[G.R. No. 103493.

June 19, 1997]

PHILSEC

INVESTMENT CORPORATION, BPI-INTERNATIONAL FINANCE LIMITED, and ATHONA HOLDINGS,

N.V., petitioners, vs. THE HONORABLE COURT OF APPEALS, 1488, INC., DRAGO DAIC, VENTURA O. DUCAT,
PRECIOSO R. PERLAS, and WILLIAM H. CRAIG, respondents.
DECISION

MENDOZA, J.:
This case presents for determination the conclusiveness of a foreign judgment upon the rights of the parties under the same
cause of action asserted in a case in our local court.Petitioners brought this case in the Regional Trial Court of Makati, Branch 56,
which, in view of the pendency at the time of the foreign action, dismissed Civil Case No. 16563 on the ground of litis pendentia, in
addition to forum non conveniens. On appeal, the Court of Appeals affirmed. Hence this petition for review on certiorari.
The facts are as follows:
On January 15, 1983, private respondent Ventura O. Ducat obtained separate loans from petitioners Ayala International
Finance Limited (hereafter called AYALA) [1] and Philsec Investment Corporation (hereafter called PHILSEC) in the sum of
US$2,500,000.00, secured by shares of stock owned by Ducat with a market value of P14,088,995.00. In order to facilitate the
payment of the loans, private respondent 1488, Inc., through its president, private respondent Drago Daic, assumed Ducats
obligation under an Agreement, dated January 27, 1983, whereby 1488, Inc. executed a Warranty Deed with Vendors Lien by which
it sold to petitioner Athona Holdings, N.V. (hereafter called ATHONA) a parcel of land in Harris County, Texas, U.S.A., for
US$2,807,209.02, while PHILSEC and AYALA extended a loan to ATHONA in the amount of US$2,500,000.00 as initial payment of
the purchase price. The balance of US$307,209.02 was to be paid by means of a promissory note executed by ATHONA in favor of
1488, Inc. Subsequently, upon their receipt of the US$2,500,000.00 from 1488, Inc., PHILSEC and AYALA released Ducat from his
indebtedness and delivered to 1488, Inc. all the shares of stock in their possession belonging to Ducat.
As ATHONA failed to pay the interest on the balance of US$307,209.02, the entire amount covered by the note became due
and demandable. Accordingly, on October 17, 1985, private respondent 1488, Inc. sued petitioners PHILSEC, AYALA, and ATHONA
in the United States for payment of the balance of US$307,209.02 and for damages for breach of contract and for fraud allegedly
perpetrated by petitioners in misrepresenting the marketability of the shares of stock delivered to 1488, Inc. under the
Agreement. Originally instituted in the United States District Court of Texas, 165th Judicial District, where it was docketed as Case
No. 85-57746, the venue of the action was later transferred to the United States District Court for the Southern District of Texas,
where 1488, Inc. filed an amended complaint, reiterating its allegations in the original complaint. ATHONA filed an answer with
counterclaim, impleading private respondents herein as counterdefendants, for allegedly conspiring in selling the property at a price
over its market value. Private respondent Perlas, who had allegedly appraised the property, was later dropped as counterdefendant.
ATHONA sought the recovery of damages and excess payment allegedly made to 1488, Inc. and, in the alternative, the rescission of
sale of the property. For their part, PHILSEC and AYALA filed a motion to dismiss on the ground of lack of jurisdiction over their
person, but, as their motion was denied, they later filed a joint answer with counterclaim against private respondents and Edgardo V.
Guevarra, PHILSECs own former president, for the rescission of the sale on the ground that the property had been overvalued. On
March 13, 1990, the United States District Court for the Southern District of Texas dismissed the counterclaim against Edgardo V.
Guevarra on the ground that it was frivolous and [was] brought against him simply to humiliate and embarrass him. For this reason,
the U.S. court imposed so-called Rule 11 sanctions on PHILSEC and AYALA and ordered them to pay damages to Guevarra.
On April 10, 1987, while Civil Case No. H-86-440 was pending in the United States, petitioners filed a complaint For Sum of
Money with Damages and Writ of Preliminary Attachment against private respondents in the Regional Trial Court of Makati, where it
was docketed as Civil Case No. 16563. The complaint reiterated the allegation of petitioners in their respective counterclaims in Civil
Action No. H-86-440 of the United States District Court of Southern Texas that private respondents committed fraud by selling the
property at a price 400 percent more than its true value of US$800,000.00. Petitioners claimed that, as a result of private
respondents fraudulent misrepresentations, ATHONA, PHILSEC, and AYALA were induced to enter into the Agreement and to
purchase the Houston property. Petitioners prayed that private respondents be ordered to return to ATHONA the excess payment of
US$1,700,000.00 and to pay damages. On April 20, 1987, the trial court issued a writ of preliminary attachment against the real and
personal properties of private respondents.[2]
Private respondent Ducat moved to dismiss Civil Case No. 16563 on the grounds of (1) litis pendentia, vis-a-vis Civil Action
No. H-86-440 filed by 1488, Inc. and Daic in the U.S., (2)forum non conveniens, and (3) failure of petitioners PHILSEC and BPI-IFL

