might be different; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is
claimed, existed. But there was clearly no general relation of
partnership, under article 1678 of the CC.
It is clear that Elser, in buying the San Juan Estate, was not
acting for any partnership composed of himself and Lyons,
and the law cannot be distorted in to a proposition which
would make Lyons a participant in this deal contrary to his
express determination. It seems to be supposed that the
3

doctrines of equity worked out in the jurisprudence of

England and the United States with reference to trust supply
a basis for this action.
The doctrines referred to operate, however, only where
money belonging to one person is used by another for the
acquisition of property which should belong to both; and it
takes but little discernment to see that the situation here
involved is not one for the application of that doctrine, for
no money belonging to Lyons or any partnership composed
of Elser and Lyons was in fact used by Elser in the purchase
of the SanJuan Estate. Of course, if any damage had been
caused to Lyons by the placing of the mortgage upon the
equity of redemption in the Carriedo property, Elser's estate
would be liable for such damage. But it is evident that Lyons
was not prejudice by that act
STREET, J.:
This action was institute in the CFI of the City of Manila, by
E. S. Lyons against C. W. Rosenstock, as executor of the
estate of H. W. Elser, deceased, consequent upon the taking
of an appeal by the executor from the allowance of the claim
sued upon by the committee on claims in said estate. The
purpose of the action is to recover 446 and two thirds shares
of the stock of J. K. Pickering & Co., Ltd., together with the
sum of about P125,000, representing the dividends which
accrued on said stock prior to October 21, 1926, with lawful
interest. Upon hearing the cause the trial court absolved the
defendant executor from the complaint, and the plaintiff
appealed.

Prior to his death on June 18, 1923, Henry W. Elser had been
a resident of the City of Manila where he was engaged
during the years with which we are here concerned in
buying, selling, and administering real estate. In several
ventures which he had made in buying and selling property
of this kind the plaintiff, E. S. Lyons, had joined with him,
the profits being shared by the two in equal parts. In April,
1919, Lyons, whose regular vocation was that of a
missionary, or missionary agent, of the Methodist Episcopal
Church, went on leave to the United States and was gone for
nearly a year and a half, returning on September 21, 1920.
On the eve of his departure Elser made a written statements
showing that Lyons was, at that time, half owner with Elser
of 3 particular pieces of real property. Concurrently with this
act Lyons execute in favor of Elser a general power of
attorney empowering him to manage and dispose of said
properties at will and to represent Lyons fully and amply, to
the mutual advantage of both.
During the absence of Lyons two of the pieces of property
above referred to were sold by Elser, leaving in his hands a
single piece of property located at 616-618 Carried Street, in
the City of Manila, containing about 282 square meters of
land, with the improvements thereon.
In the spring of 1920 the attention of Elser was drawn to a
piece of land, containing about 1,500,000 square meters,
near the City of Manila, and he discerned therein a fine
opportunity for the promotion and development of a
4

suburban improvement. This property, which will be herein

referred to as the San Juan Estate, was offered by its owners
for P570,000. To afford a little time for maturing his plans,
Elser purchased an option on this property for P5,000, and
when this option was about to expire without his having
been able to raise the necessary funds, he paid P15,000 more
for an extension of the option, with the understanding in
both cases that, in case the option should be exercised, the
amounts thus paid should be credited as part of the first
payment. The amounts paid for this option and its extension
were supplied by Elser entirely from his own funds. In the
end he was able from his own means, and with the
assistance which he obtained from others, to acquire said
estate. The amount required for the first payment was
P150,000, and as Elser had available only about P120,000,
including the P20,000 advanced upon the option, it was
necessary to raise the remainder by obtaining a loan for
P50,000. This amount was finally obtained from a Chinese
merchant of the city named Uy Siuliong. This loan was
secured through Uy Cho Yee, a son of the lender; and in
order to get the money it was necessary for Elser not only to
give a personal note signed by himself and his 2 associates
in the projected enterprise, but also by the Fidelity & Surety
Company. The money thus raised was delivered to Elser by
Uy Siuliong on June 24, 1920. With this money and what he
already had in bank Elser purchased the San Juan Estate on
or about June 28, 1920. For the purpose of the further
development of the property a limited partnership had, about
this time, been organized by Elser and 3 associates, under

the name of J. K. Pickering & Company; and when the

transfer of the property was effected the deed was made
directly to this company. As Elser was the principal
capitalist in the enterprise he received by far the greater
number of the shares issued, his portion amount in the
beginning to 3,290 shares.
While these negotiations were coming to a head, Elser
contemplated and hoped that Lyons might be induced to
come in with him and supply part of the means necessary to
carry the enterprise through. In this connection it appears
that on May 20, 1920, Elser wrote Lyons a letter, informing
him that he had made an offer for a big subdivision and that,
if it should be acquired and Lyons would come in, the two
would be well fixed. (Exhibit M-5.) On June 3, 1920, 8 days
before the first option expired, Elser cabled Lyons that he
had bought the San Juan Estate and thought it advisable for
Lyons to resign (Exhibit M-13), meaning that he should
resign his position with the mission board in New York. On
the same date he wrote Lyons a letter explaining some
details of the purchase, and added "have advised in my cable
that you resign and I hope you can do so immediately and
will come and join me on the lines we have so often spoken
about. . . . There is plenty of business for us all now and I
believe we have started something that will keep us going
for some time." In one or more communications prior to this,
Elser had sought to impress Lyons with the idea that he
should raise all the money he could for the purpose of giving
the necessary assistance in future deals in real estate.
5

The enthusiasm of Elser did not communicate itself in any

marked degree to Lyons, and found him averse from joining
in the purchase of the San Juan Estate. In fact upon this visit
of Lyons to the United States a grave doubt had arisen as to
whether he would ever return to Manila, and it was only in
the summer of 1920 that the board of missions of his church
prevailed upon him to return to Manila and resume his
position as managing treasurer and one of its trustees.
Accordingly, on June 21, 1920, Lyons wrote a letter from
New York thanking Elser for his offer to take Lyons into his
new project and adding that from the standpoint of making
money, he had passed up a good thing.
One source of embarrassment which had operated on Lyson
to bring him to the resolution to stay out of this venture, was
that the board of mission was averse to his engaging in
business activities other than those in which the church was
concerned; and some of Lyons' missionary associates had
apparently been criticizing his independent commercial
activities. This fact was dwelt upon in the letter abovementioned. Upon receipt of this letter Elser was of course
informed that it would be out of the question to expect
assistance from Lyons in carrying out the San Juan project.
No further efforts to this end were therefore made by Elser.
When Elser was concluding the transaction for the purchase
of the San Juan Estate, his book showed that he was
indebted to Lyons to the extent of, possibly, P11,669.72,
which had accrued to Lyons from profits and earnings

derived from other properties; and when the J. K. Pickering

& Company was organized and stock issued, Elser indorsed
to Lyons 200 of the shares allocated to himself, as he then
believed that Lyons would be one of his associates in the
deal. It will be noted that the par value of these 200 shares
was more than P8,000 in excess of the amount which Elser
in fact owed to Lyons; and when the latter returned to the
Philippine Islands, he accepted these shares and sold them
for his own benefit. It seems to be supposed in the
appellant's brief that the transfer of these shares to Lyons by
Elser supplies some sort of basis for the present action, or at
least strengthens the considerations involved in a feature of
the case to be presently explained. This view is manifestly
untenable, since the ratification of the transaction by Lyons
and the appropriation by him of the shares which were
issued to him leaves no ground whatever for treating the
transaction as a source of further equitable rights in Lyons.
We should perhaps add that after Lyons' return to the
Philippine Islands he acted for a time as one of the members
of the board of directors of the J. K. Pickering & Company,
his qualification for this office being derived precisely from
the ownership of these shares.
We now turn to the incident which supplies the main basis of
this action. It will be remembered that, when Elser obtained
the loan of P50,000 to complete the amount needed for the
first payment on the San Juan Estate, the lender, Uy
Siuliong, insisted that he should procure the signature of the
Fidelity & Surety Co. on the note to be given for said loan.
6

But before signing the note with Elser and his associates, the
Fidelity & Surety Co. insisted upon having security for the
liability thus assumed by it. To meet this requirements Elser
mortgaged to the Fidelity & Surety Co. the equity of
redemption in the property owned by himself and Lyons on
Carriedo Street.
This mortgage was executed on June 30, 1920, at which
time Elser expected that Lyons would come in on the
purchase of the San Juan Estate. But when he learned from
the letter from Lyons of July 21, 1920, that the latter had
determined not to come into this deal, Elser began to cast
around for means to relieve the Carriedo property of the
encumbrance which he had placed upon it. For this purpose,
on September 9, 1920, he addressed a letter to the Fidelity &
Surety Co., asking it to permit him to substitute a property
owned by himself at 644 M. H. del Pilar Street, Manila, and
1,000 shares of the J. K. Pickering & Company, in lieu of
the Carriedo property, as security. The Fidelity & Surety Co.
agreed to the proposition; and on September 15, 1920, Elser
executed in favor of the Fidelity & Surety Co. a new
mortgage on the M. H. del Pillar property and delivered the
same, with 1,000 shares of J. K. Pickering & Company, to
said company. The latter thereupon in turn executed a
cancellation of the mortgage on the Carriedo property and
delivered it to Elser. But notwithstanding the fact that these
documents were executed and delivered, the new mortgage
and the release of the old were never registered; and on
September 25, 1920, thereafter, Elser returned the

cancellation of the mortgage on the Carriedo property and

took back from the Fidelity & Surety Co. the new mortgage
on the M. H. del Pilar property, together with the 1,000
shares of the J. K. Pickering & Company which he had
delivered to it.
The explanation of this change of purpose is undoubtedly to
be found in the fact that Lyons had arrived in Manila on
September 21, 1920, and shortly thereafter, in the course of a
conversation with Elser told him to let the Carriedo
mortgage remain on the property ("Let the Carriedo
mortgage ride"). Mrs. Elser testified to the conversation in
which Lyons used the words above quoted, and as that
conversation supplies the most reasonable explanation of
Elser's recession from his purpose of relieving the Carriedo
property, the trial court was, in our opinion, well justified in
accepting as a proven fact the consent of Lyons for the
mortgage to remain on the Carriedo property.
This concession was not only reasonable under the
circumstances, in view of the abundant solvency of Elser,
but in view of the further fact that Elser had given to Lyons
200 shares of the stock of the J. K. Pickering & Co., having
a value of nearly P8,000 in excess of the indebtedness which
Elser had owed to Lyons upon statement of account.
The trial court found in effect that the excess value of these
shares over Elser's actual indebtedness was conceded by
Elser to Lyons in consideration of the assistance that had
been derived from the mortgage placed upon Lyon's interest
7

in the Carriedo property. Whether the agreement was

reached exactly upon this precise line of thought is of little
moment, but the relations of the parties had been such that it
was to be expected that Elser would be generous; and he
could scarcely have failed to take account of the use he had
made of the joint property of the two.

became, as it were, involuntarily the owner of an undivided

interest in the property acquired partly by that money; and it
is insisted for him that, in consideration of this fact, he is
entitled to the 446 and 2/3 shares of J. K. Pickering &
Company, with the earnings thereon, as claimed in his
complaint.

As the development of the San Juan Estate was a success

from the start, Elser paid the note of P50,000 to Uy Siuliong
on January 18, 1921, although it was not due until more than
five months later. It will thus be seen that the mortgaging of
the Carriedo property never resulted in damage to Lyons to
the extent of a single cent; and although the court refused to
allow the defendant to prove the Elser was solvent at this
time in an amount much greater than the entire encumbrance
placed upon the property, it is evident that the risk imposed
upon Lyons was negligible. It is also plain that no money
actually deriving from this mortgage was ever applied to the
purchase of the San Juan Estate. What really happened was
the Elser merely subjected the property to a contingent
liability, and no actual liability ever resulted therefrom. The
financing of the purchase of the San Juan Estate, apart from
the modest financial participation of his 3 associates in the
San Juan deal, was the work of Elser accomplished entirely
upon his own account.

Lyons tells us that he did not know until after Elser's death
that the money obtained from Uy Siuliong in the manner
already explained had been used to held finance the
purchase of the San Juan Estate. He seems to have supposed
that the Carried property had been mortgaged to aid in
putting through another deal, namely, the purchase of a
property referred to in the correspondence as the "Ronquillo
property"; and in this connection a letter of Elser of the latter
part of May, 1920, can be quoted in which he uses this
language:

The case for the plaintiff supposes that, when Elser placed a
mortgage for P50,000 upon the equity of redemption in the
Carriedo property, Lyons, as half owner of said property,

As stated in cablegram I have arranged for P50k loan

on Carriedo property. Will use part of the money for
Ronquillo buy (P60K) if the owner comes through.
Other correspondence shows that Elser had apparently been
trying to buy the Ronquillo property, and Lyons leads us to
infer that he thought that the money obtained by mortgaging
the Carriedo property had been used in the purchase of this
property. It doubted less appeared so to him in the
retrospect, but certain consideration show that he was
inattentive to the contents of the quotation from the letter
above given. He had already been informed that, although
8

Elser was angling for the Ronquillo property, its price had
gone up, thus introducing a doubt as to whether he could get
it; and the quotation above given shows that the intended use
of the money obtained by mortgaging the Carriedo property
was that only part of the P50,000 thus obtained would be
used in this way, if the deal went through. Naturally, upon
the arrival of Lyons in September, 1920, one of his first
inquiries would have been, if he did not know before, what
was the status of the proposed trade for the Ronquillo
property.
Elser's widow and one of his clerks testified that about June
15, 1920, Elser cabled Lyons something to this effect;: "I
have mortgaged the property on Carriedo Street, secured by
my personal note. You are amply protected. I wish you to
join me in the San Juan Subdivision. Borrow all money you
can." Lyons says that no such cablegram was received by
him, and we consider this point of fact of little moment,
since the proof shows that Lyons knew that the Carriedo
mortgage had been executed, and after his arrival in Manila
he consented for the mortgage to remain on the property
until it was paid off, as shortly occurred. It may well be that
Lyons did not at first clearly understand all the ramifications
of the situation, but he knew enough, we think, to apprise
him of the material factors in the situation, and we concur in
the conclusion of the trial court that Elser did not act in bad
faith and was guilty of no fraud.

In the purely legal aspect of the case, the position of the

appellant is, in our opinion, untenable. If Elser had used any
money actually belonging to Lyons in this deal, he would
under article 1724 of the Civil Code and article 264 of the
Code of Commerce, be obligated to pay interest upon the
money so applied to his own use. Under the law prevailing
in this jurisdiction a trust does not ordinarily attach with
respect to property acquired by a person who uses money
belonging to another (Martinez vs. Martinez, 1 Phil., 647;
Enriquez vs. Olaguer, 25 Phil., 641.). Of course, if an actual
relation of partnership had existed in the money used, the
case might be difference; and much emphasis is laid in the
appellant's brief upon the relation of partnership which, it is
claimed, existed. But there was clearly no general relation of
partnership, under article 1678 of the Civil Code. It is clear
that Elser, in buying the San Juan Estate, was not acting for
any partnership composed of himself and Lyons, and the law
cannot be distorted into a proposition which would make
Lyons a participant in this deal contrary to his express
determination.
It seems to be supposed that the doctrines of equity worked
out in the jurisprudence of England and the United States
with reference to trust supply a basis for this action. The
doctrines referred to operate, however, only where money
belonging to one person is used by another for the
acquisition of property which should belong to both; and it
takes but little discernment to see that the situation here
involved is not one for the application of that doctrine, for
9

no money belonging to Lyons or any partnership composed

of Elser and Lyons was in fact used by Elser in the purchase
of the San Juan Estate. Of course, if any damage had been
caused to Lyons by the placing of the mortgage upon the
equity of redemption in the Carriedo property, Elser's estate
would be liable for such damage. But it is evident that Lyons
was not prejudice by that act.
The appellee insist that the trial court committed error in
admitting the testimony of Lyons upon matters that passed
between him and Elser while the latter was still alive. While
the admission of this testimony was of questionable
propriety, any error made by the trial court on this point was
error without injury, and the determination of the question is
not necessary to this decision. We therefore pass the point
without further discussion.
The judgment appealed from will be affirmed, and it is so
ordered, with costs against the appellant.

Facts:
This is an action to recover possession of registered land
situated in Barrio Tatalon, Quezon City.
The complaint of plaintiff JM Tuason & Co Inc was
amended 3 times with respect to the extent and description
of the land sough to be recovered.
Originally, the land sought to be recovered was said to be
more or less 13 hectares, but it was later amended to 6
hectares, after the defendant had indicated the plaintiff's
surveyors the portion of land claimed and occupied by him.
The second amendment is that the portion of the said land
was covered in another TCT and the 3rd amendment was
made after the defendant' surveyor and a witness, Quirino
Feria testified that the land occupied by the defendant was
about 13 hectares.
Defendant raised the defense of prescription and title thru
"open, continuous, exclusive and public and notorious
possession of land in dispute. He also alleged that the
registration of the land was obtained by plaintiff's
predecessor through fraud or error.

2. Tuazon v. Bolanos, 95 Phil 106 (1954)

G.R. No. L-4935
May 28, 1954

The lower court rendered judgment in favor of the plaintiff

and ordered the defendant to restore possession of the land
to the plaintiff, as well as to pay corresponding rent from
January 1940 until he vacates the land.

J. M. TUASON & CO., INC., represented by it Managing

PARTNER, GREGORIA ARANETA, INC., plaintiffappellee, vs. QUIRINO BOLAOS, defendant-appellant.

On appeal defendant raised a number of assignments or

errors in the decision, one of which is that the trial court
erred in not dismissing the case on the ground that the case
was not brought by the real party in interest.

Digest:
10

Issue: W/N the lower court erred in not dismissing the case
on the ground that it was not brought by the real party in
interest? NO
Ratio: What the Rules of Court require is that an action be
brought in the name of, but not necessarily by, the real party
in interest.
In fact the practice is for an attorney-at-law to bring the
action, that is to file the complaint, in the name of the
plaintiff. That practice appears to have been followed in this
case, since the complaint is signed by the law firm of
Araneta and Araneta, "counsel for plaintiff" and commences
with the statement "comes now plaintiff, through its
undersigned counsel."
It is true that the complaint also states that the plaintiff is
"represented herein by its Managing Partner Araneta, Inc.",
another corporation, but there is nothing against one
corporation being represented by another person, natural or
juridical, in a suit in court.
The contention that Gregorio Araneta, Inc. can not act as
managing partner for plaintiff on the theory that it is illegal
for 2 corporations to enter into a partnership is without
merit, for the true rule is that "though a corporation has no
power to enter into a partnership, it may nevertheless enter
into a joint venture with another where the nature of that
venture is in line with the business authorized by its charter."
REYES, J.:

This is an action originally brought in the Court of First

Instance of Rizal, Quezon City Branch, to recover possesion
of registered land situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect
to the extent and description of the land sought to be
recovered. The original complaint described the land as a
portion of a lot registered in plaintiff's name under Transfer
Certificate of Title No. 37686 of the land record of Rizal
Province and as containing an area of 13 hectares more or
less. But the complaint was amended by reducing the area of
6 hectares, more or less, after the defendant had indicated
the plaintiff's surveyors the portion of land claimed and
occupied by him. The second amendment became necessary
and was allowed following the testimony of plaintiff's
surveyors that a portion of the area was embraced in another
certificate of title, which was plaintiff's Transfer Certificate
of Title No. 37677. And still later, in the course of trial, after
defendant's surveyor and witness, Quirino Feria, had
testified that the area occupied and claimed by defendant
was about 13 hectares, as shown in his Exhibit 1, plaintiff
again, with the leave of court, amended its complaint to
make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in
himself thru "open, continuous, exclusive and public and
notorious possession (of land in dispute) under claim of
ownership, adverse to the entire world by defendant and his
predecessor in interest" from "time in-memorial". The
11

answer further alleges that registration of the land in dispute

was obtained by plaintiff or its predecessors in interest thru
"fraud or error and without knowledge (of) or interest either
personal or thru publication to defendant and/or
predecessors in interest." The answer therefore prays that the
complaint be dismissed with costs and plaintiff required to
reconvey the land to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff,
declaring defendant to be without any right to the land in
question and ordering him to restore possession thereof to
plaintiff and to pay the latter a monthly rent of P132.62 from
January, 1940, until he vacates the land, and also to pay the
costs.
Appealing directly to this court because of the value of the
property involved, defendant makes the following
assignment or errors:
I. The trial court erred in not dismissing the case on
the ground that the case was not brought by the real
property in interest.
II. The trial court erred in admitting the third amended
complaint.
III. The trial court erred in denying defendant's motion
to strike.

IV. The trial court erred in including in its decision

land not involved in the litigation.
V. The trial court erred in holding that the land in
dispute is covered by transfer certificates of Title Nos.
37686 and 37677.
Vl. The trial court erred in not finding that the
defendant is the true and lawful owner of the land.
VII. The trial court erred in finding that the defendant
is liable to pay the plaintiff the amount of P132.62
monthly from January, 1940, until he vacates the
premises.
VIII. The trial court erred in not ordering the plaintiff
to reconvey the land in litigation to the defendant.
As to the first assigned error, there is nothing to the
contention that the present action is not brought by the real
party in interest, that is, by J. M. Tuason and Co., Inc. What
the Rules of Court require is that an action be brought in the
name of, but not necessarily by, the real party in interest.
(Section 2, Rule 2.) In fact the practice is for an attorney-atlaw to bring the action, that is to file the complaint, in the
name of the plaintiff. That practice appears to have been
followed in this case, since the complaint is signed by the
law firm of Araneta and Araneta, "counsel for plaintiff" and
commences with the statement "comes now plaintiff,
through its undersigned counsel." It is true that the
12

complaint also states that the plaintiff is "represented herein

by its Managing Partner Gregorio Araneta, Inc.", another
corporation, but there is nothing against one corporation
being represented by another person, natural or juridical, in a
suit in court. The contention that Gregorio Araneta, Inc. can
not act as managing partner for plaintiff on the theory that it
is illegal for two corporations to enter into a partnership is
without merit, for the true rule is that "though a corporation
has no power to enter into a partnership, it may nevertheless
enter into a joint venture with another where the nature of
that venture is in line with the business authorized by its
charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A.
L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is
nothing in the record to indicate that the venture in which
plaintiff is represented by Gregorio Araneta, Inc. as "its
managing partner" is not in line with the corporate business
of either of them.
Errors II, III, and IV, referring to the admission of the third
amended complaint, may be answered by mere reference to
section 4 of Rule 17, Rules of Court, which sanctions such
amendment. It reads:
Sec. 4. Amendment to conform to evidence. When
issues not raised by the pleadings are tried by express
or implied consent of the parties, they shall be treated
in all respects, as if they had been raised in the
pleadings. Such amendment of the pleadings as may
be necessary to cause them to conform to the evidence

and to raise these issues may be made upon motion of

any party at my time, even of the trial of these issues.
If evidence is objected to at the trial on the ground
that it is not within the issues made by the pleadings,
the court may allow the pleadings to be amended and
shall be so freely when the presentation of the merits
of the action will be subserved thereby and the
objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in
maintaining his action or defense upon the merits. The
court may grant a continuance to enable the objecting
party to meet such evidence.
Under this provision amendment is not even necessary for
the purpose of rendering judgment on issues proved though
not alleged. Thus, commenting on the provision, Chief
Justice Moran says in this Rules of Court:
Under this section, American courts have, under the
New Federal Rules of Civil Procedure, ruled that
where the facts shown entitled plaintiff to relief other
than that asked for, no amendment to the complaint is
necessary, especially where defendant has himself
raised the point on which recovery is based, and that
the appellate court treat the pleadings as amended to
conform to the evidence, although the pleadings were
not actually amended. (I Moran, Rules of Court, 1952
ed., 389-390.)

13

Our conclusion therefore is that specification of error II, III,

and IV are without merit..

fact also appears admitted in defendant's answer to the third

amended complaint.

Let us now pass on the errors V and VI. Admitting, though

his attorney, at the early stage of the trial, that the land in
dispute "is that described or represented in Exhibit A and in
Exhibit B enclosed in red pencil with the name Quirino
Bolaos," defendant later changed his lawyer and also his
theory and tried to prove that the land in dispute was not
covered by plaintiff's certificate of title. The evidence,
however, is against defendant, for it clearly establishes that
plaintiff is the registered owner of lot No. 4-B-3-C, situate in
barrio Tatalon, Quezon City, with an area of 5,297,429.3
square meters, more or less, covered by transfer certificate
of title No. 37686 of the land records of Rizal province, and
of lot No. 4-B-4, situated in the same barrio, having an area
of 74,789 square meters, more or less, covered by transfer
certificate of title No. 37677 of the land records of the same
province, both lots having been originally registered on July
8, 1914 under original certificate of title No. 735. The
identity of the lots was established by the testimony of
Antonio Manahan and Magno Faustino, witnesses for
plaintiff, and the identity of the portion thereof claimed by
defendant was established by the testimony of his own
witness, Quirico Feria. The combined testimony of these
three witnesses clearly shows that the portion claimed by
defendant is made up of a part of lot 4-B-3-C and major on
portion of lot 4-B-4, and is well within the area covered by
the two transfer certificates of title already mentioned. This

As the land in dispute is covered by plaintiff's Torrens

certificate of title and was registered in 1914, the decree of
registration can no longer be impugned on the ground of
fraud, error or lack of notice to defendant, as more than one
year has already elapsed from the issuance and entry of the
decree. Neither court the decree be collaterally attacked by
any person claiming title to, or interest in, the land prior to
the registration proceedings. (Sorogon vs. Makalintal,1 45
Off. Gaz., 3819.) Nor could title to that land in derogation of
that of plaintiff, the registered owner, be acquired by
prescription or adverse possession. (Section 46, Act No.
496.) Adverse, notorious and continuous possession under
claim of ownership for the period fixed by law is ineffective
against a Torrens title. (Valiente vs. Judge of CFI of
Tarlac,2 etc., 45 Off. Gaz., Supp. 9, p. 43.) And it is likewise
settled that the right to secure possession under a decree of
registration does not prescribed. (Francisco vs. Cruz, 43 Off.
Gaz., 5105, 5109-5110.) A recent decision of this Court on
this point is that rendered in the case of Jose Alcantara et
al., vs. Mariano et al., 92 Phil., 796. This disposes of the
alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to
sustain the finding that defendant should be sentenced to pay
plaintiff P132.62 monthly from January, 1940, until he
vacates the premises.' But it appears from the record that that
14

reasonable compensation for the use and occupation of the

premises, as stipulated at the hearing was P10 a month for
each hectare and that the area occupied by defendant was
13.2619 hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It is appears
from the testimony of J. A. Araneta and witness Emigdio
Tanjuatco that as early as 1939 an action of ejectment had
already been filed against defendant. And it cannot be
supposed that defendant has been paying rents, for he has
been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous,
exclusive and public and notorious possession and under
claim of ownership adverse to the entire world by defendant
and his predecessors in interest.' This assignment of error is
thus clearly without merit.

of possession. And while appellant claims that he is also

involved in that order action because it is a class suit, the
complaint does not show that such is really the case. On the
contrary, it appears that the action seeks relief for each
individual plaintiff and not relief for and on behalf of others.
The motion for dismissal is clearly without merit.

Error No. VIII is but a consequence of the other errors

alleged and needs for further consideration.

Digest: Facts:

During the pendency of this case in this Court appellant, thru

other counsel, has filed a motion to dismiss alleging that
there is pending before the Court of First Instance of Rizal
another action between the same parties and for the same
cause and seeking to sustain that allegation with a copy of
the complaint filed in said action. But an examination of that
complaint reveals that appellant's allegation is not correct,
for the pretended identity of parties and cause of action in
the two suits does not appear. That other case is one for
recovery of ownership, while the present one is for recovery

Wherefore, the judgment appealed from is affirmed, with

costs against the plaintiff.
3. Lim Tong Lim vs. Phil. Fishing. 317 SCRA 728 (1999)
[G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING
GEAR INDUSTRIES, INC., respondent.

Antonio Chua and Peter Yao entered into a contract for the
purchase of fishing nets from the Philippine Fishing Gear
Industries. They claimed that they were engaged in a
business venture with petitioner Lim Tong Lim. The buyers
however failed to pay for the nets and the floats.
Private respondent filed a collection suit against Yao, Chua
and Lim with preliminary attachment. TC :rendered its
decision in favor of Phil. Fishing Gear and that Chua, Yao
and Lim, as general partners were jointly liable to pay
respondents. It based its decision on a compromise
agreement wherein joint liability was presumed from the
equal distribution of the profit and loss. The CA affirmed.
Hence, this petition.
15

Issue: W/N, by their acts, Lim, Chua and Yao could be

deemed to have entered into a partnership. YES
Ratio: There is a partnership between Lim, Chua and Yao.
Petitioner Lim requested Yao who was engaged in
commercial fishing to join him, while Chua was already
Yaos partner. The 3 verbally agreed to acquire 2 fishing
boats, FB Lourdes and FB Nelson for the sum of 3.35
million. They also borrowed 3.25 million from Jesus Lim,
brother of petitioner Lim Tong Lim. They purchased the
boats and later the nets and floats, which constituted the
main assets of the partnership and they agreed to divide the
proceeds from the sale and operation thereof.
The sale of the boats as well as the division among the 3 of
the balance remaining after the payment of their loans prove
that F/B Lourdes was not his own property but an asset of
the partnership. Although the corporation was never legally
formed for unknown reasons, this fact alone does not
preclude the liabilities of the 3 as contracting parties in
representation of it.
Under the law on estoppel, those acting on behalf of a
corporation and those benefited by it, knowing it to
be without valid existence, are held liable as general
partners.
Having reaped the benefits of the contract entered into by
persons with whom he previously had an existing
relationship, he is deemed to be part of said association and
is covered by the scope of the doctrine of corporation by
estoppel.
DECISION
PANGANIBAN, J.:

A partnership may be deemed to exist among parties

who agree to borrow money to pursue a business and to
divide the profits or losses that may arise therefrom, even if
it is shown that they have not contributed any capital of their
own to a "common fund." Their contribution may be in the
form of credit or industry, not necessarily cash or fixed
assets. Being partners, they are all liable for debts incurred
by or on behalf of the partnership. The liability for a contract
entered into on behalf of an unincorporated association or
ostensible corporation may lie in a person who may not have
directly transacted on its behalf, but reaped benefits from
that contract.
The Case

In the Petition for Review on Certiorari before us, Lim Tong

Lim assails the November 26, 1998 Decision of the Court of
Appeals in CA-GR CV 41477,[1] which disposed as follows:
WHEREFORE, [there being] no reversible error in the
appealed decision, the same is hereby affirmed.[2]
The decretal portion of the Quezon City Regional Trial
Court (RTC) ruling, which was affirmed by the CA, reads as
follows:
WHEREFORE, the Court rules:
1. That plaintiff is entitled to the writ of preliminary
attachment issued by this Court on September 20, 1990;
16

2. That defendants are jointly liable to plaintiff for the

following amounts, subject to the modifications as
hereinafter made by reason of the special and unique facts
and circumstances and the proceedings that transpired
during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of
the fishing nets covered by the Agreement plus P68,000.00
representing the unpaid price of the floats not covered by
said Agreement;
b. 12% interest per annum counted from date of plaintiffs
invoices and computed on their respective amounts as
follows:
i. Accrued interest of P73,221.00 on Invoice No. 14407
for P385,377.80 dated February 9, 1990;
ii. Accrued interest of P27,904.02 on Invoice No. 14413
for P146,868.00 dated February 13, 1990;
iii. Accrued interest of P12,920.00 on Invoice No. 14426
for P68,000.00 dated February 19, 1990;
c. P50,000.00 as and for attorneys fees, plus P8,500.00
representing P500.00 per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for
storage charges on the nets counted from September 20,
1990 (date of attachment) to September 12, 1991 (date of
auction sale);

e. Cost of suit.
With respect to the joint liability of defendants for the
principal obligation or for the unpaid price of nets and floats
in the amount of P532,045.00 and P68,000.00, respectively,
or for the total amount of P600,045.00, this Court noted that
these items were attached to guarantee any judgment that
may be rendered in favor of the plaintiff but, upon
agreement of the parties, and, to avoid further deterioration
of the nets during the pendency of this case, it was ordered
sold at public auction for not less than P900,000.00 for
which the plaintiff was the sole and winning bidder. The
proceeds of the sale paid for by plaintiff was deposited in
court. In effect, the amount of P900,000.00 replaced the
attached property as a guaranty for any judgment that
plaintiff may be able to secure in this case with the
ownership and possession of the nets and floats awarded and
delivered by the sheriff to plaintiff as the highest bidder in
the public auction sale. It has also been noted that ownership
of the nets [was] retained by the plaintiff until full payment
[was] made as stipulated in the invoices; hence, in effect, the
plaintiff attached its own properties. It [was] for this reason
also that this Court earlier ordered the attachment bond filed
by plaintiff to guaranty damages to defendants to be
cancelled and for the P900,000.00 cash bidded and paid for
by plaintiff to serve as its bond in favor of defendants.
From the foregoing, it would appear therefore that whatever
judgment the plaintiff may be entitled to in this case will
17

have to be satisfied from the amount of P900,000.00 as this

amount replaced the attached nets and floats.Considering,
however, that the total judgment obligation as computed
above would amount to only P840,216.92, it would be
inequitable, unfair and unjust to award the excess to the
defendants who are not entitled to damages and who did not
put up a single centavo to raise the amount of P900,000.00
aside from the fact that they are not the owners of the nets
and floats. For this reason, the defendants are hereby
relieved from any and all liabilities arising from the
monetary judgment obligation enumerated above and for
plaintiff to retain possession and ownership of the nets and
floats and for the reimbursement of the P900,000.00
deposited by it with the Clerk of Court.
SO ORDERED. [3]
The Facts

On behalf of "Ocean Quest Fishing Corporation,"

Antonio Chua and Peter Yao entered into a Contract dated
February 7, 1990, for the purchase of fishing nets of various
sizes from the Philippine Fishing Gear Industries, Inc.
(herein respondent). They claimed that they were engaged in
a business venture with Petitioner Lim Tong Lim, who
however was not a signatory to the agreement. The total
price of the nets amounted to P532,045. Four hundred pieces
of floats worth P68,000 were also sold to the Corporation.[4]

The buyers, however, failed to pay for the fishing nets

and the floats; hence, private respondent filed a collection
suit against Chua, Yao and Petitioner Lim Tong Lim with a
prayer for a writ of preliminary attachment. The suit was
brought against the three in their capacities as general
partners, on the allegation that Ocean Quest Fishing
Corporation was a nonexistent corporation as shown by a
Certification from the Securities and Exchange Commission.
[5]
On September 20, 1990, the lower court issued a Writ of
Preliminary Attachment, which the sheriff enforced by
attaching the fishing nets on board F/B Lourdes which was
then docked at the Fisheries Port, Navotas, Metro Manila.
Instead of answering the Complaint, Chua filed a
Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over to
respondent some of the nets which were in his
possession. Peter Yao filed an Answer, after which he was
deemed to have waived his right to cross-examine witnesses
and to present evidence on his behalf, because of his failure
to appear in subsequent hearings. Lim Tong Lim, on the
other hand, filed an Answer with Counterclaim and
Crossclaim and moved for the lifting of the Writ of
Attachment.[6] The trial court maintained the Writ, and upon
motion of private respondent, ordered the sale of the fishing
nets at a public auction. Philippine Fishing Gear Industries
won the bidding and deposited with the said court the sales
proceeds of P900,000.[7]
18

On November 18, 1992, the trial court rendered its

Decision, ruling that Philippine Fishing Gear Industries was
entitled to the Writ of Attachment and that Chua, Yao and
Lim, as general partners, were jointly liable to pay
respondent.[8]
The trial court ruled that a partnership among Lim, Chua
and Yao existed based (1) on the testimonies of the witnesses
presented and (2) on a Compromise Agreement executed by
the three[9] in Civil Case No. 1492-MN which Chua and Yao
had brought against Lim in the RTC of Malabon, Branch 72,
for (a) a declaration of nullity of commercial documents; (b)
a reformation of contracts; (c) a declaration of ownership of
fishing boats; (d) an injunction and (e) damages.[10] The
Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have
the four (4) vessels sold in the amount of P5,750,000.00
including the fishing net. This P5,750,000.00 shall be
applied as full payment for P3,250,000.00 in favor of JL
Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at
a higher price than P5,750,000.00 whatever will be the
excess will be divided into 3: 1/3 Lim Tong Lim; 1/3
Antonio Chua; 1/3 Peter Yao;
c) If the proceeds of the sale the vessels will be less
than P5,750,000.00 whatever the deficiency shall be

shouldered and paid to JL Holding Corporation by 1/3 Lim

Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao.[11]
The trial court noted that the Compromise Agreement
was silent as to the nature of their obligations, but that joint
liability could be presumed from the equal distribution of the
profit and loss.[12]
Lim appealed to the Court of Appeals (CA) which, as
already stated, affirmed the RTC.
Ruling of the Court of Appeals
In affirming the trial court, the CA held that petitioner
was a partner of Chua and Yao in a fishing business and may
thus be held liable as a such for the fishing nets and floats
purchased by and for the use of the partnership. The
appellate court ruled:
The evidence establishes that all the defendants including
herein appellant Lim Tong Lim undertook a partnership for a
specific undertaking, that is for commercial fishing x x
x. Obviously, the ultimate undertaking of the defendants was
to divide the profits among themselves which is what a
partnership essentially is x x x. By a contract of partnership,
two or more persons bind themselves to contribute money,
property or industry to a common fund with the intention of
dividing the profits among themselves (Article 1767, New
Civil Code).[13]
19

Hence, petitioner brought this recourse before this Court.

This Courts Ruling

[14]

The Petition is devoid of merit.

The Issues
First and Second Issues: Existence of a Partnership and Petitioner's Liability

In his Petition and Memorandum, Lim asks this Court to

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

In arguing that he should not be held liable for the

equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed
between him, Peter Yao and Antonio Chua. He asserts that
the CA based its finding on the Compromise Agreement
alone. Furthermore, he disclaims any direct participation in
the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even
met the representatives of the respondent
company. Petitioner further argues that he was a lessor, not a
partner, of Chua and Yao, for the "Contract of Lease" dated
February 1, 1990, showed that he had merely leased to the
two the main asset of the purported partnership -- the fishing
boat F/B Lourdes. The lease was for six months, with a
monthly rental of P37,500 plus 25 percent of the gross catch
of the boat.
We are not persuaded by the arguments of
petitioner. The facts as found by the two lower courts clearly
showed that there existed a partnership among Chua, Yao
and him, pursuant to Article 1767 of the Civil Code which
provides:

20

Article 1767 - By the contract of partnership, two or more

persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing
the profits among themselves.

million secured by a check, because of which, Yao and Chua

entrusted the ownership papers of two other boats,
Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong
Lim.

Specifically, both lower courts ruled that a partnership

among the three existed based on the following factual
findings:[15]

(7) That in pursuance of the business agreement, Peter Yao

and Antonio Chua bought nets from Respondent Philippine
Fishing Gear, in behalf of "Ocean Quest Fishing
Corporation," their purported business name.

(1) That Petitioner Lim Tong Lim requested Peter Yao who
was engaged in commercial fishing to join him, while
Antonio Chua was already Yaos partner;
(2) That after convening for a few times, Lim Chua, and Yao
verbally agreed to acquire two fishing boats, the FB
Lourdes and the FB Nelson for the sum of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim,
brother of Petitioner Lim Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing
Corporation, which executed a Deed of Sale over these two
(2) boats in favor of Petitioner Lim Tong Lim only to serve
as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing , reequipping, repairing, dry docking and other expenses for the
boats would be shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim
again extended a loan to the partnership in the amount of P1

(8) That subsequently, Civil Case No. 1492-MN was filed in

the Malabon RTC, Branch 72 by Antonio Chua and Peter
Yao against Lim Tong Lim for (a) declaration of nullity of
commercial documents; (b) reformation of contracts; (c)
declaration of ownership of fishing boats; (4) injunction; and
(e) damages.
(9) That the case was amicably settled through a
Compromise Agreement executed between the partieslitigants the terms of which are already enumerated above.
From the factual findings of both lower courts, it is clear
that Chua, Yao and Lim had decided to engage in a fishing
business, which they started by buying boats worth P3.35
million, financed by a loan secured from Jesus Lim who was
petitioners brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the
proceeds of the sale of the boats, and to divide equally
among them the excess or loss. These boats, the purchase
and the repair of which were financed with borrowed money,
21

fell under the term common fund under Article 1767. The
contribution to such fund need not be cash or fixed assets; it
could be an intangible like credit or industry. That the parties
agreed that any loss or profit from the sale and operation of
the boats would be divided equally among them also shows
that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not
only to the purchase of the boat, but also to that of the nets
and the floats. The fishing nets and the floats, both essential
to fishing, were obviously acquired in furtherance of their
business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the
acquisition of the aforesaid equipment, without which the
business could not have proceeded.
Given the preceding facts, it is clear that there was,
among petitioner, Chua and Yao, a partnership engaged in
the fishing business. They purchased the boats, which
constituted the main assets of the partnership, and they
agreed that the proceeds from the sales and operations
thereof would be divided among them.
We stress that under Rule 45, a petition for review like
the present case should involve only questions of law. Thus,
the foregoing factual findings of the RTC and the CA are
binding on this Court, absent any cogent proof that the
present action is embraced by one of the exceptions to the
rule.[16] In assailing the factual findings of the two lower

courts, petitioner effectively goes beyond the bounds of a

petition for review under Rule 45.
Compromise Agreement Not the Sole Basis of Partnership

Petitioner argues that the appellate courts sole basis for

assuming the existence of a partnership was the
Compromise Agreement. He also claims that the settlement
was entered into only to end the dispute among them, but
not to adjudicate their preexisting rights and obligations. His
arguments are baseless. The Agreement was but an
embodiment of the relationship extant among the parties
prior to its execution.
A proper adjudication of claimants rights mandates that
courts must review and thoroughly appraise all relevant
facts. Both lower courts have done so and have found,
correctly, a preexisting partnership among the parties. In
implying that the lower courts have decided on the basis of
one piece of document alone, petitioner fails to appreciate
that the CA and the RTC delved into the history of the
document and explored all the possible consequential
combinations in harmony with law, logic and
fairness. Verily, the two lower courts factual findings
mentioned above nullified petitioners argument that the
existence of a partnership was based only on the
Compromise Agreement.
Petitioner Was a Partner, Not a Lessor

22

We are not convinced by petitioners argument that he

was merely the lessor of the boats to Chua and Yao, not a
partner in the fishing venture. His argument allegedly finds
support in the Contract of Lease and the registration papers
showing that he was the owner of the boats, including F/B
Lourdes where the nets were found.

We stress that it is unreasonable indeed, it is absurd -for petitioner to sell his property to pay a debt he did not
incur, if the relationship among the three of them was merely
that of lessor-lessee, instead of partners.

His allegation defies logic. In effect, he would like this

Court to believe that he consented to the sale of his
own boats to pay a debt of Chua and Yao, with the excess of
the proceeds to be divided among the three of them. No
lessor would do what petitioner did. Indeed, his consent to
the sale proved that there was a preexisting partnership
among all three.

Petitioner argues that under the doctrine of corporation

by estoppel, liability can be imputed only to Chua and Yao,
and not to him. Again, we disagree.

Verily, as found by the lower courts, petitioner entered

into a business agreement with Chua and Yao, in which
debts were undertaken in order to finance the acquisition and
the upgrading of the vessels which would be used in their
fishing business. The sale of the boats, as well as the
division among the three of the balance remaining after the
payment of their loans, proves beyond cavil that F/B
Lourdes, though registered in his name, was not his own
property but an asset of the partnership. It is not uncommon
to register the properties acquired from a loan in the name of
the person the lender trusts, who in this case is the petitioner
himself. After all, he is the brother of the creditor, Jesus
Lim.

Corporation by Estoppel

Section 21 of the Corporation Code of the Philippines

provides:
Sec. 21. Corporation by estoppel. - All persons who assume
to act as a corporation knowing it to be without authority to
do so shall be liable as general partners for all debts,
liabilities and damages incurred or arising as a result
thereof: Provided however, That when any such ostensible
corporation is sued on any transaction entered by it as a
corporation or on any tort committed by it as such, it shall
not be allowed to use as a defense its lack of corporate
personality.
One who assumes an obligation to an ostensible corporation
as such, cannot resist performance thereof on the ground that
there was in fact no corporation.
Thus, even if the ostensible corporate entity is proven to
be legally nonexistent, a party may be estopped from
23

denying its corporate existence. The reason behind this

doctrine is obvious - an unincorporated association has no
personality and would be incompetent to act and appropriate
for itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer authority
on another to act in its behalf; thus, those who act or purport
to act as its representatives or agents do so without authority
and at their own risk. And as it is an elementary principle of
law that a person who acts as an agent without authority or
without a principal is himself regarded as the principal,
possessed of all the right and subject to all the liabilities of a
principal, a person acting or purporting to act on behalf of a
corporation which has no valid existence assumes such
privileges and obligations and becomes personally liable for
contracts entered into or for other acts performed as such
agent.[17]
The doctrine of corporation by estoppel may apply to the
alleged corporation and to a third party. In the first instance,
an unincorporated association, which represented itself to be
a corporation, will be estopped from denying its corporate
capacity in a suit against it by a third person who relied in
good faith on such representation. It cannot allege lack of
personality to be sued to evade its responsibility for a
contract it entered into and by virtue of which itreceived
advantages and benefits.
On the other hand, a third party who, knowing an
association to be unincorporated, nonetheless treated it as a

corporation and received benefits from it, may be barred

from denying its corporate existence in a suit brought
against the alleged corporation. In such case, all those who
benefited from the transaction made by the ostensible
corporation, despite knowledge of its legal defects, may be
held liable for contracts they impliedly assented to or took
advantage of.
There is no dispute that the respondent, Philippine
Fishing Gear Industries, is entitled to be paid for the nets it
sold. The only question here is whether petitioner should be
held jointly[18] liable with Chua and Yao. Petitioner contests
such liability, insisting that only those who dealt in the name
of the ostensible corporation should be held liable. Since his
name does not appear on any of the contracts and since he
never directly transacted with the respondent corporation,
ergo, he cannot be held liable.
Unquestionably, petitioner benefited from the use of the
nets found inside F/B Lourdes, the boat which has earlier
been proven to be an asset of the partnership. He in fact
questions the attachment of the nets, because the Writ has
effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that
Lim, Chua and Yao decided to form a corporation. Although
it was never legally formed for unknown reasons, this fact
alone does not preclude the liabilities of the three as
contracting parties in representation of it. Clearly, under the
law on estoppel, those acting on behalf of a corporation and
24

those benefited by it, knowing it to be without valid

existence, are held liable as general partners.
Technically, it is true that petitioner did
not directly act on behalf of the corporation. However,
having reaped the benefits of the contract entered into by
persons with whom he previously had an existing
relationship, he is deemed to be part of said association and
is covered by the scope of the doctrine of corporation by
estoppel. We reiterate the ruling of the Court in Alonso v.
Villamor:[19]
A litigation is not a game of technicalities in which one,
more deeply schooled and skilled in the subtle art of
movement and position , entraps and destroys the other. It is,
rather, a contest in which each contending party fully and
fairly lays before the court the facts in issue and then,
brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks
that justice be done upon the merits. Lawsuits, unlike duels,
are not to be won by a rapiers thrust. Technicality, when it
deserts its proper office as an aid to justice and becomes its
great hindrance and chief enemy, deserves scant
consideration from courts. There should be no vested rights
in technicalities.

Court of Appeals that this issue is now moot and

academic. As previously discussed, F/B Lourdes was an
asset of the partnership and that it was placed in the name of
petitioner, only to assure payment of the debt he and his
partners owed. The nets and the floats were specifically
manufactured and tailor-made according to their own design,
and were bought and used in the fishing venture they agreed
upon. Hence, the issuance of the Writ to assure the payment
of the price stipulated in the invoices is proper. Besides, by
specific agreement, ownership of the nets remained with
Respondent Philippine Fishing Gear, until full payment
thereof.
WHEREFORE, the Petition is DENIED and the assailed
Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, (Chairman), Purisima, and Gonzaga-Reyes,
JJ., concur.
Vitug, J., Pls. see concurring opinion.

Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment

was improperly issued against the nets. We agree with the
25

4. Litonjua v. Litonjua
G.R. Nos. 166299-300 December 13, 2005
AURELIO K. LITONJUA, JR.,
Petitioner,
- versus
EDUARDO K. LITONJUA, SR.,
ROBERT T. YANG, ANGLO PHILS.
MARITIME, INC., CINEPLEX, INC.,
DDM GARMENTS, INC., EDDIE K.
LITONJUA SHIPPING AGENCY, INC.,
EDDIE K. LITONJUA SHIPPING CO.,
INC., LITONJUA SECURITIES, INC.
(formerly E. K. Litonjua Sec), LUNETA
THEATER, INC., E & L REALTY,

(formerly E & L INTL SHIPPING CORP.), Promulgated:

FNP CO., INC., HOME ENTERPRISES,
INC., BEAUMONT DEV. REALTY CO.,
INC., GLOED LAND CORP., EQUITY
December 13, 2005
TRADING CO., INC., 3D CORP., L DEV.
CORP, LCM THEATRICAL
ENTERPRISES, INC., LITONJUA
SHIPPING CO. INC., MACOIL INC.,
ODEON REALTY CORP., SARATOGA
REALTY, INC., ACT THEATER INC.
(formerly General Theatrical & Film
Exchange, INC.), AVENUE REALTY,
INC., AVENUE THEATER, INC. and LVF
PHILIPPINES, INC., (Formerly VF
PHILIPPINES),
Respondents.
x------------------------------------------------x
Digest:
G.R. NOS. 166299-300
Aurelio and Eduardo are brothers. In 1973, Aurelio alleged
that Eduardo entered into a contract of partnership with him.
Aurelio showed as evidence a letter sent to him by Eduardo
that the latter is allowing Aurelio to manage their family
Present:
business (if Eduardos away) and in exchange thereof he will
be giving Aurelio P1 million or 10% equity, whichever is
higher.
PANGANIBAN, J., Chairman
SANDOVAL- GUTIERREZ,
A memorandum was subsequently made for the said
CORONA,
partnership agreement. The memorandum this time stated
CARPIO MORALESthat
andin exchange of Aurelio, who just got married, retaining
GARCIA, JJ.
his share in the family business (movie theatres, shipping
and land development) and some other immovable
26

properties, he will be given P1 M or 10% equity in all these

businesses and those to be subsequently acquired by them
whichever is greater.

ISSUE: W/N there exists a partnership.

The Memorandum is also not a proof of the partnership for

the same is not a public instrument and again, no inventory
was made of the immovable property and no inventory was
attached to the Memorandum. Article 1773 of the Civil Code
requires that if immovable property is contributed to the
partnership an inventory shall be had and attached to the
contract.

HELD: No. The partnership is void and legally nonexistent.

DECISION

The documentary evidence presented by Aurelio, i.e. the

letter from Eduardo and the Memorandum, did not prove
partnership.

GARCIA, J.:

In 1992 however, the relationship between the brothers went

sour. And so Aurelio demanded an accounting and the
liquidation of his share in the partnership. Eduardo did not
heed and so

The 1973 letter from Eduardo on its face, contains

typewritten entries, personal in tone, but is unsigned and
undated. As an unsigned document, there can be no
quibbling that said letter does not meet the public
instrumentation requirements exacted under Article 1771
(how partnership is constituted) of the

In this petition for review under Rule 45 of the Rules of

Court, petitioner Aurelio K. Litonjua, Jr. seeks to nullify and
set aside the Decision of the Court of Appeals (CA) dated
March 31, 2004[1] in consolidated cases C.A. G.R. Sp. No.
76987 and C.A. G.R. SP. No 78774 and its Resolution dated
December 07, 2004,[2] denying petitioners motion for
reconsideration.

Civil Code.

The recourse is cast against the following factual backdrop:

Moreover, being unsigned and doubtless referring to a

partnership involving more than P3,000.00 in money or
property, said letter cannot be presented for notarization, let
alone registered with the (SEC), as called for under the
Article 1772 (capitalization of a partnership) of the Code.
And inasmuch as the inventory requirement under the
succeeding Article 1773 goes into the matter of validity
when immovable property is contributed to the partnership,
the next logical point of inquiry turns on the nature of
Aurelios contribution, if any, to the supposed partnership.

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein

respondent Eduardo K. Litonjua, Sr. (Eduardo) are brothers.
The legal dispute between them started when, on December
4, 2002, in the Regional Trial Court (RTC) at Pasig City,
Aurelio filed a suit against his brother Eduardo and herein
respondent Robert T. Yang (Yang) and several corporations
for specific performance and accounting. In his complaint,
[3]
docketed as Civil Case No. 69235 and eventually raffled
to Branch 68 of the court,[4] Aurelio alleged that, since June
1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had
27

expanded thru investment in Cineplex, Inc., LCM Theatrical

Enterprises, Odeon Realty Corporation (operator of Odeon I
and II theatres), Avenue Realty, Inc., owner of lands and
buildings, among other corporations. Yang is described in
the complaint as petitioners and Eduardos partner in their
Odeon Theater investment.[5] The same complaint also
contained the following material averments:
3.01 On or about 22 June 1973, [Aurelio] and
Eduardo entered into a joint venture/partnership
for the continuation of their family business and
common family funds .

Eduardo had accumulated in their joint

venture/partnership various assets including but
not limited to the corporate defendants and
[their] respective assets.

3.01.1 This joint venture/[partnership]

agreement was contained in a
memorandum addressed by Eduardo to his
siblings, parents and other relatives. Copy of
this memorandum is attached hereto and made
an integral part as Annex A and the portion
referring to [Aurelio] submarked as Annex A-1.

4.04 The substantial assets of most of the

corporate defendants consist of real properties .
A list of some of these real properties is
attached hereto and made an integral part
as Annex B.
xxx xxx xxx

3.02 It was then agreed upon between [Aurelio]

and Eduardo that in consideration of [Aurelios]
retaining his share in the remaining family
businesses (mostly, movie theaters, shipping
and land development) and contributing his
industry to the continued operation of these
businesses, [Aurelio] will be given P1 Million
or 10% equity in all these businesses and those
to be subsequently acquired by them whichever
is greater. . . .
4.01 from 22 June 1973 to about August 2001,
or [in] a span of 28 years, [Aurelio] and

4.02 In addition . . . the joint

venture/partnership had also acquired [various
other assets], but Eduardo caused to be
registered in the names of other parties.
xxx xxx xxx

5.02 Sometime in 1992, the relations between

[Aurelio] and Eduardo became sour so that
[Aurelio] requested for an accounting and
liquidation of his share in the joint
venture/partnership [but these demands for
complete accounting and liquidation were not
heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable
cause to believe that Eduardo and/or the
corporate defendants as well as Bobby [Yang],
are transferring . . . various real properties of
28

the corporations belonging to the joint

venture/partnership to other parties in fraud of
[Aurelio]. In consequence, [Aurelio] is
therefore causing at this time the annotation on
the titles of these real properties a notice of lis
pendens . (Emphasis in the original;
underscoring and words in bracket added.)

what you are entitled to. . It will be you and me

alone on this. If ever I pass away, I want you to
take care of all of this. You keep my share for
my two sons are ready take over but give them
the chance to run the company which I have
built.
xxx xxx xxx

For ease of reference, Annex A-1 of the complaint, which

petitioner asserts to have been meant for him by his brother
Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio
K. Litonjua]:
You have now your own life to live after having
been married. .
I am trying my best to mold you the way I work
so you can follow the pattern . You will be the
only one left with the company, among us
brothers and I will ask you to stay as I want you
to run this office every time I am away. I want
you to run it the way I am trying to run it
because I will be all alone and I will depend
entirely to you (sic). My sons will not be ready
to help me yet until about maybe 15/20 years
from now. Whatever is left in the corporation, I
will make sure that you get ONE MILLION
PESOS (P1,000,000.00) or ten percent (10%)
equity, whichever is greater. We two will
gamble the whole thing of what I have and

Because you will need a place to stay, I will

arrange to give you first ONE HUNDRED
THOUSANDS PESOS: (P100, 000.00) in cash
or asset, like Lt. Artiaga so you can live better
there. The rest I will give you in form of stocks
which you can keep. This stock I assure you is
good and saleable. I will also gladly give you
the share of Wack-Wack and Valley Golf
because you have been good. The rest will be in
stocks from all the corporations which I repeat,
ten percent (10%) equity. [6]
On December 20, 2002, Eduardo and the corporate
respondents, as defendants a quo, filed a
joint ANSWER With Compulsory Counterclaim denying
under oath the material allegations of the complaint, more
particularly that portion thereof depicting petitioner and
Eduardo as having entered into a contract of partnership. As
affirmative defenses, Eduardo, et al., apart from raising a
jurisdictional matter, alleged that the complaint states no
cause of action, since no cause of action may be derived
from the actionable document, i.e., Annex A-1, being void
under the terms of Article 1767 in relation to Article 1773 of
29

the Civil Code, infra. It is further alleged that whatever

undertaking Eduardo agreed to do, if any, under Annex A1, are unenforceable under the provisions of the Statute of
Frauds.[7]
For his part, Yang - who was served with summons long
after the other defendants submitted their answer moved to
dismiss on the ground, inter alia, that, as to him, petitioner
has no cause of action and the complaint does not state any.
[8]
Petitioner opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to
Resolve Affirmative Defenses.[9] To this motion, petitioner
interposed an Opposition with ex-Parte Motion to Set the
Case for Pre-trial.[10]
Acting on the separate motions immediately adverted
to above, the trial court, in an Omnibus Order dated March
5, 2003, denied the affirmative defenses and, except for
Yang, set the case for pre-trial on April 10, 2003.[11]
In another Omnibus Order of April 2, 2003, the same
court denied the motion of Eduardo, et al., for
reconsideration[12] and Yangs motion to dismiss. The
following then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but
expressly reserved the right to seek reconsideration of the
April 2, 2003 Omnibus Order and to pursue his failed
motion to dismiss[13] to its full resolution.

2. On April 24, 2003, he moved for reconsideration of

the Omnibus Order of April 2, 2003, but his motion was
denied in an Order of July 4, 2003.[14]
3. On August 26, 2003, Yang went to the Court of
Appeals (CA) in a petition for certiorari under Rule 65 of
the Rules of Court, docketed as CA-G.R. SP No. 78774,[15] to
nullify the separate orders of the trial court, the first denying
his motion to dismiss the basic complaint and, the second,
denying his motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the
contention that grave abuse of discretion and injudicious
haste attended the issuance of the trial courts
aforementioned Omnibus Orders dated March 5, and April
2, 2003, sought relief from the CA via similar recourse.
Their petition for certiorari was docketed as CA G.R. SP
No. 76987.
Per its resolution dated October 2, 2003,[16] the CAs
14th Division ordered the consolidation of CA G.R. SP No.
78774 with CA G.R. SP No. 76987.
Following the submission by the parties of their
respective Memoranda of Authorities, the appellate court
came out with the herein assailed Decision dated March 31,
2004, finding for Eduardo and Yang, as lead petitioners
therein, disposing as follows:
WHEREFORE, judgment is hereby
rendered granting the issuance of the writ of
certiorari in these consolidated cases annulling,
30

reversing and setting aside the assailed orders

of the court a quo dated March 5, 2003, April 2,
2003 and July 4, 2003 and the complaint filed
by private respondent [now petitioner Aurelio]
against all the petitioners [now herein
respondents Eduardo, et al.] with the court a
quo is hereby dismissed.
SO ORDERED.[17] (Emphasis in the original;
words in bracket added.)
Explaining its case disposition, the appellate court
stated, inter alia, that the alleged partnership, as evidenced
by the actionable documents, Annex A and A-1 attached to
the complaint, and upon which petitioner solely predicates
his right/s allegedly violated by Eduardo, Yang and the
corporate defendants a quo is void or legally inexistent.
In time, petitioner moved for reconsideration but his
motion was denied by the CA in its equally
assailed Resolution of December 7, 2004.[18] .
Hence, petitioners present recourse, on the contention that
the CA erred:
A. When it ruled that there was no partnership
created by the actionable document because this
was not a public instrument and immovable
properties were contributed to the partnership.
B. When it ruled that the actionable document
did not create a demandable right in favor of
petitioner.