to state a cause of action. Ducat contended that the alleged overpricing of the property prejudiced only petitioner ATHONA, as
buyer, but not PHILSEC and BPI-IFL which were not parties to the sale and whose only participation was to extend financial
accommodation to ATHONA under a separate loan agreement. On the other hand, private respondents 1488, Inc. and its president
Daic filed a joint Special Appearance and Qualified Motion to Dismiss, contending that the action being in personam, extraterritorial
service of summons by publication was ineffectual and did not vest the court with jurisdiction over 1488, Inc., which is a non-resident
foreign corporation, and Daic, who is a non-resident alien.
On January 26, 1988, the trial court granted Ducats motion to dismiss, stating that the evidentiary requirements of the
controversy may be more suitably tried before the forum of the litis pendentia in the U.S., under the principle in private international
law of forum non conveniens, even as it noted that Ducat was not a party in the U.S. case.
A separate hearing was held with regard to 1488, Inc. and Daics motion to dismiss. On March 9, 1988, the trial court[3] granted
the motion to dismiss filed by 1488, Inc. and Daic on the ground of litis pendentia considering that
the main factual element of the cause of action in this case which is the validity of the sale of real property in the United States between
defendant 1488 and plaintiff ATHONA is the subject matter of the pending case in the United States District Court which, under the
doctrine of forum non conveniens, is the better (if not exclusive) forum to litigate matters needed to determine the assessment and/or
fluctuations of the fair market value of real estate situated in Houston, Texas, U.S.A. from the date of the transaction in 1983 up to the
present and verily, . . . (emphasis by trial court)
The trial court also held itself without jurisdiction over 1488, Inc. and Daic because they were non-residents and the action was not
an action in rem or quasi in rem, so that extraterritorial service of summons was ineffective. The trial court subsequently lifted the
writ of attachment it had earlier issued against the shares of stocks of 1488, Inc. and Daic.
Petitioners appealed to the Court of Appeals, arguing that the trial court erred in applying the principle of litis pendentia
and forum non conveniens and in ruling that it had no jurisdiction over the defendants, despite the previous attachment of shares of
stocks belonging to 1488, Inc. and Daic.
On January 6, 1992, the Court of Appeals [4] affirmed the dismissal of Civil Case No. 16563 against Ducat, 1488, Inc., and Daic
on the ground of litis pendentia, thus:
The plaintiffs in the U.S. court are 1488 Inc. and/or Drago Daic, while the defendants are Philsec, the Ayala International Finance Ltd. (BPI-IFLs
former name) and the Athona Holdings, NV. The case at bar involves the same parties. The transaction sued upon by the parties, in both cases is
the Warranty Deed executed by and between Athona Holdings and 1488 Inc. In the U.S. case, breach of contract and the promissory note are sued
upon by 1488 Inc., which likewise alleges fraud employed by herein appellants, on the marketability of Ducats securities given in exchange for
the Texas property. The recovery of a sum of money and damages, for fraud purportedly committed by appellees, in overpricing the Texas land,
constitute the action before the Philippine court, which likewise stems from the same Warranty Deed.
The Court of Appeals also held that Civil Case No. 16563 was an action in personam for the recovery of a sum of money for alleged
tortious acts, so that service of summons by publication did not vest the trial court with jurisdiction over 1488, Inc. and Drago
Daic. The dismissal of Civil Case No. 16563 on the ground of forum non conveniens was likewise affirmed by the Court of Appeals
on the ground that the case can be better tried and decided by the U.S. court:
The U.S. case and the case at bar arose from only one main transaction, and involve foreign elements, to wit: 1) the property subject matter of the
sale is situated in Texas, U.S.A.; 2) the seller, 1488 Inc. is a non-resident foreign corporation; 3) although the buyer, Athona Holdings, a foreign
corporation which does not claim to be doing business in the Philippines, is wholly owned by Philsec, a domestic corporation, Athona Holdings is
also owned by BPI-IFL, also a foreign corporation; 4) the Warranty Deed was executed in Texas, U.S.A.
In their present appeal, petitioners contend that:
1. THE DOCTRINE OF PENDENCY OF ANOTHER ACTION BETWEEN THE SAME PARTIES FOR THE SAME
CAUSE (LITIS PENDENTIA) RELIED UPON BY THE COURT OF APPEALS IN AFFIRMING THE TRIAL COURTS
DISMISSAL OF THE CIVIL ACTION IS NOT APPLICABLE.
2. THE PRINCIPLE OF FORUM NON CONVENIENS ALSO RELIED UPON BY THE COURT OF APPEALS IN
AFFIRMING THE DISMISSAL BY THE TRIAL COURT OF THE CIVIL ACTION IS LIKEWISE NOT APPLICABLE.