C. When it ruled that the complaint stated no

cause of action against [respondent] Robert
Yang; and
D. When it ruled that petitioner has changed his
theory on appeal when all that Petitioner had
done was to support his pleaded cause of action
by another legal perspective/argument.
The petition lacks merit.
Petitioners demand, as defined in the petitory portion
of his complaint in the trial court, is for delivery or
payment to him, as Eduardos and Yangs partner, of his
partnership/joint venture share, after an accounting has
been duly conducted of what he deems to be
partnership/joint venture property.[19]
A partnership exists when two or more persons agree
to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there
shall be a proportionate sharing of the profits and losses
between them.[20] A contract of partnership is defined by
the Civil Code as one where two or more persons bound
themselves to contribute money, property, or industry to a
common fund with the intention of dividing the profits
among themselves.[21] A joint venture, on the other hand, is
hardly distinguishable from, and may be likened to, a
partnership since their elements are similar, i.e.,
community of interests in the business and sharing of
profits and losses. Being a form of partnership, a joint
venture is generally governed by the law on partnership.[22]
31

The underlying issue that necessarily comes to mind

in this proceedings is whether or not petitioner and
respondent Eduardo are partners in the theatre, shipping and
realty business, as one claims but which the other denies.
And the issue bearing on the first assigned error relates to
the question of what legal provision is applicable under the
premises, petitioner seeking, as it were, to enforce the
actionable document - Annex A-1 - which he depicts in his
complaint to be the contract of partnership/joint venture
between himself and Eduardo. Clearly, then, a look at the
legal provisions determinative of the existence, or defining
the formal requisites, of a partnership is indicated. Foremost
of these are the following provisions of the Civil Code:
Art. 1771. A partnership may be constituted in
any form, except where immovable property or
real rights are contributed thereto, in which case
a public instrument shall be necessary.
Art. 1772. Every contract of partnership having
a capital of three thousand pesos or more, in
money or property, shall appear in a public
instrument, which must be recorded in the
Office of the Securities and Exchange
Commission.
Failure to comply with the requirement of the
preceding paragraph shall not affect the liability
of the partnership and the members thereof to
third persons.

Art. 1773. A contract of partnership is void,

whenever immovable property is contributed
thereto, if an inventory of said property is not
made, signed by the parties, and attached to the
public instrument.
Annex A-1, on its face, contains typewritten entries,
personal in tone, but is unsigned and undated. As an
unsigned document, there can be no quibbling that Annex A1does not meet the public instrumentation requirements
exacted under Article 1771 of the Civil Code. Moreover,
being unsigned and doubtless referring to a partnership
involving more than P3,000.00 in money or property,
Annex A-1 cannot be presented for notarization, let alone
registered with the Securities and Exchange Commission
(SEC), as called for under the Article 1772 of the Code. And
inasmuch as the inventory requirement under the succeeding
Article 1773 goes into the matter of validity when
immovable property is contributed to the partnership, the
next logical point of inquiry turns on the nature of
petitioners contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly
stated that petitioners contribution consisted of immovables
and real rights. Wrote that court:
A further examination of the allegations
in the complaint would show that [petitioners]
contribution to the so-called partnership/joint
venture was his supposed share in the family
business that is consisting of movie theaters,
shipping and land development under
32

paragraph 3.02 of the complaint. In other

words, his contribution as a partner in the
alleged partnership/joint venture consisted of
immovable properties and real rights. .[23]
Significantly enough, petitioner matter-of-factly
concurred with the appellate courts observation that,
prescinding from what he himself alleged in his basic
complaint, his contribution to the partnership consisted of
his share in the Litonjua family businesses which owned
variable immovable properties. Petitioners assertion in his
motion for reconsideration[24] of the CAs decision, that what
was to be contributed to the business [of the partnership]
was [petitioners] industry and his share in the family
[theatre and land development] business leaves no room for
speculation as to what petitioner contributed to the perceived
partnership.
Lest it be overlooked, the contract-validating
inventory requirement under Article 1773 of the Civil Code
applies as long real property or real rights are initially
brought into the partnership. In short, it is really of no
moment which of the partners, or, in this case, who between
petitioner and his brother Eduardo, contributed immovables.
In context, the more important consideration is that real
property was contributed, in which case an inventory of the
contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no
partnership to speak of.
Petitioner, in an obvious bid to evade the application
of Article 1773, argues that the immovables in question were
not contributed, but were acquired after the formation of the

supposed partnership. Needless to stress, the Court cannot

accord cogency to this specious argument. For, as earlier
stated, petitioner himself admitted contributing his share in
the supposed shipping, movie theatres and realty
development family businesses which already owned
immovables even before Annex A-1 was allegedly executed.
Considering thus the value and nature of petitioners
alleged contribution to the purported partnership, the Court,
even if so disposed, cannot plausibly extend Annex A-1 the
legal effects that petitioner so desires and pleads to be given.
Annex A-1, in fine, cannot support the existence of the
partnership sued upon and sought to be enforced. The legal
and factual milieu of the case calls for this disposition. A
partnership may be constituted in any form, save when
immovable property or real rights are contributed thereto or
when the partnership has a capital of at least P3,000.00, in
which case a public instrument shall be necessary.[25] And if
only to stress what has repeatedly been articulated, an
inventory to be signed by the parties and attached to the
public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to
it.
Given the foregoing perspective, what the appellate
court wrote in its assailed Decision[26] about the probative
value and legal effect of Annex A-1 commends itself for
concurrence:
Considering that the allegations in the
complaint showed that [petitioner] contributed
immovable properties to the alleged partnership, the
Memorandum (Annex A of the complaint) which
33

purports to establish the said partnership/joint venture

is NOT a public instrument and there was NO
inventory of the immovable property duly signed by
the parties. As such, the said Memorandum is null and
void for purposes of establishing the existence of a
valid contract of partnership. Indeed, because of the
failure to comply with the essential formalities of a
valid contract, the purported partnership/joint venture
is legally inexistent and it produces no effect
whatsoever. Necessarily, a void or legally inexistent
contract cannot be the source of any contractual or
legal right. Accordingly, the allegations in the
complaint, including the actionable document
attached thereto, clearly demonstrates that [petitioner]
has NO valid contractual or legal right which could be
violated by the [individual respondents] herein. As a
consequence, [petitioners] complaint does NOT state
a valid cause of action because NOT all the essential
elements of a cause of action are
present. (Underscoring and words in bracket added.)

their pleadings. In our evaluation of

[petitioners] complaint, the latter alleged inter
alia to have contributed immovable properties
to the alleged partnership but the actionable
document is not a public document and there
was no inventory of immovable properties
signed by the parties. Both the allegations in the
complaint and the actionable documents
considered, it is crystal clear that [petitioner]
has no valid or legal right which could be
violated by [respondents]. (Words in bracket
added.)
Under the second assigned error, it is petitioners posture that
Annex A-1, assuming its inefficacy or nullity as a
partnership document, nevertheless created
demandable rights in his favor. As petitioner
succinctly puts it in this petition:

Likewise well-taken are the following complementary

excerpts from the CAs equally assailed Resolution of
December 7, 2004[27] denying petitioners motion for
reconsideration:

43. Contrariwise, this actionable document, especially

its above-quoted provisions, established an
actionable contract even though it may not be a
partnership. This actionable contract is what is
known as an innominate contract (Civil Code,
Article 1307).

Further, We conclude that despite glaring defects in

the allegations in the complaint as well as the
actionable document attached thereto (Rollo, p.
191), the [trial] court did not appreciate and
apply the legal provisions which were brought
to its attention by herein [respondents] in the

44. It may not be a contract of loan, or a mortgage or

whatever, but surely the contract does create
rights and obligations of the parties and which
rights and obligations may be enforceable and
demandable. Just because the relationship
created by the agreement cannot be specifically
34

labeled or pigeonholed into a category of

nominate contract does not mean it is void or
unenforceable.
Petitioner has thus thrusted the notion of an innominate
contract on this Court - and earlier on the CA after he
experienced a reversal of fortune thereat - as an afterthought.
The appellate court, however, cannot really be faulted for
not yielding to petitioners dubious stratagem of altering his
theory of joint venture/partnership to an innominate
contract. For, at bottom, the appellate courts certiorari
jurisdiction was circumscribed by what was alleged to have
been the order/s issued by the trial court in grave abuse of
discretion. As respondent Yang pointedly observed,[28] since
the parties basic position had been well-defined, that of
petitioner being that the actionable document established a
partnership/joint venture, it is on those positions that the
appellate court exercised its certiorari jurisdiction.
Petitioners act of changing his original theory is an
impermissible practice and constitutes, as the CA aptly
declared, an admission of the untenability of such theory in
the first place.

Be that as it may . . We hold that this new theory

contravenes [petitioners] theory of the
actionable document being a partnership
document. If anything, it is so obvious we do
have to test the sufficiency of the cause of
action on the basis of partnership law xxx.
[29]
(Emphasis in the original; Words in bracket
added).

[Petitioner] is now humming a different tune . . . . In a

sudden twist of stance, he has now contended
that the actionable instrument may be
considered an innominate contract. xxx Verily,
this now changes [petitioners] theory of the
case which is not only prohibited by the Rules
but also is an implied admission that the very
theory he himself has adopted, filed and
prosecuted before the respondent court is
erroneous.

xxx You will be the only one left with the company,
among us brothers and I will ask you to stay as
I want you to run this office everytime I am
away. I want you to run it the way I am trying
to run it because I will be alone and I will
depend entirely to you, My sons will not be
ready to help me yet until about maybe 15/20
years from now. Whatever is left in the
corporation, I will make sure that you get ONE
MILLION PESOS (P1,000,000.00) or ten

But even assuming in gratia argumenti that Annex A1 partakes of a perfected innominate contract, petitioners
complaint would still be dismissible as against Eduardo and,
more so, against Yang. It cannot be over-emphasized that
petitioner points to Eduardo as the author of Annex A-1.
Withal, even on this consideration alone, petitioners claim
against Yang is doomed from the very start.
As it were, the only portion of Annex A-1 which could
perhaps be remotely regarded as vesting petitioner with a
right to demand from respondent Eduardo the observance of
a determinate conduct, reads:

35

percent (10%) equity, whichever is greater.

(Underscoring added)
It is at once apparent that what respondent Eduardo imposed
upon himself under the above passage, if he indeed
wrote Annex A-1, is a promise which is not to be
performed within one year from contract execution on
June 22, 1973. Accordingly, the agreement embodied
in Annex A-1 is covered by the Statute of Frauds
and ergo unenforceable for non-compliance therewith.
[30]
By force of the statute of frauds, an agreement that
by its terms is not to be performed within a year from
the making thereof shall be unenforceable by action,
unless the same, or some note or memorandum
thereof, be in writing and subscribed by the party
charged. Corollarily, no action can be proved unless
the requirement exacted by the statute of frauds is
complied with.[31]
Lest it be overlooked, petitioner is the intended beneficiary
of the P1 Million or 10% equity of the family
businesses supposedly promised by Eduardo to give
in the near future. Any suggestion that the stated
amount or the equity component of the promise was
intended to go to a common fund would be to read
something not written in Annex A-1. Thus, even this
angle alone argues against the very idea of a
partnership, the creation of which requires two or
more contracting minds mutually agreeing to
contribute money, property or industry to a common
fund with the intention of dividing the profits between
or among themselves.[32]

In sum then, the Court rules, as did the CA, that petitioners
complaint for specific performance anchored on an
actionable document of partnership which is legally
inexistent or void or, at best, unenforceable does not state a
cause of action as against respondent Eduardo and the
corporate defendants. And if no of action can successfully be
maintained against respondent Eduardo because no valid
partnership existed between him and petitioner, the Court
cannot see its way clear on how the same action could
plausibly prosper against Yang. Surely, Yang could not have
become a partner in, or could not have had any form of
business relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint,
provide the logical nexus that would tie Yang to him as his
partner. In fact, attendant circumstances would indicate the
contrary. Consider:
1. Petitioner asserted in his complaint that his socalled joint venture/partnership with Eduardo was for
the continuation of their family business and common
family funds which were theretofore being mainly
managed by Eduardo. [33] But Yang denies kinship
with the Litonjua family and petitioner has not
disputed the disclaimer.
2. In some detail, petitioner mentioned what he had
contributed to the joint venture/partnership with
Eduardo and what his share in the businesses will be.
No allegation is made whatsoever about what Yang
contributed, if any, let alone his proportional share in
the profits. But such allegation cannot, however, be
made because, as aptly observed by the CA, the
36

actionable document did not contain such provision,

let alone mention the name of Yang. How, indeed,
could a person be considered a partner when the
document purporting to establish the partnership
contract did not even mention his name.

[Eduardo] and the [petitioner] in the Odeon

Theater Investment which expanded through
reinvestments of profits and direct investments
in several corporations, thus:
xxx xxx xxx

3. Petitioner states in par. 2.01 of the complaint that

[he] and Eduardo are business partners in the
[respondent] corporations, while Bobby is his and
Eduardos partner in their Odeon Theater investment
(par. 2.03). This means that the partnership between
petitioner and Eduardo came first; Yang became their
partner in their Odeon Theater investment thereafter.
Several paragraphs later, however, petitioner would
contradict himself by alleging that his investment and
that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of
profit income and direct investments in several
corporation including but not limited to [six]
corporate respondents This simply means that the
Odeon Theatre business came before the corporate
respondents. Significantly enough, petitioner refers to
the corporate respondents as progeny of the Odeon
Theatre business.[34]
Needless to stress, petitioner has not sufficiently established
in his complaint the legal vinculum whence he sourced his
right to drag Yang into the fray. The Court of Appeals, in its
assailed decision, captured and formulated the legal situation
in the following wise:
[Respondent] Yang, is impleaded because, as
alleged in the complaint, he is a partner of

Clearly, [petitioners] claim against Yang arose

from his alleged partnership with petitioner and
the respondent. However, there was NO
allegation in the complaint which directly
alleged how the supposed contractual relation
was created between [petitioner] and Yang.
More importantly, however, the foregoing
ruling of this Court that the purported
partnership between [Eduardo] is void and
legally inexistent directly affects said claim
against Yang. Since [petitioner] is trying to
establish his claim against Yang by linking him
to the legally inexistent partnership . . . such
attempt had become futile because there was
NOTHING that would contractually connect
[petitioner] and Yang. To establish a valid cause
of action, the complaint should have a
statement of fact upon which to connect
[respondent] Yang to the alleged partnership
between [petitioner] and respondent [Eduardo],
including their alleged investment in the Odeon
Theater. A statement of facts on those matters is
pivotal to the complaint as they would
constitute the ultimate facts necessary to
establish the elements of a cause of action
against Yang. [35]
37

Pressing its point, the CA later stated in its resolution

denying petitioners motion for reconsideration the
following:
xxx Whatever the complaint calls it, it is
the actionable document attached to the
complaint that is controlling. Suffice it to state,
We have not ignored the actionable document
As a matter of fact, We emphasized in our
decision that insofar as [Yang] is concerned, he
is not even mentioned in the said actionable
document. We are therefore puzzled how a
person not mentioned in a document purporting
to establish a partnership could be considered a
partner.[36] (Words in bracket ours).

8. Whether or not the actionable

document creates a partnership, joint venture,
or whatever, is a legal matter. What is
determinative for purposes of sufficiency of the
complainants allegations, is whether the
actionable document bears out an actionable
contract be it a partnership, a joint venture or
whatever or some innominate contract It may
be noted that one kind of innominate contract is
what is known as du ut facias (I give that you
may do).[37]
43. Contrariwise, this actionable
document, especially its above-quoted
provisions, established an actionable contract
even though it may not be a partnership. This
actionable contract is what is known as an
innominate contract (Civil Code, Article 1307).
[38]

The last issue raised by petitioner, referring to

whether or not he changed his theory of the case, as
peremptorily determined by the CA, has been discussed at
length earlier and need not detain us long. Suffice it to say
that after the CA has ruled that the alleged partnership is
inexistent, petitioner took a different tack. Thus, from a joint
venture/partnership theory which he adopted and
consistently pursued in his complaint, petitioner embraced
the innominate contract theory. Illustrative of this shift is
petitioners statement in par. #8 of his motion for
reconsideration of the CAs decision combined with what he
said in par. # 43 of this petition, as follows:

Springing surprises on the opposing party is offensive to the

sporting idea of fair play, justice and due process; hence, the
proscription against a party shifting from one theory at the
trial court to a new and different theory in the appellate
court.[39] On the same rationale, an issue which was neither
averred in the complaint cannot be raised for the first time
on appeal.[40] It is not difficult, therefore, to agree with the
CA when it made short shrift of petitioners innominate
contract theory on the basis of the foregoing basic reasons.
Petitioners protestation that his act of introducing the
concept of innominate contract was not a case of changing
theories but of supporting his pleaded cause of action that of
38

the existence of a partnership - by another legal

perspective/argument, strikes the Court as a strained attempt
to rationalize an untenable position. Paragraph 12 of his
motion for reconsideration of the CAs decision virtually
relegates partnership as a fall-back theory. Two paragraphs
later, in the same notion, petitioner faults the appellate court
for reading, with myopic eyes, the actionable document
solely as establishing a partnership/joint venture. Verily, the
cited paragraphs are a study of a party hedging on whether
or not to pursue the original cause of action or altogether
abandoning the same, thus:
12. Incidentally, assuming that the actionable
document created a partnership between
[respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this
partnership. xxx
14. All told, the Decision takes off from a false
premise that the actionable document attached
to the complaint does not establish a contractual
relationship between [petitioner] and Eduardo,
Sr. and Roberto T Yang simply because his
document does not create a partnership or a
joint venture. This is a myopic reading of the
actionable document.
Per the Courts own count, petitioner used in his complaint
the mixed words joint venture/partnership (19) times and
the term partner (4) times. He made reference to the law of
joint venture/partnership [being applicable] to the business
relationship between [him], Eduardo and Bobby [Yang] and
to his rights in all specific properties of their joint

venture/partnership. Given this consideration, petitioners

right of action against respondents Eduardo and Yang
doubtless pivots on the existence of the partnership between
the three of them, as purportedly evidenced by the undated
and unsigned Annex A-1. A void Annex A-1, as an
actionable document of partnership, would strip petitioner of
a cause of action under the premises. A complaint for
delivery and accounting of partnership property based on
such void or legally non-existent actionable document is
dismissible for failure to state of action. So, in gist, said the
Court of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the
impugned Decision and Resolution of the Court of
Appeals AFFIRMED. Cost against the petitioner.
SO ORDERED.

5. AFISCO v. CA G.R. No. 112675, January 25, 1999

[G.R. No. 112675. January 25, 1999]
AFISCO INSURANCE CORPORATION; CCC
INSURANCE CORPORATION; CHARTER
INSURANCE CO., INC.; CIBELES INSURANCE
CORPORATION; COMMONWEALTH
INSURANCE COMPANY; CONSOLIDATED
INSURANCE CO., INC.; DEVELOPMENT
INSURANCE & SURETY CORPORATION;
DOMESTIC INSURANCE COMPANY OF THE
39

PHILIPPINES; EASTERN ASSURANCE

COMPANY & SURETY CORP.; EMPIRE
INSURANCE COMPANY; EQUITABLE
INSURANCE CORPORATION; FEDERAL
INSURANCE CORPORATION INC.; FGU
INSURANCE CORPORATION; FIDELITY &
SURETY COMPANY OF THE PHILS.,
INC.;FILIPINO MERCHANTS INSURANCE CO.,
INC.; GOVERNMENT SERVICE INSURANCE
SYSTEM; MALAYAN INSURANCE CO., INC.;
MALAYAN ZURICH INSURANCE CO., INC.;
MERCANTILE INSURANCE CO., INC.;
METROPOLITAN INSURANCE COMPANY;
METRO-TAISHO INSURANCE CORPORATION;
NEW ZEALAND INSURANCE CO., LTD.; PANMALAYAN INSURANCE CORPORATION;
PARAMOUNT INSURANCE CORPORATION;
PEOPLES TRANS-EAST ASIA INSURANCE
CORPORATION; PERLA COMPANIA DE
SEGUROS, INC.; PHILIPPINE BRITISH
ASSURANCE CO., INC.; PHILIPPINE FIRST
INSURANCE CO., INC.; PIONEER INSURANCE &
SURETY CORP.; PIONEER INTERCONTINENTAL
INSURANCE CORPORATION; PROVIDENT
INSURANCE COMPANY OF THE PHILIPPINES;
PYRAMID INSURANCE CO., INC.; RELIANCE
SURETY & INSURANCE COMPANY; RIZAL
SURETY & INSURANCE COMPANY; SANPIRO
INSURANCE CORPORATION; SEABOARD-

EASTERN INSURANCE CO., INC.; SOLID

GUARANTY, INC.; SOUTH SEA SURETY &
INSURANCE CO., INC.; STATE BONDING &
INSURANCE CO., INC.; SUMMA INSURANCE
CORPORATION; TABACALERA INSURANCE
CO., INC.all assessed as POOL OF
MACHINERY INSURERS,petitioners, vs. CA,
COURT OF TAX APPEALS and COMMISSIONER
OF INTERNAL REVENUE, respondents.
Facts: The petitioners are 41 non-life insurance corporations,
organized and existing under the laws of the Philippines,
entered into a Quota Share Reinsurance Treaty and a Surplus
Reinsurance Treaty with the Munchener Ruckversicherungs- Gesselschaft (hereafter called Munich), a nonresident foreign insurance corporation.
The reinsurance treaties required petitioners to form a pool.
Accordingly, a pool composed of the petitioners was formed
on the same day. The pool of machinery insurers submitted a
financial statement and filed an Information Return of
Organization Exempt from Income Tax for the year ending
in 1975, on the basis of which it was assessed by the CIR
deficiency corporate taxes in the amount of P1,843,273.60,
and withholding taxes in the amount of P1,768,799.39 and
P89,438.68 on dividends paid to Munich and to the
petitioners, respectively. These assessments were protested
by the petitioners.
On January 27, 1986, the CIR denied the protest and
ordered the petitioners, assessed as Pool of Machinery
Insurers, to pay deficiency income tax, interest, and
witholding tax.
40

The CA ruled in the main that the pool of machinery insurers

was a partnership taxable as a corporation, and that the
latters collection of premiums on behalf of its members, the
ceding companies, was taxable income.
Issue: W/N the Clearing House, acting as a mere agent and
performing strictly administrative functions, and which did
not insure / assume any risk in its own name, was a
partnership or association subject to tax as a corporation
YES
Ratio: Article 1767 of the CC recognizes the creation of a
contract of partnership when two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits
among themselves. Its requisites are: (1) mutual
contribution to a common stock, and (2) a joint interest in
the profits.

has a common fund, consisting of money and other

valuables that are deposited in the name and credit of the
pool. This common fund pays for the administration and
operation expenses of the pool. (2) The pool functions
through an executive board, which resembles the board of
directors of a
corporation, composed of one representative for each of the
ceding companies. (3) True, the pool itself is not a reinsurer
and does not issue any insurance policy; however, its work
is indispensable, beneficial and economically useful to the
business of the ceding companies and Munich, because
without it they would not have received their premiums.
The ceding companies share in the business ceded to the
pool and in the expenses according to a Rules of
Distribution annexed to the Pool Agreement. Profit motive
or business is, therefore, the primordial reason for the pools
formation.

In other words, a partnership is formed when persons

contract to devote to a common purpose either money,
property, or labor with the intention of dividing the profits
between themselves.

DECISION

Meanwhile, an association implies associates who enter into

a joint enterprise x x x for the transaction of business.

Pursuant to reinsurance treaties, a number of local

insurance firms formed themselves into a pool in order to
facilitate the handling of business contracted with a
nonresident foreign reinsurance company. May the clearing
house or insurance pool so formed be deemed a partnership
or an association that is taxable as a corporation under the
National Internal Revenue Code (NIRC)? Should the pools
remittances to the member companies and to the said foreign
firm be taxable as dividends? Under the facts of this case,

In the case before us, the ceding companies entered into a

Pool Agreement or an association that would handle all the
insurance businesses covered under their quota- share
reinsurance treaty and surplus reinsurance treaty with
Munich.
The following unmistakably indicates a partnership or an
association covered by Section 24 of the NIRC: (1) The pool

PANGANIBAN, J.:

41

has the governments right to assess and collect said tax

prescribed?
The Case

These are the main questions raised in the Petition for

Review on Certiorari before us, assailing the October 11,
1993 Decision[1] of the Court of Appeals[2]in CA-GR SP
29502, which dismissed petitioners appeal of the October
19, 1992 Decision[3] of the Court of Tax Appeals[4] (CTA)
which had previously sustained petitioners liability for
deficiency income tax, interest and withholding tax. The
Court of Appeals ruled:
WHEREFORE, the petition is DISMISSED, with costs
against petitioners.[5]
The petition also challenges the November 15, 1993
Court of Appeals (CA) Resolution[6] denying
reconsideration.
The Facts

The antecedent facts,[7] as found by the Court of Appeals,

are as follows:
The petitioners are 41 non-life insurance corporations,
organized and existing under the laws of the
Philippines. Upon issuance by them of Erection, Machinery
Breakdown, Boiler Explosion and Contractors All Risk
insurance policies, the petitioners on August 1, 1965 entered

into a Quota Share Reinsurance Treaty and a Surplus

Reinsurance Treaty with the Munchener RuckversicherungsGesselschaft (hereafter called Munich), a non-resident
foreign insurance corporation. The reinsurance treaties
required petitioners to form a [p]ool. Accordingly, a pool
composed of the petitioners was formed on the same day.
On April 14, 1976, the pool of machinery insurers submitted
a financial statement and filed an Information Return of
Organization Exempt from Income Tax for the year ending
in 1975, on the basis of which it was assessed by the
Commissioner of Internal Revenue deficiency corporate
taxes in the amount of P1,843,273.60, and withholding taxes
in the amount of P1,768,799.39 and P89,438.68 on
dividends paid to Munich and to the petitioners,
respectively.These assessments were protested by the
petitioners through its auditors Sycip, Gorres, Velayo and
Co.
On January 27, 1986, the Commissioner of Internal Revenue
denied the protest and ordered the petitioners, assessed as
Pool of Machinery Insurers, to pay deficiency income tax,
interest, and with[h]olding tax, itemized as follows:
Net income per information
return P3,737,370.00
===========
42

Income tax due thereon P1,298,080.00

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

Add: 14% Int. fr. 4/15/76

Dividend paid to Pool Members P 655,636.00

to 4/15/79 545,193.60

===========

TOTAL AMOUNT DUE & P1,843,273.60

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

10% withholding tax at

source due thereon P 65,563.60
Add: 25% surcharge 16,390.90
14% interest from

===========

1/25/76 to 1/25/79 6,884.18

35% withholding tax at

Compromise penalty-

source due thereon P1,304,944.20

non-filing of return 300.00

Add: 25% surcharge 326,236.05

late payment 300.00

14% interest from

TOTAL AMOUNT DUE & P 89,438.68

1/25/76 to 1/25/79 137,019.14

COLLECTIBLE ===========[8]

Compromise penalty-

The CA ruled in the main that the pool of machinery

insurers was a partnership taxable as a corporation, and that
the latters collection of premiums on behalf of its members,
the ceding companies, was taxable income. It added that
prescription did not bar the Bureau of Internal Revenue
(BIR) from collecting the taxes due, because the taxpayer

non-filing of return 300.00

late payment 300.00
TOTAL AMOUNT DUE & P1,768,799.39

43

cannot be located at the address given in the information

return filed. Hence, this Petition for Review before us.[9]
The Issues

Before this Court, petitioners raise the following issues:

1.Whether or not the Clearing House, acting as a mere agent
and performing strictly administrative functions, and which
did not insure or assume any risk in its own name, was a
partnership or association subject to tax as a corporation;
2.Whether or not the remittances to petitioners and
MUNICHRE of their respective shares of reinsurance
premiums, pertaining to their individual and separate
contracts of reinsurance, were dividends subject to tax; and
3.Whether or not the respondent Commissioners right to
assess the Clearing House had already prescribed.[10]
The Courts Ruling

The petition is devoid of merit. We sustain the ruling of

the Court of Appeals that the pool is taxable as a
corporation, and that the governments right to assess and
collect the taxes had not prescribed.
First Issue:

Pool Taxable as a Corporation

Petitioners contend that the CA erred in finding that the

pool or clearing house was an informal partnership, which
was taxable as a corporation under the NIRC. They point out
that the reinsurance policies were written by them
individually and separately, and that their liability was
limited to the extent of their allocated share in the original
risks thus reinsured.[11] Hence, the pool did not act or earn
income as a reinsurer.[12] Its role was limited to its principal
function of allocating and distributing the risk(s) arising
from the original insurance among the signatories to the
treaty or the members of the pool based on their ability to
absorb the risk(s) ceded[;] as well as the performance of
incidental functions, such as records, maintenance,
collection and custody of funds, etc.[13]
Petitioners belie the existence of a partnership in this
case, because (1) they, the reinsurers, did not share the same
risk or solidary liability;[14] (2) there was no common fund;
[15]
(3) the executive board of the pool did not exercise
control and management of its funds, unlike the board of
directors of a corporation;[16] and (4) the pool or clearing
house was not and could not possibly have engaged in the
business of reinsurance from which it could have derived
income for itself.[17]
The Court is not persuaded. The opinion or ruling of the
Commission of Internal Revenue, the agency tasked with the
enforcement of tax laws, is accorded much weight and even
finality, when there is no showing that it is patently wrong,
44

[18]

particularly in this case where the findings and

conclusions of the internal revenue commissioner were
subsequently affirmed by the CTA, a specialized body
created for the exclusive purpose of reviewing tax cases, and
the Court of Appeals.[19] Indeed,
[I]t has been the long standing policy and practice of this
Court to respect the conclusions of quasi-judicial agencies,
such as the Court of Tax Appeals which, by the nature of its
functions, is dedicated exclusively to the study and
consideration of tax problems and has necessarily developed
an expertise on the subject, unless there has been an abuse or
improvident exercise of its authority.[20]
This Court rules that the Court of Appeals, in affirming
the CTA which had previously sustained the internal revenue
commissioner, committed no reversible error. Section 24 of
the NIRC, as worded in the year ending 1975, provides:
SEC. 24. Rate of tax on corporations. -- (a) Tax on domestic
corporations. -- A tax is hereby imposed upon the taxable
net income received during each taxable year from all
sources by every corporation organized in, or existing under
the laws of the Philippines, no matter how created or
organized, but not including duly registered general copartnership (compaias colectivas), general professional
partnerships, private educational institutions, and building
and loan associations xxx.

Ineludibly, the Philippine legislature included in the

concept of corporations those entities that resembled them
such as unregistered partnerships and
associations. Parenthetically, the NLRCs inclusion of such
entities in the tax on corporations was made even clearer by
the Tax Reform Act of 1997,[21] which amended the Tax
Code. Pertinent provisions of the new law read as follows:
SEC. 27. Rates of Income Tax on Domestic Corporations. -(A) In General. -- Except as otherwise provided in this
Code, an income tax of thirty-five percent (35%) is hereby
imposed upon the taxable income derived during each
taxable year from all sources within and without the
Philippines by every corporation, as defined in Section 22
(B) of this Code, and taxable under this Title as a
corporation xxx.
SEC. 22. -- Definition. -- When used in this Title:
xxx xxx xxx
(B) The term corporation shall include partnerships,
no matter how created or organized, joint-stock
companies, joint accounts (cuentas en
participacion), associations, or insurance
companies, but does not include general professional
partnerships [or] a joint venture or consortium
formed for the purpose of undertaking construction
projects or engaging in petroleum, coal, geothermal
45

and other energy operations pursuant to an operating

or consortium agreement under a service contract
without the Government. General professional
partnerships are partnerships formed by persons for
the sole purpose of exercising their common
profession, no part of the income of which is derived
from engaging in any trade or business.
xxx xxx xxx."
Thus, the Court in Evangelista v. Collector of Internal
Revenue[22] held that Section 24 covered these unregistered
partnerships and even associations or joint accounts, which
had no legal personalities apart from their individual
members.[23] The Court of Appeals astutely
applied Evangelista:[24]
xxx Accordingly, a pool of individual real property owners
dealing in real estate business was considered a corporation
for purposes of the tax in sec. 24 of the Tax Code
in Evangelista v. Collector of Internal Revenue, supra. The
Supreme Court said:
The term partnership includes a syndicate, group, pool,
joint venture or other unincorporated organization,
through or by means of which any business, financial
operation, or venture is carried on. * * * (8 Mertens Law
of Federal Income Taxation, p. 562 Note 63)

Article 1767 of the Civil Code recognizes the creation of

a contract of partnership when two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits
among themselves.[25] Its requisites are: (1) mutual
contribution to a common stock, and (2) a joint interest in
the profits.[26] In other words, a partnership is formed when
persons contract to devote to a common purpose either
money, property, or labor with the intention of dividing the
profits between themselves.[27] Meanwhile, an association
implies associates who enter into a joint enterprise x x x for
the transaction of business.[28]
In the case before us, the ceding companies entered into
a Pool Agreement[29] or an association[30] that would handle
all the insurance businesses covered under their quota-share
reinsurance treaty[31] and surplus reinsurance treaty[32]with
Munich. The following unmistakably indicates a partnership
or an association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of
money and other valuables that are deposited in
the name and credit of the pool.[33] This common
fund pays for the administration and operation
expenses of the pool.[34]
(2) The pool functions through an executive board,
which resembles the board of directors of a
corporation, composed of one representative for
each of the ceding companies.[35]
46

(3) True, the pool itself is not a reinsurer and does

not issue any insurance policy; however, its work
is indispensable, beneficial and economically
useful to the business of the ceding companies and
Munich, because without it they would not have
received their premiums. The ceding companies
share in the business ceded to the pool and in the
expenses according to a Rules of Distribution
annexed to the Pool Agreement.[36] Profit motive
or business is, therefore, the primordial reason for
the pools formation. As aptly found by the CTA:
xxx The fact that the pool does not retain any profit
or income does not obliterate an antecedent fact, that
of the pool being used in the transaction of business
for profit. It is apparent, and petitioners admit, that
their association or coaction was indispensable [to]
the transaction of the business. x x x If together they
have conducted business, profit must have been the
object as, indeed, profit was earned. Though the
profit was apportioned among the members, this is
only a matter of consequence, as it implies that
profit actually resulted.[37]
The petitioners reliance on Pascual v.
Commissioner[38] is misplaced, because the facts obtaining
therein are not on all fours with the present
case. In Pascual, there was no unregistered partnership, but
merely a co-ownership which took up only two isolated

transactions.[39] The Court of Appeals did not err in

applying Evangelista, which involved a partnership that
engaged in a series of transactions spanning more than ten
years, as in the case before us.
Second Issue:

Pools Remittances Are Taxable

Petitioners further contend that the remittances of the

pool to the ceding companies and Munich are not dividends
subject to tax. They insist that taxing such remittances
contravene Sections 24 (b) (I) and 263 of the 1977 NIRC
and would be tantamount to an illegal double taxation, as it
would result in taxing the same premium income twice in
the hands of the same taxpayer.[40] Moreover, petitioners
argue that since Munich was not a signatory to the Pool
Agreement, the remittances it received from the pool cannot
be deemed dividends.[41] They add that even if such
remittances were treated as dividends, they would have been
exempt under the previously mentioned sections of the 1977
NIRC,[42] as well as Article 7 of paragraph 1[43] and Article 5
of paragraph 5[44] of the RP-West German Tax Treaty.[45]
Petitioners are clutching at straws. Double taxation
means taxing the same property twice when it should be
taxed only once. That is, xxx taxing the same person twice
by the same jurisdiction for the same thing.[46] In the instant
case, the pool is a taxable entity distinct from the individual
corporate entities of the ceding companies. The tax on
47

its income is obviously different from the tax on

the dividends received by the said companies. Clearly, there
is no double taxation here.
The tax exemptions claimed by petitioners cannot be
granted, since their entitlement thereto remains unproven
and unsubstantiated. It is axiomatic in the law of taxation
that taxes are the lifeblood of the nation. Hence, exemptions
therefrom are highly disfavored in law and he who claims
tax exemption must be able to justify his claim or right.
[47]
Petitioners have failed to discharge this burden of
proof. The sections of the 1977 NIRC which they cite are
inapplicable, because these were not yet in effect when the
income was earned and when the subject information return
for the year ending 1975 was filed.
Referring to the 1975 version of the counterpart sections
of the NIRC, the Court still cannot justify the exemptions
claimed. Section 255 provides that no tax shall xxx be paid
upon reinsurance by any company that has already paid the
tax xxx. This cannot be applied to the present case because,
as previously discussed, the pool is a taxable entity distinct
from the ceding companies; therefore, the latter cannot
individually claim the income tax paid by the former as their
own.
On the other hand, Section 24 (b) (1)[48] pertains to tax
on foreign corporations; hence, it cannot be claimed by the
ceding companies which are domestic corporations. Nor can
Munich, a foreign corporation, be granted exemption based

solely on this provision of the Tax Code, because the same

subsection specifically taxes dividends, the type of
remittances forwarded to it by the pool. Although not a
signatory to the Pool Agreement, Munich is patently an
associate of the ceding companies in the entity formed,
pursuant to their reinsurance treaties which required the
creation of said pool.
Under its pool arrangement with the ceding companies,
Munich shared in their income and loss. This is manifest
from a reading of Articles 3[49] and 10[50] of the Quota Share
Reinsurance Treaty and Articles 3[51] and 10[52] of the Surplus
Reinsurance Treaty. The foregoing interpretation of Section
24 (b) (1) is in line with the doctrine that a tax exemption
must be construed strictissimi juris, and the statutory
exemption claimed must be expressed in a language too
plain to be mistaken.[53]
Finally, the petitioners claim that Munich is tax-exempt
based on the RP-West German Tax Treaty is likewise
unpersuasive, because the internal revenue commissioner
assessed the pool for corporate taxes on the basis of the
information return it had submitted for the year ending 1975,
a taxable year when said treaty was not yet in effect.
[54]
Although petitioners omitted in their pleadings the date
of effectivity of the treaty, the Court takes judicial notice
that it took effect only later, on December 14, 1984.[55]
Third Issue: Prescription

48

Petitioners also argue that the governments right to

assess and collect the subject tax had prescribed. They claim
that the subject information return was filed by the pool on
April 14, 1976. On the basis of this return, the BIR
telephoned petitioners on November 11, 1981, to give them
notice of its letter of assessment dated March 27,
1981. Thus, the petitioners contend that the five-year statute
of limitations then provided in the NIRC had already lapsed,
and that the internal revenue commissioner was already
barred by prescription from making an assessment.[56]
We cannot sustain the petitioners. The CA and the CTA
categorically found that the prescriptive period was tolled
under then Section 333 of the NIRC,[57] because the taxpayer
cannot be located at the address given in the information
return filed and for which reason there was delay in sending
the assessment.[58] Indeed, whether the governments right to
collect and assess the tax has prescribed involves facts
which have been ruled upon by the lower courts. It is
axiomatic that in the absence of a clear showing of palpable
error or grave abuse of discretion, as in this case, this Court
must not overturn the factual findings of the CA and the
CTA.
Furthermore, petitioners admitted in their Motion for
Reconsideration before the Court of Appeals that the pool
changed its address, for they stated that the pools
information return filed in 1980 indicated there in its present
address. The Court finds that this falls short of the

requirement of Section 333 of the NIRC for the suspension

of the prescriptive period. The law clearly states that the said
period will be suspended only if the taxpayer informs the
CIR of any change in the address.
WHEREFORE, the petition is DENIED. The
Resolutions of the CA dated October 11, 1993 and
November 15, 1993 are hereby AFFIRMED. Costs against
petitioners.
SO ORDERED.
Romero, (Chairman), Vitug, Purisima, and GonzagaReyes, JJ., concur.

6. Arbes vs. Polistico, G.R No. 31057, September 7, 1929

G.R. No. 31057

September 7, 1929

ADRIANO ARBES, ET AL., plaintiffs-appellees,

vs. VICENTE POLISTICO, ET AL., defendants-appellants..
This is an action to bring about liquidation of the funds and
property of the association called "Turnuhan Polistico &
Co."
The plaintiffs were members / shareholders, and the
defendants were designated as president treasurer, directors
and secretary of said association.
49

By agreement of the parties, the court appointed a

commissioner to examine all the books, documents, and
accounts of "Turnuhan Polistico & Co. The commissioner
rendered his report, showing a balance of the cash on hand
in the amount of P24,607.80.
The TC in accepting the report, 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.
There is no question that "Turnuhan Polistico & Co." is an
unlawful partnership, but the appellants allege that because
itis 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 CC, particularly the second paragraph, which provides:
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.
ISSUE: W/N A CHARITABLE INSTITUTION IS A
NECESSARY PARTY IN THIS CASE.
RULING: NO, 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.
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.
In so ruling, the court had the occasion of explaining the
scope and spirit of the provision of Article 1666 of the Civil
Code (now Article 1770 of the New Civil Code). With
regard to Contributions of an Illegal Partnership: the court
holds that (1) 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 since said
contract 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.
(2) 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.
(3) Any other solution is immoral, and the law will not
consent to the latter remaining in the possession of the
50

manager / administrator who has refused to return them, by

denying to the partners the action to demand them.
With regard to Profits of an Illegal Partnership: the court
holds that (1) 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, 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. (2) 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 / 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 /
distribution of the profits is one of the juridical effects
thereof. (3) Furthermore, it would be immoral and unjust for
the law to permit a profit from an industry prohibited by it.

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:

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

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

97,263.70

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

6,196.55

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

4,569.45
51

85,012

Miscellaneous...............................
1,891.00

Expenses:

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

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

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

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

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

24,607

The defendants objected to the commissioner's report, but

the trial court, having examined the reasons for the
P109,620.70
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
68,146.25
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.
9,827.00
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
4,258.55
association are included as plaintiffs or defendants; (2) that
the objection to the commissioner's report should have been
admitted by the court below.
1,095.00
As to the first point, the decision on the case of Borlasa vs.
Polistico, supra, must be followed.

Miscellaneous...............................
1,686.10

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
52

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.
53

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 nonexistent, 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.

54

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.

7. Evangelista vs. CIR G.R. No. L-9996, Oct. 15, 1957

G.R. No. L-9996

October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA,

and FRANCISCA EVANGELISTA, petitioners, vs. THE
COLLECTOR OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS, respondents.
55

Facts:
Herein petitioners seek a review of CTAs decision holding
them liable for income tax, real estate dealers tax and
residence tax. As stipulated, petitioners borrowed from their
father a certain sum for the purpose of buying real
properties. Within February 1943 to April 1994, they have
bought parcels of land from different persons, the
management of said properties was charged to their brother
Simeon evidenced by a document. These properties were
then leased or rented to various tenants.
On September 1954, CIR demanded the payment of income
tax on corporations, real estate dealers fixed tax, and
corporation residence tax to which the petitioners seek to be
absolved from such payment.
Issue: Whether petitioners are subject to the tax on
corporations.
Ruling: The Court ruled that with respect to the tax on
corporations, the issue hinges on the meaning of the
termscorporation and partnership as used in Section 24
(provides that a tax shall be levied on every corporation no
matter how created / organized except general copartnerships) and 84 (provides that the term corporation
includes among others, partnership) of the NIRC. Pursuant
to Article 1767, NCC (provides for the concept of
partnership), its essential elements are: (a) an agreement to
contribute money, property or industry to a common fund;
and (b) intent to divide the profits among the contracting
parties.

contribute money and property to a common fund. As to the

second element, the Court fully satisfied that their purpose
was to engage in real estate transactions for monetary gain
and then divide the same among themselves as indicated by
the in following circumstances:
1. The common fund was not something they found already
in existence nor a property inherited by them pro indiviso. It
was created purposely, jointly borrowing 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. The number of lots acquired and
transactions undertake 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. In other words, one cannot but
perceive a character of habitually peculiar to business
transactions engaged in the purpose of gain;
3. Said properties were not devoted to residential purposes, /
to other personal uses, of petitioners but were leased
separately to several persons;
4. They were under the management of one person where
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. Existed for more than 10 years, or, to be exact, over 15
years, since the first property was acquired, and over 12
years, since Simeon Evangelista became the manager;

It is of the opinion of the Court that the first element is

undoubtedly present for petitioners have agreed to, and did,
56

6. Petitioners have not testified or introduced any evidence,

either on their purpose in creating the set up already
adverted to, / on the causes for its continued existence.
The collective effect of these circumstances is such as to
leave no room for doubt on the existence of said intent in
petitioners herein.
Also, petitioners argument that their being mere c-oowners
did not create a separate legal entity was rejected because,
according to the Court, the tax in question is one imposed
upon "corporations", which, strictly speaking, are distinct
and different from "partnerships". When the NIRC includes
"partnerships" among the entities subject to the tax on
"corporations", said Code must allude, therefore,
toorganizations which are not necessarily "partnerships", in
the technical sense of the term.
The qualifying expression found in Section 24 and 84(b)
clearly indicates that a joint venture need not be undertaken
in any of the standard forms, / 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. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the
existence of the partnerships therein referred to.
For purposes of the tax on corporations, NIRC includes
these partnerships - with the exception only of duly
registered general co partnerships - within the purview of the
term "corporation." It is, therefore, clear 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 CA No. 465), it is analogous to that of section 24 and 84
(b) of the NIRC. 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.
Finally, on the issues of being liable for real estate dealers
tax, they are also liable for the same because the records
show that they have habitually engaged in leasing said
properties whose yearly gross rentals exceeds P3,000.00 a
year.
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
57

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
58

1948

150.00

1946

1,144.71

1949

150.00

1947

10.34

Total including penalty

P527.00

1948

1,912.30

RESIDENCE TAXES OF
CORPORATION

1949

1,575.90
1945

P38.75

Total including surcharge and P6,157.09

compromise

1946

38.75

REAL ESTATE DEALER'S FIXED TAX

1947

38.75

1946

P37.50

1948

38.75

1947

150.00

1949

38.75

59

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:
60

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
61

characteristics of partnerships are lacking in the case at bar.

This pretense was correctly rejected by the Court of Tax
Appeals.
To begin with, the tax in question is one imposed upon
"corporations", which, strictly speaking, are distinct and
different from "partnerships". When our Internal Revenue
Code includes "partnerships" among the entities subject to
the tax on "corporations", said Code must allude, therefore,
to organizations which are not necessarily "partnerships", in
the technical sense of the term. Thus, for instance, section 24
of said Code exempts from the aforementioned tax "duly
registered general partnerships which constitute precisely
one of the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section 84(b) of said
Code, "the term corporation includes partnerships, no matter
how created or organized." This qualifying expression
clearly indicates that a joint venture need not be undertaken
in any of the standard forms, or in conformity with the usual
requirements of the law on partnerships, in order that one
could be deemed constituted for purposes of the tax on
corporations. Again, pursuant to said section 84(b), the term
"corporation" includes, among other, joint accounts,
(cuentas en participation)" and "associations," none of
which has a legal personality of its own, independent of that
of its members. Accordingly, the lawmaker could not have
regarded that personality as a condition essential to the
existence of the partnerships therein referred to. In fact, as
above stated, "duly registered general copartnerships"
which are possessed of the aforementioned personality
have been expressly excluded by law (sections 24 and 84 [b]
from the connotation of the term "corporation" It may not be
amiss to add that petitioners' allegation to the effect that

their liability in connection with the leasing of the lots above

referred to, under the management of one person even if
true, on which we express no opinion tends
to increase the similarity between the nature of their venture
and that corporations, and is, therefore, an additional
argument in favor of the imposition of said tax on
corporations.
Under the Internal Revenue Laws of the United States,
"corporations" are taxed differently from "partnerships". By
specific provisions of said laws, such "corporations" include
"associations, joint-stock companies and insurance
companies." However, the term "association" is not used in
the aforementioned laws.
. . . in any narrow or technical sense. It includes any
organization, created for the transaction of designed
affairs, or the attainment of some object, which like a
corporation, continues notwithstanding that its
members or participants change, and the affairs of
which, like corporate affairs, are conducted by a
single individual, a committee, a board, or some other
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 jointstock 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
62

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:
63

'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.

8. Pascual v. CIR, G.R. No. 78133, October 18, 1988

G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P.
DRAGON, petitioners,
vs. THE COMMISSIONER OF INTERNAL REVENUE
and COURT OF TAX APPEALS, respondents.
PASCUAL vs. CIR
166 SCRA 560 (1988)

Bernardino, et al. and on May 28, 1966, they bought another

(3) parcels of land from Juan Roque.
The first 2 parcels of land were sold by petitioners in 1968
to Marenir Development Corporation, while the 3 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 of then Acting BIR Commissioner
Plana, petitioners were assessed and required to pay a
totalamount of P107,101.70 as alleged deficiency corporate
income taxes for the years 1968 and 1970. Petitioners
protested the said assessment asserting that they had availed
of
tax amnesties way back in 1974.
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 the NIRC.

Facts:
On June 22, 1965, petitioners Mariano Pascual and Renato
Dragon bought (2) parcels of land from Santiago

Issue: W/N respondent is correct in its presumptive

determination that petitioners formed an unregistered
partnership thus subject to corporate income tax. NO
64

GANCAYCO, J.:
Ratio: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 reps 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 Evangelsita , there was a series of
transactions where petitioners purchased (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.
Reliance of the lower court to the case of Evangelista v.
Collector is untenable. 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. There is no adequate
basis to support the proposition that they thereby formed an
unregistered partnership. The 2 isolated transactionswhereby
they purchased properties and sold the same a few

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.

years thereafter did not thereby make them partners

65

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.

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.

In a separate dissenting opinion, Associate Judge Constante

Roaquin stated that considering the circumstances of this
66

C. IN FINDING THAT THE INSTANT CASE

IS SIMILAR TO THE EVANGELISTA CASE
AND THEREFORE SHOULD BE DECIDED
ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY
DID NOT RELIEVE THE PETITIONERS
FROM PAYMENT OF OTHER TAXES FOR
THE PERIOD COVERED BY SUCH
AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is
the ruling of this Court in Evangelista. 4
In the said case, petitioners borrowed a sum of money from
their father which together with their own personal funds
they used in buying several real properties. They appointed
their brother to manage their properties with full power to
lease, collect, rent, issue receipts, etc. They had the real
properties rented or leased to various tenants for several
years and they gained net profits from the rental income.
Thus, the Collector of Internal Revenue demanded the
payment of income tax on a corporation, among others, from
them.
In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners are

subject to the tax on corporations provided for
in section 24 of Commonwealth Act No. 466,
otherwise known as the National Internal
Revenue Code, as well as to the residence tax
for corporations and the real estate dealers'
fixed tax. With respect to the tax on
corporations, the issue hinges on the meaning
of the terms corporation and partnership as used
in sections 24 and 84 of said Code, the pertinent
parts of which read:
Sec. 24. Rate of the tax on corporations.
There shall be levied, assessed, collected, and
paid annually upon the total net income
received in the preceding taxable year from all
sources by every corporation organized in, or
existing under the laws of the Philippines, no
matter how created or organized but not
including duly registered general copartnerships (companies collectives), a tax upon
such income equal to the sum of the
following: ...
Sec. 84(b). The term "corporation" includes
partnerships, no matter how created or
organized, joint-stock companies, joint
accounts (cuentas en participation), associations
or insurance companies, but does not include
67

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,
68

of petitioners herein. The properties were

leased separately to several persons, who, from
1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the
lots are still being so let, for petitioners do not
even suggest that there has been any change in
the utilization thereof.
4. Since August, 1945, the properties have been
under the management of one person, namely,
Simeon Evangelists, with full power to lease, to
collect rents, to issue receipts, to bring suits, to
sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs
relative to said properties have been handled as
if the same belonged to a corporation or
business enterprise operated for profit.
5. The foregoing conditions have existed for
more than ten (10) years, or, to be exact, over
fifteen (15) years, since the first property was
acquired, and over twelve (12) years, since
Simeon Evangelists became the manager.
6. Petitioners have not testified or introduced
any evidence, either on their purpose in creating
the set up already adverted to, or on the causes
for its continued existence. They did not even
try to offer an explanation therefor.

Although, taken singly, they might not suffice

to establish the intent necessary to constitute a
partnership, the collective effect of these
circumstances is such as to leave no room for
doubt on the existence of said intent in
petitioners herein. Only one or two of the
aforementioned circumstances were present in
the cases cited by petitioners herein, and,
hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners
entered into an agreement to contribute money, property or
industry to a common fund, and that they intended to divide
the profits among themselves. Respondent commissioner
and/ or his representative just assumed these conditions to be
present on the basis of the fact that petitioners purchased
certain parcels of land and became co-owners thereof.
In Evangelists, there was a series of transactions where
petitioners purchased twenty-four (24) lots showing that the
purpose was not limited to the conservation or preservation
of the common fund or even the properties acquired by
them. The character of habituality peculiar to business
transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land
in 1965. They did not sell the same nor make any
improvements thereon. In 1966, they bought another three
(3) parcels of land from one seller. It was only 1968 when
they sold the two (2) parcels of land after which they did not
69

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 coowners 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.
70

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
71

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.

9. Heirs of Jose Lim and Juliet Lim, G.R. No. 172690,

March 3, 2010
HEIRS OF JOSE LIM,
represented by ELENITO LIM,
Petitioners,

- versus -

G.R. No. 172690

Present:

CORONA, J.,
Chairperson,
VELASCO, JR.,
NACHURA,
DEL CASTILLO,* and
MENDOZA, JJ.
Promulgated:

JULIET VILLA LIM,

Respondent.

March 3, 2010

x-----------------------------------------------------------------------------------x
FACTS: Petitioners are the heirs of the late Jose Lim. They
filed a Complaint for Partition, Accounting & Damages
against respondent Juliet Villa Lim (respondent),widow of
the late Elfledo Lim, who was the eldestson of Jose and
Cresencia.
Petitioners alleged that Jose was the liaison officer of
Interwood Sawmill in Quezon. Sometime in 1980, Jose,
together with his friends (Jimmy) and (Norberto), formed a
partnership to engage in the trucking business. Initially, with
a contribution of P50,000.00 each, they purchased a truck to
be used in the hauling and transport of lumber of the
sawmill. Jose managed the operations of this trucking
business until his death on August 15, 1981.
72

Thereafter, Jose's heirs, including Elfledo, and partners

agreed to continue the business under the management of
Elfledo.
The shares in the partnership profits and income that formed
part of the estate of Jose were held in trust by Elfledo, w/
petitioners' authority for Elfledo to use, purchase or acquire
properties using said funds.
Petitioners alleged that Elfledo was never a partner / an
investor in the business and merely supervised the purchase
of additional trucks using the income from the trucking
business of the partners.
On May 18, 1995, Elfledo died, leaving respondent as his
sole surviving heir.
Petitioners claimed that respondent took over the
administration of the aforementioned properties, which
belonged to the estate of Jose, without their consent and
approval. Claiming that they are co-owners of the properties,
petitioners required respondent to submit an accounting of
all income, profits and rentals received from the estate of
Elfledo, and to surrender the administration thereof.
Respondent refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed
that Elfledo was himself a partner of Norberto and Jimmy.
Respondent also alleged that when Jose died in 1981, he left
no known assets, and the partnership with Jimmy and
Norberto ceased upon his demise. Respondent also stressed
that Jose left no properties that Elfledo could have held in
trust. Respondent maintained that all the properties involved
in this case were purchased and acquired through her and
her husbands joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose.

ISSUE: Whether or not a partnership exists.

HELD: YES. A partnership exists when two or more persons
agree to place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there
shall be a proportionate sharing of the profits and losses
among them. A contract of partnership is defined by the
Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits
among themselves.
The following circumstances tend to prove that Elfledo was
himself the partner of Jimmy and Norberto: 1) Cresencia
testified that Jose gave Elfledo P50,000.00, as share in the
partnership, on a date that coincided with the payment of the
initial capital in the partnership; (2) Elfledo ran the affairs of
the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever
from any of petitioners herein; (3) all of the properties were
registered in the name of Elfledo; (4) Jimmy testified that
Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were
shares of the profits of the business; and (5) none of the
petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime.
DECISION
NACHURA, J.:
Before this Court is a Petition for Review
on Certiorari[1] under Rule 45 of the Rules of Civil
Procedure, assailing the Court of Appeals (CA)
73

Decision[2] dated June 29, 2005, which reversed and set aside
the decision[3] of the Regional Trial Court (RTC)
of Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose),
namely: Jose's widow Cresencia Palad (Cresencia); and their
children Elenito, Evelia, Imelda, Edelyna and Edison, all
surnamed Lim (petitioners), represented by Elenito Lim
(Elenito). They filed a Complaint[4] for Partition, Accounting
and Damages against respondent Juliet Villa Lim
(respondent), widow of the late Elfledo Lim (Elfledo), who
was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of
Interwood Sawmill in Cagsiay, Mauban, Quezon. Sometime
in 1980, Jose, together with his friends Jimmy Yu (Jimmy)
and Norberto Uy (Norberto), formed a partnership to engage
in the trucking business. Initially, with a contribution
of P50,000.00 each, they purchased a truck to be used in the
hauling and transport of lumber of the sawmill. Jose
managed the operations of this trucking business until his
death on August 15, 1981. Thereafter, Jose's heirs, including
Elfledo, and partners agreed to continue the business under
the management of Elfledo. The shares in the partnership
profits and income that formed part of the estate of Jose
were held in trust by Elfledo, with petitioners' authority for
Elfledo to use, purchase or acquire properties using said
funds.