3. AS A COROLLARY TO THE FIRST TWO GROUNDS, THE COURT OF APPEALS ERRED IN NOT HOLDING THAT
PHILIPPINE PUBLIC POLICY REQUIRED THE ASSUMPTION, NOT THE RELINQUISHMENT, BY THE TRIAL
COURT OF ITS RIGHTFUL JURISDICTION IN THE CIVIL ACTION FOR THERE IS EVERY REASON TO
PROTECT AND VINDICATE PETITIONERS RIGHTS FOR TORTIOUS OR WRONGFUL ACTS OR CONDUCT
PRIVATE RESPONDENTS (WHO ARE MOSTLY NON-RESIDENT ALIENS) INFLICTED UPON THEM HERE IN
THE PHILIPPINES.
We will deal with these contentions in the order in which they are made.
First. It is important to note in connection with the first point that while the present case was pending in the Court of Appeals,
the United States District Court for the Southern District of Texas rendered judgment [5] in the case before it. The judgment, which
was in favor of private respondents, was affirmed on appeal by the Circuit Court of Appeals. [6] Thus, the principal issue to be
resolved in this case is whether Civil Case No. 16536 is barred by the judgment of the U.S. court.
Private respondents contend that for a foreign judgment to be pleaded as res judicata, a judgment admitting the foreign
decision is not necessary. On the other hand, petitioners argue that the foreign judgment cannot be given the effect of res judicata
without giving them an opportunity to impeach it on grounds stated in Rule 39, 50 of the Rules of Court, to wit: want of jurisdiction,
want of notice to the party, collusion, fraud, or clear mistake of law or fact.
Petitioners contention is meritorious. While this Court has given the effect of res judicata to foreign judgments in several
cases,[7] it was after the parties opposed to the judgment had been given ample opportunity to repel them on grounds allowed under
the law.[8] It is not necessary for this purpose to initiate a separate action or proceeding for enforcement of the foreign judgment.
What is essential is that there is opportunity to challenge the foreign judgment, in order for the court to properly determine its
efficacy. This is because in this jurisdiction, with respect to actions in personam, as distinguished from actions in rem, a foreign
judgment merely constitutes prima facie evidence of the justness of the claim of a party and, as such, is subject to proof to the
contrary.[9] Rule 39, 50 provides:
SEC. 50. Effect of foreign judgments. - The effect of a judgment of a tribunal of a foreign country, having jurisdiction to pronounce the judgment
is as follows:
(a) In case of a judgment upon a specific thing, the judgment is conclusive upon the title to the thing;
(b) In case of a judgment against a person, the judgment is presumptive evidence of a right as between the parties and their successors in interest
by a subsequent title; but the judgment may be repelled by evidence of a want of jurisdiction, want of notice to the party, collusion, fraud, or clear
mistake of law or fact.
Thus, in the case of General Corporation of the Philippines v. Union Insurance Society of Canton, Ltd.,[10] which private
respondents invoke for claiming conclusive effect for the foreign judgment in their favor, the foreign judgment was considered res
judicata because this Court found from the evidence as well as from appellants own pleadings [11] that the foreign court did not make
a clear mistake of law or fact or that its judgment was void for want of jurisdiction or because of fraud or collusion by the
defendants. Trial had been previously held in the lower court and only afterward was a decision rendered, declaring the judgment of
the Supreme Court of the State of Washington to have the effect of res judicata in the case before the lower court. In the same vein,
in Philippine International Shipping Corp. v. Court of Appeals,[12] this Court held that the foreign judgment was valid and enforceable
in the Philippines there being no showing that it was vitiated by want of notice to the party, collusion, fraud or clear mistake of law or
fact. The prima facie presumption under the Rule had not been rebutted.
In the case at bar, it cannot be said that petitioners were given the opportunity to challenge the judgment of the U.S. court as
basis for declaring it res judicata or conclusive of the rights of private respondents. The proceedings in the trial court were
summary. Neither the trial court nor the appellate court was even furnished copies of the pleadings in the U.S. court or apprised of
the evidence presented thereat, to assure a proper determination of whether the issues then being litigated in the U.S. court were
exactly the issues raised in this case such that the judgment that might be rendered would constitute res judicata. As the trial court
stated in its disputed order dated March 9, 1988:
On the plaintiffs claim in its Opposition that the causes of action of this case and the pending case in the United States are not
identical, precisely the Order of January 26, 1988 never found that the causes of action of this case and the case pending before the
USA Court, were identical. (emphasis added)