Petitioners also alleged that, at that time, Elfledo was a fresh

commerce graduate serving as his fathers driver in the
trucking business. He was never a partner or an investor in
the business and merely supervised the purchase of
additional trucks using the income from the trucking
business of the partners. By the time the partnership ceased,
it had nine trucks, which were all registered in Elfledo's
name. Petitioners asseverated that it was also through
Elfledos management of the partnership that he was able to
purchase numerous real properties by using the profits
derived therefrom, all of which were registered in his name
and that of respondent. In addition to the nine trucks,
Elfledo also acquired five other motor vehicles.
On May 18, 1995, Elfledo died, leaving respondent as his
sole surviving heir. Petitioners claimed that respondent took
over the administration of the aforementioned properties,
which belonged to the estate of Jose, without their consent
and approval. Claiming that they are co-owners of the
properties, petitioners required respondent to submit an
accounting of all income, profits and rentals received from
the estate of Elfledo, and to surrender the administration
thereof. Respondent refused; thus, the filing of this case.
Respondent traversed petitioners' allegations and claimed
that Elfledo was himself a partner of Norberto and
Jimmy. Respondent also claimed that per testimony of
Cresencia, sometime in 1980, Jose gave Elfledo P50,000.00
as the latter's capital in an informal partnership with Jimmy
and Norberto. When Elfledo and respondent got married in
1981, the partnership only had one truck; but through the
efforts of Elfledo, the business flourished. Other than this
trucking business, Elfledo, together with respondent,
74

engaged in other business ventures. Thus, they were able to

buy real properties and to put up their own car assembly and
repair business. When Norberto was ambushed and killed on
July 16, 1993, the trucking business started to falter. When
Elfledo died on May 18, 1995 due to a heart attack,
respondent talked to Jimmy and to the heirs of Norberto, as
she could no longer run the business. Jimmy suggested that
three out of the nine trucks be given to him as his share,
while the other three trucks be given to the heirs of
Norberto. However, Norberto's wife, Paquita Uy, was not
interested in the vehicles. Thus, she sold the same to
respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left
no known assets, and the partnership with Jimmy and
Norberto ceased upon his demise. Respondent also stressed
that Jose left no properties that Elfledo could have held in
trust. Respondent maintained that all the properties involved
in this case were purchased and acquired through her and
her husbands joint efforts and hard work, and without any
participation or contribution from petitioners or from Jose.
Respondent submitted that these are conjugal partnership
properties; and thus, she had the right to refuse to render an
accounting for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC
rendered its decision in favor of petitioners, thus:
WHEREFORE, premises considered,
judgment is hereby rendered:
1) Ordering the partition of the abovementioned properties equally between the
plaintiffs and heirs of Jose Lim and the
defendant Juliet Villa-Lim; and

2) Ordering the defendant to submit an

accounting of all incomes, profits and rentals
received by her from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's
decision, dismissing petitioners' complaint for lack of merit.
Undaunted, petitioners filed their Motion for
Reconsideration,[5] which the CA, however, denied in its
Resolution[6] dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT
OF THE EVIDENCE SUBMITTED BY THE
PARTIES, CAN THE TESTIMONY OF ONE
OF THE PETITIONERS BE GIVEN
GREATER WEIGHT THAN THAT BY A
FORMER PARTNER ON THE ISSUE OF
THE IDENTITY OF THE OTHER
PARTNERS IN THE PARTNERSHIP?[7]
In essence, petitioners argue that according to the testimony
of Jimmy, the sole surviving partner, Elfledo was not a
partner; and that he and Norberto entered into a partnership
with Jose. Thus, the CA erred in not giving that testimony
75

greater weight than that of Cresencia, who was merely the

spouse of Jose and not a party to the partnership.[8]
Respondent counters that the issue raised by petitioners is
not proper in a petition for review on certiorari under Rule
45 of the Rules of Civil Procedure, as it would entail the
review, evaluation, calibration, and re-weighing of the
factual findings of the CA. Moreover, respondent invokes
the rationale of the CA decision that, in light of the
admissions of Cresencia and Edison and the testimony of
respondent, the testimony of Jimmy was effectively refuted;
accordingly, the CA's reversal of the RTC's findings was
fully justified.[9]
We resolve first the procedural matter regarding the
propriety of the instant Petition.
Verily, the evaluation and calibration of the evidence
necessarily involves consideration of factual issues an
exercise that is not appropriate for a petition for review
on certiorari under Rule 45. This rule provides that the
parties may raise only questions of law, because the
Supreme Court is not a trier of facts. Generally, we are not
duty-bound to analyze again and weigh the evidence
introduced in and considered by the tribunals below.
[10]
When supported by substantial evidence, the findings of
fact of the CA are conclusive and binding on the parties and
are not reviewable by this Court, unless the case falls under
any of the following recognized exceptions:
(1) When the conclusion is a finding grounded
entirely on speculation, surmises and
conjectures;
(2) When the inference made is manifestly
mistaken, absurd or impossible;

(3) Where there is a grave abuse of discretion;

(4) When the judgment is based on a
misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its
findings, went beyond the issues of the case
and the same is contrary to the admissions of
both appellant and appellee;
(7) When the findings are contrary to those of
the trial court;
(8) When the findings of fact are conclusions
without citation of specific evidence on which
they are based;
(9) When the facts set forth in the petition as
well as in the petitioners' main and reply briefs
are not disputed by the respondents; and
(10) When the findings of fact of the Court of
Appeals are premised on the supposed absence
of evidence and contradicted by the evidence
on record.[11]
We note, however, that the findings of fact of the RTC are
contrary to those of the CA. Thus, our review of such
findings is warranted.
On the merits of the case, we find that the instant Petition is
bereft of merit.
A partnership exists when two or more persons agree to
place their money, effects, labor, and skill in lawful
commerce or business, with the understanding that there
shall be a proportionate sharing of the profits and losses
76

among them. A contract of partnership is defined by the

Civil Code as one where two or more persons bind
themselves to contribute money, property, or industry to a
common fund, with the intention of dividing the profits
among themselves.[12]
Undoubtedly, the best evidence would have been the
contract of partnership or the articles of partnership.
Unfortunately, there is none in this case, because the alleged
partnership was never formally organized. Nonetheless, we
are asked to determine who between Jose and Elfledo was
the partner in the trucking business.
A careful review of the records persuades us to affirm the
CA decision. The evidence presented by petitioners falls
short of the quantum of proof required to establish that: (1)
Jose was the partner and not Elfledo; and (2) all the
properties acquired by Elfledo and respondent form part of
the estate of Jose, having been derived from the alleged
partnership.
Petitioners heavily rely on Jimmy's testimony. But that
testimony is just one piece of evidence against
respondent. It must be considered and weighed along with
petitioners' other evidence vis--vis respondent's contrary
evidence. In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence.
"Preponderance of evidence" is the weight, credit, and value
of the aggregate evidence on either side and is usually
considered synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence."
"Preponderance of evidence" is a phrase that, in the last
analysis, means probability of the truth. It is evidence that is
more convincing to the court as worthy of belief than that

which is offered in opposition thereto.[13] Rule 133, Section

1 of the Rules of Court provides the guidelines in
determining preponderance of evidence, thus:
SECTION I. Preponderance of evidence, how
determined. In civil cases, the party having
burden of proof must establish his case by a
preponderance of evidence. In determining
where the preponderance or superior weight of
evidence on the issues involved lies, the court
may consider all the facts and circumstances of
the case, the witnesses' manner of testifying,
their intelligence, their means and opportunity
of knowing the facts to which they are
testifying, the nature of the facts to which they
testify, the probability or improbability of their
testimony, their interest or want of interest, and
also their personal credibility so far as the same
may legitimately appear upon the trial. The
court may also consider the number of
witnesses, though the preponderance is not
necessarily with the greater number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court
of Appeals[14] is enlightening. Therein, we cited Article 1769
of the Civil Code, which provides:
Art. 1769. In determining whether a
partnership exists, these rules shall apply:
(1) Except as provided by Article 1825,
persons who are not partners as to each other
are not partners as to third persons;
77

(2) Co-ownership or co-possession does not of

itself establish a partnership, whether such coowners or co-possessors do or do not share any
profits made by the use of the property;
(3) The sharing of gross returns does not of
itself establish a partnership, whether or not
the persons sharing them have a joint or
common right or interest in any property from
which the returns are derived;
(4) The receipt by a person of a share of the
profits of a business is a prima facie evidence
that he is a partner in the business, but no such
inference shall be drawn if such profits were
received in payment:
(a) As a debt by installments or
otherwise;
(b) As wages of an employee or
rent to a landlord;
(c) As an annuity to a widow or
representative of a deceased partner;
(d) As interest on a loan, though the
amount of payment vary with the profits
of the business;
(e) As the consideration for the sale of a
goodwill of a business or other property
by installments or otherwise.
Applying the legal provision to the facts of this case, the
following circumstances tend to prove that Elfledo was
himself the partner of Jimmy and Norberto: 1) Cresencia
testified that Jose gave Elfledo P50,000.00, as share in the

partnership, on a date that coincided with the payment of the

initial capital in the partnership;[15] (2) Elfledo ran the affairs
of the partnership, wielding absolute control, power and
authority, without any intervention or opposition whatsoever
from any of petitioners herein;[16] (3) all of the properties,
particularly the nine trucks of the partnership, were
registered in the name of Elfledo; (4) Jimmy testified that
Elfledo did not receive wages or salaries from the
partnership, indicating that what he actually received were
shares of the profits of the business;[17] and (5) none of the
petitioners, as heirs of Jose, the alleged partner, demanded
periodic accounting from Elfledo during his lifetime. As
repeatedly stressed in Heirs of Tan Eng Kee,[18]a demand for
periodic accounting is evidence of a partnership.
Furthermore, petitioners failed to adduce any evidence to
show that the real and personal properties acquired and
registered in the names of Elfledo and respondent formed
part of the estate of Jose, having been derived from Jose's
alleged partnership with Jimmy and Norberto. They failed to
refute respondent's claim that Elfledo and respondent
engaged in other businesses. Edison even admitted that
Elfledo also sold Interwood lumber as a sideline.
[19]
Petitioners could not offer any credible evidence other
than their bare assertions. Thus, we apply the basic rule of
evidence that between documentary and oral evidence, the
former carries more weight.[20]
Finally, we agree with the judicious findings of the
CA, to wit:
The above testimonies prove that Elfledo was
not just a hired help but one of the partners in
the trucking business, active and visible in the
78

running of its affairs from day one until this

ceased operations upon his demise. The extent
of his control, administration and management
of the partnership and its business, the fact that
its properties were placed in his name, and that
he was not paid salary or other compensation
by the partners, are indicative of the fact that
Elfledo was a partner and a controlling one at
that. It is apparent that the other partners only
contributed in the initial capital but had no say
thereafter on how the business was
ran.Evidently it was through Elfredos efforts
and hard work that the partnership was able to
acquire more trucks and otherwise
prosper. Even the appellant participated in the
affairs of the partnership by acting as the
bookkeeper sans salary.
It is notable too that Jose Lim died when the
partnership was barely a year old, and the
partnership and its business not only continued
but also flourished. If it were true that it was
Jose Lim and not Elfledo who wasthe partner,
then upon his death the partnership should
have
been dissolved and its assets liquidated. On the
contrary, these were not done but instead its
operation continued under the helm of Elfledo
and without any participation from the heirs of
Jose Lim.
Whatever properties appellant and her husband
had acquired, this was through their own

concerted efforts and hard work. Elfledo did

not limit himself to the business of their
partnership but engaged in other lines of
businesses as well.
In sum, we find no cogent reason to disturb the findings and
the ruling of the CA as they are amply supported by the law
and by the evidence on record.
WHEREFORE, the instant Petition is DENIED. The
assailed Court of Appeals Decision dated June 29, 2005
is AFFIRMED. Costs against petitioners.
SO ORDERED.
10. Lilibeth Sunga-Chan G.R. No. 143 340, August 15, 2001
[G.R. No. 143340. August 15, 2001]
LILIBETH SUNGA-CHAN and CECILIA
SUNGA, petitioners, vs. LAMBERTO T.
CHUA, respondent.
10. Lilibeth Sunga-Chan G.R. No. 143 340, August 15, 2001
Lilibeth Sunga-Chan vs Lamberto Chua
Facts:On June 22, 1992, respondent Lamberto T. Chua filed
a complaint against petitioners, Lilibeth Sunga Sunga Chan
and Cecilia Sunga, daughter and wife, respectively of the
deceased Jacinto L. Sunga, for winding up of Partnership
Affairs, accounting, appraisal and recovery of Shares and
Damages with Writ of Preliminary Attachment with the
RTC, Branch 11, Zamboanga del Norte.
79

Respondent alleged that in 1977, he verbally entered into a

partnership with Jacinto in the distribution of Shellane
Liquefied Petroleum Gas (LPG) with initial capital
contribution of Php100k each, with the intention that the
profits would be equally divided between them. For business
convenience, respondent and Jacinto agreed to register the
business name of their partnership SHELLITE GAS
APPLIANCE CENTER under the name of Jacinto as sole
proprietorship.
Their business was very profitable but in 1989 Jacinto died.
Upon Jacintos death, his daughter Lilibeth took over the
business as well as the business assets. Chua then demanded
for an accounting but Lilibeth kept on evading him. In 1992
however, Lilibeth gave Chua P200k. She said that the same
represents a partial payment; that the rest will come after she
finally made an accounting. She never made an accounting
so in 1992, Chua filed a complaint for Winding Up of
Partnership Affairs, Accounting, Appraisal and Recovery of
Shares and Damages with Writ of Preliminary Attach
ement against Lilibeth.
Issue: W/N respondent Lamberto Chua and Jacinto L. Sunga
has entered into a partnership?
Held: Yes. The court ruled that a partnership may be
constituted in any form, except where immovable property
or real rights are contributed thereto, in which case a public
instrument shall be necessary. Also, Article 1772 of the Civil
Code requires that partnership with a capital of Php3,000.00
or more must register with the Securities and Exchange
Commission, however this registration requirement is not
mandatory. Article 1768 of the CC explicitly provides that
the partnership retains its juridical personality even if it fails
register. The failure to register the contract of partnership

does not invalidate the same as among the partners, so long

as the contract has the essential requisites, because the main
purpose of registration is to give notice to third parties, and
it can be assumed that the members themselves knew of the
contents of their contract.
DECISION
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under
Rule 45 of the Rules of Court of the Decision[1] of the Court
of Appeals dated January 31, 2000 in the case entitled
Lamberto T. Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the
Resolution dated May 23, 2000 denying the motion for
reconsideration of herein petitioners Lilibeth Sunga Chan
and Cecilia Sunga (hereafter collectively referred to as
petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter
respondent) filed a complaint against Lilibeth Sunga Chan
(hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter
petitioner Cecilia), daughter and wife, respectively of the
deceased Jacinto L. Sunga (hereafter Jacinto), for Winding
Up of Partnership Affairs, Accounting, Appraisal and
Recovery of Shares and Damages with Writ of Preliminary
80

Attachment with the Regional Trial Court, Branch 11,

Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into
a partnership with Jacinto in the distribution of Shellane
Liquefied Petroleum Gas (LPG) in Manila. For business
convenience, respondent and Jacinto allegedly agreed to
register the business name of their partnership, SHELLITE
GAS APPLIANCE CENTER (hereafter Shellite), under the
name of Jacinto as a sole proprietorship. Respondent
allegedly delivered his initial capital contribution of
P100,000.00 to Jacinto while the latter in turn produced
P100,000.00 as his counterpart contribution, with the
intention that the profits would be equally divided between
them. The partnership allegedly had Jacinto as manager,
assisted by Josephine Sy (hereafter Josephine), a sister of the
wife of respondent, Erlinda Sy. As compensation, Jacinto
would receive a managers fee or remuneration of 10% of the
gross profit and Josephine would receive 10% of the net
profits, in addition to her wages and other remuneration
from the business.
Allegedly, from the time that Shellite opened for
business on July 8, 1977, its business operation went quite
well and was profitable. Respondent claimed that he could
attest to the success of their business because of the volume
of orders and deliveries of filled Shellane cylinder tanks
supplied by Pilipinas Shell Petroleum Corporation. While
Jacinto furnished respondent with the merchandise

inventories, balance sheets and net worth of Shellite from

1977 to 1989, respondent however suspected that the
amount indicated in these documents were understated and
undervalued by Jacinto and Josephine for their own selfish
reasons and for tax avoidance.
Upon Jacintos death in the later part of 1989, his
surviving wife, petitioner Cecilia and particularly his
daughter, petitioner Lilibeth, took over the operations,
control, custody, disposition and management of Shellite
without respondents consent.
Despite respondents repeated demands upon petitioners
for accounting, inventory, appraisal, winding up and
restitution of his net shares in the partnership, petitioners
failed to comply. Petitioner Lilibeth allegedly continued the
operations of Shellite, converting to her own use and
advantage its properties.
On March 31, 1991, respondent claimed that after
petitioner Lilibeth ran out of alibis and reasons to evade
respondents demands, she disbursed out of the partnership
funds the amount of P200,000.00 and partially paid the same
to respondent. Petitioner Lilibeth allegedly informed
respondent that the P200,000.00 represented partial payment
of the latters share in the partnership, with a promise that the
former would make the complete inventory and winding up
of the properties of the business establishment. Despite such
commitment, petitioners allegedly failed to comply with
their duty to account, and continued to benefit from the
81

assets and income of Shellite to the damage and prejudice of

respondent.

On August 16, 1993, the trial court denied the second

motion to dismiss for lack of merit.

On December 19, 1992, petitioners filed a Motion to

Dismiss on the ground that the Securities and Exchange
Commission (SEC) in Manila, not the Regional Trial Court
in Zambaonga del Norte had jurisdiction over the
action.Respondent opposed the motion to dismiss.

On November 26, 1993, petitioners filed their Petition

for Certiorari, Prohibition and Mandamus with the Court of
Appeals docketed as CA-G.R. SP No. 32499 questioning the
denial of the motion to dismiss.

On January 12, 1993, the trial court finding the

complaint sufficient in form and substance denied the
motion to dismiss.
On January 30, 1993, petitioners filed their Answer with
Compulsory Counterclaims, contending that they are not
liable for partnership shares, unreceived income/profits,
interests, damages and attorneys fees, that respondent does
not have a cause of action against them, and that the trial
court has no jurisdiction over the nature of the action, the
SEC being the agency that has original and exclusive
jurisdiction over the case. As counterclaim, petitioner sought
attorneys fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to
Dismiss this time on the ground that the claim for winding
up of partnership affairs, accounting and recovery of shares
in partnership affairs, accounting and recovery of shares
in partnership assets /properties should be dismissed and
prosecuted against the estate of deceased Jacinto in a probate
or intestate proceeding.

On November 29, 1993, petitioners filed with the trial

court a Motion to Suspend Pre-trial Conference.
On December 13, 1993, the trial court granted the
motion to suspend pre-trial conference.
On November 15, 1994, the Court of Appeals denied the
petition for lack of merit.
On January 16, 1995, this Court denied the petition for
review on certiorari filed by petitioner, as petitioners failed
to show that a reversible error was committed by the
appellate court."[2]
On February 20, 1995, entry of judgment was made by
the Clerk of Court and the case was remanded to the trial
court on April 26, 1995.
On September 25, 1995, the trial court terminated the
pre-trial conference and set the hearing of the case on
January 17, 1996. Respondent presented his evidence while
petitioners were considered to have waived their right to
82

present evidence for their failure to attend the scheduled date

for reception of evidence despite notice.

listed properties, assets and good will (sic) in schedules A, B

and C, on pages 4-5 of the petition;

On October 7, 1997, the trial court rendered its Decision

ruling for respondent. The dispositive portion of the
Decision reads:

(4) ORDERING them to pay the plaintiff earned but

unreceived income and profits from the partnership from
1988 to may 30, 1992, when the plaintiff learned of the
closure of the store the sum of P35,000.00 per month, with
legal rate of interest until fully paid;

WHEREFORE, judgment is hereby rendered in favor of the

plaintiff and against the defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable
form under accounting procedures and standards of the
properties, assets, income and profits of the Shellite Gas
Appliance Center since the time of death of Jacinto L.
Sunga, from whom they continued the business operations
including all businesses derived from the Shellite Gas
Appliance Center; submit an inventory, and appraisal of all
these properties, assets, income, profits, etc. to the Court and
to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the
partnership any and all properties, assets, income and profits
they misapplied and converted to their own use and
advantage that legally pertain to the plaintiff and account for
the properties mentioned in pars. A and B on pages 4-5 of
this petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff
shares and interest of the plaintiff in the partnership of the

(5) ORDERING them to wind up the affairs of the

partnership and terminate its business activities pursuant to
law, after delivering to the plaintiff all the interest, shares,
participation and equity in the partnership, or the value
thereof in money or moneys worth, if the properties are not
physically divisible;
(6) FINDING them especially Lilibeth Sunga-Chan guilty of
breach of trust and in bad faith and hold them liable to the
plaintiff the sum of P50,000.00 as moral and exemplary
damages; and,
(7) DIRECTING them to reimburse and pay the sum
of P25,000.00 as attorneys (sic) and P25,00.00 as litigation
expenses.
NO special pronouncements as to COSTS.
SO ORDERED.[3]

83

On October 28, 1997, petitioners filed a Notice of

Appeal with the trial court, appealing the case to the Court
of Appeals.
On January 31, 2000, the Court of Appeals dismissed the
appeal. The dispositive portion of the Decision reads:
WHEREFORE, the instant appeal is dismissed. The
appealed decision is AFFIRMED in all respects.[4]
On May 23, 2000, the Court of Appeals denied the
motion for reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon the
following grounds:
1. The Court of Appeals erred in making a legal
conclusion that there existed a partnership
between respondent Lamberto T. Chua and the
late Jacinto L. Sunga upon the latters invitation
and offer and that upon his death the partnership
assets and business were taken over by petitioners.
2. The Court of Appeals erred in making the legal
conclusion that laches and/or prescription did not
apply in the instant case.
3. The Court of Appeals erred in making the legal
conclusion that there was competent and credible
evidence to warrant the finding of a partnership,
and assuming arguendo that indeed there was a

partnership, the finding of highly exaggerated

amounts or values in the partnership assets and
profits.[5]
Petitioners question the correctness of the finding of the
trial court and the Court of Appeals that a partnership
existed between respondent and Jacinto from 1977 until
Jacintos death. In the absence of any written document to
show such partnership between respondent and Jacinto,
petitioners argue that these courts were proscribed from
hearing the testimonies of respondent and his witness,
Josephine, to prove the alleged partnership three years after
Jacintos death. To support this argument, petitioners invoke
the Dead Mans Statute or Survivorship Rule under Section
23, Rule 130 of the Rules of Court that provides:
SEC. 23. Disqualification by reason of death or insanity of
adverse party.-- Parties or assignors of parties to a case, or
persons in whose behalf a case is prosecuted, against an
executor or administrator or other representative of a
deceased person, or against a person of unsound mind, upon
a claim or demand against the estate of such deceased
person, or against such person of unsound mind, cannot
testify as to any matter of fact occurring before the death of
such deceased person or before such person became of
unsound mind.
Petitioners thus implore this Court to rule that the
testimonies of respondent and his alter ego, Josephine,
should not have been admitted to prove certain claims
84

against a deceased person (Jacinto), now represented by

petitioners.
We are not persuaded.
A partnership may be constituted in any form, except
where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.
[6]
Hence, based on the intention of the parties, as gathered
from the facts and ascertained from their language and
conduct, a verbal contract of partnership may arise.[7] The
essential points that must be proven to show that a
partnership was agreed upon are (1) mutual contribution to a
common stock, and (2) a joint interest in the profits.
[8]
Understandably so, in view of the absence of a written
contract of partnership between respondent and Jacinto,
respondent resorted to the introduction of documentary and
testimonial evidence to prove said partnership. The crucial
issue to settle then is whether or not the Dead Mans Statute
applies to this case so as to render inadmissible respondents
testimony and that of his witness, Josephine.
The Dead Mans Statute provides that if one party to the
alleged transaction is precluded from testifying by death,
insanity, or other mental disabilities, the surviving party is
not entitled to the undue advantage of giving his own
uncontradicted and unexplained account of the transaction.
[9]
But before this rule can be successfully invoked to bar the
introduction of testimonial evidence, it is necessary that:

1. The witness is a party or assignor of a party to a

case or persons in whose behalf a case is
prosecuted.
2. The action is against an executor or administrator
or other representative of a deceased person or a
person of unsound mind;
3. The subject-matter of the action is a claim or
demand against the estate of such deceased person
or against person of unsound mind;
4. His testimony refers to any matter of fact which
occurred before the death of such deceased person
or before such person became of unsound mind.[10]
Two reasons forestall the application of the Dead Mans
Statute to this case.
First, petitioners filed a compulsory
counterclaim[11] against respondent in their answer before the
trial court, and with the filing of their counterclaim,
petitioners themselves effectively removed this case from
the ambit of the Dead Mans Statute.[12] Well entrenched is
the rule that when it is the executor or administrator or
representatives of the estate that sets up the counterclaim,
the plaintiff, herein respondent, may testify to occurrences
before the death of the deceased to defeat the counterclaim.
[13]
Moreover, as defendant in the counterclaim, respondent is
not disqualified from testifying as to matters of fact
85

occurring before the death of the deceased, said action not

having been brought against but by the estate or
representatives of the deceased.[14]
Second, the testimony of Josephine is not covered by the
Dead Mans Statute for the simple reason that she is not a
party or assignor of a party to a case or persons in whose
behalf a case is prosecuted. Records show that respondent
offered the testimony of Josephine to establish the existence
of the partnership between respondent and
Jacinto. Petitioners insistence that Josephine is the alter ego
of respondent does not make her an assignor because the
term assignor of a party means assignor of a cause of action
which has arisen, and not the assignor of a right assigned
before any cause of action has arisen.[15] Plainly then,
Josephine is merely a witness of respondent, the latter being
the party plaintiff.
We are not convinced by petitioners allegation that
Josephines testimony lacks probative value because she was
allegedly coerced by respondent, her brother-in-law, to
testify in his favor. Josephine merely declared in court that
she was requested by respondent to testify and that if she
were not requested to do so she would not have testified. We
fail to see how we can conclude from this candid admission
that Josephines testimony is involuntary when she did not in
any way categorically say that she was forced to be a
witness of respondent. Also, the fact that Josephine is the
sister of the wife of respondent does not diminish the value

of her testimony since relationship per se, without more,

does not affect the credibility of witnesses.[16]
Petitioners reliance alone on the Dead Mans Statute to
defeat respondents claim cannot prevail over the factual
findings of the trial court and the Court of Appeals that a
partnership was established between respondent and
Jacinto. Based not only on the testimonial evidence, but the
documentary evidence as well, the trial court and the Court
of Appeals considered the evidence for respondent as
sufficient to prove the formation of a partnership, albeit an
informal one.
Notably, petitioners did not present any evidence in their
favor during trial. By the weight of judicial precedents, a
factual matter like the finding of the existence of a
partnership between respondent and Jacinto cannot be
inquired into by this Court on review.[17] This Court can no
longer be tasked to go over the proofs presented by the
parties and analyze, assess and weigh them to ascertain if the
trial court and the appellate court were correct in according
superior credit to this or that piece of evidence of one party
or the other.[18] It must be also pointed out that petitioners
failed to attend the presentation of evidence of
respondent. Petitioners cannot now turn to this Court to
question the admissibility and authenticity of the
documentary evidence of respondent when petitioners failed
to object to the admissibility of the evidence at the time that
such evidence was offered.[19]
86

With regard to petitioners insistence that laches and/or

prescription should have extinguished respondents claim, we
agree with the trial court and the Court of Appeals that the
action for accounting filed by respondent three (3) years
after Jacintos death was well within the prescribed
period. The Civil Code provides that an action to enforce an
oral contract prescribes in six (6) years[20] while the right to
demand an accounting for a partners interest as against the
person continuing the business accrues at the date of
dissolution, in the absence of any contrary agreement.
[21]
Considering that the death of a partner results in the
dissolution of the partnership[22], in this case, it was after
Jacintos death that respondent as the surviving partner had
the right to an account of his interest as against petitioners. It
bears stressing that while Jacintos death dissolved the
partnership, the dissolution did not immediately terminate
the partnership. The Civil Code[23] expressly provides that
upon dissolution, the partnership continues and its legal
personality is retained until the complete winding up of its
business, culminating in its termination.[24]
In a desperate bid to cast doubt on the validity of the oral
partnership between respondent and Jacinto, petitioners
maintain that said partnership that had an initial capital of
P200,000.00 should have been registered with the Securities
and Exchange Commission (SEC) since registration is
mandated by the Civil Code. True, Article 1772 of the Civil
Code requires that partnerships with a capital of P3,000.00
or more must register with the SEC, however, this

registration requirement is not mandatory. Article 1768 of

the Civil Code[25] explicitly provides that the partnership
retains its juridical personality even if it fails to register. The
failure to register the contract of partnership does not
invalidate the same as among the partners, so long as the
contract has the essential requisites, because the main
purpose of registration is to give notice to third parties, and
it can be assumed that the members themselves knew of the
contents of their contract.[26] In the case at bar, noncompliance with this directory provision of the law will not
invalidate the partnership considering that the totality of the
evidence proves that respondent and Jacinto indeed forged
the partnership in question.
WHEREFORE, in view of the foregoing, the petition is
DENIED and the appealed decision is AFFIRMED.
SO ORDERED.
Melo, (Chairman), Vitug, Panganiban, and SandovalGutierrez, JJ., concur.

11. CIR v. Suter G.R. No. L-25532, February 28, 1969

87

G.R. No. L-25532

February 28, 1969
COMMISSIONER OF INTERNAL
REVENUE, petitioner, vs.WILLIAM J. SUTER and THE
COURT OF TAX APPEALS, respondents.and Ong for
respondents.
Facts: A limited partnership, named "William J. Suter
'Morcoin' Co., Ltd.," was formed on 30 September 1947 by
herein respondent William J. Suter as the general partner,
and Julia Spirig and Gustav Carlson, as the limited partners.
The partners contributed, respectively, P20,000.00,
P18,000.00 and P2,000.00 to the partnership. On 1 October
1947, the limited partnership was registered with the SEC.
The firm engaged in the importation, marketing, distribution
and operation of automatic phonographs, radios, television
sets and amusement machines, their parts and accessories. It
had an office and held itself out as a limited partnership,
handling and carrying merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining its own
books of accounts and bank accounts, and had a quota
allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner
Spirig got married and, thereafter, on 18 December 1948,
limited partner Carlson sold his share in the partnership to
Suter and his wife. The sale was duly recorded with the SEC
on 20 December 1948.
The limited partnership had been filing its income tax
returns as a corporation, without objection by the herein
petitioner, CIR, until in 1959 when the CIR, in an
assessment, consolidated the income of the firm and the
individual incomes of the partners-spouses Suter and Spirig

resulting in a determination of a deficiency income tax

against respondent Suter in the amount of P2,678.06 for
1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law,
but his request was denied. Unable to secure a
reconsideration, he appealed to the CTA, which court, after
trial, rendered a decision, on 11 November 1965, reversing
that of the CIR
Issue:W/N the partnership was dissolved after the marriage
of the partners, respondent William J. Suter and Julia Spirig
Suter and the subsequent sale to them by the remaining
partner, Gustav Carlson,
Ruling: No, it was not dissovled. The thesis that the limited
partnership, William J. Suter "Morcoin" Co., Ltd., has been
dissolved by operation of law because of the marriage of the
only general partner, William J. Suter to the originally
limited partner, Julia Spirig one year after the partnership
was organized is rested by the appellant upon the opinion of
now Senator Tolentino in Commentaries and Jurisprudence
on Commercial Laws of the Philippines, Vol. 1, 4th Ed.,
page 58, that reads as follows:
A husband and a wife may not enter into a contract
of general co-partnership, because under the Civil
Code, which applies in the absence of express
provision in the Code of Commerce, persons
prohibited from making donations to each other are
prohibited from entering into universal partnerships. It follows that the marriage of partners necessarily
88

brings about the dissolution of a pre-existing

partnership.
The petitioner-appellant has evidently failed to observe the
fact that William J. Suter "Morcoin" Co., Ltd. was not a
universal partnership, but a particular one. As appears from
Articles 1674 and 1675 of the Spanish CC, of 1889
a universal partnership requires either that the object of the
association be all the present property of the partners, as
contributed by them to the common fund, or else "all that
the partners may acquire by their industry or work during
the existence of the partnership". William J. Suter "Morcoin"
Co., Ltd. was not such a universal partnership, since the
contributions of the partners were fixed sums of money,
P20,000.00 by William Suter and P18,000.00 by Julia Spirig
and neither one of them was an industrial partner. It follows
that William J. Suter "Morcoin" Co., Ltd. was not a
partnership that spouses were forbidden to enter by Article
1677 of the Civil Code of 1889.
REYES, J.B.L., J.:
A limited partnership, named "William J. Suter 'Morcoin'
Co., Ltd.," was formed on 30 September 1947 by herein
respondent William J. Suter as the general partner, and Julia
Spirig and Gustav Carlson, as the limited partners. The
partners contributed, respectively, P20,000.00, P18,000.00
and P2,000.00 to the partnership. On 1 October 1947, the
limited partnership was registered with the Securities and
Exchange Commission. The firm engaged, among other
activities, in the importation, marketing, distribution and
operation of automatic phonographs, radios, television sets

and amusement machines, their parts and accessories. It had

an office and held itself out as a limited partnership,
handling and carrying merchandise, using invoices, bills and
letterheads bearing its trade-name, maintaining its own
books of accounts and bank accounts, and had a quota
allocation with the Central Bank.
In 1948, however, general partner Suter and limited partner
Spirig got married and, thereafter, on 18 December 1948,
limited partner Carlson sold his share in the partnership to
Suter and his wife. The sale was duly recorded with the
Securities and Exchange Commission on 20 December
1948.
The limited partnership had been filing its income tax
returns as a corporation, without objection by the herein
petitioner, CIR until in 1959 when the latter, in an
assessment, consolidated the income of the firm and the
individual incomes of the partners-spouses Suter and Spirig
resulting in a determination of a deficiency income tax
against respondent Suter in the amount of P2,678.06 for
1954 and P4,567.00 for 1955.
Respondent Suter protested the assessment, and requested its
cancellation and withdrawal, as not in accordance with law,
but his request was denied. Unable to secure a
reconsideration, he appealed to the Court of Tax Appeals,
which court, after trial, rendered a decision, on 11 November
1965, reversing that of the Commissioner of Internal
Revenue.
89

The present case is a petition for review, filed by the

Commissioner of Internal Revenue, of the tax court's
aforesaid decision. It raises these issues:
(a) Whether or not the corporate personality of the William
J. Suter "Morcoin" Co., Ltd. should be disregarded for
income tax purposes, considering that respondent William J.
Suter and his wife, Julia Spirig Suter actually formed a
single taxable unit; and
(b) Whether or not the partnership was dissolved after the
marriage of the partners, respondent William J. Suter and
Julia Spirig Suter and the subsequent sale to them by the
remaining partner, Gustav Carlson, of his participation of
P2,000.00 in the partnership for a nominal amount of P1.00.
The theory of the petitioner, Commissioner of Internal
Revenue, is that the marriage of Suter and Spirig and their
subsequent acquisition of the interests of remaining partner
Carlson in the partnership dissolved the limited partnership,
and if they did not, the fiction of juridical personality of the
partnership should be disregarded for income tax purposes
because the spouses have exclusive ownership and control
of the business; consequently the income tax return of
respondent Suter for the years in question should have
included his and his wife's individual incomes and that of
the limited partnership, in accordance with Section 45 (d) of
the National Internal Revenue Code, which provides as
follows:

(d) Husband and wife. In the case of married

persons, whether citizens, residents or non-residents,
only one consolidated return for the taxable year shall
be filed by either spouse to cover the income of both
spouses; ....
In refutation of the foregoing, respondent Suter maintains, as
the Court of Tax Appeals held, that his marriage with limited
partner Spirig and their acquisition of Carlson's interests in
the partnership in 1948 is not a ground for dissolution of the
partnership, either in the Code of Commerce or in the New
Civil Code, and that since its juridical personality had not
been affected and since, as a limited partnership, as contra
distinguished from a duly registered general partnership, it is
taxable on its income similarly with corporations, Suter was
not bound to include in his individual return the income of
the limited partnership.
We find the Commissioner's appeal unmeritorious.
The thesis that the limited partnership, William J. Suter
"Morcoin" Co., Ltd., has been dissolved by operation of law
because of the marriage of the only general partner, William
J. Suter to the originally limited partner, Julia Spirig one
year after the partnership was organized is rested by the
appellant upon the opinion of now Senator Tolentino in
Commentaries and Jurisprudence on Commercial Laws of
the Philippines, Vol. 1, 4th Ed., page 58, that reads as
follows:
90

A husband and a wife may not enter into a contract

of general copartnership, because under the Civil
Code, which applies in the absence of express
provision in the Code of Commerce, persons
prohibited from making donations to each other are
prohibited from entering into universal partnerships.
(2 Echaverri 196) It follows that the marriage of
partners necessarily brings about the dissolution of a
pre-existing partnership. (1 Guy de Montella 58)
The petitioner-appellant has evidently failed to observe the
fact that William J. Suter "Morcoin" Co., Ltd. was not a
universal partnership, but a particular one. As appears from
Articles 1674 and 1675 of the Spanish Civil Code, of 1889
(which was the law in force when the subject firm was
organized in 1947), a universal partnership requires either
that the object of the association be all the present
property of the partners, as contributed by them to the
common fund, or else "all that the partners may acquire by
their industry or work during the existence of the
partnership". William J. Suter "Morcoin" Co., Ltd. was not
such a universal partnership, since the contributions of the
partners were fixed sums of money, P20,000.00 by William
Suter and P18,000.00 by Julia Spirig and neither one of
them was an industrial partner. It follows that William J.
Suter "Morcoin" Co., Ltd. was not a partnership that spouses
were forbidden to enter by Article 1677 of the Civil Code of
1889.

The former Chief Justice of the Spanish Supreme Court, D.

Jose Casan, in his Derecho Civil, 7th Edition, 1952, Volume
4, page 546, footnote 1, says with regard to the prohibition
contained in the aforesaid Article 1677:
Los conyuges, se..
Nor could the subsequent marriage of the partners operate to
dissolve it, such marriage not being one of the causes
provided for that purpose either by the Spanish Civil Code
or the Code of Commerce.
The appellant's view, that by the marriage of both partners
the company became a single proprietorship, is equally
erroneous. The capital contributions of partners William J.
Suter and Julia Spirig were separately owned and
contributed by them before their marriage; and after they
were joined in wedlock, such contributions remained their
respective separate property under the Spanish Civil Code
(Article 1396):
The following shall be the exclusive property of each
spouse:
(a) That which is brought to the marriage as his or her
own; ....
Thus, the individual interest of each consort in William J.
Suter "Morcoin" Co., Ltd. did not become common property
of both after their marriage in 1948.
91

It being a basic tenet of the Spanish and Philippine law that

the partnership has a juridical personality of its own, distinct
and separate from that of its partners (unlike American and
English law that does not recognize such separate juridical
personality), the bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or
disregarding clear statutory mandates and basic principles of
our law. The limited partnership's separate individuality
makes it impossible to equate its income with that of the
component members. True, section 24 of the Internal
Revenue Code merges registered general co-partnerships
(compaias colectivas) with the personality of the individual
partners for income tax purposes. But this rule is exceptional
in its disregard of a cardinal tenet of our partnership laws,
and can not be extended by mere implication to limited
partnerships.
The rulings cited by the petitioner (Collector of Internal
Revenue vs. University of the Visayas, L-13554, Resolution
of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77
Phil. 504) as authority for disregarding the fiction of legal
personality of the corporations involved therein are not
applicable to the present case. In the cited cases, the
corporations were already subject to tax when the fiction of
their corporate personality was pierced; in the present case,
to do so would exempt the limited partnership from income
taxation but would throw the tax burden upon the partnersspouses in their individual capacities. The corporations, in
the cases cited, merely served as business conduits or alter

egos of the stockholders, a factor that justified a disregard of

their corporate personalities for tax purposes. This is not true
in the present case. Here, the limited partnership is not a
mere business conduit of the partner-spouses; it was
organized for legitimate business purposes; it conducted its
own dealings with its customers prior to appellee's marriage,
and had been filing its own income tax returns as such
independent entity. The change in its membership, brought
about by the marriage of the partners and their subsequent
acquisition of all interest therein, is no ground for
withdrawing the partnership from the coverage of Section 24
of the tax code, requiring it to pay income tax. As far as the
records show, the partners did not enter into matrimony and
thereafter buy the interests of the remaining partner with the
premeditated scheme or design to use the partnership as a
business conduit to dodge the tax laws. Regularity, not
otherwise, is presumed.
As the limited partnership under consideration is taxable on
its income, to require that income to be included in the
individual tax return of respondent Suter is to overstretch the
letter and intent of the law. In fact, it would even conflict
with what it specifically provides in its Section 24: for the
appellant Commissioner's stand results in equal treatment,
tax wise, of a general copartnership (compaia colectiva)
and a limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the latter on its
income, but not the former, because it is in the case
of compaias colectivas that the members, and not the firm,
92

are taxable in their individual capacities for any dividend or

share of the profit derived from the duly registered general
partnership (Section 26, N.I.R.C.; Araas, Anno. & Juris. on
the N.I.R.C., As Amended, Vol. 1, pp. 88-89).lawphi1.nt
But it is argued that the income of the limited partnership is
actually or constructively the income of the spouses and
forms part of the conjugal partnership of gains. This is not
wholly correct. As pointed out in Agapito vs. Molo 50 Phil.
779, and People's Bank vs. Register of Deeds of Manila, 60
Phil. 167, the fruits of the wife's parapherna become
conjugal only when no longer needed to defray the expenses
for the administration and preservation of the paraphernal
capital of the wife. Then again, the appellant's argument
erroneously confines itself to the question of the legal
personality of the limited partnership, which is not essential
to the income taxability of the partnership since the law
taxes the income of even joint accounts that have no
personality of their own. 1Appellant is, likewise, mistaken in
that it assumes that the conjugal partnership of gains is a
taxable unit, which it is not. What is taxable is the "income
of both spouses" (Section 45 [d] in their individual
capacities. Though the amount of income (income of the
conjugal partnership vis-a-vis the joint income of husband
and wife) may be the same for a given taxable year, their
consequences would be different, as their contributions in
the business partnership are not the same.

The difference in tax rates between the income of the limited

partnership being consolidated with, and when split from the
income of the spouses, is not a justification for requiring
consolidation; the revenue code, as it presently stands, does
not authorize it, and even bars it by requiring the limited
partnership to pay tax on its own income.
FOR THE FOREGOING REASONS, the decision under
review is hereby affirmed. No costs.
12. Aurbach v. Sanitary Wares G.R. No. 75875, December
15, 1989
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs. SANITARY WARES MANUFACTURING
CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO
R. LAGDAMEO, JR., ENRIQUE R. LAGDAMEO,
GEORGE F. LEE, RAUL A. BONCAN, BALDWIN
YOUNG and AVELINO V. CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING
CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE
B. LAGDAMEO, GEORGE FL .EE RAUL A. BONCAN,
BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
93

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.
Facts: This consolidated petition assailed the decision of the
CA directing a certain MANNER OF ELECTION OF
OFFICERS IN THE BOARD OF DIRECTORS *There are
2 groups in this case, the Lagdameo group composed of
Filipino investors and the American Standard Inc. (ASI)
composed of foreign investors. The ASI Group and
petitioner Salazar contend that the actual intention of the
parties should be viewed strictly on the "Agreement"
wherein it is clearly stated that the parties' intention was to
form a corporation and not a joint venture.
Issue:
W/N the nature of the business established by the parties
was a joint venture / a corporation.

Ruling:
The SC ruled that the nature of the business established by
the parties was a joint venture and neither a corporation nor
a partnership. Joint venture has no precise legal definition.
However, 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
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:

94

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.
95

The joint enterprise thus entered into by the Filipino

investors and the American corporation prospered.
Unfortunately, with the business successes, there came a
deterioration of the initially harmonious relations between
the two groups. According to the Filipino group, a basic
disagreement was due to their desire to expand the export
operations of the company to which ASI objected as it
apparently had other subsidiaries of joint joint venture
groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders'
meeting was held. The meeting was presided by Baldwin
Young. The minutes were taken by the Secretary, Avelino
Cruz. After disposing of the preliminary items in the agenda,
the stockholders then proceeded to the election of the
members of the board of directors. The ASI group
nominated three persons namely; Wolfgang Aurbach, John
Griffin and David P. Whittingham. The Philippine investors
nominated six, namely; Ernesto Lagdameo, Sr., Raul A.
Boncan, Ernesto R. Lagdameo, Jr., George F. Lee, and
Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr.
Luciano E. Salazar, who in turn nominated Mr. Charles
Chamsay. The chairman, Baldwin Young ruled the last two
nominations out of order on the basis of section 5 (a) of the
Agreement, the consistent practice of the parties during the
past annual stockholders' meetings to nominate only nine
persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel. The
following events then, transpired:

... There were protests against the action of the

Chairman and heated arguments ensued. An
appeal was made by the ASI representative to
the body of stockholders present that a vote be
taken on the ruling of the Chairman. The
Chairman, Baldwin Young, declared the appeal
out of order and no vote on the ruling was
taken. The Chairman then instructed the
Corporate Secretary to cast all the votes present
and represented by proxy equally for the 6
nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the
2 additional persons nominated, namely,
Luciano E. Salazar and Charles Chamsay. The
ASI representative, Mr. Jaqua protested the
decision of the Chairman and announced that
all votes accruing to ASI shares, a total of
1,329,695 (p. 27, Rollo, AC-G.R. SP No.
05617) were being cumulatively voted for the
three ASI nominees and Charles Chamsay, and
instructed the Secretary to so vote. Luciano E.
Salazar and other proxy holders announced that
all the votes owned by and or represented by
them 467,197 shares (p. 27, Rollo, AC-G.R. SP
No. 05617) were being voted cumulatively in
favor of Luciano E. Salazar. The Chairman,
Baldwin Young, nevertheless instructed the
Secretary to cast all votes equally in favor of
the three ASI nominees, namely, Wolfgang
96

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
97

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, Rollo75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails
the amended decision on the following grounds:
11.1.
ThatAmendedDecisionwouldsanctiontheCA'sdi
sregard of binding contractual agreements
entered into by stockholders and the
replacement of the conditions of such
agreements with terms never contemplated by
98

the stockholders but merely dictated by the

CA .

The issues raised in the petitions are interrelated, hence, they

are discussed jointly.

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)

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.

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, Rollo75951)

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:
99

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, Rollo-GR 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
100

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% supermajority 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
101

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
102

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
103

fact is that it is a close-held 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. 1516) (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:
104

Paragraph 2 refers to pooling and voting

agreements in particular. Does this provision
necessarily imply that these agreements can be
valid only in close corporations as defined by
the Code? Suppose that a corporation has
twenty five stockholders, and therefore cannot
qualify as a close corporation under section 96,
can some of them enter into an agreement to
vote as a unit in the election of directors? It is
submitted that there is no reason for denying
stockholders of corporations other than close
ones the right to enter into not voting or pooling
agreements to protect their interests, as long as
they do not intend to commit any wrong, or
fraud on the other stockholders not parties to
the agreement. Of course, voting or pooling
agreements are perhaps more useful and more
often resorted to in close corporations. But they
may also be found necessary even in widely
held corporations. Moreover, since the Code
limits the legal meaning of close corporations
to those which comply with the requisites laid
down by section 96, it is entirely possible that a
corporation which is in fact a close corporation
will not come within the definition. In such
case, its stockholders should not be precluded
from entering into contracts like voting
agreements if these are otherwise valid.
(Campos & Lopez-Campos, op cit, p. 405)

In short, even assuming that sec. 5(a) of the

Agreement relating to the designation or
nomination of directors restricts the right of the
Agreement's signatories to vote for directors,
such contractual provision, as correctly held by
the SEC, is valid and binding upon the
signatories thereto, which include appellants.
(Rollo No. 75951, pp. 90-94)
In regard to the question as to whether or not the ASI group
may vote their additional equity during elections of
Saniwares' board of directors, the Court of Appeals correctly
stated:
As in other joint venture companies, the extent
of ASI's participation in the management of the
corporation is spelled out in the Agreement.
Section 5(a) hereof says that three of the nine
directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the
Filipino stockholders. This allocation of board
seats is obviously in consonance with the
minority position of ASI.
Having entered into a 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
105

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
106

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. 3839)
The ASI Group and petitioner Salazar, now reiterate their
theory that the ASI Group has the right to vote their
additional equity pursuant to Section 24 of the Corporation
Code which gives the stockholders of a corporation the right
to cumulate their votes in electing directors. Petitioner
Salazar adds that this right if granted to the ASI Group
would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section
2-a thereof which provides:
And provided finally that the election of aliens
as members of the board of directors or
governing body of corporations or associations
engaging in partially nationalized activities

shall be allowed in proportion to their allowable

participation or 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
107

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
108

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 AntiDummy 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.
109

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.

110

13. J. Tiosejo VInvestment v. Spouses Ang, G.R. No.

174149, September 8, 2010
J. TIOSEJO INVESTMENT CORP.,
Petitioner,
versus -SPOUSES BENJAMIN AND
ELEANOR ANG,
Respondents.

G.R. No. 174149

September 8, 2010

x-------------------------------------------------x
13 . J. Tiosejo VInvestment v. Spouses Ang, G.R. No.
174149, September 8, 2010
Principle: a joint venture is considered in this jurisdiction as
a form of partnership and is, accordingly, governed by the
law of partnerships.[54]
The Fact petitioner entered into a (JVA) with Primetown
Property Group, Inc. (PPGI) for the development of a
residential condominium project to be known asThe
Meditel on the petitioner's property. With petitioner
contributing the same property to the joint venture and PPGI
undertaking to develop the condominium, the JVA provided,
among other terms and conditions, that the developed units
shall be shared by the Pet and the PPGI at a ratio of 17%83%, respectively.[4] While both parties were allowed, at
their own individual responsibility, to pre-sell the units
pertaining to them,[5] PPGI further undertook to use all

proceeds from the pre-selling of its saleable units for the

completion of the Condominium Project. [6]
(HLURB) issued License to Sell in favor of petitioner and
PPGI as project owners.
By virtue of said license, PPGI executed Contract to Sell
with Spouses Benjamin and Eleanor Ang on 5 February
1997, over the 35.45-square meter condominium unit
denominated as Unit A-1006, for the agreed contract price
of P52,597.88 per square meter or a total P2,077,334.25.
[8]
On the same date PPGI and respondents also
executed Contract to Sell No. 0214 over the 12.50 square
meter parking space identified as Parking Slot No. 0405, for
the stipulated consideration of P26,400.00 square meters or
a total of P313,500.00.[9]
On 21 July 1999, respondents filed against petitioner and
PPGI the complaint for the rescission of the Contracts to
Sell docketed before the HLURB. Contending that they were
assured by petitioner and PPGI that the subject
condominium unit and parking space would be available for
turn-over and occupancy in December 1998, respondents
averred, among other matters, that in view of the noncompletion of the project according to said representation,
respondents instructed petitioner and PPGI to stop
depositing the post-dated checks they issued and to cancel
said Contracts to Sell; and, that despite several demands,
petitioner and PPGI have failed and refused to refund
the P611,519.52
they
already
paid
under
the
Together with the refund of said amount and interests thereon at the rate of
circumstances.
12% per annum, respondents prayed for the grant of their claims for moral and exemplary damages as
well as attorneys fees and the costs.[10]

111

PPGI filed answer alleging that the delay in the completion

of the project was attributable to the economic crisis which
affected the country at the time; that the unexpected and
unforeseen inflation as well as increase in interest rates and
cost of building materials constitute force majeure and were
beyond its control;
in separate answer petitioner asseverated that, by the terms
of the JVA, each party was individually responsible for the
marketing and sale of the units pertaining to its share; that
not being privy to the Contracts to Sell executed by PPGI
and respondents, it did not receive any portion of the
payments made by the latter; and, that without any
contributory fault and negligence on its part, PPGI breached
its undertakings under the JVA by failing to complete the
condominium project. -moved to dismiss.
(HLU) Arbiter - decision declaring the subject Contracts to
Sell cancelled and rescinded on account of the noncompletion of the condominium project. On the ground that
the JVA created a partnership liability on their part,
petitioner and PPGI, as co-owners of the condominium
project, were ordered to pay: (a) respondents claim for
refund of the P611,519.52 they paid, with interest at the rate
of 12% per annum from 5 February 1997; (b) damages in the
sum of P75,000.00; (c) attorneys fees in the sum
of P30,000.00; (d) the costs; and, (e) an administrative fine
in the sum of P10,000.00 for violation of Sec. 20 in relation
to Sec. 38 of Presidential Decree No. 957. [15] Elevated to the
HLURB Board of Commissioners via the petition for review
filed by petitioner,[16]

dismissed. However, the decision of the Office below is

modified, hence, its dispositive portion
shall
readxx
3. Ordering respondent Primetown to reimburse the entire
amount which the respondent Corporation will be
constrained to pay the complainants. So ordered.[18]
petitioner filed a Notice of Appeal before the (OP) dismissing filed out of time a
petitioner filed before the CA - We resolve to DENY the
second extension motion and rule to DISMISS the petition
for being filed late. -Settled is that heavy workload is by no
means excusable / hence, this petition.
Issue: W/N JCIT SHOULD BE SOLIDARILY LIABLE
WITH PRIMETOWN
By the express terms of the JVA, it appears that petitioner
not only retained ownership of the property pending
completion of the condominium project [53] but had also
bound itself to answer liabilities proceeding from contracts
entered into by PPGI with third parties. Article VIII, Section
1 of the JVA distinctly provides as follows:XX
Viewed in the light of the foregoing provision of the JVA,
petitioner cannot avoid liability by claiming that it was not
in any way privy to the Contracts to Sell executed by PPGI
and respondents. As correctly argued by the respondents,
moreover, a joint venture is considered in this jurisdiction as
a form of partnership and is, accordingly, governed by the
law of partnerships.[54] Under Article 1824 of the Civil Code
of the Philippines, all partners are solidarily liable with the
partnership for everything chargeable to the partnership,
including loss or injury caused to a third person or penalties
112

incurred due to any wrongful act or omission of any partner

acting in the ordinary course of the business of the
partnership or with the authority of his co-partners.
[55]
Whether innocent or guilty, all the partners are solidarily
liable with the partnership itself.[56]
DECISION
PEREZ, J.:
Filed pursuant to Rule 45 of the 1997 Rules of Civil
Procedure, the petition for review at bench seeks the
reversal of the Resolutions dated 23 May 2006 and 9 August
2006 issued by the Third Division of the (CA) in CA-G.R.
SP No. 93841 which, respectively, dismissed the petition for
review of petitioner. (JTIC) for having been filed out of
time[1] and denied the motion for reconsideration of said
dismissal.[2]
The Facts On 28 December 1995 petitioner entered into
a Joint Venture Agreement (JVA) with Primetown Property
Group, Inc. (PPGI) for the development of a residential
condominium project to be known asThe Meditel on the
petitioner;s 9,502 sQM property along Samat St., Highway
Hills, Mandaluyong City.[3] With petitioner contributing the
same property to the joint venture and PPGI undertaking to
develop the condominium, the JVA provided, among other
terms and conditions, that the developed units shall be
shared by the former and the latter at a ratio of 17%-83%,
respectively.[4] While both parties were allowed, at their own
individual responsibility, to pre-sell the units pertaining to
them,[5] PPGI further undertook to use all proceeds from the
pre-selling of its saleable units for the completion of the
Condominium Project. [6]

On 17 June 1996, the (HLURB) issued License to Sell No.

96-06-2854 in favor of petitioner and PPGI as project
owners.[7] By virtue of said license, PPGI executed Contract
to Sell No. 0212 with Spouses Benjamin and Eleanor Ang on
5 February 1997, over the 35.45-square meter condominium
unit denominated as Unit A-1006, for the agreed contract
price of P52,597.88 per square meter or a
total P2,077,334.25.[8] On the same date PPGI and
respondents also executed Contract to Sell No. 0214 over
the 12.50 square meter parking space identified as Parking
Slot No. 0405, for the stipulated consideration of P26,400.00
square meters or a total of P313,500.00.[9]
On 21 July 1999, respondents filed against petitioner and
PPGI the complaint for the rescission of the aforesaid
Contracts to Sell docketed before the HLURB as HLURB
Case No. REM 072199-10567. Contending that they were
assured by petitioner and PPGI that the subject
condominium unit and parking space would be available for
turn-over and occupancy in December 1998, respondents
averred, among other matters, that in view of the noncompletion of the project according to said representation,
respondents instructed petitioner and PPGI to stop
depositing the post-dated checks they issued and to cancel
said Contracts to Sell; and, that despite several demands,
petitioner and PPGI have failed and refused to refund
the P611,519.52 they already paid under the
circumstances. Together with the refund of said amount and
interests thereon at the rate of 12% per annum, respondents
prayed for the grant of their claims for moral and exemplary
damages as well as attorneys fees and the costs.[10]
113

Specifically denying the material allegations of the

foregoing complaint, PPGI filed its 7 September 1999
answer alleging that the delay in the completion of the
project was attributable to the economic crisis which
affected the country at the time; that the unexpected and
unforeseen inflation as well as increase in interest rates and
cost of building materials constitute force majeure and were
beyond its control; that aware of its responsibilities, it
offered several alternatives to its buyers like respondents for
a transfer of their investment to its other feasible projects
and for the amounts they already paid to be considered as
partial payment for the replacement unit/s; and, that the
complaint was prematurely filed in view of the on-going
negotiations it is undertaking with its buyers and prospective
joint venture partners. Aside from the dismissal of the
complaint, PPGI sought the readjustment of the contract
price and the grant of its counterclaims for attorneys fees
and litigation expenses.[11]
Petitioner also specifically denied the material allegations
of the complaint in separate answer dated 5 February
2002[12] which it amended on 20 May 2002. Calling attention
to the fact that its prestation under the JVA consisted in
contributing the property on which The Meditel was to be
constructed, petitioner asseverated that, by the terms of the
JVA, each party was individually responsible for the
marketing and sale of the units pertaining to its share; that
not being privy to the Contracts to Sell executed by PPGI
and respondents, it did not receive any portion of the
payments made by the latter; and, that without any
contributory fault and negligence on its part, PPGI breached

its undertakings under the JVA by failing to complete the

condominium project. In addition to the dismissal of the
complaint and the grant of its counterclaims for exemplary
damages, attorneys fees, litigation expenses and the costs,
petitioner interposed a cross-claim against PPGI for full
reimbursement of any sum it may be adjudged liable to pay
respondents.[13]
Acting on the position papers and draft decisions
subsequently submitted by the parties,[14] Housing and Land
Use (HLU) Arbiter Dunstan T. San Vicente went on to
render the 30 July 2003 decision declaring the subject
Contracts to Sell cancelled and rescinded on account of the
non-completion of the condominium project. On the ground
that the JVA created a partnership liability on their part,
petitioner and PPGI, as co-owners of the condominium
project, were ordered to pay: (a) respondents claim for
refund of the P611,519.52 they paid, with interest at the rate
of 12% per annum from 5 February 1997; (b) damages in the
sum of P75,000.00; (c) attorneys fees in the sum
of P30,000.00; (d) the costs; and, (e) an administrative fine
in the sum of P10,000.00 for violation of Sec. 20 in relation
to Sec. 38 of Presidential Decree No. 957. [15] Elevated to the
HLURB Board of Commissioners via the petition for review
filed by petitioner,[16] the foregoing decision was modified to
grant the latters cross-claim in the 14 September 2004
decision rendered by said administrative bodys Second
Division in HLURB Case No. REM-A-031007-0240,[17] to
wit:
Wherefore, the petition for review of the respondent
Corporation is dismissed. However, the decision of
114

the Office below dated July 30, 2003 is modified, hence,

its dispositive
portion shall read:
1. Declaring the contracts to sell,
both dated February 5, 1997, as
cancelled and rescinded, and
ordering the respondents to
immediately pay the
complainants the following:
a.
The amount
of P611,519.52, with
interest at the legal rate
reckoned from February
5, 1997 until fully paid;
b.
Damages
of P75,000.00;
c.
Attorneys fees
equivalent to P30,000.00;
and
d.
The Cost of suit;
2. Ordering respondents to pay
this Office administrative
fine of P10,000.00 for
violation of Section 20 in
relation to Section 38 of
P.D. 957; and
3. Ordering respondent Primetown
to reimburse the entire amount
which the respondent
Corporation will be
constrained to pay the
complainants.

So ordered.[18]
With the denial of its MR of the foregoing decision,
[19]
petitioner filed a Notice of Appeal dated 28 February
2005 which was docketed before the Office of the President
(OP) as O.P. Case No. 05-B-072.[20] On 3 March 2005, the
OP issued an order directing petitioner to submit its appeal
memorandum within 15 days from receipt thereof.[21] Acting
on the motion therefor filed, the OP also issued another
order on the same date, granting petitioner a period of 15
days from 28 February 2005 or until 15 March 2005 within
which to file its appeal memorandum.[22] In view of
petitioners filing of a second motion for extension dated 15
March 2005,[23] the OP issued the 18 March 2005 order
granting the former an additional 10 days from 15 March
2005 or until 25 March 2005 within which to file its appeal
memorandum, provided no further extension shall be
allowed.[24] Claiming to have received the aforesaid 3 March
2005 order only on 16 March 2005, however, petitioner filed
its 31 March 2005 motion seeking yet another extension of
10 days or until 10 April 2005 within which to file its appeal
memorandum.[25]
On 7 April 2005, respondents filed their opposition to the 31
March 2005 motion for extension of petitioner[26] which
eventually filed its appeal memorandum by registered mail
on 11 April 2005 in view of the fact that 10 April 2005 fell
on a Sunday.[27] On 25 October 2005, the OP rendered a
decision dismissing petitioners appeal on the ground that the
latters appeal memorandum was filed out of time and that
the HLURB Board committed no grave abuse of discretion
in rendering the appealed decision.[28] Aggrieved by the
115

denial of its motion for reconsideration of the foregoing

decision in the 3 March 2006 order issued by the OP,
[29]
petitioner filed before the CA its 29 March 2006 motion
for an extension of 15 days from 31 March 2006 or until 15
April 2006 within which to file its petition for review.
[30]
Accordingly, a non-extendible period of 15 days to file its
petition for review was granted petitioner in the 31 March
2006 resolution issued by the CA Third Division in CA-G.R,
SP No. 93841.[31]

Maintaining that 15 April 2006 fell on a Saturday and

that pressures of work prevented its counsel from finalizing
its petition for review, petitioner filed a motion on 17 April
2006, seeking for an additional time of 10 days or until 27
April 2006 within which to file said pleading.[32] Although
petitioner filed by registered mail a motion to admit its
attached petition for review on 19 April 2006,[33] the CA
issued the herein assailed 23 May 2006 resolution,
[34]
disposing of the formers pending motion for extension as
well as the petition itself in the following wise:
We resolve to DENY the second
extension motion and rule to DISMISS the
petition for being filed late.
Settled is that heavy workload is by no
means excusable If the failure of the petitioners
counsel to cope up with heavy workload should
be considered a valid justification to sidestep
the reglementary period, there would be no end

to litigations so long as counsel had not been

sufficiently diligent or experienced
Moreover, lawyers should not assume
that their motion for extension or postponement
will be granted the length of time they pray for
(Ramos vs. Dajoyag, 378 SCRA 229 [2002]).
SO ORDERED.[35]
Petitioners motion for reconsideration of the
foregoing resolution[36] was denied for lack of merit in the
CAs second assailed 9 August 2006 resolution,[37] hence, this
petition.
The Issues
Petitioner seeks the reversal of the assailed resolutions
on the following grounds, to wit:
I THE CA ERRED IN DISMISSING THE PETITION
ON MERE TECHNICALITY;
II. THE CA ERRED IN REFUSING TO
RESOLVE THE PETITION ON THE
MERITS THEREBY AFFIRMING THE
OFFICE OF THE PRESIDENTS
DECISION (A) DISMISSING JTICS
APPEAL ON A MERE
TECHNICALITY; (B) AFFIRMING
THE HLURB BOARDS DECISION
INSOFAR AS IT FOUND JTIC
SOLIDARILY LIABLE WITH
PRIMETOWN TO PAY SPOUSES ANG
116

DAMAGES, ATTORNEYS FEES AND

THE COST OF THE SUIT; AND (C)
AFFIRMING THE HLURB BOARDS
DECISION INSOFAR AS IT FAILED
TO AWARD JITC ITS
COUNTERCLAIMS AGAINST
SPOUSES ANG.[38]
The Courts Ruling
We find the petition bereft of merit.
While the dismissal of an appeal on purely technical
grounds is concededly frowned upon,[39] it bears
emphasizing that the procedural requirements of the rules on
appeal are not harmless and trivial technicalities that
litigants can just discard and disregard at will.[40] Neither
being a natural right nor a part of due process, the rule is
settled that the right to appeal is merely a statutory privilege
which may be exercised only in the manner and in
accordance with the provisions of the law.[41] The perfection
of an appeal in the manner and within the period prescribed
by law is, in fact, not only mandatory but jurisdictional.
[42]
Considering that they are requirements which cannot be
trifled with as mere technicality to suit the interest of a party,
[43]
failure to perfect an appeal in the prescribed manner has
the effect of rendering the judgment final and executory.[44]

Fealty to the foregoing principles impels us to discount the

error petitioner imputes against the CA for denying its
second motion for extension of time for lack of merit and

dismissing its petition for review for having been filed out of
time. Acting on the 29 March 2006 motion filed for the
purpose, after all, the CA had already granted petitioner an
inextendible period of 15 days from 31 March 2006 or until
15 April 2006 within which to file its petition for
review. Sec. 4, Rule 43 of the 1997 Rules of Civil
Procedure provides as follows:
Sec. 4. Period of appeal. The appeal shall be
taken within fifteen (15) days from notice of the
award, judgment, final order or resolution, or
from the date of its last publication, if
publication is required by law for its effectivity,
or of the denial of petitioners motion for new
trial or reconsideration duly filed in accordance
with the governing law of the court or agency a
quo. Only one (1) motion for reconsideration
shall be allowed.Upon proper motion and
payment of the full amount of the docket fee
before the expiration of the reglementary
period, the Court of Appeals may grant an
additional period of fifteen (15) days only
within which to file the petition for review. No
further extension shall be granted except for the
most compelling reason and in no case to
exceed fifteen (15) days. (Underscoring
supplied)
The record shows that, having been granted the 15-day
extension sought in its first motion, petitioner filed a second
motion for extension praying for an additional 10 days from
117

17 April 2006 within which to file its petition for review, on

the ground that pressures of work and the demands posed by
equally important cases prevented its counsel from finalizing
the same. As correctly ruled by the CA, however, heavy
workload cannot be considered as a valid justification to
sidestep the reglementary period[45] since to do so would
only serve to encourage needless delays and interminable
litigations. Indeed, rules prescribing the time for doing
specific acts or for taking certain proceedings are considered
absolutely indispensable to prevent needless delays and to
orderly and promptly discharge judicial business.
[46]
Corollary to the principle that the allowance or denial of
a motion for extension of time is addressed to the sound
discretion of the court,[47] moreover, lawyers cannot expect
that their motions for extension or postponement will be
granted[48] as a matter of course.