It was error therefore for the Court of Appeals to summarily rule that petitioners action is barred by the principle of res judicata.
Petitioners in fact questioned the jurisdiction of the U.S. court over their persons, but their claim was brushed aside by both the trial
court and the Court of Appeals.[13]
Moreover, the Court notes that on April 22, 1992, 1488, Inc. and Daic filed a petition for the enforcement of judgment in the
Regional Trial Court of Makati, where it was docketed as Civil Case No. 92-1070 and assigned to Branch 134, although the
proceedings were suspended because of the pendency of this case. To sustain the appellate courts ruling that the foreign judgment
constitutes res judicata and is a bar to the claim of petitioners would effectively preclude petitioners from repelling the judgment in
the case for enforcement. An absurdity could then arise: a foreign judgment is not subject to challenge by the plaintiff against whom
it is invoked, if it is pleaded to resist a claim as in this case, but it may be opposed by the defendant if the foreign judgment is sought
to be enforced against him in a separate proceeding. This is plainly untenable. It has been held therefore that:
[A] foreign judgment may not be enforced if it is not recognized in the jurisdiction where affirmative relief is being sought. Hence, in the interest
of justice, the complaint should be considered as a petition for the recognition of the Hongkong judgment under Section 50 (b), Rule 39 of the
Rules of Court in order that the defendant, private respondent herein, may present evidence of lack of jurisdiction, notice, collusion, fraud or clear
mistake of fact and law, if applicable.[14]
Accordingly, to insure the orderly administration of justice, this case and Civil Case No. 92-1070 should be consolidated.
After all, the two have been filed in the Regional Trial Court of Makati, albeit in different salas, this case being assigned to Branch
56 (Judge Fernando V. Gorospe), while Civil Case No. 92-1070 is pending in Branch 134 of Judge Ignacio Capulong.In such
proceedings, petitioners should have the burden of impeaching the foreign judgment and only in the event they succeed in doing so
may they proceed with their action against private respondents.
[15]

Second. Nor is the trial courts refusal to take cognizance of the case justifiable under the principle of forum non
conveniens. First, a motion to dismiss is limited to the grounds under Rule 16, 1, which does not include forum non conveniens.
[16]
The propriety of dismissing a case based on this principle requires a factual determination, hence, it is more properly
considered a matter of defense. Second, while it is within the discretion of the trial court to abstain from assuming jurisdiction on this
ground, it should do so only after vital facts are established, to determine whether special circumstances require the courts
desistance.[17]
In this case, the trial court abstained from taking jurisdiction solely on the basis of the pleadings filed by private respondents in
connection with the motion to dismiss. It failed to consider that one of the plaintiffs (PHILSEC) is a domestic corporation and one of
the defendants (Ventura Ducat) is a Filipino, and that it was the extinguishment of the latters debt which was the object of the
transaction under litigation. The trial court arbitrarily dismissed the case even after finding that Ducat was not a party in the U.S.
case.
Third. It was error we think for the Court of Appeals and the trial court to hold that jurisdiction over 1488, Inc. and Daic could
not be obtained because this is an action in personam and summons were served by extraterritorial service. Rule 14, 17 on
extraterritorial service provides that service of summons on a non-resident defendant may be effected out of the Philippines by leave
of Court where, among others, the property of the defendant has been attached within the Philippines. [18] It is not disputed that the
properties, real and personal, of the private respondents had been attached prior to service of summons under the Order of the trial
court dated April 20, 1987.[19]
Fourth. As for the temporary restraining order issued by the Court on June 29, 1994, to suspend the proceedings in Civil Case
No. 92-1445 filed by Edgardo V. Guevarra to enforce so-called Rule 11 sanctions imposed on the petitioners by the U.S. court, the
Court finds that the judgment sought to be enforced is severable from the main judgment under consideration in Civil Case
No. 16563. The separability of Guevarras claim is not only admitted by petitioners, [20] it appears from the pleadings that petitioners
only belatedly impleaded Guevarra as defendant in Civil Case No. 16563.[21] Hence, the TRO should be lifted and Civil Case No. 921445 allowed to proceed.
WHEREFORE, the decision of the Court of Appeals is REVERSED and Civil Case No. 16563 is REMANDED to the Regional
Trial Court of Makati for consolidation with Civil Case No. 92-1070 and for further proceedings in accordance with this decision. The
temporary restraining order issued on June 29, 1994 is hereby LIFTED.
SO ORDERED.