Although technical rules of procedure are not ends in

themselves, they are necessary for an effective and
expeditious administration of justice and cannot, for said
reason, be discarded with the mere expediency of claiming
substantial merit.[49] This holds particularly true in the case at
bench where, prior to the filing of its petition for review
before the CA, petitioners appeal before the OP was likewise
dismissed in view of its failure to file its appeal
memorandum within the extensions of time it had been
granted by said office. After being granted an initial
extension of 15 days to do the same, the records disclose
that petitioner was granted by the OP a second extension of
10 days from 15 March 2005 or until 25 March 2005 within
which to file its appeal memorandum, on the condition that

no further extensions shall be allowed. Aside from not

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

With the foregoing procedural antecedents, the initial 15-day

extension granted by the CA and the injunction under Sec. 4,
Rule 43 of the 1997 Rules of Civil Procedure against further
extensions except for the most compelling reason, it was
clearly inexcusable for petitioner to expediently plead its
counsels heavy workload as ground for seeking an
additional extension of 10 days within which to file its
petition for review. To our mind, petitioner would do well to
remember that, rather than the low gate to which parties are
unreasonably required to stoop, procedural rules are
designed for the orderly conduct of proceedings and
expeditious settlement of cases in the courts of law. Like all
rules, they are required to be followed[50] and utter disregard
of the same cannot be expediently rationalized by harping on
the policy of liberal construction[51] which was never
intended as an unfettered license to disregard the letter of the
law or, for that matter, a convenient excuse to substitute
substantial compliance for regular adherence thereto. When
it comes to compliance with time rules, the Court cannot
afford inexcusable delay.[52]

Even prescinding from the foregoing procedural

considerations, we also find that the HLURB Arbiter and
Board correctly held petitioner liable alongside PPGI for
118

respondents claims and theP10,000.00 administrative fine

imposed pursuant to Section 20 in relation to Section 38 of
P.D. 957. By the express terms of the JVA, it appears that
petitioner not only retained ownership of the property
pending completion of the condominium project[53] but had
also bound itself to answer liabilities proceeding from
contracts entered into by PPGI with third parties. Article
VIII, Section 1 of the JVA distinctly provides as follows:
Sec. 1. Rescission and damages. Nonperformance by either party of its obligations
under this Agreement shall be excused when
the same is due to Force Majeure. In such
cases, the defaulting party must exercise due
diligence to minimize the breach and to remedy
the same at the soonest possible time. In the
event that either party defaults or breaches any
of the provisions of this Agreement other than
by reason of Force Majeure, the other party
shall have the right to terminate this Agreement
by giving notice to the defaulting party, without
prejudice to the filing of a civil case for
damages arising from the breach of the
defaulting party.
In the event that the Developer shall be
rendered unable to complete the Condominium
Project, and such failure is directly and solely
attributable to the Developer, the Owner shall
send written notice to the Developer to cause
the completion of the Condominium Project. If
the developer fails to comply within (180) days
from such notice or, within such time, indicates

its incapacity to complete the Project, the

Owner shall have the right to take over the
construction and cause the completion
thereof. If the Owner exercises its right to
complete the Condominium Project under these
circumstances, this Agreement shall be
automatically rescinded upon written notice to
the Developer and the latter shall hold the
former free and harmless from any and all
liabilities to third persons arising from such
rescission. In any case, the Owner shall respect
and strictly comply with any covenant entered
into by the Developer and third parties with
respect to any of its units in the Condominium
Project. To enable the owner to comply with
this contingent liability, the Developer shall
furnish the Owner with a copy of its contracts
with the said buyers on a month-to-month
basis. Finally, in case the Owner would be
constrained to assume the obligations of the
Developer to its own buyers, the Developer
shall lose its right to ask for indemnity for
whatever it may have spent in the Development
of the Project.
Nevertheless, with respect to the buyers of the
Developer for the First Phase, the area intended
for the Second Phase shall not be bound and/or
subjected to the said covenants and/or any other
liability incurred by the Developer in
connection with the development of the first
phase. (Underscoring supplied)
119

Viewed in the light of the foregoing provision of the JVA,

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

WHEREFORE, premises considered, the petition for review

is DENIED for lack of merit.

SO ORDERED.

14. Gatchalian v. Collector, 67 Phil 666 (1939)

G.R. No. L-45425

April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

vs. THE COLLECTOR OF INTERNAL
REVENUE, defendant-appellee.
Facts:
Plaintiffs (15 persons), in order to enable them to purchase
one sweepstakes ticket valued at two pesos (P2), subscribed
and paid each varied amounts aggregating 2 pesos.
The said ticket was registered in the name of Jose
Gatchalian and Company .
The above-mentioned ticket bearing No. 178637 won one of
the third prizes in the amount of 50, 000. Jose Gatchalian
was required to file the corresponding income tax return
covering the prize won by Jose Gatchalian & Company.
The CIR collected the tax under section 10 of Act No. 2833,
as last amended by section 2 of Act No. 3761, reading as
follows: "SEC. 10. (a) There shall be levied, assessed,
collected, and paid annually upon the total net income
received in the preceding calendar year from all sources by
every corporation, joint-stock company, partnership, joint
120

account , association or insurance company, organized in the

Philippine Islands, no matter how created / organized, but
not including duly registered general copartnerships, a tax
of 3% upon such income;

Having organized and constituted a partnership of a civil

nature, the 'said entity is the one bound to pay the income
tax which the defendant collected.

Issue: W/N the plaintiffs formed a partnership, or merely a

community of property without a personality of its own; Yes

IMPERIAL, J.:

in the first case it is admitted that the partnership thus

formed is liable for the payment of income tax, whereas if
there was merely a community of property, they are exempt
from such payment.
Ratio: There is no doubt that if the plaintiffs merely formed
a community of property the latter is exempt from the
payment of income tax under the law.
But according to the stipulated facts the plaintiffs organized
a partnership of a civil nature because each of them put up
money to buy a sweepstakes ticket for the sole purpose of
dividing equally the prize which they may win, as they did
in fact in the amount of P50,000 (article 1665, Civil Code).
The partnership was not only formed, but upon the
organization thereof and the winning of the prize, Gatchalian
personally appeared in the office of the Philippine Charity
Sweepstakes, in his capacity as copartner, as such collected
the prize, the office issued the check for P50,000 in favor of
Gatchalian and company, and the said partner, in the same
capacity, collected the said check. All these circumstances
repel the idea that the plaintiffs organized and formed a
community of property only.

The plaintiff brought this action to recover from the

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

P0.1
121

Gatchalian ...................................................................
8
.................................
2. Gregoria
Cristobal ..................................................................... .18
..........................
3. Saturnina
Silva ............................................................................ .08
........................
4. Guillermo
Tapia ........................................................................... .13
........................
5. Jesus
Legaspi ....................................................................... .15
...............................
6. Jose
Silva ............................................................................ .07
.................................
7. Tomasa
Mercado ...................................................................... .08
..........................
8. Julio
Gatchalian ................................................................... .13
................................
9. Emiliana
Santiago ...................................................................... .13
..........................
10. Maria C.
.16
Legaspi .......................................................................

........................
11. Francisco
Cabral ......................................................................... .13
......................
12. Gonzalo
Javier .......................................................................... .14
..........................
13. Maria
Santiago ...................................................................... .17
.............................
14. Buenaventura
Guzman ...................................................................... .13
................
15. Mariano
Santos ......................................................................... .14
........................
Total ............................................................................
2.00
............................
3. That immediately thereafter but prior to December
15, 1934, plaintiffs purchased, in the ordinary course
of business, from one of the duly authorized agents of
the National Charity Sweepstakes Office one ticket
bearing No. 178637 for the sum of two pesos (P2) and
that the said ticket was registered in the name of Jose
Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes
on December 15, 1934, the above-mentioned ticket
bearing No. 178637 won one of the third prizes in the
122

amount of P50,000 and that the corresponding check

covering the above-mentioned prize of P50,000 was
drawn by the National Charity Sweepstakes Office in
favor of Jose Gatchalian & Company against the
Philippine National Bank, which check was cashed
during the latter part of December, 1934 by Jose
Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was
required by income tax examiner Alfredo David to file
the corresponding income tax return covering the
prize won by Jose Gatchalian & Company and that on
December 29, 1934, the said return was signed by
Jose Gatchalian, a copy of which return is enclosed as
Exhibit A and made a part hereof;
6. That on January 8, 1935, the defendant made an
assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to the
deputy provincial treasurer of Pulilan, Bulacan, giving
to said Jose Gatchalian & Company until January 20,
1935 within which to pay the said amount of
P1,499.94, a copy of which letter marked Exhibit B is
enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through
their attorney, sent to defendant a reply, a copy of
which marked Exhibit C is attached and made a part
hereof, requesting exemption from payment of the
income tax to which reply there were enclosed fifteen
(15) separate individual income tax returns filed
separately by each one of the plaintiffs, copies of
which returns are attached and marked Exhibit D-1 to

D-15, respectively, in order of their names listed in the

caption of this case and made parts hereof; a
statement of sale signed by Jose Gatchalian showing
the amount put up by each of the plaintiffs to cover up
the attached and marked as Exhibit E and made a part
hereof; and a copy of the affidavit signed by Jose
Gatchalian dated December 29, 1934 is attached and
marked Exhibit F and made part thereof;
8. That the defendant in his letter dated January 28,
1935, a copy of which marked Exhibit G is enclosed,
denied plaintiffs' request of January 20, 1935, for
exemption from the payment of tax and reiterated his
demand for the payment of the sum of P1,499.94 as
income tax and gave plaintiffs until February 10, 1935
within which to pay the said tax;
9. That in view of the failure of the plaintiffs to pay
the amount of tax demanded by the defendant,
notwithstanding subsequent demand made by
defendant upon the plaintiffs through their attorney on
March 23, 1935, a copy of which marked Exhibit H is
enclosed, defendant on May 13, 1935 issued a warrant
of distraint and levy against the property of the
plaintiffs, a copy of which warrant marked Exhibit I is
enclosed and made a part hereof;
10. That to avoid embarrassment arising from the
embargo of the property of the plaintiffs, the said
plaintiffs on June 15, 1935, through Gregoria
Cristobal, Maria C. Legaspi and Jesus Legaspi, paid
under protest the sum of P601.51 as part of the tax
and penalties to the municipal treasurer of Pulilan,
123

Bulacan, as evidenced by official receipt No. 7454879

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

within five days the warrant of distraint and levy

issued against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and
embarrassment arising from the levy of their property,
the plaintiffs on August 28, 1936, through Jose
Gatchalian, Guillermo Tapia, Maria Santiago and
Emiliano Santiago, paid under protest to the
municipal treasurer of Pulilan, Bulacan the sum of
P1,260.93 representing the unpaid balance of the
income tax and penalties demanded by defendant as
evidenced by income tax receipt No. 35811 which is
attached and marked Exhibit N and made a part
hereof; and that on September 3, 1936, the plaintiffs
formally protested to the defendant against the
payment of said amount and requested the refund
thereof, copy of which is attached and marked Exhibit
O and made part hereof; but that on September 4,
1936, the defendant overruled the protest and denied
the refund thereof; copy of which is attached and
marked Exhibit P and made a part hereof; and
16. That plaintiffs demanded upon defendant the
refund of the total sum of one thousand eight hundred
and sixty three pesos and forty-four centavos
(P1,863.44) paid under protest by them but that
defendant refused and still refuses to refund the said
amount notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present
other and additional evidence if necessary.
Exhibit E referred to in the stipulation is of the following
tenor:
124

To whom it may concern:

...

I, Jose Gatchalian, a resident of Pulilan, Bulacan,

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

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

Purchaser

Amount Address

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

P0.14

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

.13

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

Pulilan,
Bulacan.
- Do - Do -

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

.14

- Do -

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

.13

- Do -

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

.16

- Do -

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

.13

- Do -

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

- Do -

.08

- Do -

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

- Do -

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

.13

- Do -

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

.08

- Do -

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

.18

- Do -

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

- Do -

2.00

Total cost
of said

ticket; and that, therefore, the persons named above

are entitled to the parts of whatever prize that might
be won by said ticket.
Pulilan, Bulacan, P.I.

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

- Do -

(Sgd.) JOSE GATCHALIAN

And a summary of Exhibits D-1 to D-15 is inserted in the
bill of exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL
INCOME TAX RETURNS FOR 1934 ALL DATED
125

JANUARY 19, 1935 SUBMITTED TO THE

COLLECTOR OF INTERNAL REVENUE.

Santiago ....................
..................

65

Net
priz
e

10. Maria C.
Legaspi ...................... D-10 .16
................

4,10
960
0

3,1
40

P0.18

P4,4
P 480
25

3,9
45

11. Francisco
Cabral ........................ D-11 .13
..............

3,32
360
5

2,9
65

.18

4,57
2,000
5

2,5
75

12. Gonzalo
Javier ......................... D-12 .14
.................

3,32
360
5

2,9
65

.08

1,87
360
5

1,5
15

13. Maria
Santiago .................... D-13 .17
......................

4,35
360
0

3,9
90

.13

3,32
360
5

2,9
65

14. Buenaventura
Guzman ..................... D-14 .13
......

3,32
360
5

2,9
65

5. Jesus Legaspi by
D-5
Maria Cristobal .........

.15

3,82
720
5

3,1
05

3,32
360
5

2,9
65

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

15. Mariano
Santos ........................ D-15 .14
................

.08

1,87
360
5

1,5
15

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

.07

1,87
360
5

1,5
15

8. Julio Gatchalian by
D-8
Beatriz Guzman .......

.13

3,15
240
0

2,9
10

9. Emiliana

.13

3,32 360

2,9

Name

Exhi Purch Pric

Expens
bit
ase
e
es
No. Price Won

1. Jose
Gatchalian ................. D-1
.........................
2. Gregoria
Cristobal .................... D-2
..................
3. Saturnina
Silva .......................... D-3
...................
4. Guillermo
Tapia ......................... D-4
.................

D-9

2.00

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126

none;
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The legal questions raised in plaintiffs-appellants' five
assigned errors may properly be reduced to the two
following: (1) Whether the plaintiffs formed a partnership,
or merely a community of property without a personality of
its own; in the first case it is admitted that the partnership
thus formed is liable for the payment of income tax, whereas
if there was merely a community of property, they are
exempt from such payment; and (2) whether they should pay
the tax collectively or whether the latter should be prorated
among them and paid individually.
The Collector of Internal Revenue collected the tax under
section 10 of Act No. 2833, as last amended by section 2 of
Act No. 3761, reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected,
and paid annually upon the total net income received
in the preceding calendar year from all sources by
every corporation, joint-stock company, partnership,
joint account (cuenta en participacion), association or
insurance company, organized in the Philippine
Islands, no matter how created or organized, but not
including duly registered general copartnership

(compaias colectivas), a tax of three per centum

upon such income; and a like tax shall be levied,
assessed, collected, and paid annually upon the total
net income received in the preceding calendar year
from all sources within the Philippine Islands by
every corporation, joint-stock company, partnership,
joint account (cuenta en participacion), association, or
insurance company organized, authorized, or existing
under the laws of any foreign country, including
interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or
otherwise: Provided, however, That nothing in this
section shall be construed as permitting the taxation of
the income derived from dividends or net profits on
which the normal tax has been paid.
The gain derived or loss sustained from the sale or
other disposition by a corporation, joint-stock
company, partnership, joint account (cuenta en
participacion), association, or insurance company, or
property, real, personal, or mixed, shall be ascertained
in accordance with subsections (c) and (d) of section
two of Act Numbered Two thousand eight hundred
and thirty-three, as amended by Act Numbered
Twenty-nine hundred and twenty-six.
The foregoing tax rate shall apply to the net income
received by every taxable corporation, joint-stock
company, partnership, joint account (cuenta en
participacion), association, or insurance company in
the calendar year nineteen hundred and twenty and in
each year thereafter.
127

There is no doubt that if the plaintiffs merely formed a

community of property the latter is exempt from the
payment of income tax under the law. But according to the
stipulation facts the plaintiffs organized a partnership of a
civil nature because each of them put up money to buy a
sweepstakes ticket for the sole purpose of dividing equally
the prize which they may win, as they did in fact in the
amount of P50,000 (article 1665, Civil Code). The
partnership was not only formed, but upon the organization
thereof and the winning of the prize, Jose Gatchalian
personally appeared in the office of the Philippines Charity
Sweepstakes, in his capacity as co-partner, as such collection
the prize, the office issued the check for P50,000 in favor of
Jose Gatchalian and company, and the said partner, in the
same capacity, collected the said check. All these
circumstances repel the idea that the plaintiffs organized and
formed a community of property only.
Having organized and constituted a partnership of a civil
nature, the said entity is the one bound to pay the income tax
which the defendant collected under the aforesaid section 10
(a) of Act No. 2833, as amended by section 2 of Act No.
3761. There is no merit in plaintiff's contention that the tax
should be prorated among them and paid individually,
resulting in their exemption from the tax.
In view of the foregoing, the appealed decision is affirmed,
with the costs of this instance to the plaintiffs appellants. So
ordered.
Avancea, C.J., Villa-Real, Diaz, Laurel, Concepcion and
Moran, JJ., concur.

15. Yulo v. Yang Chiao Seng, 106 Phil 110 (1959)

G.R. No. L-12541
August 28, 1959
ROSARIO U. YULO, assisted by her husband JOSE C.
YULO, plaintiffs-appellants, bvs. YANG CHIAO
SENG, defendant-appellee.
Contract of Lease
The record discloses that on June 17, 1945, defendant Seng
wrote a letter to the palintiff. Yulo, proposing the formation
of a partnership The principal conditions of the offer are (1)
that Seng guarantees Mrs. Yulo a monthly participation of
P3K
plaintiff accepted, the parties executed a partnership
agreement establishing the "Yang & Company, Limited,"
which was to exist from July 1, 1945 to December 31, 1947.
It will conduct and carry on the business of operating a
theatre.
The capital is fixed at P100,000, P80,000 of which is to be
furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. proportion as their capital contribution
128

In June , 1946, they executed a supplementary agreement,

extending the partnership for a period of 3 years beginning
January 1, 1948 to December 31, 1950.
The land on which the theatre was constructed was leased by
plaintiff Mrs. Yulo from the Santa Marinas. on April 5, 1948
- In the contract of lease it was stipulated that the lease shall
continue for an indefinite period of time, but that after 1 year
the lease may be cancelled by either party by written notice
to the other party at least 90 days before the date of
cancellation.
But on April 12, 1949, - notified Mrs. Yulo of the owner's
desire to cancel the contract of lease on July 31, 1949.
In view of the above notice, Mrs. Yulo and her husband
brought a civil action to the CFI of Manila on July 3, 1949
to declare the lease of the premises. On February 9, 1950,
the MTC rendered judgment ordering the ejectment of Mrs.
Yulo and Mr. Yang. The judgment was appealed. In the CFI,
the 2 cases were afterwards heard jointly, and judgment was
rendered dismissing the complaint of Mrs. Yulo and her
husband, and declaring the contract of lease of the premises
terminated as of July 31, 1949, and fixing the reasonable
monthly rentals of said premises at P100. Both parties
appealed from said decision and the CA, on April 30, 1955,
affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao
Seng her share in the profits of the business. Yang answered

the letter saying that upon the advice of his counsel he had
to suspend the payment (of the rentals) because of the
pendency of the ejectment suit by the owners of the land
against Mrs. Yulo. In this letter Yang alleges that inasmuch
as he is a sublessee and inasmuch as Mrs. Yulo has not paid
to the lessors the rentals from August, 1949, he was
retaining the rentals to make good to the landowners the
rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed
upon, Mrs. Yulo instituted this action alleging the existence
of a partnership and that the defendant Seng has refused to
pay her share from December, 1949 to December, xx, and
Plaintiff sought for damages and Attorney's fees.
In answer - alleges that the real agreement between the
plaintiff and the defendant was one of lease and not of
partnership; that the partnership was adopted as a subterfuge
to get around the prohibition contained in the contract of
lease between the owners and the plaintiff against the
sublease of the said property.
Issue: W/N the lower court erred in holding that the written
contracts between plaintiff and defendant, are one of lease
and not of partnership.
We fully agree with the conclusion of the trial court that the
agreement was a sublease, not a partnership. The following
are the requisites of partnership: (1) two or more persons
who bind themselves to contribute money, property, or
129

industry to a common fund; (2) intention on the part of the

partners to divide the profits among themselves. (Art. 1767,
Civil Code.).
1. plaintiff did not furnish the supposed P20,000 capital.
2. she did not furnish any help / intervention in the
management of the theatre.
3. does not appear that she has ever demanded from
defendant any accounting of the expenses and earnings of
the business.
Were she really a partner, her first concern should have been
to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct,
etc. She was absolutely silent with respect to any of the acts
that a partner should have done; all that she did was to
receive her share of P3,000 a month, which can not be
interpreted in any manner than a payment for the use of the
premises which she had leased from the owners.

as well as defendant's counterclaim. The appeal is

prosecuted by plaintiff.
The record discloses that on June 17, 1945, defendant Yang
Chiao Seng wrote a letter to the palintiff Mrs. Rosario U.
Yulo, proposing the formation of a partnership between them
to run and operate a theatre on the premises occupied by
defendant Cine Oro at Plaza Sta. Cruz, Manila. The principal
conditions of the offer are (1) that Yang Chiao Seng
guarantees Mrs. Yulo a monthly participation of P3,000
payable quarterly in advance within the first 15 days of each
quarter, (2) that the partnership shall be for a period of 2
years and 6 months, starting from July 1, 1945 to December
31, 1947, with the condition that if the land is expropriated
or rendered impracticable for the business, or if the owner
constructs a permanent building thereon, or Mrs. Yulo's right
of lease is terminated by the owner, then the partnership
shall be terminated even if the period for which the
partnership was agreed to be established has not yet expired;

Plaintiff's right having terminated in July, 1949 as found by

CA, the partnership agreement or the agreement for her to
receive a participation of P3,000 automatically ceased as of
said date.

(3) that Mrs. Yulo is authorized personally to conduct such

business in the lobby of the building as is ordinarily carried
on in lobbies of theatres in operation, provided the said
business may not obstruct the free ingress and agrees of
patrons of the theatre;

LABRADOR, J.: Appeal from the judgment of the CFI of

Manila, Hon. Tan, presiding, dismissing plaintiff's complaint

(4) that after December 31, 1947, all improvements placed

by the partnership shall belong to Mrs. Yulo, but if the
partnership agreement is terminated before the lapse of one
and a half years period under any of the causes mentioned in
130

paragraph (2), then Yang Chiao Seng shall have the right to
remove and take away all improvements that the partnership
may place in the premises.

at least 90 days before the date of cancellation. The last

contract was executed between the owners and Mrs. Yulo on
April 5, 1948.

Pursuant to the above offer, which plaintiff evidently

accepted, the parties executed a partnership agreement
establishing the "Yang & Company, Limited," which was to
exist from July 1, 1945 to December 31, 1947. It states that
it will conduct and carry on the business of operating a
theatre for the exhibition of motion and talking pictures. The
capital is fixed at P100,000, P80,000 of which is to be
furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo.
All gains and profits are to be distributed among the partners
in the same proportion as their capital contribution and the
liability of Mrs. Yulo, in case of loss, shall be limited to her
capital contribution (Exh. "B").

But on April 12, 1949, the attorney for the owners notified
Mrs. Yulo of the owner's desire to cancel the contract of
lease on July 31, 1949.

In June , 1946, they executed a supplementary agreement,

extending the partnership for a period of 3 years beginning
January 1, 1948 to December 31, 1950. The benefits are to
be divided between them at the rate of 50-50 and after
December 31, 1950, the showhouse building shall belong
exclusively to the second party, Mrs. Yulo.
The land on which the theatre was constructed was leased by
plaintiff Mrs. Yulo from Emilia Carrion Santa Marina and
Maria Carrion Santa Marina. In the contract of lease it was
stipulated that the lease shall continue for an indefinite
period of time, but that after 1 year the lease may be
cancelled by either party by written notice to the other party

In view of the above notice, Mrs. Yulo and her husband

brought a civil action to the CFI of Manila on July 3, 1949
to declare the lease of the premises. On February 9, 1950,
the MTC of Manila rendered judgment ordering the
ejectment of Mrs. Yulo and Mr. Yang. The judgment was
appealed. In the CFI, the 2 cases were afterwards heard
jointly, and judgment was rendered dismissing the complaint
of Mrs. Yulo and her husband, and declaring the contract of
lease of the premises terminated as of July 31, 1949, and
fixing the reasonable monthly rentals of said premises at
P100. Both parties appealed from said decision and the CA,
on April 30, 1955, affirmed the judgment.
On October 27, 1950, Mrs. Yulo demanded from Yang Chiao
Seng her share in the profits of the business. Yang answered
the letter saying that upon the advice of his counsel he had
to suspend the payment (of the rentals) because of the
pendency of the ejectment suit by the owners of the land
against Mrs. Yulo. In this letter Yang alleges that inasmuch
as he is a sublessee and inasmuch as Mrs. Yulo has not paid
to the lessors the rentals from August, 1949, he was
131

retaining the rentals to make good to the landowners the

rentals due from Mrs. Yulo in arrears (Exh. "E").
In view of the refusal of Yang to pay her the amount agreed
upon, Mrs. Yulo instituted this action on May 26, 1954,
alleging the existence of a partnership between them and
that the defendant Yang Chiao Seng has refused to pay her
share from December, 1949 to December, 1950; that after
December 31, 1950 the partnership between Mrs. Yulo and
Yang terminated, as a result of which, plaintiff became the
absolute owner of the building occupied by the Cine Astor;
that the reasonable rental that the defendant should pay
therefor from January, 1951 is P5,000; that the defendant has
acted maliciously and refuses to pay the participation of the
plaintiff in the profits of the business amounting to P35,000
from November, 1949 to October, 1950, and that as a result
of such bad faith and malice on the part of the defendant,
Mrs. Yulo has suffered damages in the amount of P160,000
and exemplary damages to the extent of P5,000. The prayer
includes a demand for the payment of the above sums plus
the sum of P10,000 for the attorney's fees.
In answer to the complaint, defendant alleges that the real
agreement between the plaintiff and the defendant was one
of lease and not of partnership; that the partnership was
adopted as a subterfuge to get around the prohibition
contained in the contract of lease between the owners and
the plaintiff against the sublease of the said property. As to
the other claims, he denies the same and alleges that the fair

rental value of the land is only P1,100. By way of

counterclaim he alleges that by reason of an attachment
issued against the properties of the defendant the latter has
suffered damages amounting to P100,000.
The first hearing was had on April 19, 1955, at which time
only the plaintiff appeared. The court heard evidence of the
plaintiff in the absence of the defendant and thereafter
rendered judgment ordering the defendant to pay to the
plaintiff P41,000 for her participation in the business up to
December, 1950; P5,000 as monthly rental for the use and
occupation of the building from January 1, 1951 until
defendant vacates the same, and P3,000 for the use and
occupation of the lobby from July 1, 1945 until defendant
vacates the property. This decision, however, was set aside
on a motion for reconsideration. In said motion it is claimed
that defendant failed to appear at the hearing because of his
honest belief that a joint petition for postponement filed by
both parties, in view of a possible amicable settlement,
would be granted; that in view of the decision of the CA in 2
previous cases between the owners of the land and the
plaintiff Rosario Yulo, the plaintiff has no right to claim the
alleged participation in the profit of the business, etc. The
court, finding the above motion, well-founded, set aside its
decision and a new trial was held. After trial the court
rendered the decision making the following findings: that it
is not true that a partnership was created between the
plaintiff and the defendant because defendant has not
actually contributed the sum mentioned in the Articles of
132

Partnership, or any other amount; that the real agreement

between the plaintiff and the defendant is not of the
partnership but one of the lease for the reason that under the
agreement the plaintiff did not share either in the profits or
in the losses of the business as required by Article 1769 of
the Civil Code; and that the fact that plaintiff was granted a
"guaranteed participation" in the profits also belies the
supposed existence of a partnership between them. It.
therefore, denied plaintiff's claim for damages or supposed
participation in the profits.
As to her claim for damages for the refusal of the defendant
to allow the use of the supposed lobby of the theatre, the
court after ocular inspection found that the said lobby was
very narrow space leading to the balcony of the theatre
which could not be used for business purposes under
existing ordinances of the City of Manila because it would
constitute a hazard and danger to the patrons of the theatre.
The court, therefore, dismissed the complaint; so did it
dismiss the defendant's counterclaim, on the ground that the
defendant failed to present sufficient evidence to sustain the
same. It is against this decision that the appeal has been
prosecuted by plaintiff to this Court.
The first assignment of error imputed to the trial court is its
order setting aside its former decision and allowing a new
trial. This assignment of error is without merit. As that
parties agreed to postpone the trial because of a probable
amicable settlement, the plaintiff could not take advantage

of defendant's absence at the time fixed for the hearing. The

lower court, therefore, did not err in setting aside its former
judgment. The final result of the hearing shown by the
decision indicates that the setting aside of the previous
decision was in the interest of justice.
In the second assignment of error plaintiff-appellant claims
that the lower court erred in not striking out the evidence
offered by the defendant-appellee to prove that the relation
between him and the plaintiff is one of the sublease and not
of partnership. The action of the lower court in admitting
evidence is justified by the express allegation in the
defendant's answer that the agreement set forth in the
complaint was one of lease and not of partnership, and that
the partnership formed was adopted in view of a prohibition
contained in plaintiff's lease against a sublease of the
property.
The most important issue raised in the appeal is that
contained in the fourth assignment of error, to the effect that
the lower court erred in holding that the written contracts,
Exhs. "A", "B", and "C, between plaintiff and defendant, are
one of lease and not of partnership. We have gone over the
evidence and we fully agree with the conclusion of the trial
court that the agreement was a sublease, not a partnership.
The following are the requisites of partnership: (1) two or
more persons who bind themselves to contribute money,
property, or industry to a common fund; (2) intention on the

133

part of the partners to divide the profits among themselves.

(Art. 1767, Civil Code.).
In the first place, plaintiff did not furnish the supposed
P20,000 capital. In the second place, she did not furnish any
help or intervention in the management of the theatre. In the
third place, it does not appear that she has ever demanded
from defendant any accounting of the expenses and earnings
of the business. Were she really a partner, her first concern
should have been to find out how the business was
progressing, whether the expenses were legitimate, whether
the earnings were correct, etc. She was absolutely silent with
respect to any of the acts that a partner should have done; all
that she did was to receive her share of P3,000 a month,
which can not be interpreted in any manner than a payment
for the use of the premises which she had leased from the
owners. Clearly, plaintiff had always acted in accordance
with the original letter of defendant of June 17, 1945 (Exh.
"A"), which shows that both parties considered this offer as
the real contract between them.

Plaintiff claims the sum of P41,000 as representing her share

or participation in the business from December, 1949. But
the original letter of the defendant, Exh. "A", expressly
states that the agreement between the plaintiff and the
defendant was to end upon the termination of the right of the
plaintiff to the lease. Plaintiff's right having terminated in
July, 1949 as found by CA, the partnership agreement or the
agreement for her to receive a participation of P3,000
automatically ceased as of said date.
We find no error in the judgment of the court below and we
affirm it in toto, with costs against plaintiff-appellant.

16. Pioneer Insurance & Surety Corp. v. Court of Appeals,

175 SCRA 668 (1989)
G.R. No. 84197 July 28, 1989
PIONEER INSURANCE & SURETY
CORPORATION, petitioner,
vs. THE HON. CA, BORDER MACHINERY & HEAVY
EQUIPMENT, INC., (BORMAHECO), CONSTANCIO M.
MAGLANA and JACOB S. LIM, respondents.
G.R. No. 84157 July 28, 1989
JACOB S. LIM, petitioner, vs.CA, PIONEER INSURANCE
AND SURETY CORPORATION, BORDER MACHINERY
and HEAVY EQUIPMENT CO., INC,, FRANCISCO and
134

MODESTO CERVANTES and CONSTANCIO

MAGLANA,respondents.

share in the losses and/or gains of the venture in proportion

to their contribution.

In 1965, Jacob S. Lim is an owner-operator of Southern

Airlines (SAL), a single proprietorship.

But in this case, it was shown that Lim did not have
the intent to form a corporation with Maglana et al. This can
be inferred from acts of unilaterally taking out a surety from
Pioneer Insurance and not using the funds he got from
Maglana et al. The record shows that Lim was acting on his
own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.

In 1965, Lim convinced Constancio Maglana, Modesto

Cervantes, Francisco Cervantes, and Border Machinery and
Heavy Equipment Company (BORMAHECO) to contribute
funds and to buy two aircrafts which would form part a
corporation which will be the expansion of Southern Air
Lines. Maglana et al then contributed and delivered money
to Lim.
But instead of using the money given to him to pay in full
the aircrafts, Lim, without the knowledge of Maglana et al,
made an agreement with Pioneer Insurance for the latter to
insure the two aircrafts which were brought in installment
from Japan Domestic Airlines (JDA) using said aircrafts as
security. So when Lim defaulted from paying JDA, the two
aircrafts were foreclosed by Pioneer Insurance.
It was established that no corporation was formally formed
between Lim and Maglana et al.
ISSUE:Whether or not there is a partnership between Lim
and Maglana, et al?
RULING:No. There was no de facto partnership.
Ordinarily, when co-investors agreed to do business
through a corporation but failed to incorporate, a de facto
partnership would have been formed, and as such, all must

GUTIERREZ, JR., J.:

The subject matter of these consolidated petitions is the
decision of the Court of Appeals in CA-G.R. CV No. 66195
which modified the decision of the then Court of First
Instance of Manila in Civil Case No. 66135. The plaintiffs
complaint (petitioner in G.R. No. 84197) against all
defendants (respondents in G.R. No. 84197) was dismissed
but in all other respects the trial court's decision was
affirmed.
The dispositive portion of the trial court's decision reads as
follows:
WHEREFORE, judgment is rendered against
defendant Jacob S. Lim requiring Lim to pay
plaintiff the amount of P311,056.02, with
interest at the rate of 12% per annum
compounded monthly; plus 15% of the amount
135

awarded to plaintiff as attorney's fees from July

2,1966, until full payment is made; plus
P70,000.00 moral and exemplary damages.
It is found in the records that the cross party
plaintiffs incurred additional miscellaneous
expenses aside from Pl51,000.00,,making a
total of P184,878.74. Defendant Jacob S. Lim is
further required to pay cross party plaintiff,
Bormaheco, the Cervanteses one-half and
Maglana the other half, the amount of
Pl84,878.74 with interest from the filing of the
cross-complaints until the amount is fully paid;
plus moral and exemplary damages in the
amount of P184,878.84 with interest from the
filing of the cross-complaints until the amount
is fully paid; plus moral and exemplary
damages in the amount of P50,000.00 for each
of the two Cervanteses.
Furthermore, he is required to pay P20,000.00
to Bormaheco and the Cervanteses, and another
P20,000.00 to Constancio B. Maglana as
attorney's fees.
xxx xxx xxx
WHEREFORE, in view of all above, the
complaint of plaintiff Pioneer against
defendants Bormaheco, the Cervanteses and

Constancio B. Maglana, is dismissed. Instead,

plaintiff is required to indemnify the defendants
Bormaheco and the Cervanteses the amount of
P20,000.00 as attorney's fees and the amount of
P4,379.21, per year from 1966 with legal rate
of interest up to the time it is paid.
Furthermore, the plaintiff is required to pay
Constancio B. Maglana the amount of
P20,000.00 as attorney's fees and costs.
No moral or exemplary damages is awarded
against plaintiff for this action was filed in good
faith. The fact that the properties of the
Bormaheco and the Cervanteses were attached
and that they were required to file a
counterbond in order to dissolve the
attachment, is not an act of bad faith. When a
man tries to protect his rights, he should not be
saddled with moral or exemplary damages.
Furthermore, the rights exercised were provided
for in the Rules of Court, and it was the court
that ordered it, in the exercise of its discretion.
No damage is decided against Malayan
Insurance Company, Inc., the third-party
defendant, for it only secured the attachment
prayed for by the plaintiff Pioneer. If an
insurance company would be liable for
damages in performing an act which is clearly
136

within its power and which is the reason for its

being, then nobody would engage in the
insurance business. No further claim or counterclaim for or against anybody is declared by this
Court. (Rollo - G.R. No. 24197, pp. 15-16)
In 1965, Jacob S. Lim (petitioner in G.R. No. 84157) was
engaged in the airline business as owner-operator of
Southern Air Lines (SAL) a single proprietorship.
On May 17, 1965, at Tokyo, Japan, Japan Domestic Airlines
(JDA) and Lim entered into and executed a sales contract
(Exhibit A) for the sale and purchase of two (2) DC-3A Type
aircrafts and one (1) set of necessary spare parts for the total
agreed price of US $109,000.00 to be paid in installments.
One DC-3 Aircraft with Registry No. PIC-718, arrived in
Manila on June 7,1965 while the other aircraft, arrived in
Manila on July 18,1965.
On May 22, 1965, Pioneer Insurance and Surety Corporation
(Pioneer, petitioner in G.R. No. 84197) as surety executed
and issued its Surety Bond No. 6639 (Exhibit C) in favor of
JDA, in behalf of its principal, Lim, for the balance price of
the aircrafts and spare parts.
It appears that Border Machinery and Heavy Equipment
Company, Inc. (Bormaheco), Francisco and Modesto
Cervantes (Cervanteses) and Constancio Maglana
(respondents in both petitions) contributed some funds used
in the purchase of the above aircrafts and spare parts. The

funds were supposed to be their contributions to a new

corporation proposed by Lim to expand his airline business.
They executed two (2) separate indemnity agreements
(Exhibits D-1 and D-2) in favor of Pioneer, one signed by
Maglana and the other jointly signed by Lim for SAL,
Bormaheco and the Cervanteses. The indemnity agreements
stipulated that the indemnitors principally agree and bind
themselves jointly and severally to indemnify and hold and
save harmless Pioneer from and against any/all damages,
losses, costs, damages, taxes, penalties, charges and
expenses of whatever kind and nature which Pioneer may
incur in consequence of having become surety upon the
bond/note and to pay, reimburse and make good to Pioneer,
its successors and assigns, all sums and amounts of money
which it or its representatives should or may pay or cause to
be paid or become liable to pay on them of whatever kind
and nature.
On June 10, 1965, Lim doing business under the name and
style of SAL executed in favor of Pioneer as deed of chattel
mortgage as security for the latter's suretyship in favor of the
former. It was stipulated therein that Lim transfer and
convey to the surety the two aircrafts. The deed (Exhibit D)
was duly registered with the Office of the Register of Deeds
of the City of Manila and with the Civil Aeronautics
Administration pursuant to the Chattel Mortgage Law and
the Civil Aeronautics Law (Republic Act No. 776),
respectively.
137

Lim defaulted on his subsequent installment payments

prompting JDA to request payments from the surety. Pioneer
paid a total sum of P298,626.12.
Pioneer then filed a petition for the extrajudicial foreclosure
of the said chattel mortgage before the Sheriff of Davao
City. The Cervanteses and Maglana, however, filed a third
party claim alleging that they are co-owners of the aircrafts,
On July 19, 1966, Pioneer filed an action for judicial
foreclosure with an application for a writ of preliminary
attachment against Lim and respondents, the Cervanteses,
Bormaheco and Maglana.
In their Answers, Maglana, Bormaheco and the Cervanteses
filed cross-claims against Lim alleging that they were not
privies to the contracts signed by Lim and, by way of
counterclaim, sought for damages for being exposed to
litigation and for recovery of the sums of money they
advanced to Lim for the purchase of the aircrafts in question.
After trial on the merits, a decision was rendered holding
Lim liable to pay Pioneer but dismissed Pioneer's complaint
against all other defendants.
As stated earlier, the appellate court modified the trial court's
decision in that the plaintiffs complaint against all the
defendants was dismissed. In all other respects the trial
court's decision was affirmed.

We first resolve G.R. No. 84197.

Petitioner Pioneer Insurance and Surety Corporation avers
that:
RESPONDENT COURT OF APPEALS
GRIEVOUSLY ERRED WHEN IT
DISMISSED THE APPEAL OF PETITIONER
ON THE SOLE GROUND THAT
PETITIONER HAD ALREADY COLLECTED
THE PROCEEDS OF THE REINSURANCE
ON ITS BOND IN FAVOR OF THE JDA AND
THAT IT CANNOT REPRESENT A
REINSURER TO RECOVER THE AMOUNT
FROM HEREIN PRIVATE RESPONDENTS
AS DEFENDANTS IN THE TRIAL COURT.
(Rollo - G. R. No. 84197, p. 10)
The petitioner questions the following findings of the
appellate court:
We find no merit in plaintiffs appeal. It is
undisputed that plaintiff Pioneer had reinsured
its risk of liability under the surety bond in
favor of JDA and subsequently collected the
proceeds of such reinsurance in the sum of
P295,000.00. Defendants' alleged obligation to
Pioneer amounts to P295,000.00, hence,
plaintiffs instant action for the recovery of the
amount of P298,666.28 from defendants will no
138

longer prosper. Plaintiff Pioneer is not the real

party in interest to institute the instant action as
it does not stand to be benefited or injured by
the judgment.
Plaintiff Pioneer's contention that it is
representing the reinsurer to recover the amount
from defendants, hence, it instituted the action
is utterly devoid of merit. Plaintiff did not even
present any evidence that it is the attorney-infact of the reinsurance company, authorized to
institute an action for and in behalf of the latter.
To qualify a person to be a real party in interest
in whose name an action must be prosecuted,
he must appear to be the present real owner of
the right sought to be enforced (Moran, Vol. I,
Comments on the Rules of Court, 1979 ed., p.
155). It has been held that the real party in
interest is the party who would be benefited or
injured by the judgment or the party entitled to
the avails of the suit (Salonga v. Warner Barnes
& Co., Ltd., 88 Phil. 125, 131). By real party in
interest is meant a present substantial interest as
distinguished from a mere expectancy or a
future, contingent, subordinate or consequential
interest (Garcia v. David, 67 Phil. 27; Oglleaby
v. Springfield Marine Bank, 52 N.E. 2d 1600,
385 III, 414; Flowers v. Germans, 1 NW 2d

424; Weber v. City of Cheye, 97 P. 2d 667, 669,

quoting 47 C.V. 35).
Based on the foregoing premises, plaintiff
Pioneer cannot be considered as the real party
in interest as it has already been paid by the
reinsurer the sum of P295,000.00 the bulk of
defendants' alleged obligation to Pioneer.
In addition to the said proceeds of the
reinsurance received by plaintiff Pioneer from
its reinsurer, the former was able to foreclose
extra-judicially one of the subject airplanes and
its spare engine, realizing the total amount of
P37,050.00 from the sale of the mortgaged
chattels. Adding the sum of P37,050.00, to the
proceeds of the reinsurance amounting to
P295,000.00, it is patent that plaintiff has been
overpaid in the amount of P33,383.72
considering that the total amount it had paid to
JDA totals to only P298,666.28. To allow
plaintiff Pioneer to recover from defendants the
amount in excess of P298,666.28 would be
tantamount to unjust enrichment as it has
already been paid by the reinsurance company
of the amount plaintiff has paid to JDA as
surety of defendant Lim vis-a-vis defendant
Lim's liability to JDA. Well settled is the rule
that no person should unjustly enrich himself at
139

the expense of another (Article 22, New Civil

Code). (Rollo-84197, pp. 24-25).
The petitioner contends that-(1) it is at a loss where
respondent court based its finding that petitioner was paid by
its reinsurer in the aforesaid amount, as this matter has never
been raised by any of the parties herein both in their answers
in the court below and in their respective briefs with
respondent court; (Rollo, p. 11) (2) even assuming
hypothetically that it was paid by its reinsurer, still none of
the respondents had any interest in the matter since the
reinsurance is strictly between the petitioner and the reinsurer pursuant to section 91 of the Insurance Code; (3)
pursuant to the indemnity agreements, the petitioner is
entitled to recover from respondents Bormaheco and
Maglana; and (4) the principle of unjust enrichment is not
applicable considering that whatever amount he would
recover from the co-indemnitor will be paid to the reinsurer.
The records belie the petitioner's contention that the issue on
the reinsurance money was never raised by the parties.
A cursory reading of the trial court's lengthy decision shows
that two of the issues threshed out were:
xxx xxx xxx

1. Has Pioneer a cause of action against

defendants with respect to so much of its
obligations to JDA as has been paid with
reinsurance money?
2. If the answer to the preceding question is in
the negative, has Pioneer still any claim against
defendants, considering the amount it has
realized from the sale of the mortgaged
properties? (Record on Appeal, p. 359, Annex B
of G.R. No. 84157).
In resolving these issues, the trial court made the following
findings:
It appearing that Pioneer reinsured its risk of
liability under the surety bond it had executed
in favor of JDA, collected the proceeds of such
reinsurance in the sum of P295,000, and paid
with the said amount the bulk of its alleged
liability to JDA under the said surety bond, it is
plain that on this score it no longer has any
right to collect to the extent of the said amount.
On the question of why it is Pioneer, instead of
the reinsurance (sic), that is suing defendants
for the amount paid to it by the reinsurers,
notwithstanding that the cause of action
pertains to the latter, Pioneer says: The
reinsurers opted instead that the Pioneer
140

Insurance & Surety Corporation shall pursue

alone the case.. . . . Pioneer Insurance & Surety
Corporation is representing the reinsurers to
recover the amount.' In other words, insofar as
the amount paid to it by the reinsurers Pioneer
is suing defendants as their attorney-in-fact.
But in the first place, there is not the slightest
indication in the complaint that Pioneer is suing
as attorney-in- fact of the reinsurers for any
amount. Lastly, and most important of all,
Pioneer has no right to institute and maintain in
its own name an action for the benefit of the
reinsurers. It is well-settled that an action
brought by an attorney-in-fact in his own name
instead of that of the principal will not prosper,
and this is so even where the name of the
principal is disclosed in the complaint.
Section 2 of Rule 3 of the Old
Rules of Court provides that
'Every action must be prosecuted
in the name of the real party in
interest.' This provision is
mandatory. The real party in
interest is the party who would be
benefitted or injured by the
judgment or is the party entitled to
the avails of the suit.

This Court has held in various

cases that an attorney-in-fact is not
a real party in interest, that there is
no law permitting an action to be
brought by an attorney-in-fact.
Arroyo v. Granada and Gentero, 18
Phil. Rep. 484; Luchauco v.
Limjuco and Gonzalo, 19 Phil.
Rep. 12; Filipinos Industrial
Corporation v. San Diego G.R. No.
L- 22347,1968, 23 SCRA 706,
710-714.
The total amount paid by Pioneer to JDA is
P299,666.29. Since Pioneer has collected
P295,000.00 from the reinsurers, the uninsured
portion of what it paid to JDA is the difference
between the two amounts, or P3,666.28. This is
the amount for which Pioneer may sue
defendants, assuming that the indemnity
agreement is still valid and effective. But since
the amount realized from the sale of the
mortgaged chattels are P35,000.00 for one of
the airplanes and P2,050.00 for a spare engine,
or a total of P37,050.00, Pioneer is still
overpaid by P33,383.72. Therefore, Pioneer has
no more claim against defendants. (Record on
Appeal, pp. 360-363).
141

The payment to the petitioner made by the reinsurers was

not disputed in the appellate court. Considering this admitted
payment, the only issue that cropped up was the effect of
payment made by the reinsurers to the petitioner. Therefore,
the petitioner's argument that the respondents had no interest
in the reinsurance contract as this is strictly between the
petitioner as insured and the reinsuring company pursuant to
Section 91 (should be Section 98) of the Insurance Code has
no basis.
In general a reinsurer, on payment of a loss
acquires the same rights by subrogation as are
acquired in similar cases where the original
insurer pays a loss (Universal Ins. Co. v. Old
Time Molasses Co. C.C.A. La., 46 F 2nd 925).
The rules of practice in actions on original
insurance policies are in general applicable to
actions or contracts of reinsurance. (Delaware,
Ins. Co. v. Pennsylvania Fire Ins. Co., 55 S.E.
330,126 GA. 380, 7 Ann. Con. 1134).
Hence the applicable law is Article 2207 of the new Civil
Code, to wit:
Art. 2207. If the plaintiffs property has been
insured, and he has received indemnity from the
insurance company for the injury or loss arising
out of the wrong or breach of contract
complained of, the insurance company shall be

subrogated to the rights of the insured against

the wrongdoer or the person who has violated
the contract. If the amount paid by the
insurance company does not fully cover the
injury or loss, the aggrieved party shall be
entitled to recover the deficiency from the
person causing the loss or injury.
Interpreting the aforesaid provision, we ruled in the case
of Phil. Air Lines, Inc. v. Heald Lumber Co. (101 Phil. 1031
[1957]) which we subsequently applied in Manila
Mahogany Manufacturing Corporation v. Court of
Appeals(154 SCRA 650 [1987]):
Note that if a property is insured and the owner
receives the indemnity from the insurer, it is
provided in said article that the insurer is
deemed subrogated to the rights of the insured
against the wrongdoer and if the amount paid
by the insurer does not fully cover the loss, then
the aggrieved party is the one entitled to
recover the deficiency. Evidently, under this
legal provision, the real party in interest with
regard to the portion of the indemnity paid is
the insurer and not the insured. (Emphasis
supplied).
It is clear from the records that Pioneer sued in its own name
and not as an attorney-in-fact of the reinsurer.
142

Accordingly, the appellate court did not commit a reversible

error in dismissing the petitioner's complaint as against the
respondents for the reason that the petitioner was not the real
party in interest in the complaint and, therefore, has no cause
of action against the respondents.
Nevertheless, the petitioner argues that the appeal as regards
the counter indemnitors should not have been dismissed on
the premise that the evidence on record shows that it is
entitled to recover from the counter indemnitors. It does not,
however, cite any grounds except its allegation that
respondent "Maglanas defense and evidence are certainly
incredible" (p. 12, Rollo) to back up its contention.
On the other hand, we find the trial court's findings on the
matter replete with evidence to substantiate its finding that
the counter-indemnitors are not liable to the petitioner. The
trial court stated:
Apart from the foregoing proposition, the
indemnity agreement ceased to be valid and
effective after the execution of the chattel
mortgage.
Testimonies of defendants Francisco Cervantes
and Modesto Cervantes.
Pioneer Insurance, knowing the value of the
aircrafts and the spare parts involved, agreed to
issue the bond provided that the same would be

mortgaged to it, but this was not possible

because the planes were still in Japan and could
not be mortgaged here in the Philippines. As
soon as the aircrafts were brought to the
Philippines, they would be mortgaged to
Pioneer Insurance to cover the bond, and this
indemnity agreement would be cancelled.
The following is averred under oath by Pioneer
in the original complaint:
The various conflicting claims
over the mortgaged properties
have impaired and rendered
insufficient the security under the
chattel mortgage and there is thus
no other sufficient security for the
claim sought to be enforced by this
action.
This is judicial admission and aside from the
chattel mortgage there is no other security for
the claim sought to be enforced by this action,
which necessarily means that the indemnity
agreement had ceased to have any force and
effect at the time this action was instituted. Sec
2, Rule 129, Revised Rules of Court.
Prescinding from the foregoing, Pioneer, having
foreclosed the chattel mortgage on the planes
143

and spare parts, no longer has any further action

against the defendants as indemnitors to recover
any unpaid balance of the price. The indemnity
agreement was ipso jure extinguished upon the
foreclosure of the chattel mortgage. These
defendants, as indemnitors, would be entitled to
be subrogated to the right of Pioneer should
they make payments to the latter. Articles 2067
and 2080 of the New Civil Code of the
Philippines.
Independently of the preceding proposition
Pioneer's election of the remedy of foreclosure
precludes any further action to recover any
unpaid balance of the price.
SAL or Lim, having failed to pay the second to
the eight and last installments to JDA and
Pioneer as surety having made of the payments
to JDA, the alternative remedies open to
Pioneer were as provided in Article 1484 of the
New Civil Code, known as the Recto Law.
Pioneer exercised the remedy of foreclosure of
the chattel mortgage both by extrajudicial
foreclosure and the instant suit. Such being the
case, as provided by the aforementioned
provisions, Pioneer shall have no further action
against the purchaser to recover any unpaid
balance and any agreement to the contrary is

void.' Cruz, et al. v. Filipinas Investment &

Finance Corp. No. L- 24772, May 27,1968, 23
SCRA 791, 795-6.
The operation of the foregoing provision cannot
be escaped from through the contention that
Pioneer is not the vendor but JDA. The reason
is that Pioneer is actually exercising the rights
of JDA as vendor, having subrogated it in such
rights. Nor may the application of the provision
be validly opposed on the ground that these
defendants and defendant Maglana are not the
vendee but indemnitors. Pascual, et al. v.
Universal Motors Corporation, G.R. No. L27862, Nov. 20,1974, 61 SCRA 124.
The restructuring of the obligations of SAL or
Lim, thru the change of their maturity dates
discharged these defendants from any liability
as alleged indemnitors. The change of the
maturity dates of the obligations of Lim, or
SAL extinguish the original obligations thru
novations thus discharging the indemnitors.
The principal hereof shall be paid
in eight equal successive three
months interval installments, the
first of which shall be due and
payable 25 August 1965, the
remainder of which ... shall be due
144

and payable on the 26th day x x x

of each succeeding three months
and the last of which shall be due
and payable 26th May 1967.
However, at the trial of this case, Pioneer
produced a memorandum executed by SAL or
Lim and JDA, modifying the maturity dates of
the obligations, as follows:
The principal hereof shall be paid
in eight equal successive three
month interval installments the
first of which shall be due and
payable 4 September 1965, the
remainder of which ... shall be due
and payable on the 4th day ... of
each succeeding months and the
last of which shall be due and
payable 4th June 1967.
Not only that, Pioneer also produced eight
purported promissory notes bearing maturity
dates different from that fixed in the aforesaid
memorandum; the due date of the first
installment appears as October 15, 1965, and
those of the rest of the installments, the 15th of
each succeeding three months, that of the last
installment being July 15, 1967.

These restructuring of the obligations with

regard to their maturity dates, effected twice,
were done without the knowledge, much less,
would have it believed that these defendants
Maglana (sic). Pioneer's official Numeriano
Carbonel would have it believed that these
defendants and defendant Maglana knew of and
consented to the modification of the
obligations. But if that were so, there would
have been the corresponding documents in the
form of a written notice to as well as written
conformity of these defendants, and there are
no such document. The consequence of this was
the extinguishment of the obligations and of the
surety bond secured by the indemnity
agreement which was thereby also
extinguished. Applicable by analogy are the
rulings of the Supreme Court in the case of
Kabankalan Sugar Co. v. Pacheco, 55 Phil. 553,
563, and the case of Asiatic Petroleum Co. v.
Hizon David, 45 Phil. 532, 538.
Art. 2079. An extension granted to
the debtor by the creditor without
the consent of the guarantor
extinguishes the guaranty The
mere failure on the part of the
creditor to demand payment after
the debt has become due does not
145

of itself constitute any extension

time referred to herein, (New Civil
Code).'
Manresa, 4th ed., Vol. 12, pp. 316-317, Vol. VI,
pp. 562-563, M.F. Stevenson & Co., Ltd., v.
Climacom et al. (C.A.) 36 O.G. 1571.
Pioneer's liability as surety to JDA had already
prescribed when Pioneer paid the same.
Consequently, Pioneer has no more cause of
action to recover from these defendants, as
supposed indemnitors, what it has paid to JDA.
By virtue of an express stipulation in the surety
bond, the failure of JDA to present its claim to
Pioneer within ten days from default of Lim or
SAL on every installment, released Pioneer
from liability from the claim.
Therefore, Pioneer is not entitled to exact
reimbursement from these defendants thru the
indemnity.
Art. 1318. Payment by a solidary
debtor shall not entitle him to
reimbursement from his co-debtors
if such payment is made after the
obligation has prescribed or
became illegal.