BENSUSAN RESTAURANT CORPORATION, Plaintiff-Appellant,

v.
Richard B. KING, Individually and doing business as The Blue Note, Defendant-Appellee.
No. 1383, Docket 96-9344.

United States Court of Appeals, Second Circuit.

Argued April 9, 1997.

Decided September 10, 1997.

26*26 Dorothy M. Weber, New York City (Judith A. Kaminsky, Shukat Arrow Hafer & Weber, New York City, of counsel), for PlaintiffAppellant.

Kerry L. Konrad, New York City (Robert A. Bourque, Lori E. Lesser, Simpson Thacher & Bartlett, New York City, of counsel), for
Defendant-Appellee.

Before: VAN GRAAFEILAND, WALKER and LEVAL, Circuit Judges.

VAN GRAAFEILAND, Circuit Judge:

Bensusan Restaurant Corporation, located in New York City, appeals from a judgment of the United States District Court for the
Southern District of New York (Stein, J.) dismissing its complaint against Richard B. King, a Missouri resident, pursuant to Fed.
R.Civ.P. 12(b)(2) for lack of personal jurisdiction. We affirm.

Columbia, Missouri is a small to medium size city far distant both physically and substantively from Manhattan. It is principally a
white-collar community, hosting among other institutions Stephens College, Columbia College and the University of Missouri. It
would appear to be an ideal location for a small cabaret featuring live entertainment, and King, a Columbia resident, undoubtedly
found this to be so. Since 1980, he has operated such a club under the name "The Blue Note" at 17 North Ninth Street in Columbia.

Plaintiff alleges in its complaint that it is "the creator of an enormously successful jazz club in New York City called `The Blue Note,'"
which name "was registered as a federal trademark for cabaret services on May 14, 1985." Around 1993,
a Bensusanrepresentative wrote to King demanding that he cease and desist from calling his club The Blue Note. King's attorney
informed the 27*27 writer that Bensusan had no legal right to make the demand.

Nothing further was heard from Bensusan until April 1996, when King, at the suggestion of a local web-site design company,
ThoughtPort Authority, Inc., permitted that company to create a web-site or cyberspot on the internet for King'scabaret. This work
was done in Missouri. Bensusan then brought the instant action in the Southern District of New York, alleging violations of sections
32(1) and 43(a) of the Lanham Act, 15 U.S.C. 1114(1) & 1125(a), and section 3(c) of the Federal Trademark Dilution Act of 1995,
15 U.S.C. 1125(c), as well as common law unfair competition.

In addition to seeking trebled compensatory damages, punitive damages, costs and attorney's fees, Bensusan requests
that King be enjoined from:

using the mark "The Blue Note", or any other indicia of the Blue Note in any manner likely to cause confusion, or to cause mistake,
or to deceive, or from otherwise representing to the public in any way that [King's club] is in any way sponsored, endorsed,
approved, or authorized by, or affiliated or connected with, Plaintiff or its CABARET, by means of using any name, trademark, or
service mark of Plaintiff or any other names whatsoever, including but not limited to removal of Defendant's web-site....

The web-site describes King's establishment as "Mid-Missouri's finest live entertainment venue, ... [l]ocated in beautiful Columbia,
Missouri," and it contains monthly calendars of future events and the Missouri telephone number of King's box office. Initially, it
contained the following text:

The Blue Note's CyberSpot should not be confused with one of the world's finest jazz club Blue Note, located in the heart of New
York's Greenwich Village. If you should ever find yourself in the big apple give them a visit.

This text was followed by a hyperlink[1] that could be used to connect a reader's computer to a web-site maintained by Bensusan.
When Bensusan objected to the above-quoted language, King reworded the disclaimer and removed the hyperlink, substituting the
following disclaimer that continues in use:

The Blue Note, Columbia, Missouri should not be confused in any way, shape, or form with Blue Note Records or the jazz club, Blue
Note, located in New York. The CyberSpot is created to provide information for Columbia, Missouri area individuals only, any other
assumptions are purely coincidental.

The district court dismissed the complaint in a scholarly opinion that was published in 937 F.Supp. 295 (1996). Although we realize
that attempting to apply established trademark law in the fast-developing world of the internet is somewhat like trying to board a
moving bus, we believe that well-established doctrines of personal jurisdiction law support the result reached by the district court.

In diversity or federal question cases the court must look first to the long-arm statute of the forum state, in this instance, New
York. PDK Labs, Inc. v. Friedlander, 103 F.3d 1105, 1108 (2d Cir.1997). If the exercise of jurisdiction is appropriate under that
statute, the court then must decide whether such exercise comports with the requisites of due process. See Metropolitan Life Ins.
Co. v. Robertson-Ceco Corp.,84 F.3d 560, 567 (2d Cir.), cert. denied, ___ U.S. ___, 117 S.Ct. 508, 136 L.Ed.2d 398 (1996).
Because we believe that the exercise of personal jurisdiction in the instant case is proscribed by the law of New York, we do not
address the issue of due process.

The New York law dealing with personal jurisdiction based upon tortious acts of a non-domiciliary who does not transact business in
New York is contained in sub-paragraphs (a)(2) and (a)(3) of CPLR 302, and Bensusan claims jurisdiction with some degree of
inconsistency under both sub-paragraphs. Because King does not transact business in New York State, Bensusan 28*28 makes
no claim under section 302(a)(1). The legislative intent behind the enactment of sub-paragraphs (a)(2) and (a)(3) best can be
gleaned by reviewing their disparate backgrounds. Sub-paragraph (a)(2), enacted in 1962, provides in pertinent part that a New York
court may exercise personal jurisdiction over a non-domiciliary who "in person or though an agent" commits a tortious act within the
state. The New York Court of Appeals has construed this provision in several cases. In Feathers v. McLucas, 15 N.Y.2d 443, 458,
261 N.Y.S.2d 8, 209 N.E.2d 68 (1965), the Court held that the language "commits a tortious act within the state," as contained in
sub-paragraph (a)(2), is "plain and precise" and confers personal jurisdiction over non-residents "when they commit acts within the
state." Id. at 460, 261 N.Y.S.2d 8, 209 N.E.2d 68 (internal quotation marks omitted). Feathers adopted the view that CPLR 302(a)
(2) reaches only tortious acts performed by a defendant who was physically present in New York when he performed the wrongful
act. The official Practice Commentary to CPLR 302 explains that "if a New Jersey domiciliary were to lob a bazooka shell across
the Hudson River at Grant's tomb, Feathers would appear to bar the New York courts from asserting personal jurisdiction over the
New Jersey domiciliary in an action by an injured New York plaintiff." C302:17. The comment goes on to conclude that:

As construed by the Feathers decision, jurisdiction cannot be asserted over a non-resident under this provision unless the
nonresident commits an act in this state. This is tantamount to a requirement that the defendant or his agent be physically present in
New York.... In short, the failure to perform a duty in New York is not a tortious act in this state, under the cases, unless the
defendant or his agent enters the state.

The Court of Appeals adhered to the Feathers holding in Kramer v. Vogl, 17 N.Y.2d 27, 31, 267 N.Y.S.2d 900, 215 N.E.2d 159
(1966), and again in Platt Corp. v. Platt,17 N.Y.2d 234, 237, 270 N.Y.S.2d 408, 217 N.E.2d 134 (1966), where it said:

The failure of a man to do anything at all when he is physically in one State is not an "act" done or "committed" in another State. His
decision not to act and his not acting are both personal events occurring in the physical situs. That they may have consequences
elsewhere does not alter their personal localization as acts.

See also Ferrante Equip. Co. v. Lasker-Goldman Corp., 26 N.Y.2d 280, 285, 309 N.Y.S.2d 913, 258 N.E.2d 202 (1970).

In Harvey v. Chemie Grunenthal, G.m.b.H, 354 F.2d 428, 431 (2d Cir.1965), cert. denied, 384 U.S. 1001, 86 S.Ct. 1923, 16 L.Ed.2d
1015 (1966), we held that this construction of sub-paragraph (a)(2) should be followed. Numerous lower courts, both state and
federal, have arrived at the same conclusion. See Beckett v. Prudential Ins. Co., 893 F.Supp. 234, 239 (S.D.N.Y.1995); Kinetic
Instruments, Inc. v. Lares, 802 F.Supp. 976, 982-83 (S.D.N.Y.1992); Department of Economic Dev. v. Arthur Andersen & Co., 747
F.Supp. 922, 929 (S.D.N.Y.1990); Van Essche v. Leroy,692 F.Supp. 320, 324 (S.D.N.Y. 1988); Rolls-Royce Motors, Inc. v. Charles
Schmitt & Co., 657 F.Supp. 1040, 1052-53 (S.D.N.Y.1987); Bulk Oil (USA) Inc. v. Sun Oil Trading Co., 584 F.Supp. 36, 40-41
(S.D.N.Y.1983); Paul v. Premier Elec. Constr. Co., 576 F.Supp. 384, 389 (S.D.N.Y. 1983); Bialek v. Racal-Milgo, Inc., 545 F.Supp.
25, 35 (S.D.N.Y.1982); Selman v. Harvard Medical Sch., 494 F.Supp. 603, 612-13 (S.D.N.Y.), aff'd mem., 636 F.2d 1204 (2d
Cir.1980); Marine Midland Bank v. Keplinger & Assocs., Inc., 488 F.Supp. 699 (S.D.N.Y.1980); Lynn v. Cohen, 359 F.Supp. 565, 568
(S.D.N.Y.1973); Bauer Indus. Inc. v. Shannon Luminous Materials Co., 52 A.D.2d 897, 897-98 (2d Dep't 1976) (mem.); Glucoft v.
Northside Sav. Bank,86 Misc.2d 1007, 1008-09, 382 N.Y.S.2d 690 (N.Y.Civ.Ct. 1976); Gluck v. Fasig Tipton Co., 63 Misc.2d 82, 84,
310 N.Y.S.2d 809 (N.Y.Sup.Ct.1970); Balogh v. Rayner-Smith, 51 Misc.2d 1089, 1092, 274 N.Y.S.2d 920 (N.Y.Sup.Ct.1966).