These defendants are entitled to recover

damages and attorney's fees from Pioneer and
its surety by reason of the filing of the instant
case against them and the attachment and
garnishment of their properties. The instant
action is clearly unfounded insofar as plaintiff
drags these defendants and defendant Maglana.'
(Record on Appeal, pp. 363-369, Rollo of G.R.
No. 84157).
We find no cogent reason to reverse or modify these
findings.
Hence, it is our conclusion that the petition in G.R. No.
84197 is not meritorious.
We now discuss the merits of G.R. No. 84157.
Petitioner Jacob S. Lim poses the following issues:
l. What legal rules govern the relationship
among co-investors whose agreement was to do
business through the corporate vehicle but who
failed to incorporate the entity in which they
had chosen to invest? How are the losses to be
treated in situations where their contributions to
the intended 'corporation' were invested not
through the corporate form? This Petition
presents these fundamental questions which we
146

believe were resolved erroneously by the Court

of Appeals ('CA'). (Rollo, p. 6).
These questions are premised on the petitioner's theory that
as a result of the failure of respondents Bormaheco, Spouses
Cervantes, Constancio Maglana and petitioner Lim to
incorporate, a de facto partnership among them was created,
and that as a consequence of such relationship all must share
in the losses and/or gains of the venture in proportion to
their contribution. The petitioner, therefore, questions the
appellate court's findings ordering him to reimburse certain
amounts given by the respondents to the petitioner as their
contributions to the intended corporation, to wit:
However, defendant Lim should be held liable
to pay his co-defendants' cross-claims in the
total amount of P184,878.74 as correctly found
by the trial court, with interest from the filing of
the cross-complaints until the amount is fully
paid. Defendant Lim should pay one-half of the
said amount to Bormaheco and the Cervanteses
and the other one-half to defendant Maglana. It
is established in the records that defendant Lim
had duly received the amount of Pl51,000.00
from defendants Bormaheco and Maglana
representing the latter's participation in the
ownership of the subject airplanes and spare
parts (Exhibit 58). In addition, the cross-party

plaintiffs incurred additional expenses, hence,

the total sum of P 184,878.74.
We first state the principles.
While it has been held that as between
themselves the rights of the stockholders in a
defectively incorporated association should be
governed by the supposed charter and the laws
of the state relating thereto and not by the rules
governing partners (Cannon v. Brush Electric
Co., 54 A. 121, 96 Md. 446, 94 Am. S.R. 584),
it is ordinarily held that persons who attempt,
but fail, to form a corporation and who carry on
business under the corporate name occupy the
position of partners inter se (Lynch v.
Perryman, 119 P. 229, 29 Okl. 615, Ann. Cas.
1913A 1065). Thus, where persons associate
themselves together under articles to purchase
property to carry on a business, and their
organization is so defective as to come short of
creating a corporation within the statute, they
become in legal effect partners inter se, and
their rights as members of the company to the
property acquired by the company will be
recognized (Smith v. Schoodoc Pond Packing
Co., 84 A. 268,109 Me. 555; Whipple v. Parker,
29 Mich. 369). So, where certain persons
associated themselves as a corporation for the
147

development of land for irrigation purposes,

and each conveyed land to the corporation, and
two of them contracted to pay a third the
difference in the proportionate value of the land
conveyed by him, and no stock was ever issued
in the corporation, it was treated as a trustee for
the associates in an action between them for an
accounting, and its capital stock was treated as
partnership assets, sold, and the proceeds
distributed among them in proportion to the
value of the property contributed by each
(Shorb v. Beaudry, 56 Cal. 446). However, such
a relation does not necessarily exist, for
ordinarily persons cannot be made to assume
the relation of partners, as between themselves,
when their purpose is that no partnership shall
exist (London Assur. Corp. v. Drennen, Minn.,
6 S.Ct. 442, 116 U.S. 461, 472, 29 L.Ed.
688), and it should be implied only when
necessary to do justice between the parties;
thus, one who takes no part except to subscribe
for stock in a proposed corporation which is
never legally formed does not become a partner
with other subscribers who engage in business
under the name of the pretended corporation,
so as to be liable as such in an action for
settlement of the alleged partnership and
contribution (Ward v. Brigham, 127 Mass. 24).
A partnership relation between certain

stockholders and other stockholders, who were

also directors, will not be implied in the
absence of an agreement, so as to make the
former liable to contribute for payment of debts
illegally contracted by the latter (Heald v.
Owen, 44 N.W. 210, 79 Iowa 23). (Corpus Juris
Secundum, Vol. 68, p. 464). (Italics supplied).
In the instant case, it is to be noted that the petitioner was
declared non-suited for his failure to appear during the
pretrial despite notification. In his answer, the petitioner
denied having received any amount from respondents
Bormaheco, the Cervanteses and Maglana. The trial court
and the appellate court, however, found through Exhibit 58,
that the petitioner received the amount of P151,000.00
representing the participation of Bormaheco and Atty.
Constancio B. Maglana in the ownership of the subject
airplanes and spare parts. The record shows that defendant
Maglana gave P75,000.00 to petitioner Jacob Lim thru the
Cervanteses.
It is therefore clear that the petitioner never had the intention
to form a corporation with the respondents despite his
representations to them. This gives credence to the crossclaims of the respondents to the effect that they were
induced and lured by the petitioner to make contributions to
a proposed corporation which was never formed because the
petitioner reneged on their agreement. Maglana alleged in
his cross-claim:
148

... that sometime in early 1965, Jacob Lim

proposed to Francisco Cervantes and Maglana
to expand his airline business. Lim was to
procure two DC-3's from Japan and secure the
necessary certificates of public convenience
and necessity as well as the required permits for
the operation thereof. Maglana sometime in
May 1965, gave Cervantes his share of
P75,000.00 for delivery to Lim which
Cervantes did and Lim acknowledged receipt
thereof. Cervantes, likewise, delivered his share
of the undertaking. Lim in an undertaking
sometime on or about August 9,1965, promised
to incorporate his airline in accordance with
their agreement and proceeded to acquire the
planes on his own account. Since then up to the
filing of this answer, Lim has refused, failed
and still refuses to set up the corporation or
return the money of Maglana. (Record on
Appeal, pp. 337-338).
while respondents Bormaheco and the Cervanteses alleged
in their answer, counterclaim, cross-claim and third party
complaint:
Sometime in April 1965, defendant Lim lured
and induced the answering defendants to
purchase two airplanes and spare parts from
Japan which the latter considered as their

lawful contribution and participation in the

proposed corporation to be known as SAL.
Arrangements and negotiations were
undertaken by defendant Lim. Down payments
were advanced by defendants Bormaheco and
the Cervanteses and Constancio Maglana (Exh.
E- 1). Contrary to the agreement among the
defendants, defendant Lim in connivance with
the plaintiff, signed and executed the alleged
chattel mortgage and surety bond agreement in
his personal capacity as the alleged proprietor
of the SAL. The answering defendants learned
for the first time of this trickery and
misrepresentation of the other, Jacob Lim,
when the herein plaintiff chattel mortgage (sic)
allegedly executed by defendant Lim, thereby
forcing them to file an adverse claim in the
form of third party claim. Notwithstanding
repeated oral demands made by defendants
Bormaheco and Cervanteses, to defendant Lim,
to surrender the possession of the two planes
and their accessories and or return the amount
advanced by the former amounting to an
aggregate sum of P 178,997.14 as evidenced by
a statement of accounts, the latter ignored,
omitted and refused to comply with them.
(Record on Appeal, pp. 341-342).

149

Applying therefore the principles of law earlier cited to the

facts of the case, necessarily, no de facto partnership was
created among the parties which would entitle the petitioner
to a reimbursement of the supposed losses of the proposed
corporation. The record shows that the petitioner was acting
on his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes and
spare parts.
WHEREFORE, the instant petitions are DISMISSED. The
questioned decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
17. Yu v. National Labor Relations Commission, 224 SCRA
75 (1993)
G.R. No. 97212 June 30, 1993 BENJAMIN YU, petitioner,
vs. NATIONAL LABOR RELATIONS COMMISSION and
JADE MOUNTAIN PRODUCTS COMPANY LIMITED,
WILLY CO, RHODORA D. BENDAL, LEA BENDAL,
CHIU SHIAN JENG and CHEN HO-FU, respondents.
FACTS: Benjamin Yu used to be the Assistant GM of Jade
Mountain, a partnership was originally organized on 28 June
1984 W/ Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang,
all citizens of the Republic of China (Taiwan), as limited
partners engaged in marble quarrying and export business.
The majority of the founding partners sold their interests in
said partnership to Willy Co and Emmanuel Zapanta without

Yus knowledge. Said new partnership continued operating

under the same name and continued the businesss
operations. However, it transferred its main office from
Makati to Mandaluyong. Said new partnership did not
anymore avail of the services of Yu. Thus, he filed a
complaint for illegal dismissal, recovery of unpaid wages
and damages. The partnership and Willy Co denied
petitioner's charges, contending in the main that Benjamin
Yu was never hired as an employee by the present or new
partnership.
ISSUES: 1. W/N the partnership which had hired petitioner
Yu as Assistant GM had been extinguished and replaced by
a new partnerships. 2. W/N petitioner Yu could nonetheless
assert his rights under his employment contract as against
the new partnership if indeed a new partnership had come
into existence.
HELD:1. Yes, the old partnership had been extinguished and
replaced by a new partnerships composed of Co and
Zapanta.
The legal effect of the changes in the membership of the
partnership was the dissolution of the old partnership
which had hired Yu in 1984 and the emergence of a new
firm composed of Co and Zapanta in 1987. The new
partnership simply took over the business enterprise
owned by the preceding partnership, and continued using
the old name of Jade Mountain Products Company
Limited, without winding up the business affairs of the
150

old partnership, paying off its debts, liquidating and

distributing its net assets, and then re-assembling the said
assets or most of them and opening a new business
enterprise. Not only the retiring partners but also the new
partnership itself which continued the business of the old,
dissolved, one, are liable for the debts of the preceding
partnership.
1. Yes, Yu could assert his rights under his employment
contract as against the new partnership.
Under Article 1840, creditors of the old Jade Mountain are
also creditors of the new Jade Mountain which continued the
business of the old one W/OUT liquidation of the
partnership affairs. Indeed, a C of the old Jade Mountain,
like petitioner Yu in respect of his claim for unpaid wages, is
entitled to priority vis--vis any claim of any retired or
previous partner insofar as such retired partner's interest in
the dissolved partnership is concerned. It is not necessary for
the Court to determine under which one or more of the
above (6) paragraphs, the case at bar would fall, if only
because the facts on record are not detailed with sufficient
precision to permit such determination. It is, however, clear
to the Court that under Article 1840, Benjamin Yu is entitled
to enforce his claim for unpaid salaries, as well as other
claims relating to his employment with the previous
partnership, against the new Jade Mountain
FELICIANO, J.:
Petitioner Benjamin Yu was formerly the Assistant General
Manager of the marble quarrying and export business
operated by a registered partnership with the firm name of

"Jade Mountain Products Company Limited" ("Jade

Mountain"). The partnership was originally organized on 28
June 1984 with Lea Bendal and Rhodora Bendal as general
partners and Chin Shian Jeng, Chen Ho-Fu and Yu Chang,
all citizens of the Republic of China (Taiwan), as limited
partners. The partnership business consisted of exploiting a
marble deposit found on land owned by the Sps. Ricardo and
Guillerma Cruz, situated in Bulacan Province, under a
Memorandum Agreement dated 26 June 1984 with the Cruz
spouses. 1 The partnership had its main office in Makati,
Metropolitan Manila.
Benjamin Yu was hired by virtue of a Partnership Resolution
dated 14 March 1985, as Assistant General Manager with a
monthly salary of P4,000.00. According to petitioner Yu,
however, he actually received only half of his stipulated
monthly salary, since he had accepted the promise of the
partners that the balance would be paid when the firm shall
have secured additional operating funds from abroad.
Benjamin Yu actually managed the operations and finances
of the business; he had overall supervision of the workers at
the marble quarry in Bulacan and took charge of the
preparation of papers relating to the exportation of the firm's
products.
Sometime in 1988, without the knowledge of Benjamin Yu,
the general partners Lea Bendal and Rhodora Bendal sold
and transferred their interests in the partnership to private
respondent Willy Co and to one Emmanuel Zapanta. Mr. Yu
151

Chang, a limited partner, also sold and transferred his

interest in the partnership to Willy Co. Between Mr.
Emmanuel Zapanta and himself, private respondent Willy
Co acquired the great bulk of the partnership interest. The
partnership now constituted solely by Willy Co and
Emmanuel Zapanta continued to use the old firm name of
Jade Mountain, though they moved the firm's main office
from Makati to Mandaluyong, Metropolitan Manila. A
Supplement to the Memorandum Agreement relating to the
operation of the marble quarry was entered into with the
Cruz spouses in February of 1988. 2 The actual operations of
the business enterprise continued as before. All the
employees of the partnership continued working in the
business, all, save petitioner Benjamin Yu as it turned out.
On 16 November 1987, having learned of the transfer of the
firm's main office from Makati to Mandaluyong, petitioner
Benjamin Yu reported to the Mandaluyong office for work
and there met private respondent Willy Co for the first time.
Petitioner was informed by Willy Co that the latter had
bought the business from the original partners and that it
was for him to decide whether or not he was responsible for
the obligations of the old partnership, including petitioner's
unpaid salaries. Petitioner was in fact not allowed to work
anymore in the Jade Mountain business enterprise. His
unpaid salaries remained unpaid. 3
On 21 December 1988. Benjamin Yu filed a complaint for
illegal dismissal and recovery of unpaid salaries accruing

from November 1984 to October 1988, moral and exemplary

damages and attorney's fees, against Jade Mountain, Mr.
Willy Co and the other private respondents. The partnership
and Willy Co denied petitioner's charges, contending in the
main that Benjamin Yu was never hired as an employee by
the present or new partnership. 4
In due time, Labor Arbiter Nieves Vivar-De Castro rendered
a decision holding that petitioner had been illegally
dismissed. The Labor Arbiter decreed his reinstatement and
awarded him his claim for unpaid salaries, backwages and
attorney's fees. 5
On appeal, the National Labor Relations Commission
("NLRC") reversed the decision of the Labor Arbiter and
dismissed petitioner's complaint in a Resolution dated 29
November 1990. The NLRC held that a new partnership
consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had
bought the Jade Mountain business, that the new partnership
had not retained petitioner Yu in his original position as
Assistant General Manager, and that there was no law
requiring the new partnership to absorb the employees of the
old partnership. Benjamin Yu, therefore, had not been
illegally dismissed by the new partnership which had simply
declined to retain him in his former managerial position or
any other position. Finally, the NLRC held that Benjamin
Yu's claim for unpaid wages should be asserted against the
original members of the preceding partnership, but these

152

though impleaded had, apparently, not been served with

summons in the proceedings before the Labor Arbiter. 6
Petitioner Benjamin Yu is now before the Court on a Petition
for Certiorari, asking us to set aside and annul the
Resolution of the NLRC as a product of grave abuse of
discretion amounting to lack or excess of jurisdiction.
The basic contention of petitioner is that the NLRC has
overlooked the principle that a partnership has a juridical
personality separate and distinct from that of each of its
members. Such independent legal personality subsists,
petitioner claims, notwithstanding changes in the identities
of the partners. Consequently, the employment contract
between Benjamin Yu and the partnership Jade Mountain
could not have been affected by changes in the latter's
membership. 7
Two (2) main issues are thus posed for our consideration in
the case at bar: (1) whether the partnership which had hired
petitioner Yu as Assistant General Manager had been
extinguished and replaced by a new partnerships composed
of Willy Co and Emmanuel Zapanta; and (2) if indeed a new
partnership had come into existence, whether petitioner Yu
could nonetheless assert his rights under his employment
contract as against the new partnership.
In respect of the first issue, we agree with the result reached
by the NLRC, that is, that the legal effect of the changes in
the membership of the partnership was the dissolution of the

old partnership which had hired petitioner in 1984 and the

emergence of a new firm composed of Willy Co and
Emmanuel Zapanta in 1987.
The applicable law in this connection of which the NLRC
seemed quite unaware is found in the Civil Code
provisions relating to partnerships. Article 1828 of the Civil
Code provides as follows:
Art. 1828. The dissolution of a partnership is
the change in the relation of the partners caused
by any partner ceasing to be associated in the
carrying on as distinguished from the winding
up of the business. (Emphasis supplied)
Article 1830 of the same Code must also be noted:
Art. 1830. Dissolution is caused:
(1) without violation of the agreement between
the partners;
xxx xxx xxx
(b) by the express will
of any partner, who
must act in good
faith, when no
definite term or
particular
153

undertaking is
specified;
xxx xxx xxx
(2) in contravention
of the agreement
between the partners,
where the
circumstances do not
permit a dissolution
under any other
provision of this
article, by the express
will of any partner at
any time;
xxx xxx xxx
(Emphasis supplied)
In the case at bar, just about all of the partners had sold their
partnership interests (amounting to 82% of the total
partnership interest) to Mr. Willy Co and Emmanuel
Zapanta. The record does not show what happened to the
remaining 18% of the original partnership interest. The
acquisition of 82% of the partnership interest by new
partners, coupled with the retirement or withdrawal of the
partners who had originally owned such 82% interest, was
enough to constitute a new partnership.

The occurrence of events which precipitate the legal

consequence of dissolution of a partnership do not, however,
automatically result in the termination of the legal
personality of the old partnership. Article 1829 of the Civil
Code states that:
[o]n dissolution the partnership is not
terminated, but continues until the winding up
of partnership affairs is completed.
In the ordinary course of events, the legal personality of the
expiring partnership persists for the limited purpose of
winding up and closing of the affairs of the partnership. In
the case at bar, it is important to underscore the fact that the
business of the old partnership was simply continued by the
new partners, without the old partnership undergoing the
procedures relating to dissolution and winding up of its
business affairs. In other words, the new partnership simply
took over the business enterprise owned by the preceeding
partnership, and continued using the old name of Jade
Mountain Products Company Limited, without winding up
the business affairs of the old partnership, paying off its
debts, liquidating and distributing its net assets, and then reassembling the said assets or most of them and opening a
new business enterprise. There were, no doubt, powerful tax
considerations which underlay such an informal approach to
business on the part of the retiring and the incoming
partners. It is not, however, necessary to inquire into such
matters.
154

What is important for present purposes is that, under the

above described situation, not only the retiring partners
(Rhodora Bendal, et al.) but also the new partnership itself
which continued the business of the old, dissolved, one, are
liable for the debts of the preceding partnership. In Singson,
et al. v. Isabela Saw Mill, et al, 8 the Court held that under
facts very similar to those in the case at bar, a withdrawing
partner remains liable to a third party creditor of the old
partnership. 9 The liability of the new partnership, upon the
other hand, in the set of circumstances obtaining in the case
at bar, is established in Article 1840 of the Civil Code which
reads as follows:
Art. 1840. In the following cases creditors of
the dissolved partnership are also creditors of
the person or partnership continuing the
business:
(1) When any new partner is admitted into an
existing partnership, or when any partner retires
and assigns (or the representative of the
deceased partner assigns) his rights in
partnership property to two or more of the
partners, or to one or more of the partners and
one or more third persons, if the business is
continued without liquidation of the
partnership affairs;
(2) When all but one partner retire and assign
(or the representative of a deceased partner

assigns) their rights in partnership property to

the remaining partner, who continues the
business without liquidation of partnership
affairs, either alone or with others;
(3) When any Partner retires or dies and the
business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this
Article, with the consent of the retired partners
or the representative of the deceased partner,
but without any assignment of his right in
partnership property;
(4) When all the partners or their
representatives assign their rights in
partnership property to one or more third
persons who promise to pay the debts and who
continue the business of the dissolved
partnership;
(5) When any partner wrongfully causes a
dissolution and remaining partners continue
the businessunder the provisions of article
1837, second paragraph, No. 2, either alone or
with others, andwithout liquidation of the
partnership affairs;
(6) When a partner is expelled and the
remaining partners continue the business either
155

alone or with others without liquidation of the

partnership affairs;
The liability of a third person becoming a
partner in the partnership continuing the
business, under this article, to the creditors of
the dissolved partnership shall be satisfied out
of the partnership property only, unless there is
a stipulation to the contrary.
When the business of a partnership after
dissolution is continued under any conditions
set forth in this article the creditors of the
retiring or deceased partner or the
representative of the deceased partner, have a
prior right to any claim of the retired partner or
the representative of the deceased partner
against the person or partnership continuing the
business on account of the retired or deceased
partner's interest in the dissolved partnership or
on account of any consideration promised for
such interest or for his right in partnership
property.
Nothing in this article shall be held to modify
any right of creditors to set assignment on the
ground of fraud.
xxx xxx xxx

(Emphasis supplied)
Under Article 1840 above, creditors of the old Jade
Mountain are also creditors of the new Jade Mountain which
continued the business of the old one without liquidation of
the partnership affairs. Indeed, a creditor of the old Jade
Mountain, like petitioner Benjamin Yu in respect of his
claim for unpaid wages, is entitled to priority vis-a-visany
claim of any retired or previous partner insofar as such
retired partner's interest in the dissolved partnership is
concerned. It is not necessary for the Court to determine
under which one or mare of the above six (6) paragraphs, the
case at bar would fall, if only because the facts on record are
not detailed with sufficient precision to permit such
determination. It is, however, clear to the Court that under
Article 1840 above, Benjamin Yu is entitled to enforce his
claim for unpaid salaries, as well as other claims relating to
his employment with the previous partnership, against the
new Jade Mountain.
It is at the same time also evident to the Court that the new
partnership was entitled to appoint and hire a new general or
assistant general manager to run the affairs of the business
enterprise take over. An assistant general manager belongs to
the most senior ranks of management and a new partnership
is entitled to appoint a top manager of its own choice and
confidence. The non-retention of Benjamin Yu as Assistant
General Manager did not therefore constitute unlawful
termination, or termination without just or authorized cause.
156

We think that the precise authorized cause for termination in

the case at bar was redundancy. 10 The new partnership had
its own new General Manager, apparently Mr. Willy Co, the
principal new owner himself, who personally ran the
business of Jade Mountain. Benjamin Yu's old position as
Assistant General Manager thus became superfluous or
redundant. 11 It follows that petitioner Benjamin Yu is
entitled to separation pay at the rate of one month's pay for
each year of service that he had rendered to the old
partnership, a fraction of at least six (6) months being
considered as a whole year.
While the new Jade Mountain was entitled to decline to
retain petitioner Benjamin Yu in its employ, we consider that
Benjamin Yu was very shabbily treated by the new
partnership. The old partnership certainly benefitted from
the services of Benjamin Yu who, as noted, previously ran
the whole marble quarrying, processing and exporting
enterprise. His work constituted value-added to the business
itself and therefore, the new partnership similarly benefitted
from the labors of Benjamin Yu. It is worthy of note that the
new partnership did not try to suggest that there was any
cause consisting of some blameworthy act or omission on
the part of Mr. Yu which compelled the new partnership to
terminate his services. Nonetheless, the new Jade Mountain
did not notify him of the change in ownership of the
business, the relocation of the main office of Jade Mountain
from Makati to Mandaluyong and the assumption by Mr.
Willy Co of control of operations. The treatment (including

the refusal to honor his claim for unpaid wages) accorded to

Assistant General Manager Benjamin Yu was so summary
and cavalier as to amount to arbitrary, bad faith treatment,
for which the new Jade Mountain may legitimately be
required to respond by paying moral damages. This Court,
exercising its discretion and in view of all the circumstances
of this case, believes that an indemnity for moral damages in
the amount of P20,000.00 is proper and reasonable.
In addition, we consider that petitioner Benjamin Yu is
entitled to interest at the legal rate of six percent (6%) per
annum on the amount of unpaid wages, and of his separation
pay, computed from the date of promulgation of the award
of the Labor Arbiter. Finally, because the new Jade
Mountain compelled Benjamin Yu to resort to litigation to
protect his rights in the premises, he is entitled to attorney's
fees in the amount of ten percent (10%) of the total amount
due from private respondent Jade Mountain.
WHEREFORE, for all the foregoing, the Petition
for Certiorari is GRANTED DUE COURSE, the Comment
filed by private respondents is treated as their Answer to the
Petition for Certiorari, and the Decision of the NLRC dated
29 November 1990 is hereby NULLIFIED and SET ASIDE.
A new Decision is hereby ENTERED requiring private
respondent Jade Mountain Products Company Limited to
pay to petitioner Benjamin Yu the following amounts:
(a) for unpaid wages which, as
found by the Labor Arbiter, shall
157

be computed at the rate of

P2,000.00 per month multiplied by
thirty-six (36) months (November
1984 to December 1987) in the
total amount of P72,000.00;
(b) separation pay computed at the
rate of P4,000.00 monthly pay
multiplied by three (3) years of
service or a total of P12,000.00;
(c) indemnity for moral damages
in the amount of P20,000.00;
(d) six percent (6%) per
annum legal interest computed on
items (a) and (b) above,
commencing on 26 December
1989 and until fully paid; and
(e) ten percent (10%) attorney's
fees on the total amount due from
private respondent Jade Mountain.
Costs against private respondents.
SO ORDERED.
A. OBLIGATIONS OF THE PARTNERS AMONG
THEMSELVES
(Civil Code: Articles 1784 to 1809

18. ISABELO MORAN, JR vs. THE HON. CA and

PECSON Oct. 31, 1984
G.R. No. L-59956 October 31, 1984
ISABELO MORAN, JR., petitioner, vs. THE HON. CA and
MARIANO E. PECSON, respondents.
Facts: Pecson and Moran entered into an agreement for the
printing of posters featuring the delegates of the 1971
Constitutional Convention. That 95k posters were supposed
to be printed and sold at P2/each and each would contribute
P15k. That Moran will supervise the work, while Pecson
would receive a P1k monthly commission. Pecson gave
Moran P10k for which the latter issued a receipt but only 2k
posters were printed, but each was sold for P5. Moran then
executed 2 promissory notes in favor of Pecson. Pecson then
filed an action for the recovery of a sum of money for the
return of his P10k contribution, payment of his share in the
profits that the partnership would have earned.
TC: each party is entitled to rescind the contract since both
failed to fulfill their respective promises. (Moran) the
printing of the 95k posters; Pecson (the P15k contribution)
CA: Moran must pay Pecson, among others, the amount of
expected profits and the latters commission in the
partnership

158

Issue: W/N Moran is obliged to give Pecson the amount of

expected profits from their partnership.
Held: No, he is not. Rule: 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) and for interests and
damages from the time he should have complied with his
obligations(Art. 1788)
Being a contract of partnership, each partner must share in
the profits and losses of the venture, for that is the essence of
partnership.
Even in the assurance of the other partner that they would
earn a huge amount of profits, in the absence of fraud, the
other cannot claim a right to recover the highly speculative
profits
In the present case, the fantastic nature of expected profits is
obvious that various factors need to be considered. The
failure of COMELEC to proclaim all 320 candidates of the
Constitutional Conventionon time was a major factor in
Morans decision not to go on with the printing of all 95,000
posters.
sc: ordering the Moran, Jr., to pay private respondent
Mariano Pecson (P6,000.00) representing the amount of the
private respondent's contribution to the partnership but
which remained unused; and (P3,000.00) PESOS
representing one half (1/2) of the net profits gained by the
partnership in the sale of the (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.

GUTIERREZ, JR.,
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
159

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
160

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.
161

We agree with the petitioner that the award of speculative

damages has no basis in fact and law.

The petitioner on the other hand admitted in his answer the

existence of the partnership.

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

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

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.

162

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.

163

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).
164

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
165

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?
166

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
one-half (1/2) of the P6,000.00
capital I gave to him.
Q As a consequence of the return
by Mr. Moran of one-half (1/2) of
the P6,000.00 capital you gave to
him, what happened to the
promised profit of P8,000.00?
A It was reduced to one-half (1/2)
which is P4,000.00.
Q Was there any document
executed by Mr. Moran in
167

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.
168

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
19.Rojas v. Maglana
[G.R. No. 30616 : December 10, 1990.]
192 SCRA 110
EUFRACIO D. ROJAS, Plaintiff-Appellant,
vs. CONSTANCIO B. MAGLANA,Defendant-Appellee.
19.Rojas v. Maglana
Facts: Maglana and Rojas executed their Articles of CoPartnership called Eastcoast Development Enterprises
(EDE). It was a partnership with an indefinite term of
existence. Maglana shall manage the business affairs while
Rojas shall be the logging superintendant and shall manage
169

the logging operation. They shall share in all profits and loss
equally.
Due to difficulties encountered they decided to avail of the
sources of Pahamatong as industrial partners. They again
executed their Articles of Co-Partnership under EDE. The
term is 30 years. After sometime Pamahatong sold his
interest to Maglana and Rojas including equipment
contributed. After withdrawal of Pamahatong, Maglana and
Rojas continued the partnership. After 3 months, Rojas
entered into a management contract with another logging
enterprise. He left and abandoned the partnership. He even
withdrew his equipment from the partnership and was
transferred to CMS. He never told Maglana that he will not
be able to comply with the promised contributions and he
will not work as logging superintendent. Maglana then told
Rojas that the Rojas' share will just be 20% of the net
profits. Rojas took funds from the partnership more than his
contribution. Thus, Maglana notified Rojas that he dissolved
the partnership.
Issue: What is the nature of the partnership and legal
relationship of Maglana and Rojas after Pahamatong
retired from the second partnership
Ruling:It was not the intention of the partners to dissolve
the first partnership, upon the constitution of the second one,
which they unmistakably called additional agreement.
Otherwise stated even during the existence of the second
partnership, all business transactions were carried out under
the duly registered articles. No rights and obligations
accrued in the name of the second partnership except in
favor of Pahamatong which was fully paid by the duly
registered partnership.

DECISION
PARAS, J.:
This is a direct appeal to this Court from a decision ** of
the then Court of First Instance of Davao, Seventh Judicial
District, Branch III, in Civil Case No. 3518, dismissing
appellant's complaint.
As found by the trial court, the antecedent facts of the case
are as follows:
On January 14, 1955, Maglana and Rojas executed their
Articles of Co-Partnership (Exhibit "A") called Eastcoast
Development Enterprises (EDE) with only the two of them
as partners. The partnership EDE with an indefinite term of
existence was duly registered on January 21, 1955 with the
Securities and Exchange Commission.
One of the purposes of the duly-registered partnership was
to "apply or secure timber and/or minor forests products
licenses and concessions over public and/or private forest
lands and to operate, develop and promote such forests
rights and concessions." (Rollo, p. 114).
A duly registered Articles of Co-Partnership was filed
together with an application for a timber concession
covering the area located at Cateel and Baganga, Davao with
the Bureau of Forestry which was approved and Timber
License No. 35-56 was duly issued and became the basis of
subsequent renewals made for and in behalf of the duly
registered partnership EDE.
Under the said Articles of Co-Partnership, appellee Maglana
shall manage the business affairs of the partnership,
170

including marketing and handling of cash and is authorized

to sign all papers and instruments relating to the partnership,
while appellant Rojas shall be the logging superintendent
and shall manage the logging operations of the partnership.
It is also provided in the said articles of co-partnership that
all profits and losses of the partnership shall be divided
share and share alike between the partners.
During the period from January 14, 1955 to April 30, 1956,
there was no operation of said partnership (Record on
Appeal [R.A.] p. 946).
Because of the difficulties encountered, Rojas and Maglana
decided to avail of the services of Pahamotang as industrial
partner.
On March 4, 1956, Maglana, Rojas and Agustin Pahamotang
executed their Articles of Co-Partnership (Exhibit "B" and
Exhibit "C") under the firm name EASTCOAST
DEVELOPMENT ENTERPRISES (EDE). Aside from the
slight difference in the purpose of the second partnership
which is to hold and secure renewal of timber license instead
of to secure the license as in the first partnership and the
term of the second partnership is fixed to thirty (30) years,
everything else is the same.
The partnership formed by Maglana, Pahamotang and Rojas
started operation on May 1, 1956, and was able to ship logs
and realize profits. An income was derived from the
proceeds of the logs in the sum of P643,633.07 (Decision,
R.A. 919).
On October 25, 1956, Pahamotang, Maglana and Rojas
executed a document entitled "CONDITIONAL SALE OF
INTEREST IN THE PARTNERSHIP, EASTCOAST
DEVELOPMENT ENTERPRISE" (Exhibits "C" and "D")

agreeing among themselves that Maglana and Rojas shall

purchase the interest, share and participation in the
Partnership of Pahamotang assessed in the amount of
P31,501.12. It was also agreed in the said instrument that
after payment of the sum of P31,501.12 to Pahamotang
including the amount of loan secured by Pahamotang in
favor of the partnership, the two (Maglana and Rojas) shall
become the owners of all equipment contributed by
Pahamotang and the EASTCOAST DEVELOPMENT
ENTERPRISES, the name also given to the second
partnership, be dissolved. Pahamotang was paid in fun on
August 31, 1957. No other rights and obligations accrued in
the name of the second partnership (R.A. 921).
After the withdrawal of Pahamotang, the partnership was
continued by Maglana and Rojas without the benefit of any
written agreement or reconstitution of their written Articles
of Partnership (Decision, R.A. 948).
On January 28, 1957, Rojas entered into a management
contract with another logging enterprise, the CMS Estate,
Inc. He left and abandoned the partnership (Decision, R.A.
947).
On February 4, 1957, Rojas withdrew his equipment from
the partnership for use in the newly acquired area (Decision,
R.A. 948).
The equipment withdrawn were his supposed contributions
to the first partnership and was transferred to CMS Estate,
Inc. by way of chattel mortgage (Decision, R.A. p. 948).
On March 17, 1957, Maglana wrote Rojas reminding the
latter of his obligation to contribute, either in cash or in
equipment, to the capital investments of the partnership as
171

well as his obligation to perform his duties as logging

superintendent.

the information furnished them by the parties, which were

compiled in three (3) volumes.

Two weeks after March 17, 1957, Rojas told Maglana that
he will not be able to comply with the promised
contributions and he will not work as logging
superintendent. Maglana then told Rojas that the latter's
share will just be 20% of the net profits. Such was the
sharing from 1957 to 1959 without complaint or dispute
(Decision, R.A. 949).: nad

On May 11, 1964, Maglana filed his motion for leave of

court to amend his answer with counterclaim, attaching
thereto the amended answer (Ibid., pp. 26-336), which was
granted on May 22, 1964 (Ibid., p. 336).

Meanwhile, Rojas took funds from the partnership more

than his contribution. Thus, in a letter dated February 21,
1961 (Exhibit "10") Maglana notified Rojas that he
dissolved the partnership (R.A. 949).
On April 7, 1961, Rojas filed an action before the Court of
First Instance of Davao against Maglana for the recovery of
properties, accounting, receivership and damages, docketed
as Civil Case No. 3518 (Record on Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied
(R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero
appointed commissioners to examine the long and
voluminous accounts of the Eastcoast Development
Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on
June 21, 1961 (Ibid., pp. 102-114) was denied by Judge
Romero for want of merit (Ibid., p. 125). Judge Romero also
required the inclusion of the entire year 1961 in the report to
be submitted by the commissioners (Ibid., pp. 138-143).
Accordingly, the commissioners started examining the
records and supporting papers of the partnership as well as

On May 27, 1964, Judge M.G. Reyes approved the

submitted Commissioners' Report (Ibid., p. 337).
On June 29, 1965, Rojas filed his motion for reconsideration
of the order dated May 27, 1964 approving the report of the
commissioners which was opposed by the appellee.
On September 19, 1964, appellant's motion for
reconsideration was denied (Ibid., pp. 446-451).
A mandatory pre-trial was conducted on September 8 and 9,
1964 and the following issues were agreed upon to be
submitted to the trial court:
(a) The nature of partnership and the legal relations of
Maglana and Rojas after the dissolution of the second
partnership;
(b) Their sharing basis: whether in proportion to their
contribution or share and share alike;
(c) The ownership of properties bought by Maglana in
his wife's name;
(d) The damages suffered and who should be liable
for them; and
(e) The legal effect of the letter dated February 23,
1961 of Maglana dissolving the partnership (Decision,
R.A. pp. 895-896).- nad
172

After trial, the lower court rendered its decision on March

11, 1968, the dispositive portion of which reads as follows:
"WHEREFORE, the above facts and issues duly
considered, judgment is hereby rendered by the Court
declaring that:
"1. The nature of the partnership and the legal
relations of Maglana and Rojas after Pahamotang
retired from the second partnership, that is, after
August 31, 1957, when Pahamotang was finally paid
his share the partnership of the defendant and the
plaintiff is one of a de facto and at will;
"2. Whether the sharing of partnership profits should
be on the basis of computation, that is the ratio and
proportion of their respective contributions, or on the
basis of share and share alike this covered by
actual contributions of the plaintiff and the defendant
and by their verbal agreement; that the sharing of
profits and losses is on the basis of actual
contributions; that from 1957 to 1959, the sharing is
on the basis of 80% for the defendant and 20% for the
plaintiff of the profits, but from 1960 to the date of
dissolution, February 23, 1961, the plaintiff's share
will be on the basis of his actual contribution and,
considering his indebtedness to the partnership, the
plaintiff is not entitled to any share in the profits of
the said partnership;
"3. As to whether the properties which were bought by
the defendant and placed in his or in his wife's name
were acquired with partnership funds or with funds of
the defendant and the Court declares that there is
no evidence that these properties were acquired by the

partnership funds, and therefore the same should not

belong to the partnership;
"4. As to whether damages were suffered and, if so,
how much, and who caused them and who should be
liable for them the Court declares that neither
parties is entitled to damages, for as already stated
above it is not a wise policy to place a price on the
right of a person to litigate and/or to come to Court
for the assertion of the rights they believe they are
entitled to;
"5. As to what is the legal effect of the letter of
defendant to the plaintiff dated February 23, 1961; did
it dissolve the partnership or not the Court declares
that the letter of the defendant to the plaintiff dated
February 23, 1961, in effect dissolved the partnership;
"6. Further, the Court relative to the canteen, which
sells foodstuffs, supplies, and other merchandise to
the laborers and employees of the Eastcoast
Development Enterprises, the COURT
DECLARES THE SAME AS NOT BELONGING TO
THE PARTNERSHIP;
"7. That the alleged sale of forest concession Exhibit
9-B, executed by Pablo Angeles David is VALID
AND BINDING UPON THE PARTIES AND
SHOULD BE CONSIDERED AS PART OF
MAGLANA'S CONTRIBUTION TO THE
PARTNERSHIP;
"8. Further, the Court orders and directs plaintiff
Rojas to pay or turn over to the partnership the
amount of P69,000.00 the profits he received from the
CMS Estate, Inc. operated by him;
173

"9. The claim that plaintiff Rojas should be ordered to

pay the further sum of P85,000.00 which according to
him he is still entitled to receive from the CMS Estate,
Inc. is hereby denied considering that it has not yet
been actually received, and further the receipt is
merely based upon an expectancy and/or still
speculative;
"10. The Court also directs and orders plaintiff Rojas
to pay the sum of P62,988.19 his personal account to
the partnership;
"11. The Court also credits the defendant the amount
of P85,000.00 the amount he should have received as
logging superintendent, and which was not paid to
him, and this should be considered as part of
Maglana's contribution likewise to the partnership;
and
"12. The complaint is hereby dismissed with costs
against the plaintiff.: rd
"SO ORDERED." Decision, Record on Appeal, pp.
985-989).
Rojas interposed the instant appeal.
The main issue in this case is the nature of the partnership
and legal relationship of the Maglana-Rojas after
Pahamotang retired from the second partnership.
The lower court is of the view that the second partnership
superseded the first, so that when the second partnership was
dissolved there was no written contract of co-partnership;
there was no reconstitution as provided for in the Maglana,
Rojas and Pahamotang partnership contract. Hence, the
partnership which was carried on by Rojas and Maglana

after the dissolution of the second partnership was a de facto

partnership and at will. It was considered as a partnership at
will because there was no term, express or implied; no
period was fixed, expressly or impliedly (Decision, R.A. pp.
962-963).
On the other hand, Rojas insists that the registered
partnership under the firm name of Eastcoast Development
Enterprises (EDE) evidenced by the Articles of CoPartnership dated January 14, 1955 (Exhibit "A") has not
been novated, superseded and/or dissolved by the
unregistered articles of co-partnership among appellant
Rojas, appellee Maglana and Agustin Pahamotang, dated
March 4, 1956 (Exhibit "C") and accordingly, the terms and
stipulations of said registered Articles of Co-Partnership
(Exhibit "A") should govern the relations between him and
Maglana. Upon withdrawal of Agustin Pahamotang from the
unregistered partnership (Exhibit "C"), the legally
constituted partnership EDE (Exhibit "A") continues to
govern the relations between them and it was legal error to
consider a de facto partnership between said two partners or
a partnership at will. Hence, the letter of appellee Maglana
dated February 23, 1961, did not legally dissolve the
registered partnership between them, being in contravention
of the partnership agreement agreed upon and stipulated in
their Articles of Co-Partnership (Exhibit "A"). Rather,
appellant is entitled to the rights enumerated in Article 1837
of the Civil Code and to the sharing profits between them of
"share and share alike" as stipulated in the registered
Articles of Co-Partnership (Exhibit "A").
After a careful study of the records as against the conflicting
claims of Rojas and Maglana, it appears evident that it was
not the intention of the partners to dissolve the first
174

partnership, upon the constitution of the second one, which

they unmistakably called an "Additional Agreement"
(Exhibit "9-B") (Brief for Defendant-Appellee, pp. 24-25).
Except for the fact that they took in one industrial partner;
gave him an equal share in the profits and fixed the term of
the second partnership to thirty (30) years, everything else
was the same. Thus, they adopted the same name,
EASTCOAST DEVELOPMENT ENTERPRISES, they
pursued the same purposes and the capital contributions of
Rojas and Maglana as stipulated in both partnerships call for
the same amounts. Just as important is the fact that all
subsequent renewals of Timber License No. 35-36 were
secured in favor of the First Partnership, the original
licensee. To all intents and purposes therefore, the First
Articles of Partnership were only amended, in the form of
Supplementary Articles of Co-Partnership (Exhibit "C")
which was never registered (Brief for Plaintiff-Appellant, p.
5). Otherwise stated, even during the existence of the second
partnership, all business transactions were carried out under
the duly registered articles. As found by the trial court, it is
an admitted fact that even up to now, there are still
subsisting obligations and contracts of the latter (Decision,
R.A. pp. 950-957). No rights and obligations accrued in the
name of the second partnership except in favor of
Pahamotang which was fully paid by the duly registered
partnership (Decision, R.A., pp. 919-921).

contributed by Pahamotang. Even more convincing, is the

fact that Maglana on March 17, 1957, wrote Rojas,
reminding the latter of his obligation to contribute either in
cash or in equipment, to the capital investment of the
partnership as well as his obligation to perform his duties as
logging superintendent. This reminder cannot refer to any
other but to the provisions of the duly registered Articles of
Co-Partnership. As earlier stated, Rojas replied that he will
not be able to comply with the promised contributions and
he will not work as logging superintendent. By such
statements, it is obvious that Roxas understood what
Maglana was referring to and left no room for doubt that
both considered themselves governed by the articles of the
duly registered partnership.

On the other hand, there is no dispute that the second

partnership was dissolved by common consent. Said
dissolution did not affect the first partnership which
continued to exist. Significantly, Maglana and Rojas agreed
to purchase the interest, share and participation in the second
partnership of Pahamotang and that thereafter, the two
(Maglana and Rojas) became the owners of equipment

Under Article 1830, par. 2 of the Civil Code, even if there is

a specified term, one partner can cause its dissolution by
expressly withdrawing even before the expiration of the
period, with or without justifiable cause. Of course, if the
cause is not justified or no cause was given, the withdrawing
partner is liable for damages but in no case can he be
compelled to remain in the firm. With his withdrawal, the

Under the circumstances, the relationship of Rojas and

Maglana after the withdrawal of Pahamotang can neither be
considered as a De Facto Partnership, nor a Partnership at
Will, for as stressed, there is an existing partnership, duly
registered.
As to the question of whether or not Maglana can
unilaterally dissolve the partnership in the case at bar, the
answer is in the affirmative.
Hence, as there are only two parties when Maglana notified
Rojas that he dissolved the partnership, it is in effect a notice
of withdrawal.

175

number of members is decreased, hence, the dissolution.

And in whatever way he may view the situation, the
conclusion is inevitable that Rojas and Maglana shall be
guided in the liquidation of the partnership by the provisions
of its duly registered Articles of Co-Partnership; that is, all
profits and losses of the partnership shall be divided "share
and share alike" between the partners.
But an accounting must first be made and which in fact was
ordered by the trial court and accomplished by the
commissioners appointed for the purpose.
On the basis of the Commissioners' Report, the
corresponding contribution of the partners from 1956-1961
are as follows: Eufracio Rojas who should have contributed
P158,158.00, contributed only P18,750.00 while Maglana
who should have contributed P160,984.00, contributed
P267,541.44 (Decision, R.A. p. 976). It is a settled rule that
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 (Article
1786, Civil Code) and for interests and damages from the
time he should have complied with his obligation (Article
1788, Civil Code) (Moran, Jr. v. Court of Appeals, 133
SCRA 94 [1984]). Being a contract of partnership, each
partner must share in the profits and losses of the venture.
That is the essence of a partnership (Ibid., p. 95).
Thus, as reported in the Commissioners' Report, Rojas is not
entitled to any profits. In their voluminous reports which
was approved by the trial court, they showed that on 50-50%
basis, Rojas will be liable in the amount of P131,166.00; on
80-20%, he will be liable for P40,092.96 and finally on the
basis of actual capital contribution, he will be liable for
P52,040.31.

Consequently, except as to the legal relationship of the

partners after the withdrawal of Pahamotang which is
unquestionably a continuation of the duly registered
partnership and the sharing of profits and losses which
should be on the basis of share and share alike as provided
for in the duly registered Articles of Co-Partnership, no
plausible reason could be found to disturb the findings and
conclusions of the trial court.: nad
As to whether Maglana is liable for damages because of
such withdrawal, it will be recalled that after the withdrawal
of Pahamotang, Rojas entered into a management contract
with another logging enterprise, the CMS Estate, Inc., a
company engaged in the same business as the partnership.
He withdrew his equipment, refused to contribute either in
cash or in equipment to the capital investment and to
perform his duties as logging superintendent, as stipulated in
their partnership agreement. The records also show that
Rojas not only abandoned the partnership but also took
funds in an amount more than his contribution (Decision,
R.A., p. 949).
In the given situation Maglana cannot be said to be in bad
faith nor can he be liable for damages.
PREMISES CONSIDERED, the assailed decision of the
Court of First Instance of Davao, Branch III, is hereby
MODIFIED in the sense that the duly registered partnership
of Eastcoast Development Enterprises continued to exist
until liquidated and that the sharing basis of the partners
should be on share and share alike as provided for in its
Articles of Partnership, in accordance with the computation
of the commissioners. We also hereby AFFIRM the decision
of the trial court in all other respects.: nad
SO ORDERED.
176

Melencio-Herrera, Sarmiento and Regalado, JJ., concur.

Padilla, J., took no part.

20. Aldecoa and Co. v. Warner, Barnes and Co., 30 Phil 153
(1910)
G.R. No. L-5242
August 6, 1910
ALDECOA &
CO., plaintiff-appellant, WARNER, BARNES & CO.,
LTD., defendant-appellee.
Facts: This litigation concerns the rendering of accounts
pertaining to the management of the business of a jointaccount partnership formed between the 2 litigants
companies.
through verbal agreement, a joint-account partnership was
established, whereby they should share equally the profits
and losses of the business of gathering and storing hemp in
Albay and selling it in Manila for exportation, and that the
commercial firm of Warner, Barnes and Co., Ltd., was the
manager of the said joint-account partnership.
With respect to the liquidation of the business, the
operations having been closed on December 31, 1903,
Warner, Barnes and Co., Ltd., the defendant, has not realized
upon the assets of the firm by selling the property which
constitutes its capital; that the persons who were the
managers and general partners of Warner, Barnes and Co.,
Ltd., and are the managers and directors of that firm in the

Philippine Islands and are the ones who, under the previous
firm name of Warner, Barnes and Co., admitted Aldecoa and
Co. as a participant in one-half of the said business, on the
1st day of December, 1898; that the said directors of the
defendant company, unlawfully, maliciously, and criminally
conspired with the persons who were managing the
commercial firm of Aldecoa and Co. during the years 1899,
1900, 1901, 1902, and 1903, to defraud the latter of its
interest in the said joint-account partnership for a total sum
of P86,500. Of the 12 allegations provided by plaintiff,
defendant Warner, Barnes and Co. admitted only the first
three. It denies all the other allegations contained in the said
paragraphs. For its first special defense, the defendant
alleges that during the period that the said joint-account
partnership existed, the manager thereof, the defendant,
rendered to the plaintiff just and true accounts of its
transaction as manager of the said partnership, which
accounts have been approved by the plaintiff, with the
exception of those relating to the year 1903. As its second
special defense, the defendant alleges that more than four
years have expired between the time the alleged right of
action accrued to the plaintiff and the date of the filing of the
complaint. For all the reasons set forth in this amended
answer, the defendant prayed that it be absolved from the
complaint, with the costs against the plaintiff.
Issues: W/N in the management of the said business,
fraudulent acts were committed to the plaintiff's injury.
W/N the partnership property should be included in the
liquidation of the said business and in the accounts
appertaining to the year 1903, when the existence of the
partnership came to an end.
177

Held: As to the first issue, it must be borne in mind that once

accounts have been approved which were rendered by the
managing firm of Warner, Barnes & Co., Ltd., the plaintiff,
Aldecoa & Co., is not entitled afterwards to claim a revision
of the same, unless it shows that there was fraud, deceit,
error, or mistake in the approval of the said accounts. Under
these hypothesis, Alcodea & Co. are strictly obliged to prove
the errors, omissions, and fraudulent acts attributed to the
defendant, in connection with the accounts already rendered,
and approved by them, in order that the same may be revised
in accordance with law and the jurisprudence of the courts.
Article 1265-1266 of the Civil Code provides that the
approval of an account does not prevent its subsequent
revision, or at least its correction, if it is proved in a
satisfactory manner that there was deceit and fraud or error
and omission in it. Whenever this firm shall succeed in
proving that there was error, omission, fraud, or deceit in
these accounts, they may be duly revised, according to the
law.
TORRES, J.:
By a complaint filed on September 26, 1907, the legal
representative of Aldecoa and Co., in liquidation, filed suit
in the CFI of Manila against Warner, Barnes and Co., Ltd.,
alleging in the 1ST 3 paragraphs of their complaint, as a
cause of action, that the plaintiff is a regular collective
mercantile association organized in accordance with the
laws of these islands, duly registered in the mercantile
registry, and at present in liquidation; that the defendant is a
joint stock mercantile firm organized in accordance with the
laws of England, registered in the mercantile registry of
Manila, and has done and is still doing business in these

Islands under the name of Warner, Barnes and Co., Ltd.,

which required the business that was conducted in these
Islands by Warner, Barnes and Co., the assets, liabilities, and
all the obligations of which were assumed by the defendant.
In other paragraphs of the complaint, from the fourth to the
twelfth, the plaintiff set forth that, prior to December 1,
1898, Warner, Barnes and Co. were conducting a business in
Albay, the principal object of which was the purchase of
hemp in the pueblos of Legaspi and Tobacco for the purpose
of bringing it to Manila, here to sell if for exportation, and
that on the said date of December 1, 1898, the plaintiff
company became interested in the said business of Warner,
Barnes and Co., in Albay and formed therewith a jointaccount partnership whereby Aldecoa and Co., were to share
equally in the gains and losses of the business in Albay; that
the defendant is the successor to all the rights and
obligations of Warner, Barnes and Co., among which is that
of being manager of the said joint-account partnership with
Aldecoa and Co.; that the defendant acted, and continues to
act as such manager, and is obliged to render accounts
supported by proofs, and to liquidate the business, which
defendant not only has not done, in spite of the demand
made upon it, but it has expressly denied the right of
plaintiff to examine the vouchers, contenting itself with
forwarding copies of the entries in its books, which entries
contain errors and omissions that hereinafter will be
mentioned.
178

Said entries moreover, whereas its operations should have

commenced and did commence on December 1, 1898, on
which date the joint-account partnership commenced; that,
with respect to the liquidation of the business, the operations
having been closed on December 31, 1903, Warner, Barnes
and Co., Ltd., the defendant, has not realized upon the assets
of the firm by selling the property which constitutes its
capital; that the persons who were the managers and general
partners of Warner, Barnes and Co., Ltd., and are the
managers and directors of that firm in the Philippine Islands
and are the ones who, under the previous firm name of
Warner, Barnes and Co., admitted Aldecoa and Co. as a
participant in one-half of the said business, on the 1st day of
December, 1898; that the said directors of the defendant
company, unlawfully, maliciously, and criminally conspired
with the persons who were managing the commercial firm of
Aldecoa and Co. during the years 1899, 1900, 1901, 1902,
and 1903, to defraud the latter of its interest in the said jointaccount partnership, buying the silence of the said managers
with respect to the operations of the joint-account
partnership during the time comprised between the 1st of
December, 1898, and the 30th of June, 1899, and also with
respect to the errors and omission in the accounts relating to
the second semester of 1899, and those relating to 1900,
1901, 1902, and 1903.
That the said fraudulent acts were not known to the partners
of the plaintiff firm until the managers, in collusion with the
managers of the defendant firm to defraud and injure the

plaintiff firm, had ceased to hold their positions, to wit, until

after the 31st of December, 1906, and that by reason of this
conspiracy to defraud the plaintiffs, the defendants have
been benefited; that the errors and omissions found in the
entries of the books kept by the defendant firm as manager
of the joint-account partnership are those expressed in
details here below:
(a) It appears that between the 10th of July and the 26th of
December, 1899, 43,934 piculs of hemp arrived in Manila
for the joint-account partnership, which were purchased in
Legaspi and Tobacco at 13 pesos per picul, and, after
charging against this hemp excessive expenses for
collection, storage, freight, fire, marine, and war insurance,
personnel, etc., the defendants, Warner, Barnes and Co., as
managers of the joint-account partnership and commission
agents of their joint-account partners, claim that they
purchased the said hemp for themselves, but do not give the
price received from the sale thereof and merely credit it at
13 pesos a picul, when the average market price at that time
was 16.50 pesos a picul; said defendants thereby injuring
plaintiffs to the amount of P76,884.50.
(b) Striking a balance from the amount of hemp debited and
that credited, there results a difference of 4,332.96 piculs not
credited which, at 24 pesos a picul, the market price at the
time, represents an injury to plaintiffs to the extent of
P51,995.52, the said deficit, with respect to the hemp,

179

pertaining to the period beginning with December 31, 1899,

in the manner shown by the following table:
Invoices & Cr. Dr.
Piculs Piculs
1899 Dec. 31 ....................................... 86,534.18
43,934
1900 Apr. 30 ...................................... 13,069.97
50,261.78
1900 Dec. 31 ...................................... 67,892.56
71,277
1901 Dec. 31 ...................................... 101,253.31
100,342
1902 Dec. 31 ...................................... 98,074.52
94,279.20
1903 Dec. 31 ...................................... 66,482.49
68,880.09 433,307.03
428,974.07 4,332.96
Lacking .............................................. 433,307.03
433,307.03
(c) In 1900, on April 30, Messrs. Warner, Barnes and Co.
Ltd., give credit for 5,485 piculs of hemp, at 16 pesos a
picul, when the market price at that time, according to

themselves, was P23.78; thereby injuring plaintiffs in the

sum of P21,350.36.
(d) In 1901, on the date of January 31, Messrs. Warner,
Barnes and Co., Ltd give credit for 4,600 piculs of hemp, at
8.93 pesos a picul, when, according to themselves, the
market price at that time was 11.50 pesos a picul; thereby
injuring plaintiffs in the sum of P5,911.
(e) One of the sources of profit of the joint-account
partnership between Aldecoa and Co. and Warner, Barnes
and Co., Ltd., was from the pressing of hemp, which profit
is to be credited to the partnership joint-accounts, when the
hemp is realized in Manila, and from this source there are
due to the plaintiffs P149,084.12, in which sum they have
been injured by the defendants. The said credit for pressing
is omitted from the books of Warner, Barnes and Co., Ltd.,
and should be entered as follows:
1899 ............................................. 21,968 bales, at
P1.25 ................................. P27,460 1900 to April
30 ......................... 25,130 bales, at
P1.25 ................................. 31,412.50 1900 May 10 to
Dec. 31 ............ 35,639 bales, at
P1.25 ................................. 44,548.75
1901.............................................. 50,151 bales, at
P1.25 ................................. 62,688.75 1902 to July
31 ........................... 26,825 bales, at
P1.25 ................................. 33,531.25
Aug. 1 to Dec. 31 ............. 20,314 bales, at
180

P1.75 ................................. 35,549.50

1903 ............................................. 34,440 bales, at
P1.75 ................................. 60,270
214,467
bales ................................................. 295,460.75 2,166
bales, lacking, at P1.25 2,707.50

1899 Dec. 31. For transfer account to cover business

this
semester without
statement .................................................. 16,100.57
1900 Feb. 28. As transferred account items noted page

216,633
bales .................................................. 298,168.25 20
loose.

114 daybook ..........................................................................

18,635.08

216,653 bales.

1900 Feb. 28. To cover war insurance,

January ................................................. 4,000

(f) Another error found in the books of Warner, Barnes, and

Co., Ltd., is in connection with the outstanding accounts,
which are debited in the sum of P52,510.36, while only
P2,769.24 are credited in the manner set out in the following
statement:
DR.
1899 July 31. W.B. and Co., Tobacco, transferred to
net
account their account sale 92.25 piculs hides
by
Kongsee ........................................................................
..... P1,149.46

1900 Feb. 28. To cover outstanding

accounts ................................................... 2,625.25
52,510.36
CR.
1900 Feb. 28. As transferred account items noted page
113 daybook ..........................................................................
2,769.24
There remain,
therefore .........................................................
49,741.12 of which one-half, that
181

is ...................................................... 24,870.56
belongs to the plaintiffs.
(g) In 1900, there is unduly included an item of net account
which should be stricken out, as it does not pertain to this
business. This item is the following:
1900
June 30. To Miguel Estela. For transfer made to his
account
of 5 per cent commission on his hemp, which should
not be paid according to
agreement ..................................... P870.75
Half of this sum, P435.37, must be credited to the plaintiffs.
(h) On the date of December 26, 1899, Messrs. Warner,
Barnes and Co., Ltd., deduct from the profits which they
show as belonging to Aldecoa and Co., the sum of P7,400,
under the appearance of the insurance premium, and they
delivered that sum to the plaintiffs' managers with whom
they conspired, for the purposes of the collusion alleged in
Paragraph VII of the complaint, in the manner failing to
observe the truth in their statement of the facts. Aldecoa and
Co., therefore, claim for themselves this amount, P7,400.
(i) On December 31, 1903, on a capital of P50,000 brought
in by Aldecoa and Co., and to whom it should bear 5 per

cent interest from the 8th of June, 1900, the interest is

unduly credited to the joint-account, thereby injuring the
plaintiffs in the sum of P8,750.
(j) On December 31, 1902, Aldecoa and Co. are charged
with six months' interest, amounting to P736.46, on a
balance debited against them for alleged losses, and on June
30, 1903, they are charged with P1,818.58 for a like reason.
These two items should be stricken out, because the
accounts when correctly made to show no losses, but profits.
By such debits the plaintiffs have been injured in the sum of
P1,277.52.
(k) In the entries corresponding to the years 1902 and 1903,
Warner, Barnes and Co., Ltd., give the price of "corriente
buena" (currect good), to the grade which, according to the
mark, was classified as "abaca superior" (superior hemp);
the price of "corriente ordinario" (current ordinary), to the
hemp marked under the classification of "corriente buena"
(current good); the price of "segunda superior" (second
superior), to what is "corriente" or "current," and so on
successively; whence results a difference of price to the
value of P233,102.18, in 1902, and P74,274.90, in 1903,
one-half of which differences should be credited to Aldecoa
and Co., that is P153,688.54.
(l) The value of the properties brought in by Warner, Barnes
and Co., Ltd., to the joint-account, instead of cash capital, is
omitted from the accounts. These properties are the
following:
182

Those purchased from Mariano Roisa, consisting of one

galvanized-iron-roofed warehouse, with hemp press; one
house of strong materials and the lot on which it stands, in
Tobacco, P12,000.
That purchased from Juana Roisa, which is one small
warehouse of strong materials, in Tobacco, worth about
P2,500.
Those purchased from D. Manuel Zalvidea situated in
Tobacco, which are: One warehouse of strong materials,
with press; another warehouse of strong materials; and two
houses of strong materials, together with the lots on which
they are built, P22,000.
Those purchased from D. Marcos Zubeldia, in Legaspi,
which are: Four warehouses with three hemp presses, and
one house of strong materials, with their corresponding lots,
P50,000.
Total cost, P86,500.
The complaint further sets forth that if the entries made by
the defendant in its books show in themselves the foregoing
errors and omissions, the plaintiff has good grounds for
believing that, if the vouchers were examined, still greater
errors would be found, as to which the plaintiff can not
formulate its claims with exactness until the defendant
renders it an account, accompanied by vouchers; that the
defendant, as manager of the joint-account partnership with

Alcodea & Co., neglected to comply with what is especially

prescribed in article 243 of the Code of Commerce, as a duty
to inherent to its position as manager of the joint-account
partnership, which is that of rendering an account with
vouchers, and that of liquidating the said business, for it
refuses to furnish the plaintiff the documents required for
their examination and verification, and also refuses to realize
the firm assets by selling the warehouses, houses, and other
property which constitute the capital; that, as the defendant
refuses to do the things above related, the plaintiff has no
other easy, expeditious and suitable remedy than to petition
the court for a writ of mandamus, wherefore it prays the
court to protect it in its rights and to issue the said
mandamus against the defendant, ordering it, within a date
set for this purpose, to render to the court an account,
accompanied by invoices, receipts, and vouchers of the
Albay business, beginning the said account as of December
1, 1898, the date on which the partnership was formed, and
correcting in it errors and omissions related in paragraph 9
of this complaint; that the defendant credit and pay to the
plaintiff the sums alleged in that paragraph to be due to the
plaintiff, with interest at the legal rate upon the sums of
omitted for the difference between the amounts incorrectly
debited and credited, from the respective dates on which
they should appear, if correctly entered; that after the said
accounts have been rendered and discussed, judgment be
entered for any balance which may appear in favor of the
plaintiff, including the sums claimed, and legal interest
thereon. The plaintiff also prays that the writ of mandamus
183

fix a term within which the defendant is to liquidate the

business, selling the properties aforementioned and
distributing the proceeds between both the litigants, and that
the defendant be adjudged liable for costs of suit, and
plaintiff be granted such other and further relief as may be
found just and equitable.
On November 11, 1907, the defendant filed a written answer
an counterclaim against the defendant, and, notwithstanding
the overruling of the demurrer filed by the latter to the
counterclaim, the court by writ of December 4, 1907,
ordered that the defendant should, within a period of five
days, make its allegations more specific with respect to
certain particulars mentioned in the order of the court, and
both parties being notified thereof, the defendant, on January
24, 1908 prayed the court to authorize it to file the attached
amended answer instead of the original one.
In the said amended answer the firm of Warner, Barnes &
Co. Ltd., the defendant, states that it denies each and every
one of the allegations of the complaint, with the exception of
those which are expressly admitted in its answer, and admit
the allegations of paragraphs 1, 2, and 3 of the complaint. In
answer to the allegations of paragraphs 4 to 12 of the
complaint, it admits that on June 30, 1899, a joint-account
partnership was formed between the plaintiff and the
defendant transactions of which were the purchase of hemp
in Legaspi and Tobacco, of which business one-half of the
results, whether losses or gains, appertained to the plaintiff.