In 1990, Judge McLaughlin, who wrote the above-quoted commentary on section 302(a)(2), further evidenced his belief that the
commentary correctly interpreted the statute when he quoted its substance in Twine v. Levy, 746 F.Supp. 1202, 1206
(E.D.N.Y.1990). As recently as 1996, another of our district judges flatly stated: 29*29To subject non-residents to New York
jurisdiction under 302(a)(2) the defendant must commit the tort while he or she is physically in New York State.

Carlson v. Cuevas, 932 F.Supp. 76, 80 (S.D.N.Y.1996)(Baer, J.).

Like the district court in Bulk Oil, supra, 584 F.Supp. at 41, we recognize that the interpretation of sub-paragraph (a)(2) in the line of
cases above cited has not been adopted by every district judge in the Second Circuit. However, the judges who differ are in the
minority. In the absence of some indication by the New York Court of Appeals that its decisions in Feathers and Platt, as interpreted
and construed in the above-cited majority of cases, no longer represent the law of New York, we believe it would be impolitic for this
Court to hold otherwise. Applying these principles, we conclude that Bensusan has failed to allege that King or his agents
committed a tortious act in New York as required for exercise of personal jurisdiction under CPLR 302(a)(2). The acts giving rise
to Bensusan's lawsuit including the authorization and creation of King's web site, the use of the words "Blue Note" and the Blue
Note logo on the site, and the creation of a hyperlink to Bensusan's web site were performed by persons physically present in
Missouri and not in New York. Even ifBensusan suffered injury in New York, that does not establish a tortious act in the state of
New York within the meaning of 302(a)(2). See Feathers, 15 N.Y.2d at 460, 261 N.Y.S.2d 8, 209 N.E.2d 68.

Bensusan's claims under sub-paragraph (a)(3) can be quickly disposed of. Sub-paragraph (a)(2) left a substantial gap in New
York's possible exercise of jurisdiction over non-residents because it did not cover the tort of a non-resident that took place outside
of New York but caused injury inside the state. Accordingly, in 1966 the New York Legislature enacted sub-paragraph (a)(3), which
provides in pertinent part that New York courts may exercise jurisdiction over a non-domiciliary who commits a tortious act without
the state, causing injury to person or property within the state. However, once again the Legislature limited its exercise of
jurisdictional largess. Insofar as is pertinent herein it restricted the exercise of jurisdiction under sub-paragraph (a)(3) to persons
who expect or should reasonably expect the tortious act to have consequences in the state and in addition derive substantial
revenue from interstate commerce. To satisfy the latter requirement, Bensusan relies on the arguments that King participated in
interstate commerce by hiring bands of national stature and received revenue from customers students of the University of
Missouri who, while residing in Missouri, were domiciliaries of other states. These alleged facts were not sufficient to establish
that substantial revenues were derived from interstate commerce, a requirement that "is intended to exclude non-domiciliaries
whose business operations are of a local character." Report of the Administrative Board of the Judicial Conference of the State of
New York for the Judicial Year July 1, 1965 through June 30, 1966, Legislative Document (1967) No. 90. See United Bank of Kuwait
v. James M. Bridges, Ltd., 766 F.Supp. 113, 117-18 (S.D.N.Y.1991); Markham v. Gray, 393 F.Supp. 163, 166
(W.D.N.Y.1975). King's"Blue Note" cafe was unquestionably a local operation.

For all the reasons above stated, we affirm the judgment of the district court.