Defendant also admits that the said business continued under

the management of the defendant company, as manager of
the said joint-account partnership, until December 31, 1903;
but it denies all the other allegations contained in the said
paragraphs. For its first special defense, the defendant
alleges that during the period that the said joint-account
partnership existed, the manager thereof, the defendant,
rendered to the plaintiff just and true accounts of its
transaction as manager of the said partnership, which
accounts have been approved by the plaintiff, with the
exception of those relating to the year 1903, and as to the
latter, that the same were objected to by plaintiff firm solely
upon the grounds mentioned in clause (k) of paragraph 9 of
the complaint, which objections are wholly unfounded. As
its second special defense, the defendant alleges that more
than four years have expired between the time the alleged
right of action accrued to the plaintiff and the date of the
filing of the complaint. For all the reasons set forth in this
amended answer, the defendant prayed that it be absolved
from the complaint, with the costs against the plaintiff.
On the subsequent to the 14th of August, 1908, the trial of
this cause was held and oral evidence was introduced by the
plaintiff, but no witnesses were offered by the defendant,
which finally moved for a dismissal of the case, and the
court, on December 26 of the same year, 1908, rendered
judgment, dismissing the complaint with respect to the
petition for the rendering of an account, verified by invoices,
receipts and vouchers, of the said Albay business, pertaining
184

to the period comprised from the beginning of the business

to the 31st of December, 1902, inclusive, assessing the costs
against the plaintiff, and opening the second period of the
trial with respect to the account for the whole year 1903, in
accordance with the ruling of the court made at the
commencement of the hearing. The plaintiff on being
notified of this judgment filed a written exception thereto
and announced his intention to forward through regular
channels a bill of exceptions, and by another writing moved
for a new trial on the ground that the evidence did not justify
the judgment rendered, which it alleged it was openly and
manifestly contrary to the weight of the evidence and to law.
This motion being denied, to which exception was taken by
the plaintiff, the latter duly filed a proper bill of exceptions
which was certified to and forwarded to this court, together
with all the documentary and oral evidence produced at the
trial.
This litigation concerns the rendering of accounts pertaining
to the management of the business of a joint-account
partnership formed between the two litigants companies.
Both the plaintiff and the defendant are in accord that,
through verbal agreement, the said partnership was
established, whereby they should share equally the profits
and losses of the business of gathering and storing hemp in
Albay and selling it in Manila for exportation, and that the
commercial firm of Warner, Barnes and Co., Ltd., was the
manager of the said joint-account partnership.

The disagreement between the parties consists in the

following points: First, as to the date when the partnership
was formed and began business in the province mentioned;
second, whether the managing firm did render accounts,
duly verified by vouchers, of its management from the date
of the organization of the partnership; third, whether errors
and omission, prejudicial to the plaintiff, Aldecoa and Co.,
exist in the partnership books and in its accounts, and
whether, in the management of the said business, fraudulent
acts were committed also to the plaintiff's injury; and,
fourth, whether the partnership property should be included
in the liquidation of the said business and in the accounts
appertaining to the year 1903, when the existence of the
partnership came to an end.
With respect to the date on which the said partnership began,
the plaintiff, Aldecoa and Co., submitted evidence
unrebutted by that of the defendant, Warner, Barnes and Co.,
Ltd., and although the latter averred that the joint-account
partnership began on June 30, 1899, denying that it was
commenced, or was formed, on December 1, 1898, as the
plaintiff says that it was, it is certain that the defendant has
not proved its averment; and if, on the opening of this
case de novo it shall not have done so within such period as
the court may see fit to determine, it will be proper to find in
accordance with the value of the evidence adduced by the
plaintiff and to advise the defendant to render, within a fixed
period, accounts, verified by vouchers, of the management
of the partnership business and pertaining to the seven
185

months from December 1, 1898, to June 29, 1899; and, in

view of the evidence adduced by the plaintiff in proof of the
aforesaid first point, if the defendant does not produce other
evidence in rebuttal, they must, for some reason, be
expressly rejected in the judgment, if they are not to be
taken into account in reaching the conclusions or in
considering the case upon the merits.
As regards the second point, we agree with the opinion
expressed by the lower court and find that the firm of
Warner, Barnes and Co., Ltd., did render accounts from June
30, 1899, to December 31, 1902, inasmuch as the very
evidence introduced by the plaintiff showed that the said
accounts had been rendered and were approved by it,
according to the context of its own letters of the dates of
July 27, 1907, and February 19, 1903. Therefore, the
plaintiff is in nowise entitled, and has no right of action to
compel the defendant to render the accounts pertaining to
that period, they having already been rendered and duly
approved.
It is a rule of law generally observed that he who takes
charge of the management of another's property is bound
immediately thereafter to render accounts covering his
transactions; and that it is always to be understood that all
accounts rendered must be duly substantiated by vouchers.
It is a fact admitted by both litigating parties that Warner,
Barnes and Co., Ltd., was the manager of the business of the
joint-account partnership formed between it and Aldecoa

and Co., it is unquestionable that it was and is the

defendant's duty to render accounts of the management of
the business, as it partially has done. Although the defendant
has not proved, as it should have done, that it complied with
its duty of rendering accounts of its management, since the
letters themselves exhibited by the plaintiff, and duly
authenticated as being written by the latter, prove that the
defendant did render accounts from June 30, 1899, to
December 31, 1902, no legal reason whatever exists for not
accepting the finding of the lower court which decided that
it had been proved that accounts were rendered pertaining to
the period mentioned and that the said accounts were
approved by the plaintiff.
The procedure of the plaintiff is truly inexplicable in
accepting and approving accounts that were rendered to it,
and which only begin with June 30, 1899, inasmuch as such
approval would appear to indicate that it agreed to the claim
made by the defendant that the partnership commenced on
the said date; but even so, once that it is proved that the
actual date on which the partnership was formed was
December 1, 1898, and that it is not shown that the
defendant has rendered accounts corresponding to the seven
months subsequent to the said date of December 1, the
acceptation and approval of accounts rendered since the 30th
of June 1899, does not excuse nor release the manager of the
partnership, the defendant, from complying with its
unquestionable duty of rendering accounts covering the
186

aforesaid seven months. The presumption must be sustained

until proof to the contrary is presented.
Moreover, the approval of accounts corresponding to the
years from June 30, 1899, to December 31, 1902, does not
imply that the said approved accounts comprise those
pertaining that the seven months mentioned, December 1,
1899, to June 29, 1899, because the defendant, the
accountant, denied that the partnership commenced on the
aforesaid date of December 1st, asserting it began on June
30, 1899; wherefore, on defendant's rendering those
accounts, it is to be presumed that it did so from the date
which it avers was that of the information of the partnership
and the beginning of the business, and it is therefore evident
that it has not rendered accounts pertaining to the seven
months mentioned.
With respect to the third point relative to whether errors and
omissions prejudicial to the plaintiff, Aldecoa & Co., exist in
the partnership books and in its accounts, and whether, in the
management of the said business, fraudulent acts were
committed to plaintiff's injury, it must be borne in mind that
once accounts have been approved which were rendered by
the managing firm of Warner, Barnes & Co., Ltd., the
plaintiff, Aldecoa & Co., is not entitled afterwards to claim a
revision of the same, unless it shows that there was fraud,
deceit, error, or mistake in the approval of the said accounts.
Under these hypothesis, Alcodea & Co. are strictly obliged
to prove the errors, omissions, and fraudulent acts attributed

to the defendant, in connection with the accounts already

rendered, and approved by them, in order that the same may
be revised in accordance with law and the jurisprudence of
the courts. (Pastor vs. Nicasio, 6 Phil. Rep., 152.)
The approval of an account does not prevent its subsequent
revision, or at least its correction, if it is proved in a
satisfactory manner that there was deceit and fraud or error
and omission in it. (Arts. 1265, 1266, Civil Code.)
Law 30, title 11, 5th Partida, provides, among other things,
the following:
That is precisely what we say should be observed, in
all other accounts that men make among themselves,
in connection with the things which belong to them.
Notwithstanding that they may acknowledge the
settlement of the accounts between them and promise
never to bring them up again, if it had be known in
truth that he who gave the account or had the things in
his keeping, concealed anything deceitfully, or
committed other fraud against those who have a share
in such thing, then neither the suit, nor such previous
status and promise shall avail; on the contrary, we say
that they may sue him to compel him to remedy the
deceit he committed against them, and to pay all the
damages and losses that have accrued to them by
reason thereof; provided, however, he especially shall
not have repaired the deceit that he committed.
187

So that it does not matter that the accounts pertaining to the

years comprised between the 30th of June, 1899, and the
31st of December, 1902, may have been approved by
Aldecoa & Co. Whenever this firm shall succeed in proving
that there was error, omission, fraud, or deceit in these
accounts, they may be duly revised, according to the law.
With regard to the last point in controversy, the defendant
agrees that the plaintiff has not yet approved the accounts
that the former rendered, pertaining to 1903, the last years of
the existence of the joint-account partnership; and, for this
reason, it was provided in the judgment appealed from that
the trial should continue with respect to the said accounts
corresponding to the year 1903, in order that the plaintiff
might take such objections and statements in regard to the
same as he deemed proper, and adduce the evidence
conducive to prove his claim, in accordance with law.
It is one of the duties of the manager of a joint-account
partnership, to liquidate the assets that form the common
property, and to state the result obtained therefrom in the
final rendering of the accounts which he is to present at the
conclusion of the partnership.
Article 243 of the Code of Commerce says;
The liquidation shall be effected by the manager, and
after the transactions have been concluded he shall
render a proper account of its results.

It is a recognized fact, and one admitted by both parties that

the partnership herein concerned concluded its transactions
on December 31, 1903; wherefore the firm of Warner,
Barnes & Co. Ltd., the manager of the partnership, in
declaring the latter's transactions concluded and in rendering
duly verified accounts of its results, owes the duty to include
therein the property and effects belonging to the partnership
in common. This rule was established by the supreme court
of Spain in applying a similar precept of the mercantile
code, in its decision on an appeal in causation of the 1st of
July, 1870, setting up the following doctrine:
In case of the liquidation of a company of this kind
(denominated joint-account partnership), inasmuch as
the sale of the firm assets is necessarily uncertain and
eventual, considering the greater or lesser selling price
that may be obtained from the property and effects
which comprise such assets, the price received should
be alloted in the same proportion as that fixed in the
contract for the division of the profits and losses, for
otherwise one of the partners would be benefited to
the detriment and loss of his copartners.
This doctrine is perfectly legal and in accord with justice, as
no person should enrich himself wrongfully at the expense
of another; and, in the case under review, should it be duly
and fully proved that the managing firm acquired realty in
the name and at the expense of the joint-account partnership
with the plaintiff firm, it is just that, in liquidating the
188

property of common ownership, such realty should be

divided between the partners in the same manner as were the
profits and losses during the existence of the business, from
the beginning of the partnership to the date of its dissolution.
By the facts herein above set forth, it has been shown that in
the present state of this cause resulting from the rendering of
the judgment appealed from, it has not been possible to
decide in a final manner the various issues brought up and
controverted by the litigants, for, though it be granted as
proved that the defendant firm, the manager of the said
partnership, has in fact rendered accounts pertaining to the
years from June 30, 1899, to December 31, 1902, as found
in the said judgment, there still remain to be decided the four
points or questions of fact before specified. Wherefore, and
in accordance with section 496 of the Code of Civil
Procedure, a new trial should be held For the purpose of a
final decision of all the questions involved in this litigation,
and accordingly the judgment appealed from is set aside and
this cause shall be returned to the court below, accompanied
by a certified copy of this decision, for the holding of a new
trial, for which purpose, first, the defendant shall be advised
that it must, within a fixed period, render an account,
verified by vouchers, of its management of the business of
the joint-account partnership with the plaintiff, pertaining to
the months from December 1, 1898, to June 29, 1899, and to
the twelve months of the year 1903, unless it shall prove in a
satisfactory manner that the said partnership began on June
30, 1899, contrary to the averment of the plaintiff supported

by evidence that it commenced on December 1, 1898, in

which case the said rendering of account shall be restricted
to the twelve months of the year 1903, in the accounts of
which last period must be included all the property that is
found to belong to the said partnership; second, in the
examination of the accounts that may be found to have been
rendered, the parties may allege and prove facts conducive
to their revision or approval besides availing themselves of
the evidence already adduced at trial; and, third, with respect
to the accounts corresponding to the period from June 30,
1899, to December 31, 1902, already approved, the trial
court shall be proceed in accordance with law, duly
considering the errors, omissions, mistakes and fraudulent or
deceitful acts that have been alleged or may specifically be
alleged in rejecting the said approved accounts, as well as
the evidence introduced by both parties, and it shall be
careful to decide in its final judgment all the issues raised
between the parties in the course of this litigation and to
provide such remedies as are proper in regard to their
respective claims. So ordered.
Johnson, Moreland and Trent, JJ., concur.

21. Antonio Lim v TANPUT

G.R. No. L-40098 August 29, 1975
ANTONIO LIM TANHU, DY OCHAY, ALFONSO
LEONARDO NG SUA and CO OYO, petitioners,
189

vs.HON. JOSE R. RAMOLETE as Presiding Judge, Branch

III, CFI, Cebu and TAN PUT, respondents.

of the Glory Commercial Company, defendants refused and

stated that they would not give the share of the plaintiff.

FACTS: Tan alleged that she is the widow of Tee Hoon Lim
Po Chuan, who was a partner in the commercial partnership,
Glory Commercial Company with Antonio Lim Tanhu and
Alfonso Ng Sua".

ISSUE: Whether Tan has a right over the liquidated

properties of the partnership

Defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua,

Lim Teck Chuan, and Eng Chong Leonardo, through fraud
and machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Company, defendants
managed to use the funds of the partnership to purchase
lands and buildings in the cities of Cebu, Lapulapu,
Mandaue, and the municipalities of Talisay and Minglanilla.
She alleged in her complaint that after the death of Tee Hoon
Lim Po Chuan, the defendants, without liquidation,
continued the business of Glory Commercial Company, by
purportedly organizing a corporation known as the Glory
Commercial Company, Incorporated and sometime in the
month of November, 1967, defendants, particularly Antonio
Lim Tanhu, by means of fraud deceit, and
misrepresentations did then and there, induce and convince
her to execute a quitclaim of all her rights and interests, in
the assets of the partnership of Glory Commercial Company.
Thereafter, in the year 1968-69, the defendants who had
earlier promised to liquidate the aforesaid properties and
assets in favor, among others of plaintiff and until the middle
of the year 1970 when the plaintiff formally demanded from
the defendants the accounting of real and personal properties

HELD: No, Tan has no right over the liquidated properties

of the partnership
The SC held that there is no alternative but to hold that
plaintiff Tan Put's allegation that she is the widow of Tee
Hoon Lim Po Chuan has not been satisfactorily established
and that, on the contrary, the evidence on record
convincingly shows that her relation with said deceased was
that of a common-law wife.
Moreover, the SC said that the lower courts committed an
error by awarding 1/3 of the partnership properties to Tan
because there has been no liquidation proceedings yet. And
if there has not yet been any liquidation of the partnership,
the only right plaintiff could have would be to what might
result after much liquidation to belong to the deceased
partner (her alleged husband) and before this is finished, it is
impossible to determine, what rights or interest, if any the
deceased had.
In other words, no specific amounts or properties may be
adjudicated to the heir / legal representative of the deceased
partner without the liquidation being first terminated.
BARREDO, J.:
Petition for (1) certiorari to annul and set aside certain
actuations of respondent Court of First Instance of Cebu
Branch III in its Civil Case No. 12328, an action for
accounting of properties and money totalling allegedly about
190

P15 million pesos filed with a common cause of action

against six defendants, in which after declaring four of the
said defendants herein petitioners, in default and while the
trial as against the two defendants not declared in default
was in progress, said court granted plaintiff's motion to
dismiss the case in so far as the non-defaulted defendants
were concerned and thereafter proceeded to hear ex-parte
the rest of the plaintiffs evidence and subsequently rendered
judgment by default against the defaulted defendants, with
the particularities that notice of the motion to dismiss was
not duly served on any of the defendants, who had alleged a
compulsory counterclaim against plaintiff in their joint
answer, and the judgment so rendered granted reliefs not
prayed for in the complaint, and (2) prohibition to enjoin
further proceedings relative to the motion for immediate
execution of the said judgment.
Originally, this litigation was a complaint filed on February
9, 1971 by respondent Tan Put only against the spousespetitioners Antonio Lim Tanhu and Dy Ochay. Subsequently,
in an amended complaint dated September 26, 1972, their
son Lim Teck Chuan and the other spouses-petitioners
Alfonso Leonardo Ng Sua and Co Oyo and their son Eng
Chong Leonardo were included as defendants. In said
amended complaint, respondent Tan alleged that she "is the
widow of Tee Hoon Lim Po Chuan, who was a partner in the
commercial partnership, Glory Commercial Company ...
with Antonio Lim Tanhu and Alfonso Ng Sua that
"defendant Antonio Lim Tanhu, Alfonso Leonardo Ng Sua,

Lim Teck Chuan, and Eng Chong Leonardo, through fraud

and machination, took actual and active management of the
partnership and although Tee Hoon Lim Po Chuan was the
manager of Glory Commercial Company, defendants
managed to use the funds of the partnership to purchase
lands and building's in the cities of Cebu, Lapulapu,
Mandaue, and the municipalities of Talisay and Minglanilla,
some of which were hidden, but the description of those
already discovered were as follows: (list of properties) ...;"
and that:
13. (A)fter the death of Tee Hoon Lim Po
Chuan, the defendants, without liquidation
continued the business of Glory Commercial
Company by purportedly organizing a
corporation known as the Glory Commercial
Company, Incorporated, with paid up capital in
the sum of P125,000.00, which money and
other assets of the said Glory Commercial
Company, Incorporated are actually the assets
of the defunct Glory Commercial Company
partnership, of which the plaintiff has a share
equivalent to one third (/ 3) thereof;
14. (P)laintiff, on several occasions after the
death of her husband, has asked defendants of
the above-mentioned properties and for the
liquidation of the business of the defunct
partnership, including investments on real
191

estate in Hong Kong, but defendants kept on

promising to liquidate said properties and just
told plaintiff to
15. (S)ometime in the month of November,
1967, defendants, Antonio Lim Tanhu, by
means of fraud deceit and misrepresentations
did then and there, induce and convince the
plaintiff to execute a quitclaim of all her rights
and interests, in the assets of the partnership of
Glory Commercial Company, which is null and
void, executed through fraud and without any
legal effect. The original of said quitclaim is in
the possession of the adverse party defendant
Antonio Lim Tanhu.
16. (A)s a matter of fact, after the execution of
said quitclaim, defendant Antonio Lim Tanhu
offered to pay the plaintiff the amount
P65,000.00 within a period of one (1) month,
for which plaintiff was made to sign a receipt
for the amount of P65,000.00 although no such
amount was given and plaintiff was not even
given a copy of said document;
17. (T)hereafter, in the year 1968-69, the
defendants who had earlier promised to
liquidate the aforesaid properties and assets in
favor among others of plaintiff and until the
middle of the year 1970 when the plaintiff

formally demanded from the defendants the

accounting of real and personal properties of
the Glory Commercial Company, defendants
refused and stated that they would not give the
share of the plaintiff. (Pp. 36-37, Record.)
She prayed as follows:
WHEREFORE, it is most respectfully prayed
that judgment be rendered:
a) Ordering the defendants to render an
accounting of the real and personal properties
of the Glory Commercial Company including
those registered in the names of the defendants
and other persons, which properties are located
in the Philippines and in Hong Kong;
b) Ordering the defendants to deliver to the
plaintiff after accounting, one third (/ 3) of the
total value of all the properties which is
approximately P5,000,000.00 representing the
just share of the plaintiff;
c) Ordering the defendants to pay the attorney
of the plaintiff the sum of Two Hundred Fifty
Thousand Pesos (P250,000.00) by way of
attorney's fees and damages in the sum of One
Million Pesos (P1,000,000.00).
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This Honorable Court is prayed for other

remedies and reliefs consistent with law and
equity and order the defendants to pay the
costs. (Page 38, Record.)
The admission of said amended complaint was opposed by
defendants upon the ground that there were material
modifications of the causes of action previously alleged, but
respondent judge nevertheless allowed the amendment
reasoning that:
The present action is for accounting of real and
personal properties as well as for the recovery
of the same with damages.
An objective consideration of pars. 13 and 15
of the amended complaint pointed out by the
defendants to sustain their opposition will show
that the allegations of facts therein are merely
to amplify material averments constituting the
cause of action in the original complaint. It
likewise include necessary and indispensable
defendants without whom no final
determination can be had in the action and in
order that complete relief is to be accorded as
between those already parties.
Considering that the amendments sought to be
introduced do not change the main causes of
action in the original complaint and the reliefs

demanded and to allow amendments is the rule,

and to refuse them the exception and in order
that the real question between the parties may
be properly and justly threshed out in a single
proceeding to avoid multiplicity of actions.
(Page 40, Record.)
In a single answer with counterclaim, over the signature of
their common counsel, defendants denied specifically not
only the allegation that respondent Tan is the widow of Tee
Hoon because, according to them, his legitimate wife was
Ang Siok Tin still living and with whom he had four (4)
legitimate children, a twin born in 1942, and two others born
in 1949 and 1965, all presently residing in Hongkong, but
also all the allegations of fraud and conversion quoted
above, the truth being, according to them, that proper
liquidation had been regularly made of the business of the
partnership and Tee Hoon used to receive his just share until
his death, as a result of which the partnership was dissolved
and what corresponded to him were all given to his wife and
children. To quote the pertinent portions of said answer:
AND BY WAY OF SPECIAL AND
AFFIRMATIVE DEFENSES,
defendants hereby incorporate all facts averred
and alleged in the answer, and further most
respectfully declare:

193

1. That in the event that plaintiff is filing the

present complaint as an heir of Tee Hoon Lim
Po Chuan, then, she has no legal capacity to sue
as such, considering that the legitimate wife,
namely: Ang Siok Tin, together with their
children are still alive. Under Sec. 1, (d), Rule
16 of the Revised Rules of Court, lack of legal
capacity to sue is one of the grounds for a
motion to dismiss and so defendants prays that
a preliminary hearing be conducted as provided
for in Sec. 5, of the same rule;
2. That in the alternative case or event that
plaintiff is filing the present case under Art. 144
of the Civil Code, then, her claim or demand
has been paid, waived abandoned or otherwise
extinguished as evidenced by the 'quitclaim'
Annex 'A' hereof, the ground cited is another
ground for a motion to dismiss (Sec. 1, (h),
Rule 16) and hence defendants pray that a
preliminary hearing be made in connection
therewith pursuant to Section 5 of the
aforementioned rule;
3. That Tee Hoon Lim Po Chuan was legally
married to Ang Siok Tin and were blessed with
the following children, to wit: Ching Siong Lim
and Ching Hing Lim (twins) born on February
16, 1942; Lim Shing Ping born on March 3,

1949 and Lim Eng Lu born on June 25, 1965

and presently residing in Hongkong;
4. That even before the death of Tee Hoon Lim
Po Chuan, the plaintiff was no longer his
common law wife and even though she was not
entitled to anything left by Tee Hoon Lim Po
Chuan, yet, out of the kindness and generosity
on the part of the defendants, particularly
Antonio Lain Tanhu, who, was inspiring to be
monk and in fact he is now a monk, plaintiff
was given a substantial amount evidenced by
the 'quitclaim' (Annex 'A');
5. That the defendants have acquired properties
out of their own personal fund and certainly not
from the funds belonging to the partnership,
just as Tee Hoon Lim Po Chuan had acquired
properties out of his personal fund and which
are now in the possession of the widow and
neither the defendants nor the partnership have
anything to do about said properties;
6. That it would have been impossible to buy
properties from funds belonging to the
partnership without the other partners knowing
about it considering that the amount taken
allegedly is quite big and with such big amount
withdrawn the partnership would have been
insolvent;
194

7. That plaintiff and Tee Hoon Lim Po Chuan

were not blessed with children who would have
been lawfully entitled to succeed to the
properties left by the latter together with the
widow and legitimate children;
8. That despite the fact that plaintiff knew that
she was no longer entitled to anything of the
shares of the late Tee Hoon Lim Po Chuan, yet,
this suit was filed against the defendant who
have to interpose the following
C O U N T E R C LAI M
A. That the defendants hereby reproduced, by
way of reference, all the allegations and
foregoing averments as part of this
counterclaim; .

B. That plaintiff knew and was aware she was

merely the common-law wife of Tee Hoon Lim
Po Chuan and that the lawful and legal is still
living, together with the legitimate children,
and yet she deliberately suppressed this fact,
thus showing her bad faith and is therefore
liable for exemplary damages in an amount
which the Honorable Court may determine in
the exercise of its sound judicial discretion. In
the event that plaintiff is married to Tee Hoon
Lim Po Chuan, then, her marriage is bigamous
and should suffer the consequences thereof;
C. That plaintiff was aware and had knowledge
about the 'quitclaim', even though she was not
entitled to it, and yet she falsely claimed that
defendants refused even to see her and for filing
this unfounded, baseless, futile and puerile
complaint, defendants suffered mental anguish
and torture conservatively estimated to be not
less than P3,000.00;
D. That in order to defend their rights in court,
defendants were constrained to engage the
services of the undersigned counsel, obligating
themselves to pay P500,000.00 as attorney's
fees;
E. That by way of litigation expenses during the
time that this case will be before this Honorable
195

Court and until the same will be finally

terminated and adjudicated, defendants will
have to spend at least P5,000.00. (Pp. 44-47.
Record.)
After unsuccessfully trying to show that this counterclaim is
merely permissive and should be dismissed for non-payment
of the corresponding filing fee, and after being overruled by
the court, in due time, plaintiff answered the same, denying
its material allegations.
On February 3, 1973, however, the date set for the pre-trial,
both of the two defendants-spouses the Lim Tanhus and Ng
Suas, did not appear, for which reason, upon motion of
plaintiff dated February 16, 1973, in an order of March 12,
1973, they were all "declared in DEFAULT as of February 3,
1973 when they failed to appear at the pre-trial." They
sought to hive this order lifted thru a motion for
reconsideration, but the effort failed when the court denied
it. Thereafter, the trial started, but at the stage thereof where
the first witness of the plaintiff by the name of Antonio
Nuez who testified that he is her adopted son, was up for
re-cross-examination, said plaintiff unexpectedly filed on
October 19, 1974 the following simple and unreasoned
MOTION TO DROP DEFENDANTS LIM
TECK
CHUAN AND ENG CHONG LEONARDO

COMES now plaintiff, through her undersigned

counsel, unto the Honorable Court most
respectfully moves to drop from the complaint
the defendants Lim Teck Chuan and Eng Chong
Leonardo and to consider the case dismissed
insofar as said defendants Lim Teck Chuan and
Eng Chong Leonardo are concerned.
WHEREFORE, it is most respectfully prayed
of the Honorable Court to drop from the
complaint the defendants Lim Teck Chuan and
Eng Chong Leonardo and to dismiss the case
against them without pronouncement as to
costs. (Page 50, Record.)
which she set for hearing on December 21,
1974. According to petitioners, none of the
defendants declared in default were notified of
said motion, in violation of Section 9 of Rule
13, since they had asked for the lifting of the
order of default, albeit unsuccessfully, and as
regards the defendants not declared in default,
the setting of the hearing of said motion on
October 21, 1974 infringed the three-day
requirement of Section 4 of Rule 15, inasmuch
as Atty. Adelino Sitoy of Lim Teck Chuan was
served with a copy of the motion personally
only on October 19, 1974, while Atty. Benjamin

196

Alcudia of Eng Chong Leonardo was served by

registered mail sent only on the same date.
Evidently without even verifying the notices of
service, just as simply as plaintiff had couched
her motion, and also without any legal grounds
stated, respondent court granted the prayer of
the above motion thus:
ORDER
Acting on the motion of the plaintiff praying for
the dismissal of the complaint as against
defendants Lim Teck Chuan and Eng Chong
Leonardo.
The same is hereby GRANTED. The complaint
as against defendant Lim Teck Chuan and Eng
Chong Leonardo is hereby ordered
DISMISSED without pronouncement as to
costs.
Simultaneously, the following order was also issued:

Considering that defendants Antonio Lim

Tanhu and his spouse Dy Ochay as well as
defendants Alfonso Ng Sua and his spouse Co
Oyo have been declared in default for failure to
appear during the pre-trial and as to the other
defendants the complaint had already been
ordered dismissed as against them.
Let the hearing of the plaintiff's evidence exparte be set on November 20, 1974, at 8:30
A.M. before the Branch Clerk of Court who is
deputized for the purpose, to swear in witnesses
and to submit her report within ten (10) days
thereafter. Notify the plaintiff.
SO ORDERED.
Cebu City, Philippines, October 21, 1974. (Page
52, Record.)
But, in connection with this last order, the scheduled exparte reception of evidence did not take place on November
20, 1974, for on October 28, 1974, upon verbal motion of
plaintiff, the court issued the following self-explanatory
order: .
Acting favorably on the motion of the plaintiff
dated October 18, 1974, the Court deputized the
Branch Clerk of Court to receive the evidence
of the plaintiff ex-parte to be made on
197

November 20, 1974. However, on October 28,

1974, the plaintiff, together with her witnesses,
appeared in court and asked, thru counsel, that
she be allowed to present her evidence.
Considering the time and expenses incurred by
the plaintiff in bringing her witnesses to the
court, the Branch Clerk of Court is hereby
authorized to receive immediately the evidence
of the plaintiff ex-parte.
SO ORDERED.
Cebu City, Philippines, October 28, 1974. (Page
53. Record.)
Upon learning of these orders on October 23, 1973, the
defendant Lim Teck Cheng, thru counsel, Atty. Sitoy, filed a
motion for reconsideration thereof, and on November 1,
1974, defendant Eng Chong Leonardo, thru counsel Atty.
Alcudia, filed also his own motion for reconsideration and
clarification of the same orders. These motions were denied
in an order dated December 6, 1974 but received by the
movants only on December 23, 1974. Meanwhile,
respondent court rendered the impugned decision on
December 20, 1974. It does not appear when the parties
were served copies of this decision.
Subsequently, on January 6, 1975, all the defendants, thru
counsel, filed a motion to quash the order of October 28,

1974. Without waiting however for the resolution thereof, on

January 13, 1974, Lim Teck Chuan and Eng Chong
Leonardo went to the Court of Appeals with a petition for
certiorari seeking the annulment of the above-mentioned
orders of October 21, 1974 and October 28, 1974 and
decision of December 20, 1974. By resolution of January 24,
1975, the Court of Appeals dismissed said petition, holding
that its filing was premature, considering that the motion to
quash the order of October 28, 1974 was still unresolved by
the trial court. This holding was reiterated in the subsequent
resolution of February 5, 1975 denying the motion for
reconsideration of the previous dismissal.
On the other hand, on January 20, 1975, the other
defendants, petitioners herein, filed their notice of appeal,
appeal bond and motion for extension to file their record on
appeal, which was granted, the extension to expire after
fifteen (15) days from January 26 and 27, 1975, for
defendants Lim Tanhu and Ng Suas, respectively. But on
February 7, 1975, before the perfection of their appeal,
petitioners filed the present petition with this Court. And
with the evident intent to make their procedural position
clear, counsel for defendants, Atty. Manuel Zosa, filed with
respondent court a manifestation dated February 14, 1975
stating that "when the non-defaulted defendants Eng Chong
Leonardo and Lim Teck Chuan filed their petition in the
Court of Appeals, they in effect abandoned their motion to
quash the order of October 28, 1974," and that similarly
"when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng
198

Sua and Co Oyo, filed their petition for certiorari and

prohibition ... in the Supreme Court, they likewise
abandoned their motion to quash." This manifestation was
acted upon by respondent court together with plaintiffs
motion for execution pending appeal in its order of the same
date February 14, 1975 this wise:
ORDER
When these incidents, the motion to quash the
order of October 28, 1974 and the motion for
execution pending appeal were called for
hearing today, counsel for the defendantsmovants submitted their manifestation inviting
the attention of this Court that by their filing for
certiorari and prohibition with preliminary
injunction in the Court of Appeals which was
dismissed and later the defaulted defendants
filed with the Supreme Court certiorari with
prohibition they in effect abandoned their
motion to quash.
IN VIEW HEREOF, the motion to quash is
ordered ABANDONED. The resolution of the
motion for execution pending appeal shall be
resolved after the petition for certiorari and
prohibition shall have been resolved by the
Supreme Court.
SO ORDERED.

Cebu City, Philippines, February 14, 1975.

(Page 216, Record.)
Upon these premises, it is the position of petitioners that
respondent court acted illegally, in violation of the rules or
with grave abuse of discretion in acting on respondent's
motion to dismiss of October 18, 1974 without previously
ascertaining whether or not due notice thereof had been
served on the adverse parties, as, in fact, no such notice was
timely served on the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo and no notice at all was
ever sent to the other defendants, herein petitioners, and
more so, in actually ordering the dismissal of the case by its
order of October 21, 1974 and at the same time setting the
case for further hearing as against the defaulted defendants,
herein petitioners, actually hearing the same ex-parte and
thereafter rendering the decision of December 20, 1974
granting respondent Tan even reliefs not prayed for in the
complaint. According to the petitioners, to begin with, there
was compulsory counterclaim in the common answer of the
defendants the nature of which is such that it cannot be
decided in an independent action and as to which the
attention of respondent court was duly called in the motions
for reconsideration. Besides, and more importantly, under
Section 4 of Rule 18, respondent court had no authority to
divide the case before it by dismissing the same as against
the non-defaulted defendants and thereafter proceeding to
hear it ex-parte and subsequently rendering judgment against
the defaulted defendants, considering that in their view,
199

under the said provision of the rules, when a common cause

of action is alleged against several defendants, the default of
any of them is a mere formality by which those defaulted are
not allowed to take part in the proceedings, but otherwise,
all the defendants, defaulted and not defaulted, are supposed
to have but a common fate, win or lose. In other words,
petitioners posit that in such a situation, there can only be
one common judgment for or against all the defendant, the
non-defaulted and the defaulted. Thus, petitioners contend
that the order of dismissal of October 21, 1974 should be
considered also as the final judgment insofar as they are
concerned, or, in the alternative, it should be set aside
together with all the proceedings and decision held and
rendered subsequent thereto, and that the trial be resumed as
of said date, with the defendants Lim Teck Chuan and Eng
Chong Leonardo being allowed to defend the case for all the
defendants.
On the other hand, private respondent maintains the contrary
view that inasmuch as petitioners had been properly
declared in default, they have no personality nor interest to
question the dismissal of the case as against their nondefaulted co-defendants and should suffer the consequences
of their own default. Respondent further contends, and this
is the only position discussed in the memorandum submitted
by her counsel, that since petitioners have already made or at
least started to make their appeal, as they are in fact entitled
to appeal, this special civil action has no reason for being.
Additionally, she invokes the point of prematurity upheld by

the Court of Appeals in regard to the above-mentioned

petition therein of the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo. Finally, she argues that in
any event, the errors attributed to respondent court are errors
of judgment and may be reviewed only in an appeal.
After careful scrutiny of all the above-related proceedings,
in the court below and mature deliberation, the Court has
arrived at the conclusion that petitioners should be granted
relief, if only to stress emphatically once more that the rules
of procedure may not be misused and abused as instruments
for the denial of substantial justice. A review of the record of
this case immediately discloses that here is another
demonstrative instance of how some members of the bar,
availing of their proficiency in invoking the letter of the
rules without regard to their real spirit and intent, succeed in
inducing courts to act contrary to the dictates of justice and
equity, and, in some instances, to wittingly or unwittingly
abet unfair advantage by ironically camouflaging their
actuations as earnest efforts to satisfy the public clamor for
speedy disposition of litigations, forgetting all the while that
the plain injunction of Section 2 of Rule 1 is that the "rules
shall be liberally construed in order to promote their object
and to assist the parties in obtaining not only 'speedy' but
more imperatively, "just ... and inexpensive determination of
every action and proceeding." We cannot simply pass over
the impression that the procedural maneuvers and tactics
revealed in the records of the case at bar were deliberately
planned with the calculated end in view of depriving
200

petitioners and their co-defendants below of every

opportunity to properly defend themselves against a claim of
more than substantial character, considering the millions of
pesos worth of properties involved as found by respondent
judge himself in the impugned decision, a claim that
appears, in the light of the allegations of the answer and the
documents already brought to the attention of the court at
the pre-trial, to be rather dubious. What is most regrettable is
that apparently, all of these alarming circumstances have
escaped respondent judge who did not seem to have
hesitated in acting favorably on the motions of the plaintiff
conducive to the deplorable objective just mentioned, and
which motions, at the very least, appeared to be 'of highly
controversial' merit, considering that their obvious tendency
and immediate result would be to convert the proceedings
into a one-sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.
Indeed, a seeming disposition on the part of respondent
court to lean more on the contentions of private respondent
may be discerned from the manner it resolved the attempts
of defendants Dy Ochay and Antonio Lim Tanhu to have the
earlier order of default against them lifted. Notwithstanding
that Dy Ochay's motion of October 8, 1971, co-signed by
her with their counsel, Atty. Jovencio Enjambre (Annex 2 of
respondent answer herein) was over the jurat of the notary
public before whom she took her oath, in the order of
November 2, 1971, (Annex 3 id.) it was held that "the oath
appearing at the bottom of the motion is not the one

contemplated by the abovequoted pertinent provision (See.

3, Rule 18) of the rules. It is not even a verification. (See. 6,
Rule 7.) What the rule requires as interpreted by the
Supreme Court is that the motion must have to be
accompanied by an affidavit of merits that the defendant has
a meritorious defense, thereby ignoring the very simple legal
point that the ruling of the Supreme Court in Ong Peng vs.
Custodio, 1 SCRA 781, relied upon by His Honor, under
which a separate affidavit of merit is required refers
obviously to instances where the motion is not over oath of
the party concerned, considering that what the cited
provision literally requires is no more than a "motion under
oath." Stated otherwise, when a motion to lift an order of
default contains the reasons for the failure to answer as well
as the facts constituting the prospective defense of the
defendant and it is sworn to by said defendant, neither a
formal verification nor a separate affidavit of merit is
necessary.
What is worse, the same order further held that the motion to
lift the order of default "is an admission that there was a
valid service of summons" and that said motion could not
amount to a challenge against the jurisdiction of the court
over the person of the defendant. Such a rationalization is
patently specious and reveals an evident failure to grasp the
import of the legal concepts involved. A motion to lift an
order of default on the ground that service of summons has
not been made in accordance with the rules is in order and is
in essence verily an attack against the jurisdiction of the
201

court over the person of the defendant, no less than if it were

worded in a manner specifically embodying such a direct
challenge.
And then, in the order of February 14, 1972 (Annex 6, id.)
lifting at last the order of default as against defendant Lim
Tanhu, His Honor posited that said defendant "has a defense
(quitclaim) which renders the claim of the plaintiff
contentious." We have read defendants' motion for
reconsideration of November 25, 1971 (Annex 5, id.), but
We cannot find in it any reference to a "quitclaim". Rather,
the allegation of a quitclaim is in the amended complaint
(Pars. 15-16, Annex B of the petition herein) in which
plaintiff maintains that her signature thereto was secured
through fraud and deceit. In truth, the motion for
reconsideration just mentioned, Annex 5, merely reiterated
the allegation in Dy Ochay's earlier motion of October 8,
1971, Annex 2, to set aside the order of default, that plaintiff
Tan could be but the common law wife only of Tee Hoon,
since his legitimate wife was still alive, which allegation,
His Honor held in the order of November 2, 1971, Annex 3,
to be "not good and meritorious defense". To top it all,
whereas, as already stated, the order of February 19, 1972,
Annex 6, lifted the default against Lim Tanhu because of the
additional consideration that "he has a defense (quitclaim)
which renders the claim of the plaintiff contentious," the
default of Dy Ochay was maintained notwithstanding that
exactly the same "contentions" defense as that of her
husband was invoked by her.

Such tenuous, if not altogether erroneous reasonings and

manifest inconsistency in the legal postures in the orders in
question can hardly convince Us that the matters here in
issue were accorded due and proper consideration by
respondent court. In fact, under the circumstances herein
obtaining, it seems appropriate to stress that, having in view
the rather substantial value of the subject matter involved
together with the obviously contentious character of
plaintiff's claim, which is discernible even on the face of the
complaint itself, utmost care should have been taken to
avoid the slightest suspicion of improper motivations on the
part of anyone concerned. Upon the considerations
hereunder to follow, the Court expresses its grave concern
that much has to be done to dispel the impression that herein
petitioners and their co-defendants are being railroaded out
of their rights and properties without due process of law, on
the strength of procedural technicalities adroitly planned by
counsel and seemingly unnoticed and undetected by
respondent court, whose orders, gauged by their tenor and
the citations of supposedly pertinent provisions and
jurisprudence made therein, cannot be said to have
proceeded from utter lack of juridical knowledgeability and
competence.
1
The first thing that has struck the Court upon reviewing the
record is the seeming alacrity with which the motion to
dismiss the case against non-defaulted defendants Lim Teck
202

Chuan and Eng Chong Leonardo was disposed of, which

definitely ought not to have been the case. The trial was
proceeding with the testimony of the first witness of plaintiff
and he was still under re-cross-examination. Undoubtedly,
the motion to dismiss at that stage and in the light of the
declaration of default against the rest of the defendants was
a well calculated surprise move, obviously designed to
secure utmost advantage of the situation, regardless of its
apparent unfairness. To say that it must have been entirely
unexpected by all the defendants, defaulted and nondefaulted , is merely to rightly assume that the parties in a
judicial proceeding can never be the victims of any
procedural waylaying as long as lawyers and judges are
imbued with the requisite sense of equity and justice.
But the situation here was aggravated by the indisputable
fact that the adverse parties who were entitled to be notified
of such unanticipated dismissal motion did not get due
notice thereof. Certainly, the non-defaulted defendants had
the right to the three-day prior notice required by Section 4
of Rule 15. How could they have had such indispensable
notice when the motion was set for hearing on Monday,
October 21, 1974, whereas the counsel for Lim Teck Chuan,
Atty. Sitoy was personally served with the notice only on
Saturday, October 19, 1974 and the counsel for Eng Chong
Leonardo, Atty. Alcudia, was notified by registered mail
which was posted only that same Saturday, October 19,
1974? According to Chief Justice Moran, "three days at least
must intervene between the date of service of notice and the

date set for the hearing, otherwise the court may not validly
act on the motion." (Comments on the Rules of Court by
Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct
construction of Section 4 of Rule 15. And in the instant case,
there can be no question that the notices to the non-defaulted
defendants were short of the requirement of said provision.
We can understand the over-anxiety of counsel for plaintiff,
but what is incomprehensible is the seeming inattention of
respondent judge to the explicit mandate of the pertinent
rule, not to speak of the imperatives of fairness, considering
he should have realized the far-reaching implications,
specially from the point of view he subsequently adopted,
albeit erroneously, of his favorably acting on it. Actually, he
was aware of said consequences, for simultaneously with his
order of dismissal, he immediately set the case for the exparte hearing of the evidence against the defaulted
defendants, which, incidentally, from the tenor of his order
which We have quoted above, appears to have been done by
him motu propio As a matter of fact, plaintiff's motion also
quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974
further ignores or is inconsistent with a number of known
juridical principles concerning defaults, which We will here
take occasion to reiterate and further elucidate on, if only to
avoid a repetition of the unfortunate errors committed in this
case. Perhaps some of these principles have not been amply
projected and elaborated before, and such paucity of
203

elucidation could be the reason why respondent judge must

have acted as he did. Still, the Court cannot but express its
vehement condemnation of any judicial actuation that
unduly deprives any party of the right to be heard without
clear and specific warrant under the terms of existing rules
or binding jurisprudence. Extreme care must be the instant
reaction of every judge when confronted with a situation
involving risks that the proceedings may not be fair and
square to all the parties concerned. Indeed, a keen sense of
fairness, equity and justice that constantly looks for
consistency between the letter of the adjective rules and
these basic principles must be possessed by every judge, If
substance is to prevail, as it must, over form in our courts.
Literal observance of the rules, when it is conducive to
unfair and undue advantage on the part of any litigant before
it, is unworthy of any court of justice and equity. Withal,
only those rules and procedure informed, with and founded
on public policy deserve obedience in accord with their
unequivocal language or words..
Before proceeding to the discussion of the default aspects of
this case, however, it should not be amiss to advert first to
the patent incorrectness, apparent on the face of the record,
of the aforementioned order of dismissal of October 21,
1974 of the case below as regards non-defaulted defendants
Lim and Leonardo. While it is true that said defendants are
not petitioners herein, the Court deems it necessary for a full
view of the outrageous procedural strategy conceived by
respondent's counsel and sanctioned by respondent court to

also make reference to the very evident fact that in ordering

said dismissal respondent court disregarded completely the
existence of defendant's counterclaim which it had itself
earlier held if indirectly, to be compulsory in nature when it
refused to dismiss the same on the ground alleged by
respondent Tan that he docketing fees for the filing thereof
had not been paid by defendants.
Indeed, that said counterclaim is compulsory needs no
extended elaboration. As may be noted in the allegations
hereof aforequoted, it arose out of or is necessarily
connected with the occurrence that is the subject matter of
the plaintiff's claim, (Section 4, Rule 9) namely, plaintiff's
allegedly being the widow of the deceased Tee Hoon
entitled, as such, to demand accounting of and to receive the
share of her alleged late husband as partner of defendants
Antonio Lim Tanhu and Alfonso Leonardo Ng Sua in Glory
Commercial Company, the truth of which allegations all the
defendants have denied. Defendants maintain in their
counterclaim that plaintiff knew of the falsity of said
allegations even before she filed her complaint, for she had
in fact admitted her common-law relationship with said
deceased in a document she had jointly executed with him
by way of agreement to terminate their illegitimate
relationship, for which she received P40,000 from the
deceased, and with respect to her pretended share in the
capital and profits in the partnership, it is also defendants'
posture that she had already quitclaimed, with the assistance
of able counsel, whatever rights if any she had thereto in
204

November, 1967, for the sum of P25,000 duly receipted by

her, which quitclaim was, however, executed, according to
respondent herself in her amended complaint, through fraud.
And having filed her complaint knowing, according to
defendants, as she ought to have known, that the material
allegations thereof are false and baseless, she has caused
them to suffer damages. Undoubtedly, with such allegations,
defendants' counterclaim is compulsory, not only because
the same evidence to sustain it will also refute the cause or
causes of action alleged in plaintiff's complaint,
(Moran, supra p. 352) but also because from its very nature,
it is obvious that the same cannot "remain pending for
independent adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that
"(i)f a counterclaim has been pleaded by a defendant prior to
the service upon him of the plaintiff's motion to dismiss, the
action shall not be dismissed against the defendant's
objection unless the counterclaim can remain pending for
independent adjudication by the court." Defendants Lim and
Leonardo had no opportunity to object to the motion to
dismiss before the order granting the same was issued, for
the simple reason that they were not opportunity notified of
the motion therefor, but the record shows clearly that at least
defendant Lim immediately brought the matter of their
compulsory counterclaim to the attention of the trial court in
his motion for reconsideration of October 23, 1974, even as
the counsel for the other defendant, Leonardo, predicated his
motion on other grounds. In its order of December 6, 1974,

however, respondent court not only upheld the plaintiffs

supposed absolute right to choose her adversaries but also
held that the counterclaim is not compulsory, thereby
virtually making unexplained and inexplicable 180-degree
turnabout in that respect.
There is another equally fundamental consideration why the
motion to dismiss should not have been granted. As the
plaintiff's complaint has been framed, all the six defendants
are charged with having actually taken part in a conspiracy
to misappropriate, conceal and convert to their own benefit
the profits, properties and all other assets of the partnership
Glory Commercial Company, to the extent that they have
allegedly organized a corporation, Glory Commercial
Company, Inc. with what they had illegally gotten from the
partnership. Upon such allegations, no judgment finding the
existence of the alleged conspiracy or holding the capital of
the corporation to be the money of the partnership is legally
possible without the presence of all the defendants. The nondefaulted defendants are alleged to be stockholders of the
corporation and any decision depriving the same of all its
assets cannot but prejudice the interests of said defendants.
Accordingly, upon these premises, and even prescinding
from the other reasons to be discussed anon it is clear that all
the six defendants below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less than
grant that they are so on page 23 of their answer. Such being
the case, the questioned order of dismissal is exactly the
opposite of what ought to have been done. Whenever it
205

appears to the court in the course of a proceeding that an

indispensable party has not been joined, it is the duty of the
court to stop the trial and to order the inclusion of such
party. (The Revised Rules of Court, Annotated &
Commented by Senator Vicente J. Francisco, Vol. 1, p. 271,
1973 ed. See also Cortez vs. Avila, 101 Phil. 705.) Such an
order is unavoidable, for the "general rule with reference to
the making of parties in a civil action requires the joinder of
all necessary parties wherever possible, and the joinder of all
indispensable parties under any and all conditions, the
presence of those latter being a sine qua non of the exercise
of judicial power." (Borlasa vs. Polistico, 47 Phil. 345, at p.
347.) It is precisely " when an indispensable party is not
before the court (that) the action should be dismissed."
(People v. Rodriguez, 106 Phil. 325, at p. 327.) The absence
of an indispensable party renders all subsequent actuations
of the court null and void, for want of authority to act, not
only as to the absent parties but even as to those present. In
short, what respondent court did here was exactly the
reverse of what the law ordains it eliminated those who
by law should precisely be joined.
As may he noted from the order of respondent court quoted
earlier, which resolved the motions for reconsideration of the
dismissal order filed by the non-defaulted defendants, His
Honor rationalized his position thus:
It is the rule that it is the absolute prerogative of
the plaintiff to choose, the theory upon which

he predicates his right of action, or the parties

he desires to sue, without dictation or
imposition by the court or the adverse party. If
he makes a mistake in the choice of his right of
action, or in that of the parties against whom he
seeks to enforce it, that is his own concern as he
alone suffers therefrom. The plaintiff cannot be
compelled to choose his defendants, He may
not, at his own expense, be forced to implead
anyone who, under the adverse party's theory, is
to answer for defendant's liability. Neither may
the Court compel him to furnish the means by
which defendant may avoid or mitigate their
liability. (Vao vs. Alo, 95 Phil. 495-496.)
This being the rule this court cannot compel the
plaintiff to continue prosecuting her cause of
action against the defendants-movants if in the
course of the trial she believes she can enforce
it against the remaining defendants subject only
to the limitation provided in Section 2, Rule 17
of the Rules of Court. ... (Pages 6263, Record.)
Noticeably, His Honor has employed the same equivocal
terminology as in plaintiff's motion of October 18, 1974 by
referring to the action he had taken as being "dismissal of
the complaint against them or their being dropped
therefrom", without perceiving that the reason for the
evidently intentional ambiguity is transparent. The apparent
206

idea is to rely on the theory that under Section 11 of Rule 3,

parties may be dropped by the court upon motion of any
party at any stage of the action, hence "it is the absolute
right prerogative of the plaintiff to choosethe parties he
desires to sue, without dictation or imposition by the court or
the adverse party." In other words, the ambivalent pose is
suggested that plaintiff's motion of October 18, 1974 was
not predicated on Section 2 of Rule 17 but more on Section
11 of Rule 3. But the truth is that nothing can be more
incorrect. To start with, the latter rule does not comprehend
whimsical and irrational dropping or adding of parties in a
complaint. What it really contemplates is erroneous or
mistaken non-joinder and misjoinder of parties. No one is
free to join anybody in a complaint in court only to drop him
unceremoniously later at the pleasure of the plaintiff. The
rule presupposes that the original inclusion had been made
in the honest conviction that it was proper and the
subsequent dropping is requested because it has turned out
that such inclusion was a mistake. And this is the reason
why the rule ordains that the dropping be "on such terms as
are just" just to all the other parties. In the case at bar,
there is nothing in the record to legally justify the dropping
of the non-defaulted defendants, Lim and Leonardo. The
motion of October 18, 1974 cites none. From all
appearances, plaintiff just decided to ask for it, without any
relevant explanation at all. Usually, the court in granting
such a motion inquires for the reasons and in the appropriate
instances directs the granting of some form of compensation
for the trouble undergone by the defendant in answering the

complaint, preparing for or proceeding partially to trial,

hiring counsel and making corresponding expenses in the
premises. Nothing of these, appears in the order in question.
Most importantly, His Honor ought to have considered that
the outright dropping of the non-defaulted defendants Lim
and Leonardo, over their objection at that, would certainly
be unjust not only to the petitioners, their own parents, who
would in consequence be entirely defenseless, but also to
Lim and Leonardo themselves who would naturally
correspondingly suffer from the eventual judgment against
their parents. Respondent court paid no heed at all to the
mandate that such dropping must be on such terms as are
just" meaning to all concerned with its legal and factual
effects.
Thus, it is quite plain that respondent court erred in issuing
its order of dismissal of October 21, 1974 as well as its order
of December 6, 1974 denying reconsideration of such
dismissal. As We make this ruling, We are not oblivious of
the circumstance that defendants Lim and Leonardo are not
parties herein. But such consideration is inconsequential.
The fate of the case of petitioners is inseparably tied up with
said order of dismissal, if only because the order of exparte hearing of October 21, 1974 which directly affects and
prejudices said petitioners is predicated thereon. Necessarily,
therefore, We have to pass on the legality of said order, if We
are to decide the case of herein petitioners properly and
fairly.
207

The attitude of the non-defaulted defendants of no longer

pursuing further their questioning of the dismissal is from
another point of view understandable. On the one hand, why
should they insist on being defendants when plaintiff herself
has already release from her claims? On the other hand, as
far as their respective parents-co-defendants are concerned,
they must have realized that they (their parents) could even
be benefited by such dismissal because they could question
whether or not plaintiff can still prosecute her case against
them after she had secured the order of dismissal in
question. And it is in connection with this last point that the
true and correct concept of default becomes relevant.
At this juncture, it may also be stated that the decision of the
Court of Appeals of January 24, 1975 in G. R. No. SP-03066
dismissing the petition for certiorari of non-defaulted
defendants Lim and Leonardo impugning the order of
dismissal of October 21, 1974, has no bearing at all in this
case, not only because that dismissal was premised by the
appellate court on its holding that the said petition was
premature inasmuch as the trial court had not yet resolved
the motion of the defendants of October 28, 1974 praying
that said disputed order be quashed, but principally because
herein petitioners were not parties in that proceeding and
cannot, therefore, be bound by its result. In particular, We
deem it warranted to draw the attention of private
respondent's counsel to his allegations in paragraphs XI to
XIV of his answer, which relate to said decision of the Court
of Appeals and which have the clear tendency to make it

appear to the Court that the appeals court had upheld the
legality and validity of the actuations of the trial court being
questioned, when as a matter of indisputable fact, the
dismissal of the petition was based solely and exclusively on
its being premature without in any manner delving into its
merits. The Court must and does admonish counsel that such
manner of pleading, being deceptive and lacking in candor,
has no place in any court, much less in the Supreme Court,
and if We are adopting a passive attitude in the premises, it
is due only to the fact that this is counsel's first offense. But
similar conduct on his part in the future will definitely be
dealt with more severely. Parties and counsel would be well
advised to avoid such attempts to befuddle the issues as
invariably then will be exposed for what they are, certainly
unethical and degrading to the dignity of the law profession.
Moreover, almost always they only betray the inherent
weakness of the cause of the party resorting to them.
2
Coming now to the matter itself of default, it is quite
apparent that the impugned orders must have proceeded
from inadequate apprehension of the fundamental precepts
governing such procedure under the Rules of Court. It is
time indeed that the concept of this procedural device were
fully understood by the bench and bar, instead of being
merely taken for granted as being that of a simple expedient
of not allowing the offending party to take part in the
proceedings, so that after his adversary shall have presented
208

his evidence, judgment may be rendered in favor of such

opponent, with hardly any chance of said judgment being
reversed or modified.
The Rules of Court contain a separate rule on the subject of
default, Rule 18. But said rule is concerned solely with
default resulting from failure of the defendant or defendants
to answer within the reglementary period. Referring to the
simplest form of default, that is, where there is only one
defendant in the action and he fails to answer on time,
Section 1 of the rule provides that upon "proof of such
failure, (the court shall) declare the defendant in default.
Thereupon the court shall proceed to receive the plaintiff's
evidence and render judgment granting him such relief as
the complaint and the facts proven may warrant." This last
clause is clarified by Section 5 which says that "a judgment
entered against a party in default shall not exceed the
amount or be different in kind from that prayed for."
Unequivocal, in the literal sense, as these provisions are,
they do not readily convey the full import of what they
contemplate. To begin with, contrary to the immediate
notion that can be drawn from their language, these
provisions are not to be understood as meaning that default
or the failure of the defendant to answer should be
"interpreted as an admission by the said defendant that the
plaintiff's cause of action find support in the law or that
plaintiff is entitled to the relief prayed for." (Moran, supra, p.
535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466,

citing with approval Chaffin v. McFadden, 41 Ark. 42;

Johnson v. Pierce, 12 Ark. 599; Mayden v. Johnson, 59 Ga.
105; People v. Rust, 292 111. 328; Ken v. Leopold 21 111.
A. 163; Chicago, etc. Electric R. Co. v. Krempel 116 111. A.
253.)
Being declared in default does not constitute a waiver of
rights except that of being heard and of presenting evidence
in the trial court. According to Section 2, "except as
provided in Section 9 of Rule 13, a party declared in default
shall not be entitled to notice of subsequent proceedings, nor
to take part in the trial." That provision referred to reads:
"No service of papers other than substantially amended
pleadings and final orders or judgments shall be necessary
on a party in default unless he files a motion to set aside the
order of default, in which event he shall be entitled to notice
of all further proceedings regardless of whether the order of
default is set aside or not." And pursuant to Section 2 of
Rule 41, "a party who has been declared in default may
likewise appeal from the judgment rendered against him as
contrary to the evidence or to the law, even if no petition for
relief to set aside the order of default has been presented by
him in accordance with Rule 38.".
In other words, a defaulted defendant is not actually thrown
out of court. While in a sense it may be said that by
defaulting he leaves himself at the mercy of the court, the
rules see to it that any judgment against him must be in
accordance with law. The evidence to support the plaintiff's
209

cause is, of course, presented in his absence, but the court is

not supposed to admit that which is basically incompetent.
Although the defendant would not be in a position to object,
elementary justice requires that, only legal evidence should
be considered against him. If the evidence presented should
not be sufficient to justify a judgment for the plaintiff, the
complaint must be dismissed. And if an unfavorable
judgment should be justifiable, it cannot exceed in amount
or be different in kind from what is prayed for in the
complaint.
Incidentally, these considerations argue against the present
widespread practice of trial judges, as was done by His
Honor in this case, of delegating to their clerks of court the
reception of the plaintiff's evidence when the defendant is in
default. Such a Practice is wrong in principle and
orientation. It has no basis in any rule. When a defendant
allows himself to be declared in default, he relies on the
faith that the court would take care that his rights are not
unduly prejudiced. He has a right to presume that the law
and the rules will still be observed. The proceedings are held
in his forced absence, and it is but fair that the plaintiff
should not be allowed to take advantage of the situation to
win by foul or illegal means or with inherently incompetent
evidence. Thus, in such instances, there is need for more
attention from the court, which only the judge himself can
provide. The clerk of court would not be in a position much
less have the authority to act in the premises in the manner
demanded by the rules of fair play and as contemplated in

the law, considering his comparably limited area of

discretion and his presumably inferior preparation for the
functions of a judge. Besides, the default of the defendant is
no excuse for the court to renounce the opportunity to
closely observe the demeanor and conduct of the witnesses
of the plaintiff, the better to appreciate their truthfulness and
credibility. We therefore declare as a matter of judicial
policy that there being no imperative reason for judges to do
otherwise, the practice should be discontinued.
Another matter of practice worthy of mention at this point is
that it is preferable to leave enough opportunity open for
possible lifting of the order of default before proceeding
with the reception of the plaintiff's evidence and the
rendition of the decision. "A judgment by default may
amount to a positive and considerable injustice to the
defendant; and the possibility of such serious consequences
necessitates a careful and liberal examination of the grounds
upon which the defendant may seek to set it aside."
(Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil.
446; 449-450.) The expression, therefore, in Section 1 of
Rule 18 aforequoted which says that "thereupon the court
shall proceed to receive the plaintiff's evidence etc." is not to
be taken literally. The gain in time and dispatch should the
court immediately try the case on the very day of or shortly
after the declaration of default is far outweighed by the
inconvenience and complications involved in having to undo
everything already done in the event the defendant should
justify his omission to answer on time.
210

The foregoing observations, as may be noted, refer to

instances where the only defendant or all the defendants,
there being several, are declared in default. There are
additional rules embodying more considerations of justice
and equity in cases where there are several defendants
against whom a common cause of action is averred and not
all of them answer opportunely or are in default, particularly
in reference to the power of the court to render judgment in
such situations. Thus, in addition to the limitation of Section
5 that the judgment by default should not be more in amount
nor different in kind from the reliefs specifically sought by
plaintiff in his complaint, Section 4 restricts the authority of
the court in rendering judgment in the situations just
mentioned as follows:
Sec. 4. Judgment when some defendants
answer, and other make difficult. When a
complaint states a common cause of action
against several defendant some of whom
answer, and the others fail to do so, the court
shall try the case against all upon the answer
thus filed and render judgment upon the
evidence presented. The same proceeding
applies when a common cause of action is
pleaded in a counterclaim, cross-claim and
third-party claim.

Very aptly does Chief Justice Moran elucidate on this

provision and the controlling jurisprudence explanatory
thereof this wise:
Where a complaint states a common cause of
action against several defendants and some
appear to defend the case on the merits while
others make default, the defense interposed by
those who appear to litigate the case inures to
the benefit of those who fail to appear, and if
the court finds that a good defense has been
made, all of the defendants must be absolved.
In other words, the answer filed by one or some
of the defendants inures to the benefit of all the
others, even those who have not seasonably
filed their answer. (Bueno v. Ortiz, L-22978,
June 27, 1968, 23 SCRA 1151.) The proper
mode of proceeding where a complaint states a
common cause of action against several
defendants, and one of them makes default, is
simply to enter a formal default order against
him, and proceed with the cause upon the
answers of the others. The defaulting defendant
merely loses his standing in court, he not being
entitled to the service of notice in the cause, nor
to appear in the suit in any way. He cannot
adduce evidence; nor can he be heard at the
final hearing, (Lim Toco v. Go Fay, 80 Phil.
166.) although he may appeal the judgment
211

rendered against him on the merits. (Rule 41,

sec. 2.) If the case is finally decided in the
plaintiff's favor, a final decree is then entered
against all the defendants; but if the suit should
be decided against the plaintiff, the action will
be dismissed as to all the defendants alike.
(Velez v. Ramas, 40 Phil. 787-792; Frow v. de
la Vega, 15 Wal. 552,21 L. Ed. 60.) In other
words the judgment will affect the defaulting
defendants either favorably or adversely.
(Castro v. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if
judgment is in his favor. (Castro v.
Pea, supra.) (Moran, Rules of Court, Vol. 1,
pp. 538-539.)
In Castro vs. Pea, 80 Phil. 488, one of the
numerous cases cited by Moran, this Court
elaborated on the construction of the same rule
when it sanctioned the execution, upon motion
and for the benefit of the defendant in default,
of a judgment which was adverse to the
plaintiff. The Court held:
As above stated, Emilia Matanguihan, by her
counsel, also was a movant in the petition for
execution Annex 1. Did she have a right to be
such, having been declared in default? In Frow
vs. De la Vega,supra, cited as authority in Velez

vs. Ramas, supra, the Supreme Court of the

United States adopted as ground for its own
decision the following ruling of the New York
Court of Errors in Clason vs. Morris, 10 Jons.,
524:
It would be unreasonable to hold that because
one defendant had made default, the plaintiff
should have a decree even against him, where
the court is satisfied from the proofs offered by
the other, that in fact the plaintiff is not entitled
to a decree. (21 Law, ed., 61.)
The reason is simple: justice has to be
consistent. The complaint stating a common
cause of action against several defendants, the
complainant's rights or lack of them in
the controversy have to be the same, and not
different, as against all the defendant's although
one or some make default and the other or
others appear, join issue, and enter into trial.
For instance, in the case of Clason vs.
Morris above cited, the New York Court of
Errors in effect held that in such a case if the
plaintiff is not entitled to a decree, he will not
be entitled to it, not only as against the
defendant appearing and resisting his action but
also as against the one who made default. In the
case at bar, the cause of action in the plaintiff's
212

complaint was common against the Mayor of

Manila, Emilia Matanguihan, and the other
defendants in Civil Case No. 1318 of the lower
court. The Court of First Instance in its
judgment found and held upon the evidence
adduced by the plaintiff and the defendant
mayor that as between said plaintiff and
defendant Matanguihan the latter was the one
legally entitled to occupy the stalls; and it
decreed, among other things, that said plaintiff
immediately vacate them. Paraphrasing the
New York Court of Errors, it would be
unreasonable to hold now that because
Matanguihan had made default, the said
plaintiff should be declared, as against her,
legally entitled to the occupancy of the stalls, or
to remain therein, although the Court of First
Instance was so firmly satisfied, from the
proofs offered by the other defendant, that the
same plaintiff was not entitled to such
occupancy that it peremptorily ordered her to
vacate the stalls. If in the cases of Clason vs.
Morris, supra, Frow vs. De la Vega, supra,
and Velez vs. Ramas, supra the decrees entered
inured to the benefit of the defaulting
defendants, there is no reason why that entered
in said case No. 1318 should not be held also to
have inured to the benefit of the defaulting
defendant Matanguihan and the doctrine in said

three cases plainly implies that there is nothing

in the law governing default which would
prohibit the court from rendering judgment
favorable to the defaulting defendant in such
cases. If it inured to her benefit, it stands to
reason that she had a right to claim that benefit,
for it would not be a benefit if the supposed
beneficiary were barred from claiming it; and if
the benefit necessitated the execution of the
decree, she must be possessed of the right to
ask for the execution thereof as she did when
she, by counsel, participated in the petition for
execution Annex 1.
Section 7 of Rule 35 would seem to afford a
solid support to the above considerations. It
provides that when a complaint states a
common cause of action against several
defendants, some of whom answer, and the
others make default, 'the court shall try the case
against all upon the answer thus filed and
render judgment upon the evidence presented
by the parties in court'. It is obvious that under
this provision the case is tried jointly not only
against the defendants answering but also
against those defaulting, and the trial is held
upon the answer filed by the former; and the
judgment, if adverse, will prejudice the
defaulting defendants no less than those who
213

answer. In other words, the defaulting

defendants are held bound by the answer filed
by their co-defendants and by the judgment
which the court may render against all of them.
By the same token, and by all rules of equity
and fair play, if the judgment should happen to
be favorable, totally or partially, to the
answering defendants, it must correspondingly
benefit the defaulting ones, for it would not be
just to let the judgment produce effects as to the
defaulting defendants only when adverse to
them and not when favorable.
In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the
provision under discussion in the following words:
In answer to the charge that respondent Judge
had committed a grave abuse of discretion in
rendering a default judgment against the PC,
respondents allege that, not having filed its
answer within the reglementary period, the PC
was in default, so that it was proper for Patanao
to forthwith present his evidence and for
respondent Judge to render said judgment. It
should be noted, however, that in entering the
area in question and seeking to prevent Patanao
from continuing his logging operations therein,
the PC was merely executing an order of the
Director of Forestry and acting as his agent.

Patanao's cause of action against the other

respondents in Case No. 190, namely, the
Director of Forestry, the District Forester of
Agusan, the Forest Officer of Bayugan, Agusan,
and the Secretary of Agriculture and Natural
Resources. Pursuant to Rule 18, Section 4, of
the Rules of Court, 'when a complaint states a
common cause of action against several
defendants some of whom answer and the
others fail to do so, the court shall try the case
against all upon the answer thus filed (by some)
and render judgment upon the evidence
presented.' In other words, the answer filed by
one or some of the defendants inures to the
benefit of all the others, even those who have
not seasonably filed their answer.

214

Indeed, since the petition in Case No. 190 sets

forth a common cause of action against all of
the respondents therein, a decision in favor of
one of them would necessarily favor the others.
In fact, the main issue, in said case, is whether
Patanao has a timber license to undertake
logging operations in the disputed area. It is not
possible to decide such issue in the negative,
insofar as the Director of Forestry, and to settle
it otherwise, as regards the PC, which is merely
acting as agent of the Director of Forestry, and
is, therefore, his alter ego, with respect to the
disputed forest area.
Stated differently, in all instances where a common cause of
action is alleged against several defendants, some of whom
answer and the others do not, the latter or those in default
acquire a vested right not only to own the defense interposed
in the answer of their co- defendant or co-defendants not in
default but also to expect a result of the litigation totally
common with them in kind and in amount whether favorable
or unfavorable. The substantive unity of the plaintiff's cause
against all the defendants is carried through to its adjective
phase as ineluctably demanded by the homogeneity and
indivisibility of justice itself. Indeed, since the singleness of
the cause of action also inevitably implies that all the
defendants are indispensable parties, the court's power to act
is integral and cannot be split such that it cannot relieve any
of them and at the same time render judgment against the

rest. Considering the tenor of the section in question, it is to

be assumed that when any defendant allows himself to be
declared in default knowing that his defendant has already
answered, he does so trusting in the assurance implicit in the
rule that his default is in essence a mere formality that
deprives him of no more than the right to take part in the
trial and that the court would deem anything done by or for
the answering defendant as done by or for him. The
presumption is that otherwise he would not -have seen to
that he would not be in default. Of course, he has to suffer
the consequences of whatever the answering defendant may
do or fail to do, regardless of possible adverse consequences,
but if the complaint has to be dismissed in so far as the
answering defendant is concerned it becomes his inalienable
right that the same be dismissed also as to him. It does not
matter that the dismissal is upon the evidence presented by
the plaintiff or upon the latter's mere desistance, for in both
contingencies, the lack of sufficient legal basis must be the
cause. The integrity of the common cause of action against
all the defendants and the indispensability of all of them in
the proceedings do not permit any possibility of waiver of
the plaintiff's right only as to one or some of them, without
including all of them, and so, as a rule, withdrawal must be
deemed to be a confession of weakness as to all. This is not
only elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of procedural
strategem practiced by private respondent herein that
resulted in totally depriving petitioners of every opportunity
to defend themselves against her claims which, after all, as
215

will be seen later in this opinion, the record does not show to
be invulnerable, both in their factual and legal aspects,
taking into consideration the tenor of the pleadings and the
probative value of the competent evidence which were
before the trial court when it rendered its assailed decision
where all the defendants are indispensable parties, for which
reason the absence of any of them in the case would result in
the court losing its competency to act validly, any
compromise that the plaintiff might wish to make with any
of them must, as a matter of correct procedure, have to await
until after the rendition of the judgment, at which stage the
plaintiff may then treat the matter of its execution and the
satisfaction of his claim as variably as he might please.
Accordingly, in the case now before Us together with the
dismissal of the complaint against the non-defaulted
defendants, the court should have ordered also the dismissal
thereof as to petitioners.
Indeed, there is more reason to apply here the principle of
unity and indivisibility of the action just discussed because
all the defendants here have already joined genuine issues
with plaintiff. Their default was only at the pre-trial. And as
to such absence of petitioners at the pre-trial, the same could
be attributed to the fact that they might not have considered
it necessary anymore to be present, since their respective
children Lim and Leonardo, with whom they have common
defenses, could take care of their defenses as well. Anything
that might have had to be done by them at such pre-trial
could have been done for them by their children, at least

initially, specially because in the light of the pleadings

before the court, the prospects of a compromise must have
appeared to be rather remote. Such attitude of petitioners is
neither uncommon nor totally unjustified. Under the
circumstances, to declare them immediately and irrevocably
in default was not an absolute necessity. Practical
considerations and reasons of equity should have moved
respondent court to be more understanding in dealing with
the situation. After all, declaring them in default as
respondent court did not impair their right to a common fate
with their children.
3
Another issue to be resolved in this case is the question of
whether or not herein petitioners were entitled to notice of
plaintiff's motion to drop their co-defendants Lim and
Leonardo, considering that petitioners had been previously
declared in default. In this connection, the decisive
consideration is that according to the applicable rule, Section
9, Rule 13, already quoted above, (1) even after a defendant
has been declared in default, provided he "files a motion to
set aside the order of default, he shall be entitled to notice
of all further proceedings regardless of whether the order of
default is set aside or not" and (2) a party in default who has
not filed such a motion to set aside must still be served with
all "substantially amended or supplemented pleadings." In
the instant case, it cannot be denied that petitioners had all
filed their motion for reconsideration of the order declaring
216

them in default. Respondents' own answer to the petition

therein makes reference to the order of April 3, 1973, Annex
8 of said answer, which denied said motion for
reconsideration. On page 3 of petitioners' memorandum
herein this motion is referred to as "a motion to set aside the
order of default." But as We have not been favored by the
parties with a copy of the said motion, We do not even know
the excuse given for petitioners' failure to appear at the pretrial, and We cannot, therefore, determine whether or not the
motion complied with the requirements of Section 3 of Rule
18 which We have held to be controlling in cases of default
for failure to answer on time. (The Philippine-British Co.
Inc. etc. et al. vs. The Hon. Walfrido de los Angeles etc. et
al., 63 SCRA 50.)
We do not, however, have here, as earlier noted, a case of
default for failure to answer but one for failure to appear at
the pre-trial. We reiterate, in the situation now before Us,
issues have already been joined. In fact, evidence had been
partially offered already at the pre-trial and more of it at the
actual trial which had already begun with the first witness of
the plaintiff undergoing re-cross-examination. With these
facts in mind and considering that issues had already been
joined even as regards the defaulted defendants, it would be
requiring the obvious to pretend that there was still need for
an oath or a verification as to the merits of the defense of the
defaulted defendants in their motion to reconsider their
default. Inasmuch as none of the parties had asked for a
summary judgment there can be no question that the issues

joined were genuine, and consequently, the reason for

requiring such oath or verification no longer holds. Besides,
it may also be reiterated that being the parents of the nondefaulted defendants, petitioners must have assumed that
their presence was superfluous, particularly because the
cause of action against them as well as their own defenses
are common. Under these circumstances, the form of the
motion by which the default was sought to be lifted is
secondary and the requirements of Section 3 of Rule 18 need
not be strictly complied with, unlike in cases of default for
failure to answer. We can thus hold as We do hold for the
purposes of the revival of their right to notice under Section
9 of Rule 13, that petitioner's motion for reconsideration was
in substance legally adequate regardless of whether or not it
was under oath.
In any event, the dropping of the defendants Lim and
Leonardo from plaintiff's amended complaint was virtually a
second amendment of plaintiffs complaint. And there can be
no doubt that such amendment was substantial, for with the
elimination thereby of two defendants allegedly solidarily
liable with their co-defendants, herein petitioners, it had the
effect of increasing proportionally what each of the
remaining defendants, the said petitioners, would have to
answer for jointly and severally. Accordingly, notice to
petitioners of the plaintiff's motion of October 18, 1974 was
legally indispensable under the rule above-quoted.
Consequently, respondent court had no authority to act on
the motion, to dismiss, pursuant to Section 6 of Rule 15, for
217

according to Senator Francisco, "(t) he Rules of Court

clearly provide that no motion shall be acted upon by the
Court without the proof of service of notice thereof, together
with a copy of the motion and other papers accompanying it,
to all parties concerned at least three days before the hearing
thereof, stating the time and place for the hearing of the
motion. (Rule 26, section 4, 5 and 6, Rules of Court (now
Sec. 15, new Rules). When the motion does not comply with
this requirement, it is not a motion. It presents no question
which the court could decide. And the Court acquires no
jurisdiction to consider it. (Roman Catholic Bishop of Lipa
vs. Municipality of Unisan 44 Phil., 866; Manakil vs.
Revilla, 42 Phil., 81.) (Laserna vs. Javier, et al., CA-G.R.
No. 7885, April 22, 1955; 21 L.J. 36, citing Roman Catholic
Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866;
Manakil vs. Revilla, 42 Phil., 81.) (Francisco. The Revised
Rules of Court in the Philippines, pp. 861-862.) Thus, We
see again, from a different angle, why respondent court's
order of dismissal of October 21, 1974 is fatally ineffective.
4
The foregoing considerations notwithstanding, it is
respondents' position that certiorari is not the proper remedy
of petitioners. It is contended that inasmuch as said
petitioners have in fact made their appeal already by filing
the required notice of appeal and appeal bond and a motion
for extension to file their record on appeal, which motion
was granted by respondent court, their only recourse is to

prosecute that appeal. Additionally, it is also maintained that

since petitioners have expressly withdrawn their motion to
quash of January 4, 1975 impugning the order of October
28, 1974, they have lost their right to assail by certiorari the
actuations of respondent court now being questioned,
respondent court not having been given the opportunity to
correct any possible error it might have committed.
We do not agree. As already shown in the foregoing
discussion, the proceedings in the court below have gone so
far out of hand that prompt action is needed to restore order
in the entangled situation created by the series of plainly
illegal orders it had issued. The essential purpose
of certiorari is to keep the proceedings in lower judicial
courts and tribunals within legal bounds, so that due process
and the rule of law may prevail at all times and arbitrariness,
whimsicality and unfairness which justice abhors may
immediately be stamped out before graver injury, juridical
and otherwise, ensues. While generally these objectives may
well be attained in an ordinary appeal, it is undoubtedly the
better rule to allow the special remedy of certiorari at the
option of the party adversely affected, when the irregularity
committed by the trial court is so grave and so far reaching
in its consequences that the long and cumbersome procedure
of appeal will only further aggravate the situation of the
aggrieved party because other untoward actuations are likely
to materialize as natural consequences of those already
perpetrated. If the law were otherwise, certiorari would have
no reason at all for being.
218

No elaborate discussion is needed to show the urgent need

for corrective measures in the case at bar. Verily, this is one
case that calls for the exercise of the Supreme Court's
inherent power of supervision over all kinds of judicial
actions of lower courts. Private respondent's procedural
technique designed to disable petitioners to defend
themselves against her claim which appears on the face of
the record itself to be at least highly controversial seems to
have so fascinated respondent court that none would be
surprised should her pending motion for immediate
execution of the impugned judgment receive similar ready
sanction as her previous motions which turned the
proceedings into a one-sided affair. The stakes here are high.
Not only is the subject matter considerably substantial; there
is the more important aspect that not only the spirit and
intent of the rules but even the basic rudiments of fair play
have been disregarded. For the Court to leave unrestrained
the obvious tendency of the proceedings below would be
nothing short of wittingly condoning inequity and injustice
resulting from erroneous construction and unwarranted
application of procedural rules.
5
The sum and total of all the foregoing disquisitions is that
the decision here in question is legally anomalous. It is
predicated on two fatal malactuations of respondent court
namely (1) the dismissal of the complaint against the nondefaulted defendants Lim and Leonardo and (2) the ex-

parte reception of the evidence of the plaintiff by the clerk

of court, the subsequent using of the same as basis for its
judgment and the rendition of such judgment.
For at least three reasons which We have already fully
discussed above, the order of dismissal of October 21, 1974
is unworthy of Our sanction: (1) there was no timely notice
of the motion therefor to the non-defaulted defendants, aside
from there being no notice at all to herein petitioners; (2) the
common answer of the defendants, including the nondefaulted, contained a compulsory counterclaim incapable of
being determined in an independent action; and (3) the
immediate effect of such dismissal was the removal of the
two non-defaulted defendants as parties, and inasmuch as
they are both indispensable parties in the case, the court
consequently lost the" sine qua non of the exercise of
judicial power", per Borlasa vs. Polistico, supra. This is not
to mention anymore the irregular delegation to the clerk of
court of the function of receiving plaintiff's evidence. And as
regards the ex-parte reception of plaintiff's evidence and
subsequent rendition of the judgment by default based
thereon, We have seen that it was violative of the right of the
petitioners, under the applicable rules and principles on
default, to a common and single fate with their nondefaulted co-defendants. And We are not yet referring, as We
shall do this anon to the numerous reversible errors in the
decision itself.

219

It is to be noted, however, that the above-indicated two

fundamental flaws in respondent court's actuations do not
call for a common corrective remedy. We cannot simply rule
that all the impugned proceedings are null and void and
should be set aside, without being faced with the
insurmountable obstacle that by so doing We would be
reviewing the case as against the two non-defaulted
defendants who are not before Us not being parties hereto.
Upon the other hand, for Us to hold that the order of
dismissal should be allowed to stand, as contended by
respondents themselves who insist that the same is already
final, not only because the period for its finality has long
passed but also because allegedly, albeit not very accurately,
said 'non-defaulted defendants unsuccessfully tried to have it
set aside by the Court of Appeals whose decision on their
petition is also already final, We would have to disregard
whatever evidence had been presented by the plaintiff
against them and, of course, the findings of respondent court
based thereon which, as the assailed decision shows, are
adverse to them. In other words, whichever of the two
apparent remedies the Court chooses, it would necessarily
entail some kind of possible juridical imperfection. Speaking
of their respective practical or pragmatic effects, to annul the
dismissal would inevitably prejudice the rights of the nondefaulted defendants whom We have not heard and who
even respondents would not wish to have anything anymore
to do with the case. On the other hand, to include petitioners
in the dismissal would naturally set at naught every effort
private respondent has made to establish or prove her case

thru means sanctioned by respondent court. In short, We are

confronted with a legal para-dilemma. But one thing is
certain this difficult situations has been brought about by
none other than private respondent who has quite cynically
resorted to procedural maneuvers without realizing that the
technicalities of the adjective law, even when apparently
accurate from the literal point of view, cannot prevail over
the imperatives of the substantive law and of equity that
always underlie them and which have to be inevitably
considered in the construction of the pertinent procedural
rules.
All things considered, after careful and mature deliberation,
the Court has arrived at the conclusion that as between the
two possible alternatives just stated, it would only be fair,
equitable and proper to uphold the position of petitioners. In
other words, We rule that the order of dismissal of October
21, 1974 is in law a dismissal of the whole case of the
plaintiff, including as to petitioners herein. Consequently, all
proceedings held by respondent court subsequent thereto
including and principally its decision of December 20, 1974
are illegal and should be set aside.
This conclusion is fully justified by the following
considerations of equity:
1. It is very clear to Us that the procedural maneuver
resorted to by private respondent in securing the decision in
her favor was ill-conceived. It was characterized by that
which every principle of law and equity disdains taking
220

unfair advantage of the rules of procedure in order to unduly

deprive the other party of full opportunity to defend his
cause. The idea of "dropping" the non-defaulted defendants
with the end in view of completely incapacitating their codefendants from making any defense, without considering
that all of them are indispensable parties to a common cause
of action to which they have countered with a common
defense readily connotes an intent to secure a one-sided
decision, even improperly. And when, in this connection, the
obvious weakness of plaintiff's evidence is taken into
account, one easily understands why such tactics had to be
availed of. We cannot directly or indirectly give Our assent
to the commission of unfairness and inequity in the
application of the rules of procedure, particularly when the
propriety of reliance thereon is not beyond controversy.
2. The theories of remedial law pursued by private
respondents, although approved by His Honor, run counter
to such basic principles in the rules on default and such
elementary rules on dismissal of actions and notice of
motions that no trial court should be unaware of or should be
mistaken in applying. We are at a loss as to why His Honor
failed to see through counsel's inequitous strategy, when the
provisions (1) on the three-day rule on notice of motions,
Section 4 of Rule 15, (2) against dismissal of actions on
motion of plaintiff when there is a compulsory counterclaim,
Section 2, Rule 17, (3) against permitting the absence of
indispensable parties, Section 7, Rule 3, (4) on service of
papers upon defendants in default when there are substantial

amendments to pleadings, Section 9, Rule 13, and (5) on the

unity and integrity of the fate of defendants in default with
those not in default where the cause of action against them
and their own defenses are common, Section 4, Rule 18, are
so plain and the jurisprudence declaratory of their intent and
proper construction are so readily comprehensible that any
error as to their application would be unusual in any
competent trial court.
3. After all, all the malactuations of respondent court are
traceable to the initiative of private respondent and/or her
counsel. She cannot, therefore, complain that she is being
made to unjustifiably suffer the consequences of what We
have found to be erroneous orders of respondent court. It is
only fair that she should not be allowed to benefit from her
own frustrated objective of securing a one-sided decision.
4. More importantly, We do not hesitate to hold that on the
basis of its own recitals, the decision in question cannot
stand close scrutiny. What is more, the very considerations
contained therein reveal convincingly the inherent weakness
of the cause of the plaintiff. To be sure, We have been giving
serious thought to the idea of merely returning this case for a
resumption of trial by setting aside the order of dismissal of
October 21, 1974, with all its attendant difficulties on
account of its adverse effects on parties who have not been
heard, but upon closer study of the pleadings and the
decision and other circumstances extant in the record before
Us, We are now persuaded that such a course of action
221

would only lead to more legal complications incident to

attempts on the part of the parties concerned to desperately
squeeze themselves out of a bad situation. Anyway, We feel
confident that by and large, there is enough basis here and
now for Us to rule out the claim of the plaintiff.
Even a mere superficial reading of the decision would
immediately reveal that it is littered on its face with
deficiencies and imperfections which would have had no
reason for being were there less haste and more
circumspection in rendering the same. Recklessness in
jumping to unwarranted conclusions, both factual and legal,
is at once evident in its findings relative precisely to the
main bases themselves of the reliefs granted. It is apparent
therein that no effort has been made to avoid glaring
inconsistencies. Where references are made to codal
provisions and jurisprudence, inaccuracy and inapplicability
are at once manifest. It hardly commends itself as a
deliberate and consciencious adjudication of a litigation
which, considering the substantial value of the subject
matter it involves and the unprecedented procedure that was
followed by respondent's counsel, calls for greater attention
and skill than the general run of cases would.

Inter alia, the following features of the decision make it

highly improbable that if We took another course of action,
private respondent would still be able to make out any case
against petitioners, not to speak of their co-defendants who
have already been exonerated by respondent herself thru her
motion to dismiss:
1. According to His Honor's own statement of plaintiff's
case, "she is the widow of the late Tee Hoon Po Chuan (Po
Chuan, for short) who was then one of the partners in the
commercial partnership, Glory Commercial Co. with
defendants Antonio Lim Tanhu (Lim Tanhu, for short) and
Alfonso Leonardo Ng Sua (Ng Sua, for short) as copartners; that after the death of her husband on March 11,
1966 she is entitled to share not only in the capital and
profits of the partnership but also in the other assets, both
real and personal, acquired by the partnership with funds of
the latter during its lifetime."
Relatedly, in the latter part of the decision, the findings are
to the following effect: .
That the herein plaintiff Tan Put and her late
husband Po Chuan married at the Philippine
Independent Church of Cebu City on
December, 20, 1949; that Po Chuan died on
March 11, 1966; that the plaintiff and the late
Po Chuan were childless but the former has a
foster son Antonio Nuez whom she has reared
since his birth with whom she lives up to the
222

present; that prior to the marriage of the

plaintiff to Po Chuan the latter was already
managing the partnership Glory Commercial
Co. then engaged in a little business in
hardware at Manalili St., Cebu City; that prior
to and just after the marriage of the plaintiff to
Po Chuan she was engaged in the drugstore
business; that not long after her marriage, upon
the suggestion of Po Chuan the plaintiff sold
her drugstore for P125,000.00 which amount
she gave to her husband in the presence of
defendant Lim Tanhu and was invested in the
partnership Glory Commercial Co. sometime in
1950; that after the investment of the abovestated amount in the partnership its business
flourished and it embarked in the import
business and also engaged in the wholesale and
retail trade of cement and GI sheets and under
huge profits;
xxx xxx xxx
That the late Po Chuan was the one who
actively managed the business of the
partnership Glory Commercial Co. he was the
one who made the final decisions and approved
the appointments of new personnel who were
taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua

are brothers, the latter two (2) being the elder

brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized Filipino
citizens whereas the late Po Chuan until the
time of his death was a Chinese citizen; that the
three (3) brothers were partners in the Glory
Commercial Co. but Po Chuan was practically
the owner of the partnership having the
controlling interest; that defendants Lim Tanhu
and Ng Sua were partners in name but they
were mere employees of Po Chuan .... (Pp. 8991, Record.)
How did His Honor arrive at these conclusions? To start
with, it is not clear in the decision whether or not in making
its findings of fact the court took into account the allegations
in the pleadings of the parties and whatever might have
transpired at the pre-trial. All that We can gather in this
respect is that references are made therein to pre-trial
exhibits and to Annex A of the answer of the defendants to
plaintiff's amended complaint. Indeed, it was incumbent
upon the court to consider not only the evidence formally
offered at the trial but also the admissions, expressed or
implied, in the pleadings, as well as whatever might have
been placed before it or brought to its attention during the
pre-trial. In this connection, it is to be regretted that none of
the parties has thought it proper to give Us an idea of what
took place at the pre-trial of the present case and what are
223

contained in the pre-trial order, if any was issued pursuant to

Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording
the parties every opportunity to compromise or settle their
differences, is for the court to be apprised of the unsettled
issues between the parties and of their respective evidence
relative thereto, to the end that it may take corresponding
measures that would abbreviate the trial as much as possible
and the judge may be able to ascertain the facts with the
least observance of technical rules. In other words whatever
is said or done by the parties or their counsel at the pre- trial
serves to put the judge on notice of their respective basic
positions, in order that in appropriate cases he may, if
necessary in the interest of justice and a more accurate
determination of the facts, make inquiries about or require
clarifications of matters taken up at the pre-trial, before
finally resolving any issue of fact or of law. In brief, the pretrial constitutes part and parcel of the proceedings, and
hence, matters dealt with therein may not be disregarded in
the process of decision making. Otherwise, the real essence
of compulsory pre-trial would be insignificant and
worthless.

Now, applying these postulates to the findings of respondent

court just quoted, it will be observed that the court's
conclusion about the supposed marriage of plaintiff to the
deceased Tee Hoon Lim Po Chuan is contrary to the weight
of the evidence brought before it during the trial and the pretrial.
Under Article 55 of the Civil Code, the declaration of the
contracting parties that they take each other as husband and
wife "shall be set forth in an instrument" signed by the
parties as well as by their witnesses and the person
solemnizing the marriage. Accordingly, the primary
evidence of a marriage must be an authentic copy of the
marriage contract. While a marriage may also be proved by
other competent evidence, the absence of the contract must
first be satisfactorily explained. Surely, the certification of
the person who allegedly solemnized a marriage is not
admissible evidence of such marriage unless proof of loss of
the contract or of any other satisfactory reason for its nonproduction is first presented to the court. In the case at bar,
the purported certification issued by a Mons. Jose M.
Recoleto, Bishop, Philippine Independent Church, Cebu
City, is not, therefore, competent evidence, there being
absolutely no showing as to unavailability of the marriage
contract and, indeed, as to the authenticity of the signature
of said certifier, the jurat allegedly signed by a second
assistant provincial fiscal not being authorized by law, since
it is not part of the functions of his office. Besides, inasmuch
as the bishop did not testify, the same is hearsay.
224

As regards the testimony of plaintiff herself on the same

point and that of her witness Antonio Nuez, there can be no
question that they are both self-serving and of very little
evidentiary value, it having been disclosed at the trial that
plaintiff has already assigned all her rights in this case to
said Nuez, thereby making him the real party in interest
here and, therefore, naturally as biased as herself. Besides, in
the portion of the testimony of Nuez copied in Annex C of
petitioner's memorandum, it appears admitted that he was
born only on March 25, 1942, which means that he was less
than eight years old at the supposed time of the alleged
marriage. If for this reason alone, it is extremely doubtful if
he could have been sufficiently aware of such event as to be
competent to testify about it.
Incidentally, another Annex C of the same memorandum
purports to be the certificate of birth of one Antonio T. Uy
supposed to have been born on March 23, 1937 at Centro
Misamis, Misamis Occidental, the son of one Uy Bien,
father, and Tan Put, mother. Significantly, respondents have
not made any adverse comment on this document. It is more
likely, therefore, that the witness is really the son of plaintiff
by her husband Uy Kim Beng. But she testified she was
childless. So which is which? In any event, if on the strength
of this document, Nuez is actually the legitimate son of Tan
Put and not her adopted son, he would have been but 13
years old in 1949, the year of her alleged marriage to Po
Chuan, and even then, considering such age, his testimony
in regard thereto would still be suspect.

Now, as against such flimsy evidence of plaintiff, the court

had before it, two documents of great weight belying the
pretended marriage. We refer to (1) Exhibit LL, the income
tax return of the deceased Tee Hoon Lim Po Chuan
indicating that the name of his wife was Ang Sick Tin and
(2) the quitclaim, Annex A of the answer, wherein plaintiff
Tan Put stated that she had been living with the deceased
without benefit of marriage and that she was his "commonlaw wife". Surely, these two documents are far more reliable
than all the evidence of the plaintiff put together.
Of course, Exhibit LL is what might be termed as pre-trial
evidence. But it is evidence offered to the judge himself, not
to the clerk of court, and should have at least moved him to
ask plaintiff to explain if not rebut it before jumping to the
conclusion regarding her alleged marriage to the deceased,
Po Chuan. And in regard to the quitclaim containing the
admission of a common-law relationship only, it is to be
observed that His Honor found that "defendants Lim Tanhu
and Ng Sua had the plaintiff execute a quitclaim on
November 29, 1967 (Annex "A", Answer) where they gave
plaintiff the amount of P25,000 as her share in the capital
and profits of the business of Glory Commercial Co. which
was engaged in the hardware business", without making
mention of any evidence of fraud and misrepresentation in
its execution, thereby indicating either that no evidence to
prove that allegation of the plaintiff had been presented by
her or that whatever evidence was actually offered did not
produce persuasion upon the court. Stated differently, since
225

the existence of the quitclaim has been duly established

without any circumstance to detract from its legal import,
the court should have held that plaintiff was bound by her
admission therein that she was the common-law wife only of
Po Chuan and what is more, that she had already renounced
for valuable consideration whatever claim she might have
relative to the partnership Glory Commercial Co.
And when it is borne in mind that in addition to all these
considerations, there are mentioned and discussed in the
memorandum of petitioners (1) the certification of the Local
Civil Registrar of Cebu City and (2) a similar certification of
the Apostolic Prefect of the Philippine Independent Church,
Parish of Sto. Nio, Cebu City, that their respective official
records corresponding to December 1949 to December 1950
do not show any marriage between Tee Hoon Lim Po Chuan
and Tan Put, neither of which certifications have been
impugned by respondent until now, it stands to reason that
plaintiff's claim of marriage is really unfounded. Withal,
there is still another document, also mentioned and
discussed in the same memorandum and unimpugned by
respondents, a written agreement executed in Chinese, but
purportedly translated into English by the Chinese Consul of
Cebu, between Tan Put and Tee Hoon Lim Po Chuan to the
following effect:
CONSULATE OF THE REPUBLIC OF
CHINA Cebu City, Philippines
T R AN S LAT I O N

This is to certify that 1, Miss Tan Ki Eng Alias

Tan Put, have lived with Mr. Lim Po Chuan
alias TeeHoon since 1949 but it recently occurs
that we are incompatible with each other and
are not in the position to keep living together
permanently. With the mutual concurrence, we
decided to terminate the existing relationship of
common law-marriage and promised not to
interfere each other's affairs from now on. The
Forty Thousand Pesos (P40,000.00) has been
given to me by Mr. Lim Po Chuan for my
subsistence.
Witnesses:
Mr. Lim Beng Guan Mr. Huang Sing Se
Signed on the 10 day of the 7th month of the
54th year of the Republic of China
(corresponding to the year 1965).
(SGD) TAN KI ENG
Verified from the records. JORGE TABAR (Pp.
283-284, Record.)
Indeed, not only does this document prove that plaintiff's
relation to the deceased was that of a common-law wife but
that they had settled their property interests with the
payment to her of P40,000.
226

In the light of all these circumstances, We find no alternative

but to hold that plaintiff Tan Put's allegation that she is the
widow of Tee Hoon Lim Po Chuan has not been
satisfactorily established and that, on the contrary, the
evidence on record convincingly shows that her relation
with said deceased was that of a common-law wife and
furthermore, that all her claims against the company and its
surviving partners as well as those against the estate of the
deceased have already been settled and paid. We take
judicial notice of the fact that the respective counsel who
assisted the parties in the quitclaim, Attys. H. Hermosisima
and Natalio Castillo, are members in good standing of the
Philippine Bar, with the particularity that the latter has been
a member of the Cabinet and of the House of
Representatives of the Philippines, hence, absent any
credible proof that they had allowed themselves to be parties
to a fraudulent document His Honor did right in recognizing
its existence, albeit erring in not giving due legal
significance to its contents.
2. If, as We have seen, plaintiff's evidence of her alleged
status as legitimate wife of Po Chuan is not only
unconvincing but has been actually overcome by the more
competent and weighty evidence in favor of the defendants,
her attempt to substantiate her main cause of action that
defendants Lim Tanhu and Ng Sua have defrauded the
partnership Glory Commercial Co. and converted its
properties to themselves is even more dismal. From the very
evidence summarized by His Honor in the decision in

question, it is clear that not an iota of reliable proof exists of

such alleged misdeeds.
Of course, the existence of the partnership has not been
denied, it is actually admitted impliedly in defendants'
affirmative defense that Po Chuan's share had already been
duly settled with and paid to both the plaintiff and his
legitimate family. But the evidence as to the actual
participation of the defendants Lim Tanhu and Ng Sua in the
operation of the business that could have enabled them to
make the extractions of funds alleged by plaintiff is at best
confusing and at certain points manifestly inconsistent.
In her amended complaint, plaintiff repeatedly alleged that
as widow of Po Chuan she is entitled to / 3 share of the
assets and properties of the partnership. In fact, her prayer in
said complaint is, among others, for the delivery to her of
such / 3 share. His Honor's statement of the case as well as
his findings and judgment are all to that same effect. But
what did she actually try to prove at the ex- parte hearing?
According to the decision, plaintiff had shown that she had
money of her own when she "married" Po Chuan and "that
prior to and just after the marriage of the plaintiff to Po
Chuan, she was engaged in the drugstore business; that not
long after her marriage, upon the suggestion of Po Chuan,
the plaintiff sold her drugstore for P125,000 which amount
she gave to her husband in the presence of Tanhu and was
invested in the partnership Glory Commercial Co. sometime
in 1950; that after the investment of the above-stated amount
227

in the partnership, its business flourished and it embarked in

the import business and also engaged in the wholesale and
retail trade of cement and GI sheets and under (sic) huge
profits." (pp. 25-26, Annex L, petition.)
To begin with, this theory of her having contributed of
P125,000 to the capital of the partnership by reason of which
the business flourished and amassed all the millions referred
to in the decision has not been alleged in the complaint, and
inasmuch as what was being rendered was a judgment by
default, such theory should not have been allowed to be the
subject of any evidence. But inasmuch as it was the clerk of
court who received the evidence, it is understandable that he
failed to observe the rule. Then, on the other hand, if it was
her capital that made the partnership flourish, why would
she claim to be entitled to only to / 3 of its assets and
profits? Under her theory found proven by respondent court,
she was actually the owner of everything, particularly
because His Honor also found "that defendants Lim Tanhu
and Ng Sua were partners in the name but they were
employees of Po Chuan that defendants Lim Tanhu and Ng
Sua had no means of livelihood at the time of their
employment with the Glory Commercial Co. under the
management of the late Po Chuan except their salaries
therefrom; ..." (p. 27, id.) Why then does she claim only
/ 3 share? Is this an indication of her generosity towards
defendants or of a concocted cause of action existing only in
her confused imagination engendered by the death of her
common-law husband with whom she had settled her

common-law claim for recompense of her services as

common law wife for less than what she must have known
would go to his legitimate wife and children?
Actually, as may be noted from the decision itself, the trial
court was confused as to the participation of defendants Lim
Tanhu and Ng Sua in Glory Commercial Co. At one point,
they were deemed partners, at another point mere employees
and then elsewhere as partners-employees, a newly found
concept, to be sure, in the law on partnership. And the
confusion is worse comfounded in the judgment which
allows these "partners in name" and "partners-employees" or
employees who had no means of livelihood and who must
not have contributed any capital in the business, "as Po
Chuan was practically the owner of the partnership having
the controlling interest", / 3 each of the huge assets and
profits of the partnership. Incidentally, it may be observed at
this juncture that the decision has made Po Chuan play the
inconsistent role of being "practically the owner" but at the
same time getting his capital from the P125,000 given to
him by plaintiff and from which capital the business
allegedly "flourished."
Anent the allegation of plaintiff that the properties shown by
her exhibits to be in the names of defendants Lim Tanhu and
Ng Sua were bought by them with partnership funds, His
Honor confirmed the same by finding and holding that "it is
likewise clear that real properties together with the
improvements in the names of defendants Lim Tanhu and
228

Ng Sua were acquired with partnership funds as these

defendants were only partners-employees of deceased Po
Chuan in the Glory Commercial Co. until the time of his
death on March 11, 1966." (p. 30, id.) It Is Our considered
view, however, that this conclusion of His Honor is based on
nothing but pure unwarranted conjecture. Nowhere is it
shown in the decision how said defendants could have
extracted money from the partnership in the fraudulent and
illegal manner pretended by plaintiff. Neither in the
testimony of Nuez nor in that of plaintiff, as these are
summarized in the decision, can there be found any single
act of extraction of partnership funds committed by any of
said defendants. That the partnership might have grown into
a multi-million enterprise and that the properties described
in the exhibits enumerated in the decision are not in the
names of Po Chuan, who was Chinese, but of the defendants
who are Filipinos, do not necessarily prove that Po Chuan
had not gotten his share of the profits of the business or that
the properties in the names of the defendants were bought
with money of the partnership. In this connection, it is
decisively important to consider that on the basis of the
concordant and mutually cumulative testimonies of plaintiff
and Nuez, respondent court found very explicitly that, and
We reiterate:
xxx xxx xxx
That the late Po Chuan was the one who
actively managed the business of the

partnership Glory Commercial Co. he was the

one who made the final decisions and approved
the appointments of new Personnel who were
taken in by the partnership; that the late Po
Chuan and defendants Lim Tanhu and Ng Sua
are brothers, the latter to (2) being the elder
brothers of the former; that defendants Lim
Tanhu and Ng Sua are both naturalized Filipino
citizens whereas the late Po Chuan until the
time of his death was a Chinese citizen; that the
three (3) brothers were partners in the Glory
Commercial Co. but Po Chuan was practically
the owner of the partnership having the
controlling interest; that defendants Lim Tanhu
and Ng Sua were partners in name but they
were mere employees of Po Chuan; .... (Pp. 9091, Record.)
If Po Chuan was in control of the affairs and the running of
the partnership, how could the defendants have defrauded
him of such huge amounts as plaintiff had made his Honor
believe? Upon the other hand, since Po Chuan was in control
of the affairs of the partnership, the more logical inference is
that if defendants had obtained any portion of the funds of
the partnership for themselves, it must have been with the
knowledge and consent of Po Chuan, for which reason no
accounting could be demanded from them therefor,
considering that Article 1807 of the Civil Code refers only to
what is taken by a partner without the consent of the other
229

partner or partners. Incidentally again, this theory about Po

Chuan having been actively managing the partnership up to
his death is a substantial deviation from the allegation in the
amended complaint to the effect that "defendants Antonio
Lim Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and
Eng Chong Leonardo, through fraud and machination, took
actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory
Commercial Co., defendants managed to use the funds of the
partnership to purchase lands and buildings etc. (Par. 4, p. 2
of amended complaint, Annex B of petition) and should not
have been permitted to be proven by the hearing officer, who
naturally did not know any better.
Moreover, it is very significant that according to the very tax
declarations and land titles listed in the decision, most if not
all of the properties supposed to have been acquired by the
defendants Lim Tanhu and Ng Sua with funds of the
partnership appear to have been transferred to their names
only in 1969 or later, that is, long after the partnership had
been automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to
account to anyone for such acquisitions in the absence of
clear proof that they had violated the trust of Po Chuan
during the existence of the partnership. (See Hanlon vs.
Hansserman and. Beam, 40 Phil. 796.)
There are other particulars which should have caused His
Honor to readily disbelieve plaintiffs' pretensions. Nuez

testified that "for about 18 years he was in charge of the GI

sheets and sometimes attended to the imported items of the
business of Glory Commercial Co." Counting 18 years back
from 1965 or 1966 would take Us to 1947 or 1948. Since
according to Exhibit LL, the baptismal certificate produced
by the same witness as his birth certificate, shows he was
born in March, 1942, how could he have started managing
Glory Commercial Co. in 1949 when he must have been
barely six or seven years old? It should not have escaped His
Honor's attention that the photographs showing the premises
of Philippine Metal Industries after its organization "a year
or two after the establishment of Cebu Can Factory in 1957
or 1958" must have been taken after 1959. How could
Nuez have been only 13 years old then as claimed by him
to have been his age in those photographs when according to
his "birth certificate", he was born in 1942? His Honor
should not have overlooked that according to the same
witness, defendant Ng Sua was living in Bantayan until he
was directed to return to Cebu after the fishing business
thereat floundered, whereas all that the witness knew about
defendant Lim Teck Chuan's arrival from Hongkong and the
expenditure of partnership money for him were only told to
him allegedly by Po Chuan, which testimonies are veritably
exculpatory as to Ng Sua and hearsay as to Lim Teck Chuan.
Neither should His Honor have failed to note that according
to plaintiff herself, "Lim Tanhu was employed by her
husband although he did not go there always being a mere
employee of Glory Commercial Co." (p. 22, Annex the
decision.)
230

The decision is rather emphatic in that Lim Tanhu and Ng

Sua had no known income except their salaries. Actually, it
is not stated, however, from what evidence such conclusion
was derived in so far as Ng Sua is concerned. On the other
hand, with respect to Lim Tanhu, the decision itself states
that according to Exhibit NN-Pre trial, in the supposed
income tax return of Lim Tanhu for 1964, he had an income
of P4,800 as salary from Philippine Metal Industries alone
and had a total assess sable net income of P23,920.77 that
year for which he paid a tax of P4,656.00. (p. 14. Annex
L, id.) And per Exhibit GG-Pretrial in the year, he had a net
income of P32,000 for which be paid a tax of P3,512.40.
(id.) As early as 1962, "his fishing business in Madridejos
Cebu was making money, and he reported "a net gain from
operation (in) the amount of P865.64" (id., per Exhibit VVPre-trial.) From what then did his Honor gather the
conclusion that all the properties registered in his name have
come from funds malversed from the partnership?
It is rather unusual that His Honor delved into financial
statements and books of Glory Commercial Co. without the
aid of any accountant or without the same being explained
by any witness who had prepared them or who has
knowledge of the entries therein. This must be the reason
why there are apparent inconsistencies and inaccuracies in
the conclusions His Honor made out of them. In Exhibit SSPre-trial, the reported total assets of the company amounted
to P2,328,460.27 as of December, 1965, and yet, Exhibit TTPre-trial, according to His Honor, showed that the total value

of goods available as of the same date was P11,166,327.62.

On the other hand, per Exhibit XX-Pre-trial, the supposed
balance sheet of the company for 1966, "the value of
inventoried merchandise, both local and imported", as found
by His Honor, was P584,034.38. Again, as of December 31,
1966, the value of the company's goods available for sale
was P5,524,050.87, per Exhibit YY and YY-Pre-trial. Then,
per Exhibit II-3-Pre-trial, the supposed Book of Account,
whatever that is, of the company showed its "cash analysis"
was P12,223,182.55. We do not hesitate to make the
observation that His Honor, unless he is a certified public
accountant, was hardly qualified to read such exhibits and
draw any definite conclusions therefrom, without risk of
erring and committing an injustice. In any event, there is no
comprehensible explanation in the decision of the
conclusion of His Honor that there were P12,223,182.55
cash money defendants have to account for, particularly
when it can be very clearly seen in Exhibits 11-4, 11-4- A,
11-5 and 11-6-Pre-trial, Glory Commercial Co. had accounts
payable as of December 31, 1965 in the amount of
P4,801,321.17. (p. 15, id.) Under the circumstances, We are
not prepared to permit anyone to predicate any claim or right
from respondent court's unaided exercise of accounting
knowledge.
Additionally, We note that the decision has not made any
finding regarding the allegation in the amended complaint
that a corporation denominated Glory Commercial Co., Inc.
was organized after the death of Po Chuan with capital from
231

the funds of the partnership. We note also that there is

absolutely no finding made as to how the defendants Dy
Ochay and Co Oyo could in any way be accountable to
plaintiff, just because they happen to be the wives of Lim
Tanhu and Ng Sua, respectively. We further note that while
His Honor has ordered defendants to deliver or pay jointly
and severally to the plaintiff P4,074,394.18 or / 3 of the
P12,223,182.55, the supposed cash belonging to the
partnership as of December 31, 1965, in the same breath,
they have also been sentenced to partition and give / 3 share
of the properties enumerated in the dispositive portion of the
decision, which seemingly are the very properties allegedly
purchased from the funds of the partnership which would
naturally include the P12,223,182.55 defendants have to
account for. Besides, assuming there has not yet been any
liquidation of the partnership, contrary to the allegation of
the defendants, then Glory Commercial Co. would have the
status of a partnership in liquidation and the only right
plaintiff could have would be to what might result after such
liquidation to belong to the deceased partner, and before this
is finished, it is impossible to determine, what rights or
interests, if any, the deceased had (Bearneza vs. Dequilla 43
Phil. 237). In other words, no specific amounts or properties
may be adjudicated to the heir or legal representative of the
deceased partner without the liquidation being first
terminated.

further pointing out the inexplicable deficiencies and

imperfections of the decision in question. After all, what
have been discussed should be more than sufficient to
support Our conclusion that not only must said decision be
set aside but also that the action of the plaintiff must be
totally dismissed, and, were it not seemingly futile and
productive of other legal complications, that plaintiff is
liable on defendants' counterclaims. Resolution of the other
issues raised by the parties albeit important and perhaps
pivotal has likewise become superfluous.
IN VIEW OF ALL THE FOREGOING, the petition is
granted. All proceedings held in respondent court in its Civil
Case No. 12328 subsequent to the order of dismissal of
October 21, 1974 are hereby annulled and set aside,
particularly the ex-parte proceedings against petitioners and
the decision on December 20, 1974. Respondent court is
hereby ordered to enter an order extending the effects of its
order of dismissal of the action dated October 21, 1974 to
herein petitioners Antonio Lim Tanhu, Dy Ochay, Alfonso
Leonardo Ng Sua and Co Oyo. And respondent court is
hereby permanently enjoined from taking any further action
in said civil case gave and except as herein indicated. Costs
against private respondent.
Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ.,
concur.

Indeed, only time and the fear that this decision would be
much more extended than it is already prevent us from
232

B. PROPERTY RIGHTS OF A PARTNER (CIVIL

CODE: Art. 1810- 1814)
22. US vs Clarin
G.R. No. 5840

September 17, 1910

THE UNITED STATES, plaintiff-appellee, vs. EUSEBIO

CLARIN, defendant-appellant.
FACTS:
Sometime before 1910, Pedro Larin formed a partnership
with Tarug, Eusebio Clarin and de Guzman. Larin, being the
capitalist, agreed to contribute P172.00 to the partnership
and the 3 others shall use said fund to trade mangoes. The 3
industrial partners bought mangoes and sell them and they
earned P203.00 but they failed to give Larins share of the
profits. Larin charged them with the crime of estafa, but the
provincial fiscal filed an information only against Eusebio
Clarin in which he accused him of appropriating to himself
not only the P172 but also the share of the profits that
belonged to Larin, amounting to P15.50. Clarin was
eventually convicted.
ISSUE: Whether or not the conviction is correct.
HELD: No. The P172.00 having been received by the
partnership, the business commenced and profits accrued,
the action that lies with the partner who furnished the capital
for the recovery of his money is not a criminal action for
estafa, but a civil one arising from the partnership contract
for a liquidation of the partnership and a levy on its assets if
there should be any.

The then Penal Code provides that those who are guilty of
estafa are those who, to the prejudice of another, shall
appropriate or misapply any money, goods, or any kind of
personal property which they may have received as a deposit
on commission for administration or in any other producing
the obligation to deliver or return the same, (as, for
example, in commodatum, precarium, and other unilateral
contracts which require the return of the same thing
received) does not include money received for a partnership;
otherwise the result would be that, if the partnership, instead
of obtaining profits, suffered losses, as it could not be held
liable civilly for the share of the capitalist partner who
reserved the ownership of the money brought in by him, it
would have to answer to the charge of estafa, for which it
would be sufficient to argue that the partnership had
received the money under obligation to return it.
ARELLANO, C.J.:
Pedro Larin delivered to Pedro Tarug P172, in order that the
latter, in company with Eusebio Clarin and Carlos de
Guzman, might buy and sell mangoes, and, believing that he
could make some money in this business, the said Larin
made an agreement with the three men by which the profits
were to be divided equally between him and them.
Pedro Tarug, Eusebio Clarin, and Carlos de Guzman did in
fact trade in mangoes and obtained P203 from the business,
but did not comply with the terms of the contract by
delivering to Larin his half of the profits; neither did they
render him any account of the capital.
233

Larin charged them with the crime of estafa, but the

provincial fiscal filed an information only against Eusebio
Clarin in which he accused him of appropriating to himself
not only the P172 but also the share of the profits that
belonged to Larin, amounting to P15.50.

capital to him, but upon the partnership of which he himself

formed part, or if it were to be done by one of the three
specifically, it would be Tarug, who, according to the
evidence, was the person who received the money directly
from Larin.

Pedro Tarug and Carlos de Guzman appeared in the case as

witnesses and assumed that the facts presented concerned
the defendant and themselves together.

The P172 having been received by the partnership, the

business commenced and profits accrued, the action that lies
with the partner who furnished the capital for the recovery
of his money is not a criminal action for estafa, but a civil
one arising from the partnership contract for a liquidation of
the partnership and a levy on its assets if there should be
any.

The trial court, that of First Instance of Pampanga, sentenced

the defendant, Eusebio Clarin, to six months'arresto mayor,
to suffer the accessory penalties, and to return to Pedro Larin
P172, besides P30.50 as his share of the profits, or to
subsidiary imprisonment in case of insolvency, and to pay
the costs. The defendant appealed, and in deciding his
appeal we arrive at the following conclusions:
When two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the
intention of dividing the profits among themselves, a
contract is formed which is called partnership. (Art. 1665,
Civil Code.)
When Larin put the P172 into the partnership which he
formed with Tarug, Clarin, and Guzman, he invested his
capital in the risks or benefits of the business of the purchase
and sale of mangoes, and, even though he had reserved the
capital and conveyed only the usufruct of his money, it
would not devolve upon of his three partners to return his

No. 5 of article 535 of the Penal Code, according to which

those are guilty of estafa "who, to the prejudice of another,
shall appropriate or misapply any money, goods, or any kind
of personal property which they may have received as a
deposit on commission for administration or in any other
character producing the obligation to deliver or return the
same," (as, for example, in commodatum, precarium, and
other unilateral contracts which require the return of the
same thing received) does not include money received for a
partnership; otherwise the result would be that, if the
partnership, instead of obtaining profits, suffered losses, as it
could not be held liable civilly for the share of the capitalist
partner who reserved the ownership of the money brought in
by him, it would have to answer to the charge of estafa, for

234

which it would be sufficient to argue that the partnership had

received the money under obligation to return it.
We therefore freely acquit Eusebio Clarin, with the costs de
oficio. The complaint for estafa is dismissed without
prejudice to the institution of a civil action.
Torres, Johnson, Moreland and Trent, JJ., concur.
23. Celino v. CA (no digest dwarf case)
G.R. No. 77569 June 29, 1988
RICARDO CELINO, petitioner, vs.THE CA and THE
PP, respondents.
CORTES, J.: On August 14, 1981, the First Assistant
Provincial Fiscal of Laguna filed with the CFI, Eight
Judicial District, Branch IV, Calamba, Laguna, an
information for ESTAFA against Zosimo Celino, Ricardo
Celino and Requerido Celino. The information alleged the
following:
That sometime on or about March 17, 1978 and
subsequently thereafter, at Brgy. San Nicolas,
Bay, Laguna and within the jurisdiction of this
Honorable Court, the above-named accused,
with intent to defraud and by means of false
pretenses, did then and there wilfully,
unlawfully, and feloniously conspiring,
confederating and helping with each other and

falsely pretending to possess power, influence

and/or imaginary transaction, induced one
JOSE TAN KAPOE to believe that hidden
treasures can be recovered in the latter's yard
and as a consequence thereof, demands the sum
of P50,230.00 in exchange to such treasures, as
in fact said accused received said amount in
trust, and once in possession thereof, thru
deceitful means misappropriated and
misapplied said amount to their own personal
use and benefit, to the damage and prejudice of
JOSE TAN KAPOE in the aforementioned
amount of P50,230.00, Philippine
Currency.CONTRARY TO LAW. (p. 8, Rollo.)
Assisted by their counsel, Ricardo Celino and Zosimo
Celino pleaded not guilty to the crime charged. During the
arraignment accused Requerido Celino remained at large. It
appears that only Ricardo Celino, the petitioner, stood for
trial in as much as on July 20, 1983, the trial court dismissed
the case against Zosimo Celino who died on June 11, 1983.
In a decision dated May 29, 1985, the TC found accused
Ricardo Celino guilty of the clime charged and sentenced
him as follows:
IN VIEW OF ALL THE FOREGOING, the
prosecution having established the participation
of accused Ricardo Celino as co-principal,
beyond reasonable doubt, in the commission of
235

the crime of estafa under Article 315, No. 2 (a)

of the Revised Penal Code, the Court hereby
finds accused Ricardo Celino guilty thereof and
hereby sentences him to suffer imprisonment,
after applying the Indeterminate Sentence Law,
to (2) years, (11) months and (10) days
of prision correccional as the MINIMUM to (8)
years of prision mayor as the MAXIMUM; and
to return to complainant Jose Tan Kapoe the
amount of P41,300.00, and to pay the costs of
litigation.
SO ORDERED. (p. 9, Rollo.)
The prosecution's version of the facts as testified to by
complainant Jose Tan Kapoe, his employee-overseer,
Feliciano Batitis, his driver, Ricardo de la Cruz and Pat. Jose
Batacan, is summarized in the trial court's decision as
follows:
Complainant Jose Tan Kapoe testified that on
March 17, 1978, accused Zosimo and Ricardo
Celino together with (2) other companions went
to his house and informed him that there was a
hidden treasure under his lot located in the
poblacion of Calauan, Laguna; that accused
Zosimo and Ricardo Celino told him that a
certain dwarf entering the body of Zosimo is
giving instructions to the latter as to the digging
operations; that he will be given millions of

pesos; that because he and accused Ricardo

Celino as well as their fathers were close
friends, he believed them; that they dug a hole
in his ricemill up to May 31, 1978; that they
told him that they discovered a treasure, a jar
full of gold; that both accused Ricardo and
Zosimo did not allow him to see it by covering
it with a sack and white cloth; that both Ricardo
and Zosimo told him to give P10,000.00 and he
got the money from his safety vault, placed it in
a white envelope, 6x3 inches, and gave it to the
accused Zosimo; that both Ricardo and Zosimo
went inside the little room under the stairs of
his house where they brought the jar filled with
treasure and placed the money on the treasure;
that Ricardo and Zosimo stayed in the room for
about 1/2 hour and then they went out of the
room and closed the door; that Zosimo told him
that they are going back upon instructions of
the dwarf and that they will communicate with
him again; that the second time, he was told by
the (2) brothers, Requerido and Cipriano Celino
to give P5,000.00 which he also placed in a
white envelope; that he gave the money to
Zosimo who together with his father, accused
Ricardo, went inside again the room and they
said that they placed the money on the treasure;
that he was forbidden to enter or touch the
treasure because the dwarf will be angry; that
236

the 3RD time, it was Requerido Celino who

advised him to give money allegedly upon
instructions of the dwarf and he withdrew
money from the Bank of the Philippine Islands
and they went through the same procedure in
placing the money in the white envelope and
entering the room; that Zosimo required him to
go to the church of Landayan, located at San
Pedro, Laguna for (3) consecutive days; that the
Celinos continued to ask for money to be put in
the jar and he got from said bank (Exh. A-1);
that all in all, the money which he had given to
the accused amounted to P50,230.00 (Exh. A);
that when his savings in the bank was
exhausted, he asked them to set a deadline and
he was told May 30, 1979; that he was hoping
by that time, he will get back the money and the
gold; that they did not fulfill their promise on
May 30, 1979 and so he opened the jar and
found that it contained only newspaper, comics,
rocks and soil; that thereafter, he wrote a letter
to Zosimo to return his money through his
driver Batitis (Exh. B) and Zosimo wrote back
that he will return the money (Exh. C), (TSN,
Hearings of April 28, 1982 and April 21, 1983.)
Prosecution witness Feliciano Batitis who is
working for complainant Tan Kapoe as an
overseer confirmed the fact that he was

instructed by complainant to go to the house of

Ricardo and Zosimo at Barrio Maslit and bring
the letter (Exh. B) after the jar was opened and
complainant found nothing; and, the fact that
Zosimo wrote a letter signed by "Apo Dapo"
the alleged name of the dwarf who were (sic)
possessing ("sumasapi") Zosimo (Exh. C). He
likewise testified that he had seen Ricardo and
his sons Zosimo and Requerido in the house of
complainant many times in 1978 but he did not
hear what they were talking about; that he saw
them after that excavating and digging inside
the ricemill; that he saw complainant give the
amounts of P10,000.00 and P5,000.00 to
accused Zosimo and Ricardo. (TSN, Hearing of
May 16, 1983.)
The third prosecution witness, Ricardo dela
Cruz is the driver of herein complainant. He
testified that he saw the three (3) accused
digging inside the ricemill; that he accompanied
complainant to get money from the Bank of
Philippine Islands; that he saw complainant
give an envelope to accused Ricardo who
handed the same to Zosimo and the latter went
inside the room under the stairs, that after
Zosimo got out of the room, complainant was
told not to touch the envelope containing
money which he left inside the room; that
237

accused Ricardo was present when this was

said; that he saw only the giving of P10,000.00
(TSN. Hearing of July 20, 1983.)
Pat. Jose Batacan merely attested to the fact
that upon his investigation when the matter was
reported to the police by complainant, he found
a hole dug in the ricemill of complainant; that
he saw the jar containing sand and pieces of
paper. (TSN, Hearing of October 19, 1983.)
On the other hand, the defense relied on the testimonies of
accused Ricardo Celino and one Gualberto Libres:
In his defense, accused Ricardo Celino testified
that he never discussed with complainant about
a hidden treasure; that if indeed complainant
gave money to his son Zosimo Celino (now
deceased), he did not know anything about it;
that complainant got angry with him because
complainant wanted him to return the money
given to his son Zosimo; that when he asked his
son Zosimo if complainant gave him money,
Zosimo denied it; that complainant told him
that he had given money to Zosimo and if they
will not admit that he gave money, he will file a
case against them; that he told complainant not
to include him in the case he will file because
he had not done anything wrong to him and
complainant told him that if he (accused

Ricardo) will not return the money, he will be

included in the charge; that he answered him
why will he return the money when his son did
not give him any money; that witnesses Batitis
and dela Cruz testified against him because
they are complainant's servants; that he and his
son Zosimo were likewise charged of estafa at
San Pablo City where his son pleaded guilty
and the case against him dismissed. (TSN,
Hearing of June 20,1984.)
Gualberto Libres testified that he is a neighbor
of accused Ricardo Celino and that his house is
(1) meter away from the house of Ricardo; that
when complainant was looking for Zosimo, he
never asked about accused Ricardo Celino.
(TSN, Hearing of January 23, 1985.)
The CA affirmed the decision of the trial court finding the
accused Ricardo Celino guilty beyond reasonable doubt. The
case is now before this Court for review. There are (2) errors
allegedly committed by the appellate court, to wit:
I THE CA ERRED IN NOT APPLYING PROVISIONS OF
LAW AND THE JURISPRUDENCE LAID DOWN BY
THE SUPREME COURT, IN THE CASE AT BAR.
II THE CA ERRED IN ARRIVING AT A CONCLUSION
WHICH IS CONTRARY TO THE FACTS AND
CIRCUMSTANCES OF THE CASE.
238

After a careful scrutiny of the record of this case, the Court

finds that the CA committed no reversible error in affirming
Ricardo Celinos conviction.

2. By means of any of the following false pretenses of

fraudulent acts executed prior to or simultaneously with the
commission of the fraud:

There is no merit to the petitioner's pretense that the

transaction between him and the complainant was one of
"joint venture" and that if he had any liability at all, it is civil
in nature. The evidence presented in this case conclusively
shows that Ricardo Celino, together with his two sons,
Zosimo (deceased) and Requerido, led the complainant to
believe that there was a hidden treasure underneath his lot;
that a dwarf whose spirit supposedly entered the body of
Zosimo directed the digging operations; that to obtain said
treasure and upon instructions of the "dwarf," it was
necessary for the complainant to give the accused money
which amounted to P41,300.00 all in all and to pray in the
church for three (3) consecutive days.

(a) By using a fictitious name, or falsely pretending to

possess power, influence, qualifications, property, credit,
agency, business or imaginary transactions; or by means of
other similar deceits. (Emphasis supplied).xxx xxx xxx

Under the abovestated facts, both the trial court and the CA
found that that there was proof beyond reasonable doubt that
the act committed by the petitioner constitutes the crime of
estafa defined and punished under Article 315, 2(a) of the
Revised Penal Code, to wit:
Art. 315. Swindling (estafa). Any person who shall
defraud another by any of the means mentioned hereinbelow
shall be punished by:xxx xxx xxx

Furthermore, no evidence was adduced by petitioner in

support of his contention that he and the complainant were
partners in a "joint venture" transaction. The case of U.S. v.
Clarin [17 Phil. 85 (1910)] cited by the petitioner is
therefore not applicable. The facts clearly show that
petitioner together with his sons pretended to possess power
to find hidden treasure in order to fleece the complainant of
his hard-earned money. Contrary to the petitioner's
allegation, the TC and the CA correctly applied the law and
jurisprudence laid down by this Court on the matter. Under
the cases of People v. Scott [62 Phil 553 (1935)] and U.S. v.
de los Reyes [34 Phil. 693 (1916)] bearing similar facts as
the case at bar, the acts committed by the petitioner
constitute a classic case of swindling under Art. 315 2(a) of
the Revised Penal Code aforequoted.
WHEREFORE, the petition for certiorari is DENIED for
lack of merit. The Court of Appeals decision dated
November 11, 1986 is AFFIRMED.
Fernan (Chairman), Feliciano and Bidin, JJ., concur.
239

IV. OBLIGATIONS OF PARTNERSHIPS/ PARTNERS TO

THIRD PERSONS (ART. 1815- 1827)
24. Torres v CA & M. Torres
[G.R. No. 134559. December 9, 1999]
ANTONIA TORRES, assisted by her husband, ANGELO
TORRES; and EMETERIA BARING, petitioners, vs.
CA and MANUEL TORRES, respondents.
FACTS:
Sisters Antonia Torres and Emeteria Baring, petitioners,
entered into a joint venture agreement with Respondent
Manuel Torres for the development of a parcel of land into a
subdivision. They executed a Deed of Sale in favour the
respondent, who had it registered in his name. Respondent
mortgaged the property and obtained loan from Equitable
Bank amounting to P40,000, which under Joint Venture
Agreement, was to be used for the subdivision development.
All 3 of them agreed to share the proceeds from the sale of
the subdivision lots.
The project did not push through, and the land was
foreclosed by the bank. Petitioners filed estafa against
respondent and wife, but were acquitted. The former filed
civil case but was dismissed by the TC. CA remanded the

case for further proceedings, RTC made a decision, and

thereby affirmed by CA.
CA held that petitioners and respondent had formed a
partnership for the development of the subdivision. Thus,
they must bear the loss suffered by the partnership in the
same proportion as their share in the profits stipulated in the
contract.
Hence, this petition.
ISSUE:
1.) WON the transaction was that a joint
venture/partnership? Partnership
2.) WON the Joint Venture Agreement is void under
Article 1773 of the Civil Code
RULING:
1.) No. Terms embodied in the Agreement shows the
existence of a partnership pursuant to Article 1767 of
the Civil Code
ART. 1767. By the contract of partnership 2 or
more persons bind themselves to contribute
money, property, / industry to a common fund,
with the intention of dividing the profits among
themselves.
The parties implemented the contract. Thus, petitioners
transferred the title to the land to facilitate its use in the
name of the respondent. On the other hand, respondent
240

caused the subject land to be mortgaged, the proceeds of

which were used for the survey and the subdivision of the
land. As noted earlier, he developed the roads, the curbs and
the gutters of the subdivision and entered into a contract to
construct low-cost housing units on the property.
Hence, respondents had contribution to the parties, hence the
existence of partnership.

he should be made to pay damages equivalent to 60 % of the

value of the property, which was their share in the profits
under the Joint Venture Agreement.
We are not persuaded. True, the CA held that petitioners acts
were not the cause of the failure of the project.[16] But
it also ruled that neither was respondent responsible
therefor
DECISION

2.) No. Article 1773 states that:

ART. 1773. A contract of partnership is void, whenever immovable
property is contributed thereto, if an inventory of said property is not
made, signed by the parties, and attached to the public instrument .

The execution of a public instrument would be useless

if there is no inventory of the property contributed,
because without its designation and description, they
cannot be subject to inscription in the Registry of
Property, and their contribution cannot prejudice 3rd
persons.

PANGANIBAN, J.:
Courts may not extricate parties from the necessary
consequences of their acts. That the terms of a contract turn
out to be financially disadvantageous to them will not
relieve them of their obligations therein. The lack of an
inventory of real property will not ipso facto release the
contracting partners from their respective obligations to
each other arising from acts executed in accordance with
their agreement.
The Case

While Article 1773 is primarily made to protect third

persons, the case at bar however does not involve
third parties who may be prejudiced
Liability of the Parties

The Petition for Review on Certiorari before us assails the March 5,

1998 Decision[1] Second Division of the (CA) in CA-GR CV No. 42378 and
its June 25, 1998 Resolution denying reconsideration. The assailed Decision
affirmed the ruling of the (RTC) of Cebu City in Civil Case No. R-21208,

Claiming that respondent was solely responsible for the

failure of the subdivision project, petitioners maintain that

WHEREFORE, for all the foregoing considerations, the Court, finding for
the defendant and against the plaintiffs, orders the dismissal of the plaintiffs

which disposed as follows:

241

complaint. The counterclaims of the defendant are likewise ordered

dismissed.No pronouncement as to costs.[3]
The Facts

Sisters Antonia Torres and Emeteria Baring, herein

petitioners, entered into a "joint venture agreement" with
Respondent Manuel Torres for the development of a parcel
of land into a subdivision. Pursuant to the contract, they
executed a Deed of Sale covering the said parcel of land in
favor of respondent, who then had it registered in his
name. By mortgaging the property, respondent obtained
from Equitable Bank a loan of P40,000 which, under the
Joint Venture Agreement, was to be used for the
development of the subdivision.[4] All 3 of them also agreed
to share the proceeds from the sale of the subdivided lots.
The project did not push through, and the land was
subsequently foreclosed by the bank.
According to petitioners, the project failed because of
respondents lack of funds or means and skills. They add that
respondent used the loan not for the development of the
subdivision, but in furtherance of his own company,
Universal Umbrella Company.
On the other hand, respondent alleged that he used the
loan to implement the Agreement. With the said amount, he
was able to effect the survey and the subdivision of the
lots. He secured the Lapu Lapu City Councils approval of

the subdivision project which he advertised in a local

newspaper. He also caused the construction of roads, curbs
and gutters. Likewise, he entered into a contract with an
engineering firm for the building of 60 low-cost housing
units and actually even set up a model house on one of the
subdivision lots. He did all of these for a total expense
of P85,000.
Respondent claimed that the subdivision project failed,
however, because petitioners and their relatives had
separately caused the annotations of adverse claims on the
title to the land, which eventually scared away prospective
buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the
project.[5]
Subsequently, petitioners filed a criminal case for estafa
against respondent and his wife, who were however
acquitted. Thereafter, they filed the present civil case which,
upon respondent's motion, was later dismissed by the trial
court in an Order dated September 6, 1982. On appeal,
however, the appellate court remanded the case for further
proceedings. Thereafter, the RTC issued its assailed
Decision, which, as earlier stated, was affirmed by the CA.
Hence, this Petition.[6]
Ruling of the CA

242

In affirming the trial court, the CA held that petitioners

and respondent had formed a partnership for the
development of the subdivision. Thus, they must bear the
loss suffered by the partnership in the same proportion as
their share in the profits stipulated in the
contract. Disagreeing with the TC pronouncement that losses
as well as profits in a joint venture should be distributed
equally,[7] the CA invoked Article 1797 of the Civil Code
which provides:
Article 1797 - The losses and profits shall be distributed in conformity
with the agreement. If only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the
profits and losses shall be in proportion to what he may have
contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such share
as may be just and equitable under the circumstances. If besides his
services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital.
The Issue

Petitioners impute to the CAs the following error:

x x x [The] CA erred in concluding that the transaction x x x
between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of

Article 1769, and other related provisions of the Civil Code

of the Philippines.[8]
The Courts Ruling

The Petition is bereft of merit.

Main Issue: Existence of a Partnership

Petitioners deny having formed a partnership with

respondent. They contend that the Joint Venture Agreement
and the earlier Deed of Sale, both of which were the bases of
the appellate courts finding of a partnership, were void.
In the same breath, however, they assert that under those
very same contracts, respondent is liable for his failure to
implement the project. Because the agreement entitled them
to receive 60 % of the proceeds from the sale of the
subdivision lots, they pray that respondent pay them
damages equivalent to 60 % of the value of the property.[9]
The pertinent portions of the Joint Venture Agreement
read as follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered into at Cebu City,
Philippines, this 5th day of March, 1969, by and between MR.
MANUEL R. TORRES, x x x the FIRST PARTY, likewise, MRS.
ANTONIA B. TORRES, and MISS EMETERIA BARING, x x x the
SECOND PARTY:
243

W I T N E S S E T H:
That, whereas, the SECOND PARTY, voluntarily offered the FIRST
PARTY, this property located at Lapu-Lapu City, Island of Mactan,
under Lot No. 1368 covering TCT No. T-0184 with a total area of
17,009 square meters, to be sub-divided by the FIRST PARTY;
Whereas, the FIRST PARTY had given the SECOND PARTY, the sum
of: (P20,000.00) Pesos, Philippine Currency, upon the execution of
this contract for the property entrusted by the SECOND PARTY, for
sub-division projects and development purposes;

FOURTH: That all general expense[s] and all cost[s] involved in the
sub-division project should be paid by the FIRST PARTY, exclusively
and all the expenses will not be deducted from the sales after the
development of the sub-division project.
FIFTH: That the sales of the sub-divided lots will be divided into 60%
for the SECOND PARTY 40% for the FIRST PARTY, and additional
profits or whatever income deriving from the sales will be divided
equally according to the x x x percentage [agreed upon] by both
parties.
SIXTH: That the intended sub-division project of the property

NOW THEREFORE, for and in consideration of the above covenants

and promises herein contained the respective parties hereto do hereby
stipulate and agree as follows:

involved will start the work and all improvements upon the adjacent
lots will be negotiated in both parties['] favor and all sales shall [be]
decided by both parties.

ONE: That the SECOND PARTY signed an absolute Deed of Sale x x

x dated March 5, 1969, in the amount of. (P25,513.50) Philippine
Currency, for 1,700 square meters at ONE [PESO] & FIFTY CTVS.
(P1.50) Philippine Currency, in favor of the FIRST PARTY, but the
SECOND PARTY did not actually receive the payment.

SEVENTH: That the SECOND PARTIES, should be given an option

to get back the property mentioned provided the amount of
(P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND
PARTY, will be paid in full to the FIRST PARTY, including all
necessary improvements spent by the FIRST PARTY, and the FIRST
PARTY will be given a grace period to turnover the property
mentioned above.

SECOND: That the SECOND PARTY, had received from the FIRST
PARTY, the necessary amount of (P20,000.00) pesos, Philippine
currency, for their personal obligations and this particular amount will
serve as an advance payment from the FIRST PARTY for the property
mentioned to be sub-divided and to be deducted from the sales.
THIRD: That the FIRST PARTY, will not collect from the SECOND
PARTY, the interest and the principal amount involving the amount of
(P20,000.00) Pesos, Philippine Currency, until the sub-division project
is terminated and ready for sale to any interested parties, and the
amount of (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.

That this AGREEMENT shall be binding and obligatory to

the parties who executed same freely and voluntarily for the
uses and purposes therein stated.[10]
A reading of the terms embodied in the Agreement
indubitably shows the existence of a partnership pursuant to
Article 1767 of the Civil Code, which provides:

244

ART. 1767. By the contract of partnership two or more

persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing
the profits among themselves.

Petitioners Bound by Terms of Contract

Under the above-quoted Agreement, petitioners would

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

ART. 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law.

It should be stressed that the parties implemented the

contract. Thus, petitioners transferred the title to the land to
facilitate its use in the name of the respondent. On the other
hand, respondent caused the subject land to be mortgaged,
the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the
roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on
the property.
Respondents actions clearly belie petitioners contention
that he made no contribution to the partnership. Under
Article 1767 of the Civil Code, a partner may contribute not
only money or property, but also industry.

Under Article 1315 of the Civil Code, contracts bind the parties not only
to what has been expressly stipulated, but also to all necessary consequences
thereof, as follows:

It is undisputed that petitioners are educated and are thus presumed to

have understood the terms of the contract they voluntarily signed. If it was
not in consonance with their expectations, they should have objected to it and
insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual stipulations may
turn out to be financially disadvantageous will not relieve parties thereto of
their obligations. They cannot now disavow the relationship formed from
such agreement due to their supposed misunderstanding of its terms.
Alleged Nullity of the Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void

under Article 1773 of the Civil Code, which provides:
ART. 1773. A contract of partnership is void, whenever
immovable property is contributed thereto, if an inventory of
said property is not made, signed by the parties, and attached
to the public instrument.

245

They contend that since the parties did not make, sign or
attach to the public instrument an inventory of the real
property contributed, the partnership is void.

Agreement an ordinary contract from which the parties

rights and obligations to each other may be inferred and
enforced.

We clarify. First, Article 1773 was intended primarily to

protect third persons. Thus, the eminent Arturo M. Tolentino
states that under the aforecited provision which is a
complement of Article 1771,[12] the execution of a public
instrument would be useless if there is no inventory of the
property contributed, because without its designation and
description, they cannot be subject to inscription in the
Registry of Property, and their contribution cannot prejudice
third persons. This will result in fraud to those who contract
with the partnership in the belief [in] the efficacy of the
guaranty in which the immovables may consist. Thus, the
contract is declared void by the law when no such inventory
is made. The case at bar does not involve third parties who
may be prejudiced.

Partnership Agreement Not the Result of an Earlier Illegal Contract

Second, petitioners themselves invoke the allegedly void

contract as basis for their claim that respondent should pay
them 60 % of the value of the property.[13] They cannot in
one breath deny the contract and in another recognize it,
depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract
and courts will not tolerate, much less approve, such
practice.
In short, the alleged nullity of the partnership will not
prevent courts from considering the Joint Venture

Petitioners also contend that the Joint Venture

Agreement is void under Article 1422[14] of the Civil Code,
because it is the direct result of an earlier illegal contract,
which was for the sale of the land without valid
consideration.
This argument is puerile. The Joint Venture Agreement
clearly states that the consideration for the sale was the
expectation of profits from the subdivision project. Its first
stipulation states that petitioners did not actually receive
payment for the parcel of land sold to
respondent. Consideration, more properly denominated
as cause, can take different forms, such as the prestation or
promise of a thing or service by another.[15]
In this case, the cause of the contract of sale consisted
not in the stated peso value of the land, but in the
expectation of profits from the subdivision project, for
which the land was intended to be used. As explained by the
trial court, the land was in effect given to the partnership as
[petitioners] participation therein. x x x There was therefore
a consideration for the sale, the [petitioners] acting in the
expectation that, should the venture come into fruition, they
[would] get sixty percent of the net profits.
246

Liability of the Parties

Claiming that respondent was solely responsible for the

failure of the subdivision project, petitioners maintain that
he should be made to pay damages equivalent to 60 % of the
value of the property, which was their share in the profits
under the Joint Venture Agreement.
We are not persuaded. True, the CA held that petitioners
acts were not the cause of the failure of the project.[16] But it
also ruled that neither was respondent responsible therefor.
[17]
In imputing the blame solely to him, petitioners failed to
give any reason why we should disregard the factual
findings of the appellate court relieving him of fault. Verily,
factual issues cannot be resolved in a petition for review
under Rule 45, as in this case.Petitioners have not alleged,
not to say shown, that their Petition constitutes one of the
exceptions to this doctrine.[18] Accordingly, we find no
reversible error in the CA's ruling that petitioners are not
entitled to damages.
WHEREFORE, the Petition is hereby DENIED and the
challenged Decision AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo, (Chairman), Vitug, Purisima, and Gonzaga-Reyes,
JJ., concur.

25. Sharruf & Co. v. Baloise Fire Insurance Co.,

G.R. No. 44119
March 30, 1937
SHARRUF & CO., known also as SHARRUF &
ESKENAZI, SALOMON SHARRUF and ELIAS
ESKENAZI,plaintiffs-appellees, vs.BALOISE FIRE
INSURANCE CO., SUN INSURANCE OFFICE, LTD., and
SPRINGFIELD INSURANCE CO., represented by
KUENZLE & STREIFF, INC., defendants-appellants.
Facts:
Sharuff and Eskenazi were doing business under the firm
name Sharuff and Co.
They insured their merchandise with Baloise. Later on,
Sharuff and Eskenazi entered into a contract of partnership
and thereby changed the firm name to Sharuff and Eskenazi.
The merchandise insured was subsequently destroyed by
fire. Sharuff and Eskenazi filed their claim against the
insurance company.
Baloise refused to pay on the ground that the policy was
issued in the name of Sharuff and Co. and not Sharuff and
Eskenazi.
Issue: Whether or not the partnership can claim the proceeds
of the policy.
Held: Yes.
247

The subsequent partnership did not alter the composition of

the firm. The people involved are actually the same.
Furthermore, such change of firm name was not made to
defraud the insurance company or some other person.

2. The lower court erred in holding, that the fire that broke out
in the premises at Nos. 299-301 Muelle de la Industria of this
city, occupied by the alleged plaintiffs, was not of incendiary
origin.

VILLA-REAL, J.:

3. The lower court erred in holding, that the "idea of using

petroleum in the fire in question, surged after the fire for the
purpose of making it appear as a part of the evidence."

This is an appeal taken by the defendant companies Baloise

Fire Insurance Co., Sun Insurance Office Ltd., and
Springfield Insurance Co., represented by Kuenzle & Streiff,
Inc., from the judgment of the Court of First instance of
Manila, the dispositive part of which reads as follows:
Wherefore, judgment is rendered ordering the defendant
insurance companies to pay to the plantiffs Salomon Sharruf
and Elias Eskenazi the total amount of P40,000 plus interest
thereon at 8 % per annum from the date of the filing of the
complaint, with the costs of the trial. The defendants shall pay
this judgment jointly in proportion to the respective policies
issued by them. The plaintiffs Salomon Sharruf and Elias
Eskenazi shall recover the judgment share and share alike,
deducting from the portion of the plaintiff Elias Eskenazi the
sum of P3,000 which belongs and shall turned over to the
intervenor E. Awad & Co., Inc. It is so ordered.

In support of their appeal the appellants assign the following

alleged errors as committed by the court a quo in its decision
in question, to wit:
1. the LC erred in holding, that Salomon Sharruf and Elias
Eskenazi had personality to sue, either as a partnership or
individually, and therefore, an insurable interest.

4. The lower court erred in holding, that the claim of loss filed
by the alleged plaintiffs was not fraudulent, but merely
inaccurate, due to the peculiar circumstances of the case,

such as the loss of invoices and sales-slips.

5. The lower court erred in sentencing the defendants to pay
jointly to the alleged plaintiffs the sum of P40,000, with
interest thereon at the rate of 8 per cent year and costs.
6. The lower court erred in overruling defendants' motion for
new trial and in failing to dismiss the case altogether, with
costs against the alleged plaintiffs.

The preponderance of the evidence shows the existence of

the following facts:.
In the months of June and July 1933, the plaintiffs Salomon
Sharruf and Elias Eskenazi were doing business under the
firm name of Sharruf & Co. As they had applied to the
defendant companies for insurance of the merchandise they
had in stock, the latter sent their representative P. E. Schiess
to examine and asses it. On July 25, 1933, the defendant
insurance companies issued insurance policies Exhibits D,
248

E, and F in the total amount of P25,000 in the name of

Sharruf & Co. issued an additional policy (Exhibit G) in the
sum of P15,000 in favor of said firm Sharruf & Co., raising
the total amount of the insurance on said merchandise to
P40,000. On August 26, 1933, the plaintiffs executed a
contract of partnership between themselves (Exhibit A)
wherein they substituted the name of Sharruf & Co. with the
Sharruf & Eskenazi, stating that Elias Eskenazi contributed
to the partnership, as his capital, goods valued at P26,299.94
listed in an inventory Exhibit B. It was likewise stated in
said contract that Salomon Sharruf brought to said
partnership, as his capital, goods valued at P24,205.10,
appearing in the inventories Exhibit C and C-1. The total
value of the merchandise contributed by both partners
amounted to P50,505.04. Part of said merchandise, most of
which were textiles, was sold for P8,000, leaving goods
worth P43,000. In all there were from 60 to 70 bolts of silk.
All the goods, most of which were aluminum kitchen
utensils, various porcelain and glass wares, and other articles
of stucco, were contained in about 39 or 40 cases. The last
time the plaintiffs were in the building was on September
19, 1933, at 4 o'clock in the afternoon. Up to the month of
September 1933, about 30 or 40 cases of merchandise
belonging to the plaintiffs were in Robles' garage at No.
1012 Mabini Street.
At about 12.41 o'clock on the morning of September 22, 1933, the fire
alarm bell rang in the different fire stations of the city. The firemen of
the San Nicolas Fire Station, headed by Captain Charles A. Baker,
were the first to arrive at the scene of the fire, followed by Captain

Thomas F. McIntyre of the Santa Cruz Fire Station, who arrived at

12.44 o'clock. Having found the door at No. 301, Muelle de la
Industria Street, where the building was in flames, locked, the firemen
pumped water on the upper part of the building and later broke open
the door through which they an entered the premises. They then saw
an inflamed liquid flowing towards the sidewalk, the flames thereon
blazing more intensely every time water fell on them. The liquid
apparently came from under the staircase of said floor. They likewise
noted that the entire space occupied by the staircase was in flames
except the adjoining room. After the fire had been extinguished, an
earthen pot (Exhibit 15) containing ashes and the residue of a certain
substance, all of which smelled of petroleum, was found by detective
Manalo near the railing of the stairway of the second floor. At about
8.30 o'clock that same morning, detective Irada found nother earthen
pot (Exhibit 16), one-fourth full of water smelled of petroleum, under
the staircase of the first floor; straw and excelsior, that also smelled of
petroleum, around said pot, a red rag (Exhibit 18) in front of the toilet,
and a towel which also smelled of petroleum can, Exhibit 21. On the
following day, September 23, 1933, photographs were taken of the
condition of the different parts of the building and of the goods found
therein. Said photographs are: Exhibit 1, showing the interior of the
first floor partially burned, with the staircase, the doorway, the wooden
partition wall and pieces of wood scattered on the floor supposed to be
from the door that was demolished; Exhibit 2, showing about 8 or 9
scorched cases, some closed and others open; Exhibit 3, showing the
space or hall of the upper floor partially damaged by the fire at the
place occupied by the staircase, with chairs piled up and unburnt,
pieces of wood and debris apparently from the cement partition wall
beside the staircase and the attic; Exhibit 4, showing the same space
taken from another angle, with the partition wall of cement and stone
and some broken railings of the stairways; Exhibit 5, showing a room
with partially burnt partition wall, with a wardrobe and a table in the
background, another table in the center, a showcase near the wall with
porcelain and iron articles on top thereof and fallen and burnt window
249

shutters on the floor; Exhibit 6, showing an open unburnt showcase

containing necklaces with limitation stones and other jewelry; Exhibit
7, showing piled up chairs and boxes and the burned and destroyed
upper part of the partition wall and attic; Exhibit 8, presenting a
showcase with a burnt top, containing kitchen utensils, tableware,
dinner pails and other articles; Exhibit 9, presenting a half-open trunk
with protruding ends of cloth, other pieces of cloth scattered on the
floor, a step of the staircase and a bench; Exhibit 10, showing the
partially destroyed attic and wires wound around the beams; Exhibit
11, presenting another view of the same attic from another angle. On
the 27th of said month and year, the following photographs were
taken: Exhibit 12, presenting a close-up of the beams and electric
wiring on September 25, 1933, was of the opinion that the wires
wound around the beam and a nail might have caused the fire, but he
could not assure whether any of the wires was burned due to an
electrical discharge the passed through it, or whether or not the fire
started from the lighting system. In the burned building the plaintiffs
kept petroleum used for cleaning the floor.

The first question to be decided in the present appeal, which

is raised in the first assignment of alleged error, is whether
or not Salomon Sharruf and Elias Eskenazi had juridical
personality to bring this action, either individually or
collectively, and whether or not they had insurable interest.
As already seen, Salomon Sharruf and Elias Eskenazi were
doing business under the firm name of Sharruf & Co. in
whose name the insurance policies were issued, Elias
Eskenazi having paid the corresponding premiums.

A policy insuring merchandise against fire is not

invalidated by the fact that the name of the insured in
the policy is incorrectly written "Lim Cuan Sy"
instead of "Lim Cuan Sy & Co.", the latter being the
proper legal designation of the firm, where it appears
that the designation "Lim Cuan Sy" was commonly
used as the name of the firm in its business dealings
and that the error in the designation of the insured in
the policy was not due to any fraudulent intent on the
part of the latter and did not mislead the insurer as to
the extent of the liability assumed.
In the present case, while it is true that at the beginning the
plaintiffs had been doing business in said name of "Sharruf
& Co.", insuring their business in said name, and upon
executing the contract of partnership (exhibit A) on August
26, 1933, they changed the title thereof to "Sharruf &
Eskenazi," the membership of the partnership in question
remained unchanged, the same and only members of the
former, Salomon Sharruf and Elias Eskenazi, being the ones
composing the latter, and it does not appear that in changing
the title of the partnership they had the intention of
defrauding the herein defendant insurance companies.
Therefore, under the above-cited doctrine the responsibility
of said defendants to the plaintiffs by virtue of the respective
insurance policies has not been altered. If this is true, the
plaintiffs have juridical personality to bring this action.

In the case of Lim Cuan Sy vs. Northern Assurance Co. (55

Phil., 248), this court said:
250

The 2nd question to be decided is that raised in the second

assignment of alleged error, which consists in whether or
not the fire which broke out in the building at Nos. 299-301
Muelle de la Industria, occupied by the plaintiffs, is of
incentiary origin.
In maintaining the affirmative, the appellants call attention
to the earthen pots Exhibits 15 and 16, the first found by
detective Manalo beside the railing of the stairways of the
upper floor and the second found by detective Irada on the
first floor, both containing liquid, ashes and other residues
which smelled of petroleum; a red rag (Exhibit 18) found by
detective Irada in front of the toilet; the partially burnt box
(Exhibit 20); and the old can (Exhibit 21) containing
garbage. The fact that the liquid found by the detectives in
the earthen jars smelled of petroleum, does not constitute
conclusive evidence that they had been used as containers
for petroleum to burn the house. Said smell could have very
well come the strips of China wood of which boxes from
abroad are made, the resin of which smells of petroleum, or
from the rags found therein which might have been used to
clean the floor by saturating them with petroleum. There
being petroleum for cleaning the floor in the building, it is
not strange that when the house caught fire the petroleum
also caught fire, the flames floating on the water coming out
from under the door from the pumps. There is neither direct
nor strong circumstantial evidence that the plaintiffs
personally or through their agents placed petroleum in the
building in order to burn it, because it was locked on the

outside and nobody was staying therein. As it cannot be

assumed that the petroleum might have burned by itself, it is
probable that the fire might have originated from the electric
wiring, although electrical engineer Mora stated that he
could not assure whether any of the wires was burned due to
an electric discharge passing through it, or whether or not
the fire was caused by the lighting system.
Upon consideration of all the evidence and circumstances
surrounding the fire, this court finds no evidence sufficient
to warrant a finding that the plaintiffs are responsible for the
fire.
With respect to the question whether or not the claim of loss
filed by the plaintiffs is fraudulent, it is alleged by them that
the total value of the textiles contained in cases deposited
inside the building when the partnership Sharruf & Eskenazi
was formed was P12,000; that of the fancy jewelry with
imitation stones from P15,000 to P17,000, and that of the
kitchen utensils and tableware made of aluminum, bronze
and glass P10,676 (Exhibits B, C, and C-1). If, as said
plaintiffs claim, they had already sold articles, mostly
textiles, valued at P8,000, a small quantity of cloth must
have been left at the time the fire occured. In their claim,
however, the textiles allegedly consumed by fire and
damaged by water are assessed by them at P12,000. The
claim of P12,000 is certainly not attributable to a mere
mistake in estimate and counting because if they had textiles
worth only P12,000 before the fire and they sold goods,
251

mostly textiles, worth P8,000, surely textiles in the same

amount of P12,000 could not have been burned and
damaged after the fire. Of the kitchen utensils and tableware
made of aluminum, bronze and glass, of which, according to
the evidence for the plaintiffs, they had a stock valued at
P10,676 (Exhibit B), there were found after the fire articles
worth only P1,248.80 (Exhibit K). Therefore, utensils valued
at P9,427.20 were lacking. A considerable amount of kitchen
utensils made of noninflammable and fire-proof material
could not, by the very nature of things have been totally
consumed by the fire. At most, said articles would have been
damaged, as the rest, and would have left traces of their
existence. The same may be said of the fancy jewels with
imitation stones, and others of which the fancy jewels with
imitation stones, and others of which the plaintiffs claim to
have had a stock worth from P15,000 to P17,000 at the time
of the fire, of which only a few valued at P3,471.16, were
left after the fire (Exhibit K). According to said plaintiffs, all
the articles, for the alleged loss of which indemnity is
sought, were contained in about 40 showcases and
wardrobes. According to the testimony of the fire station
chiefs, corrobarated by the photographs of record, the flames
caused more damage in the upper part of the rooms than in
the lower part thereof; since, of the ten or eleven cases found
inside the building after the fire, only a few were partially
burned and others scorched judging from their appearance,
the goods were damaged more by water than by fire.
According to the inventory made by White & Page, adjusters
of the insurance companies, in the presence of the plaintiffs

themselves and according to data supplied by the latter, the

total value thereof, aside, from the articles not included in
the inventories Exhibits B, C, and C-1, assessed at P744.50,
amounts to only P8,077.35. If the plaintiffs' claim that at
time of the fire there were about 40 cases inside the burnt
building were true, a ten or eleven of them were found after
the fire, traces of the thirty or twenty-nine cases allegedly
burnt would be found, since experience has shown that
during the burning of a building all the cases deposited
therein are not so reduced to ashes that the least vestige
thereof cannot be found. In the case of Go Lu vs. Yorkshire
Insurance Co. (43 Phil., 633), this court laid down the
following doctrine:
This court will legally presume that in an ordinary fire
fifty bales or boxes of bolt goods of cloth cannot be
wholly consumed or totally destroyed, and that in the
very nature of things some trace or evidence will be
left remaining of their loss or destruction.
The plaintiffs, upon whom devolve the legal obligation to
prove the existence, at the time of the fire, of the articles and
merchandise for the destruction of which they claim
indemnity from the defendant companies, have not complied
with their duty because they have failed to prove by a
preponderance of evidence that when the fire took place
there where in the burnt building articles and merchandise
in the total amount of the insurance policies or that the
textiles and other damaged and undamaged goods found in
252

the building after the fire were worth P40,000. On the

contrary, their own witness, Robles, testified that up to the
month of September, 1933, there were about 39 or 40 cases
belonging to the plaintiffs in his garage on Mabini Street,
indicating thereby that the cases of merchandise examined
by the agent of the insurance companies on July 25 and
August 15, 1933, and for which the insurance policies were
issued, were taken from the burned building where they
were found. So great is the difference between the amount of
articles insured, which the plaintiffs claim to have been in
the building before the fire, and the amount thereof shown
by the vestige of the fire to have been therein, that the most
liberal human judgment can not attribute such difference to
a mere innocent error in estimate or counting but to a
deliberate intent to demand of the insurance companies
payment of an indemnity for goods not existing at the time of
the fire, thereby constituting the so-called "fraudulent
claim" which, by express agreement between the insurers
and the insured, is a ground for exemption of the insurers
from civil liability.
Therefore, as the herein plaintiffs-appellees have acted in
bad faith in presenting a fraudulent claim, they are not
entitled to the indemnity claimed by them by virtue of the
insurance policies issued by the defendant-appellant
companies in their favor.
For the foregoing considerations, this court is of the opinion
and so holds: (1) that when the partners of a general

partnership doing business under the firm name of "Sharruf

& Co." obtain insurance policies issued to said firm and the
latter is afterwards changed to "Sharruf & Eskenazi", which
are the names of the same and only partners of said firm
"Sharruf & Co.", continuing the same business, the new firm
acquires the rights of the former under the same policies; (2)
that when the evidence relative to the cause of a fire and the
author thereof is so vague and doubtful, the insured cannot
be attributed incendiary intervention therein for the mere
fact that he had the keys to the unoccupied building in his
possession; (3) that a person who presents a claim for
damages caused by fire to articles and goods not existing at
the time of the fire does so fradulently and his claim is
fraudulent, and (4) that when immediately after a fire that
broke out inside a completely locked building, lasting
scarcely 27 minutes, only about 10 or 11 partly burned and
scorched cases, some containing textiles and wrapping paper
and others, statutes of saints, have been found without any
trace of the destruction of other cases by said fire, it can
neither logically nor reasonably be inferred that 40 of said
cases were inside the building when the fire broke out.
Wherefore, the appealed judgment is reversed, and the
defendant companies are absolved from the complaint which
is dismissed, with costs to the appellees. So ordered.
Avancea, C.J., Abad Santos, Imperial, Diaz, Laurel and
Concepcion, JJ., concur.

253

26 In the Matter of the Petition for Authority to Continue

Use of Firm Name Sycip, Salazar &Castillo,
July 30, 1979
PETITION FOR AUTHORITY TO CONTINUE USE OF
THE FIRM NAME "SYCIP, SALAZAR, FELICIANO,
HERNANDEZ & CASTILLO." LUCIANO E. SALAZAR,
FLORENTINO P. FELICIANO, BENILDO G.
HERNANDEZ. GREGORIO R. CASTILLO. ALBERTO P.
SAN JUAN, JUAN C. REYES. JR., ANDRES G.
GATMAITAN, JUSTINO H. CACANINDIN, NOEL A.
LAMAN, ETHELWOLDO E. FERNANDEZ, ANGELITO
C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A.
CATINDIG, ANCHETA K. TAN, and ALICE V.
PESIGAN,petitioners.
IN THE MATTER OF THE PETITION FOR AUTHORITY
TO CONTINUE USE OF THE FIRM NAME "OZAETA,
ROMULO, DE LEON, MABANTA & REYES." RICARDO
J. ROMULO, BENJAMIN M. DE LEON, ROMAN
MABANTA, JR., JOSE MA, REYES, JESUS S. J. SAYOC,
EDUARDO DE LOS ANGELES, and JOSE F.
BUENAVENTURA, petitioners.
RESOLUTION
MELENCIO-HERRERA, J
Facts:

Two firms asked that they be allowed to continue using the

name of their firm despite that Attys. Sycip and Ozaeta died.
Petitioners Arguments:
1. Under the law, a partnership is not prohibited from
continuing it business under the firm name of the
deceased partner. NCC 1840 explicitly sanctions
practice.
- The use by the person or partnership
continuing the business of the partnership
name, or the name of a deceased partner
thereof, shall not itself make the individual
property of the deceased partner liable for
any debts contracted by such person in the
partnership.
2. In regulating other professions (accountancy and
engineering), the legislature has authorized the
adoption of firm names without any restriction as
to the use of the name of the deceased partner.
There is no fundamental policy that is offended by
the continued use by a firm of professionals of the
firm name, which includes the name of the
deceased partner, at least where such firm name
has acquired the characteristics of a trade name
3. The Canons of Professional Ethics are not
transgressed by the continued use of the name of
the deceased partner because Canon 33 of the
Canons of Professional Ethics adopted by the
American Bar Association declared that:
- The continued use of the name of the
deceased or former partner when
permissible by local custom is not unethical
254

but care should be taken that no imposition

or deception is practiced by this use.
4. There is no possibility of imposition or deception
because the deaths of their respective deceased
partners were well-published in all newspapers of
general circulation for several days. The
stationeries now being used by them carry new
letterhead indicating the years when their
respective deceased partners were connected with
the firm. Petitioners will notify all leading national
and international law directories of the facts of
their deceased partners death.
5. No local custom prohibits the continued use of the
deceased partners name in the professional firms
name. There is no Philippine custom or usage that
recognized that the name of a law firm identifies
the firms individual members.
6. The continued use of the deceased partners name
in the firm name of law partnership has been
consistently allowed by the U.C Courts and is an
acceptable practice in the legal profession of most
countries.
ISSUE:
WON they may be allowed to continue using the
current names of their firms.
HELD:
No. The petitioners are advised to drop the names of
SYCIP and OZAETA from their respective firm names.
RATIO
Jurisprudence

- The Deen case (1953) - the court advised the

firm to desist from including in their firm
name of C.D. Johnson, who has long been
dead.
- Register of Deeds of Manila v. China
Banking Corporation (1958) in this case,
the law firm of Perkins & Ponce Enrile
moved to intervene as amicus curiae. The
Court in a Resolution stated that it would
like to e informed why the name of Perkins
is still being used although Atty. E.A.
Perkins is already dead. The Court advised
the firm to drop the name of E. A. Perkins
from the firm name, and ruled that no
practice should be allowed which in a
remote degree could give rise to
responsibility of deception.(citing the Deen
case)
The Supreme Court in the Deen and Perkins case laid
down a legal rule against which no custom or practice
to the contrary, even if proven, can prevail. This is not
to speak of our civil law which clearly ordains that a
partnership is dissolved by the death of any partner.
Custom which are contrary to law, public order or
public policy shall not be countenanced.
The use in their partnership name of the names of the
deceased partners will run counter to New Civil Code
provision under Article 1815 which state that,
Art. 1815. Every partnership shall operate
under a firm name, which may or may not
include the name of one or more of the
255

partners. Those who, not being members of the

partnership, include their names in the firm
name shall be subject to liability of a partner.

who can join an old firm, can initially ride on that old
firms reputation established by the deceased partners.

Names in a firm name of a partnership must either be

those of living partners and in the case of nonpartners, should be living persons who can be
subjected to liability. The Article 1815 of the NCC
prohibits a 3rd person from including his name in the
firm under pain of assuming the liability of a partner.
The heirs of the deceased partner in law firm
cannot be held liable as old members to the creditors
of a firm particularly where they are non- lawyers.
Canon 34 of the Canons of Professional Ethics
prohibits an agreement for the payment to the widow
and the heirs of the deceased lawyer of a percentage,
either gross or net. Of the fees received from the
future business of the deceased lawyers clients, both
because the recipients of such decision are not
lawyers and because such payments will not represent
service or responsibility on the part of the recipient.
Neither the widow nor the heirs can be held liable for
transactions entered into after the death of their
lawyer-predecessor. There being no benefit accruing,
there can be no corresponding liability.
The public relations value of the use of an old
firm name can tend to create undue advantages and
disadvantages in the practice of profession. An able
lawyer without connections will have to make name
for himself starting from scratch. Another able lawyer,

RELEVANT ARGUMENTS:
Argument #1
Under the Civil Code in Article 1840 which is
within Chapter 3 of the Title IX entitled Dissolution
and Winding Up, it primarily deals with the
exemption from liability in cases of a dissolved
partnership, of the individual property of the decreed
partner for the debts contracted by person or
partnership, which continues the business using the
partnership name or the name of the deceased partner
as part thereof. What the law contemplates therein is
the hold-over situation preparatory to formal
reorganization.
Secondly, NCC 1840 treats more of a
commercial partnership with a good will to protect
rather than of a professional partnership (with no
sealable goodwill but whose reputation depends on
the personal qualifications of its individual members).
256

A sealable goodwill can exist only in a commercial

partnership, not in a professional partnership
consisting of lawyers.

methods of advertising and encroachment on

their practice, or dealing directly with their
clients.

Argument #2
A partnership for practice of law cannot be
likened to partnership formed by other professionals
or for business. The law on accountancy specifically
allows the use of trade name in connection with the
practice of accountancy.
A partnership for the practice of law is not a
legal entity. It is a mere relationship or association for
a particular purpose. It is not a partnership formed to
carry on trade or business or of holding property. The
use of nom de plume, assumed or trade name in law
practice is improper.

The right to practice law does not only presuppose in

its possessor integrity, legal standing and attainment,
but aloe the exercise of a special privilege, highly
personal and partaking of the nature of a public trust.

PRIMARY CHARACTERITICS WHICH

DISTINGUISH THE LEGAL PROFESSION FROM
BUSINESS
1. A duty of public service, of which the
emolument is a byproduct, and in which one
may attain highest eminence without making
much money.
2. A relation as an officer of the court to the
administration of justice involving thorough
sincerity, integrity, and reliability
3. A relation to clients in the highest degree of
fiduciary
4. A relation to colleagues at the bar
characterized by candor, fairness, and
unwillingness to resort to current business

Argument #3
Canon 33 does not consider an unethical the
continued use of the name of a deceased or former
partner when such a practice is permissible by local
custom but the Canon warns that care should be taken
that no imposition or deception is practices.
In the Philippines, no local custom permits or
allows the continued use of the deceased or former
partners name. Firm names, under our custom,
identify the more active and/or more senior members
or partners of a law firm.
The possibility of deception upon the public,
real or consequential, where the name of a deceased
partner continued to be used cannot be ruled out. A
person in search of legal counsel might be guided by
the familiar ring of a distinguished name appearing in
the firm title.
Argument #6
U.S Courts have allowed the continued use of a
deceased partners name because it is sanctioned by
custom. Not so in this jurisdiction where there is no
local custom that sanctions that practice.
257

Custom has been defined as a rule of conduct

formed by repetition of acts, uniformly observed
(practiced) as a social rule, legally binding and
obligatory. Court takes no judicial notice of custom. A
custom must be proved as a fact, according to the
rules of evidence. A local custom as a source of right
cannot be considered by courts of justice unless such
custom is properly established by competent evidence
like any other fact. Merely because so9mething is
done as a matter of practice does not mean that Courts
can rely on the same for purpose of adjudication as a
juridical custom. Juridical custom must be
differentiated from social custom. The former can
supplement statutory law or be applied in the absence
of such statute. Not so with the latter.
The practice of law is related to the administration of justice
and should not be considered like as an ordinary moneymaking trade.
Petitioners desire to preserve the identity of their firms in
the eyes of the public must bow to legal and ethical
impediment.
Full text

Two separate Petitions were filed before this Court 1) by the

surviving partners of Atty. Alexander Sycip, who died on
May 5, 1975, and 2) by the surviving partners of Atty.
Herminio Ozaeta, who died on February 14, 1976, praying

that they be allowed to continue using, in the names of their

firms, the names of partners who had passed away. In the
Court's Resolution of September 2, 1976, both Petitions
were ordered consolidated.
Petitioners base their petitions on the following arguments:
1. Under the law, a partnership is not prohibited from
continuing its business under a firm name which includes
the name of a deceased partner; in fact, Article 1840 of the
Civil Code explicitly sanctions the practice when it provides
in the last paragraph that:
The use by the person or partnership continuing
the business of the partnership name, or the
name of a deceased partner as part
thereof, shall not of itself make the individual
property of the deceased partner liable for any
debts contracted by such person or
partnership. 1
2. In regulating other professions, such as accountancy and
engineering, the legislature has authorized the adoption of
firm names without any restriction as to the use, in such firm
name, of the name of a deceased partner; 2 the legislative
authorization given to those engaged in the practice of
accountancy a profession requiring the same degree of
trust and confidence in respect of clients as that implicit in
the relationship of attorney and client to acquire and use a
trade name, strongly indicates that there is no fundamental
258

policy that is offended by the continued use by a firm of

professionals of a firm name which includes the name of a
deceased partner, at least where such firm name has acquired
the characteristics of a "trade name." 3
3. The Canons of Professional Ethics are not transgressed by
the continued use of the name of a deceased partner in the
firm name of a law partnership because Canon 33 of the
Canons of Professional Ethics adopted by the American Bar
Association declares that: t.hqw
... The continued use of the name of a deceased
or former partner when permissible by local
custom, is not unethical but care should be
taken that no imposition or deception is
practiced through this use. ... 4
4. There is no possibility of imposition or deception because
the deaths of their respective deceased partners were wellpublicized in all newspapers of general circulation for
several days; the stationeries now being used by them carry
new letterheads indicating the years when their respective
deceased partners were connected with the firm; petitioners
will notify all leading national and international law
directories of the fact of their respective deceased partners'
deaths. 5
5. No local custom prohibits the continued use of a deceased
partner's name in a professional firm's name; 6 there is no
custom or usage in the Philippines, or at least in the Greater

Manila Area, which recognizes that the name of a law firm

necessarily Identifies the individual members of the firm. 7
6. The continued use of a deceased partner's name in the
firm name of law partnerships has been consistently allowed
by U.S. Courts and is an accepted practice in the legal
profession of most countries in the world. 8
The question involved in these Petitions first came under
consideration by this Court in 1953 when a law firm in Cebu
(the Deen case) continued its practice of including in its firm
name that of a deceased partner, C.D. Johnston. The matter
was resolved with this Court advising the firm to desist from
including in their firm designation the name of C. D.
Johnston, who has long been dead."
The same issue was raised before this Court in 1958 as an
incident in G. R. No. L-11964, entitled Register of Deeds of
Manila vs. China Banking Corporation. The law firm of
Perkins & Ponce Enrile moved to intervene asamicus
curiae. Before acting thereon, the Court, in a Resolution of
April 15, 1957, stated that it "would like to be informed why
the name of Perkins is still being used although Atty. E. A.
Perkins is already dead." In a Manifestation dated May 21,
1957, the law firm of Perkins and Ponce Enrile, raising
substantially the same arguments as those now being raised
by petitioners, prayed that the continued use of the firm
name "Perkins & Ponce Enrile" be held proper.
On June 16, 1958, this Court resolved: t.hqw
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After carefully considering the reasons given by

Attorneys Alfonso Ponce Enrile and Associates
for their continued use of the name of the
deceased E. G. Perkins, the Court found no
reason to depart from the policy it adopted in
June 1953 when it required Attorneys Alfred P.
Deen and Eddy A. Deen of Cebu City to desist
from including in their firm designation, the
name of C. D. Johnston, deceased. The Court
believes that, in view of the personal and
confidential nature of the relations between
attorney and client, and the high standards
demanded in the canons of professional ethics,
no practice should be allowed which even in a
remote degree could give rise to the possibility
of deception. Said attorneys are accordingly
advised to drop the name "PERKINS" from
their firm name.
Petitioners herein now seek a re-examination of the policy
thus far enunciated by the Court.
The Court finds no sufficient reason to depart from the
rulings thus laid down.
A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and
Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and
Reyes" are partnerships, the use in their partnership names
of the names of deceased partners will run counter to Article
1815 of the Civil Code which provides: t.hqw

Art. 1815. Every partnership shall operate

under a firm name, which may or may not
include the name of one or more of the partners.
Those who, not being members of the
partnership, include their names in the firm
name, shall be subject to the liability, of a
partner.
It is clearly tacit in the above provision that names in a firm
name of a partnership must either be those of living partners
and. in the case of non-partners, should be living persons
who can be subjected to liability. In fact, Article 1825 of the
Civil Code prohibits a third person from including his name
in the firm name under pain of assuming the liability of a
partner. The heirs of a deceased partner in a law firm cannot
be held liable as the old members to the creditors of a firm
particularly where they are non-lawyers. Thus, Canon 34 of
the Canons of Professional Ethics "prohibits an agreement
for the payment to the widow and heirs of a deceased lawyer
of a percentage, either gross or net, of the fees received from
the future business of the deceased lawyer's clients, both
because the recipients of such division are not lawyers and
because such payments will not represent service or
responsibility on the part of the recipient. " Accordingly,
neither the widow nor the heirs can be held liable for
transactions entered into after the death of their lawyerpredecessor. There being no benefits accruing, there ran be
no corresponding liability.
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Prescinding the law, there could be practical objections to

allowing the use by law firms of the names of deceased
partners. The public relations value of the use of an old firm
name can tend to create undue advantages and disadvantages
in the practice of the profession. An able lawyer without
connections will have to make a name for himself starting
from scratch. Another able lawyer, who can join an old firm,
can initially ride on that old firm's reputation established by
deceased partners.
B. In regards to the last paragraph of Article 1840 of the
Civil Code cited by petitioners, supra, the first factor to
consider is that it is within Chapter 3 of Title IX of the Code
entitled "Dissolution and Winding Up." The Article
primarily deals with the exemption from liability in cases of
a dissolved partnership, of the individual property of the
deceased partner for debts contracted by the person or
partnership which continues the business using the
partnership name or the name of the deceased partner as part
thereof. What the law contemplates therein is a hold-over
situation preparatory to formal reorganization.

Secondly, Article 1840 treats more of

a commercial partnership with a good will to protect rather
than of aprofessional partnership, with no saleable good will
but whose reputation depends on the personal qualifications
of its individual members. Thus, it has been held that a
saleable goodwill can exist only in a commercial partnership
and cannot arise in a professional partnership consisting of
lawyers. 9t.hqw
As a general rule, upon the dissolution of
a commercial partnership the succeeding
partners or parties have the right to carry on the
business under the old name, in the absence of a
stipulation forbidding it, (s)ince the name of a
commercial partnership is a partnership asset
inseparable from the good will of the firm. ...
(60 Am Jur 2d, s 204, p. 115) (Emphasis
supplied)
On the other hand, t.hqw
... a professional partnership the reputation of
which depends or; the individual skill of the
members, such as partnerships of attorneys or
physicians, has no good win to be distributed as
a firm asset on its dissolution, however
intrinsically valuable such skill and reputation
may be, especially where there is no provision
in the partnership agreement relating to good
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will as an asset. ... (ibid, s 203, p. 115)

(Emphasis supplied)
C. A partnership for the practice of law cannot be likened to
partnerships formed by other professionals or for business.
For one thing, the law on accountancy specifically allows
the use of a trade name in connection with the practice of
accountancy. 10 t.hqw
A partnership for the practice of law is not a
legal entity. It is a mere relationship or
association for a particular purpose. ... It is not
a partnership formed for the purpose of
carrying on trade or business or of holding
property." 11 Thus, it has been stated that "the
use of a nom de plume, assumed or trade name
in law practice is improper. 12
The usual reason given for different standards
of conduct being applicable to the practice of
law from those pertaining to business is that the
law is a profession.

Dean Pound, in his recently published

contribution to the Survey of the Legal
Profession, (The Lawyer from Antiquity to
Modern Times, p. 5) defines a profession as "a
group of men pursuing a learned art as a
common calling in the spirit of public service,
no less a public service because it may
incidentally be a means of livelihood."
xxx xxx xxx
Primary characteristics which distinguish the
legal profession from business are:
1. A duty of public service, of which the
emolument is a byproduct, and in which one
may attain the highest eminence without
making much money.
2. A relation as an "officer of court" to the
administration of justice involving thorough
sincerity, integrity, and reliability.
3. A relation to clients in the highest degree
fiduciary.
4. A relation to colleagues at the bar
characterized by candor, fairness, and
unwillingness to resort to current business
methods of advertising and encroachment on
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their practice, or dealing directly with their

clients. 13
"The right to practice law is not a natural or constitutional
right but is in the nature of a privilege or franchise. 14 It is
limited to persons of good moral character with special
qualifications duly ascertained and certified. 15 The right
does not only presuppose in its possessor integrity, legal
standing and attainment, but also the exercise of a special
privilege, highly personal and partaking of the nature of a
public trust." 16
D. Petitioners cited Canon 33 of the Canons of Professional
Ethics of the American Bar Association" in support of their
petitions.
It is true that Canon 33 does not consider as unethical the
continued use of the name of a deceased or former partner in
the firm name of a law partnership when such a practice
is permissible by local custom but the Canon warns that care
should be taken that no imposition or deception is practiced
through this use.
It must be conceded that in the Philippines, no local
custom permits or allows the continued use of a deceased or
former partner's name in the firm names of law partnerships.
Firm names, under our custom, Identify the more active
and/or more senior members or partners of the law firm. A
glimpse at the history of the firms of petitioners and of other
law firms in this country would show how their firm names

have evolved and changed from time to time as the

composition of the partnership changed. t.hqw
The continued use of a firm name after the
death of one or more of the partners designated
by it is proper only where sustained by local
custom and not where by custom this purports
to Identify the active members. ...
There would seem to be a question, under the
working of the Canon, as to the propriety of
adding the name of a new partner and at the
same time retaining that of a deceased
partner who was never a partner with the new
one. (H.S. Drinker, op. cit., supra, at pp.
207208) (Emphasis supplied).
The possibility of deception upon the public, real or
consequential, where the name of a deceased partner
continues to be used cannot be ruled out. A person in search
of legal counsel might be guided by the familiar ring of a
distinguished name appearing in a firm title.
E. Petitioners argue that U.S. Courts have consistently
allowed the continued use of a deceased partner's name in
the firm name of law partnerships. But that is so because it is
sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance
Society (33 N.Y.S. 2d 733) which petitioners Salazar, et al.
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quoted in their memorandum, the New York Supreme Court

sustained the use of the firm name Alexander & Green even
if none of the present ten partners of the firm bears either
name because the practice was sanctioned by custom and
did not offend any statutory provision or legislative policy
and was adopted by agreement of the parties. The Court
stated therein: t.hqw
The practice sought to be proscribed has the
sanction of custom and offends no statutory
provision or legislative policy. Canon 33 of the
Canons of Professional Ethics of both the
American Bar Association and the New York
State Bar Association provides in part as
follows: "The continued use of the name of a
deceased or former partner, when permissible
by local custom is not unethical, but care
should be taken that no imposition or deception
is practiced through this use." There is no
question as to local custom. Many firms in the
city use the names of deceased members with
the approval of other attorneys, bar
associations and the courts. The Appellate
Division of the First Department has considered
the matter and reached The conclusion that such
practice should not be prohibited. (Emphasis
supplied)
xxx xxx xxx

Neither the Partnership Law nor the Penal Law

prohibits the practice in question. The use of
the firm name herein is also sustainable by
reason of agreement between the partners. 18
Not so in this jurisdiction where there is no local custom that
sanctions the practice. Custom has been defined as a rule of
conduct formed by repetition of acts, uniformly observed
(practiced) as a social rule, legally binding and
obligatory. 19 Courts take no judicial notice of custom. A
custom must be proved as a fact, according to the rules of
evidence. 20 A local custom as a source of right cannot be
considered by a court of justice unless such custom is
properly established by competent evidence like any other
fact. 21 We find such proof of the existence of a local custom,
and of the elements requisite to constitute the same, wanting
herein. Merely because something is done as a matter of
practice does not mean that Courts can rely on the same for
purposes of adjudication as a juridical custom. Juridical
custom must be differentiated from social custom. The
former can supplement statutory law or be applied in the
absence of such statute. Not so with the latter.
Moreover, judicial decisions applying or interpreting the
laws form part of the legal system. 22 When the Supreme
Court in the Deen and Perkins cases issued its Resolutions
directing lawyers to desist from including the names of
deceased partners in their firm designation, it laid down a
legal rule against which no custom or practice to the
264

contrary, even if proven, can prevail. This is not to speak of

our civil law which clearly ordains that a partnership is
dissolved by the death of any partner. 23 Custom which are
contrary to law, public order or public policy shall not be
countenanced. 24
The practice of law is intimately and peculiarly related to the
administration of justice and should not be considered like
an ordinary "money-making trade." t.hqw
... It is of the essence of a profession that it is
practiced in a spirit of public service. A trade ...
aims primarily at personal gain; a profession at
the exercise of powers beneficial to mankind.
If, as in the era of wide free opportunity, we
think of free competitive self assertion as the
highest good, lawyer and grocer and farmer
may seem to be freely competing with their
fellows in their calling in order each to acquire
as much of the world's good as he may within
the allowed him by law. But the member of a
profession does not regard himself as in
competition with his professional brethren. He
is not bartering his services as is the artisan nor
exchanging the products of his skill and
learning as the farmer sells wheat or corn.
There should be no such thing as a lawyers' or
physicians' strike. The best service of the
professional man is often rendered for no

equivalent or for a trifling equivalent and it is

his pride to do what he does in a way worthy of
his profession even if done with no expectation
of reward, This spirit of public service in which
the profession of law is and ought to be
exercised is a prerequisite of sound
administration of justice according to law. The
other two elements of a profession, namely,
organization and pursuit of a learned art have
their justification in that they secure and
maintain that spirit. 25
In fine, petitioners' desire to preserve the Identity of their
firms in the eyes of the public must bow to legal and ethical
impediment.
ACCORDINGLY, the petitions filed herein are denied and
petitioners advised to drop the names "SYCIP" and
"OZAETA" from their respective firm names. Those names
may, however, be included in the listing of individuals who
have been partners in their firms indicating the years during
which they served as such.
SO ORDERED.

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