[G.R. No. 122191. October 8, 1998]

SAUDI ARABIAN AIRLINES, petitioner, vs. COURT OF APPEALS, MILAGROS P. MORADA and HON. RODOLFO A. ORTIZ, in
his capacity as Presiding Judge of Branch 89, Regional Trial Court of Quezon City, respondents.
DECISION
QUISUMBING, J.:
This petition for certiorari pursuant to Rule 45 of the Rules of Court seeks to annul and set aside the Resolution [1] dated
September 27, 1995 and the Decision [2] dated April 10, 1996 of the Court of Appeals [3] in CA-G.R. SP No. 36533,[4] and the
Orders[5] dated August 29, 1994[6] and February 2, 1995[7] that were issued by the trial court in Civil Case No. Q-93-18394.[8]
The pertinent antecedent facts which gave rise to the instant petition, as stated in the questioned Decision [9], are as follows:
On January 21, 1988 defendant SAUDIA hired plaintiff as a Flight Attendant for its airlines based in Jeddah, Saudi
Arabia. x x x
On April 27, 1990, while on a lay-over in Jakarta, Indonesia, plaintiff went to a disco dance with fellow crew members
Thamer Al-Gazzawi and Allah Al-Gazzawi, both Saudi nationals. Because it was almost morning when they returned to
their hotels, they agreed to have breakfast together at the room of Thamer. When they were in te (sic) room, Allah left on
some pretext. Shortly after he did, Thamer attempted to rape plaintiff. Fortunately, a roomboy and several security
personnel heard her cries for help and rescued her. Later, the Indonesian police came and arrested Thamer and Allah
Al-Gazzawi, the latter as an accomplice.

When plaintiff returned to Jeddah a few days later, several SAUDIA officials interrogated her about the Jakarta
incident. They then requested her to go back to Jakarta to help arrange the release of Thamer and Allah. In Jakarta,
SAUDIA Legal Officer Sirah Akkad and base manager Baharini negotiated with the police for the immediate release of
the detained crew members but did not succeed because plaintiff refused to cooperate. She was afraid that she might
be tricked into something she did not want because of her inability to understand the local dialect. She also declined to
sign a blank paper and a document written in the local dialect. Eventually, SAUDIA allowed plaintiff to return to Jeddah
but barred her from the Jakarta flights.
Plaintiff learned that, through the intercession of the Saudi Arabian government, the Indonesian authorities agreed to
deport Thamer and Allah after two weeks of detention.Eventually, they were again put in service by defendant SAUDI
(sic). In September 1990, defendant SAUDIA transferred plaintiff to Manila.
On January 14, 1992, just when plaintiff thought that the Jakarta incident was already behind her, her superiors
requested her to see Mr. Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he
brought her to the police station where the police took her passport and questioned her about the Jakarta
incident.Miniewy simply stood by as the police put pressure on her to make a statement dropping the case against
Thamer and Allah. Not until she agreed to do so did the police return her passport and allowed her to catch the
afternoon flight out of Jeddah.
One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few minutes before the departure of her flight
to Manila, plaintiff was not allowed to board the plane and instead ordered to take a later flight to Jeddah to see Mr.
Miniewy, the Chief Legal Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA office brought her to a Saudi
court where she was asked to sign a document written in Arabic. They told her that this was necessary to close the case
against Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear before the court on June 27,
1993. Plaintiff then returned to Manila.
Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once again and see Miniewy on June 27,
1993 for further investigation. Plaintiff did so after receiving assurance from SAUDIAs Manila manager, Aslam Saleemi,
that the investigation was routinary and that it posed no danger to her.
In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27, 1993. Nothing happened then
but on June 28, 1993, a Saudi judge interrogated plaintiff through an interpreter about the Jakarta incident. After one
hour of interrogation, they let her go. At the airport, however, just as her plane was about to take off, a SAUDIA officer
told her that the airline had forbidden her to take flight. At the Inflight Service Office where she was told to go, the
secretary of Mr. Yahya Saddick took away her passport and told her to remain in Jeddah, at the crew quarters, until
further orders.
On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court where the judge, to her astonishment
and shock, rendered a decision, translated to her in English, sentencing her to five months imprisonment and to 286
lashes. Only then did she realize that the Saudi court had tried her, together with Thamer and Allah, for what happened
in Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco, dancing and listening to the music in
violation of Islamic laws; and (3) socializing with the male crew, in contravention of Islamic tradition. [10]
Facing conviction, private respondent sought the help of her employer, petitioner SAUDIA. Unfortunately, she was denied any
assistance. She then asked the Philippine Embassy in Jeddah to help her while her case is on appeal. Meanwhile, to pay for her
upkeep, she worked on the domestic flight of SAUDIA, while Thamer and Allah continued to serve in the international flights. [11]
Because she was wrongfully convicted, the Prince of Makkah dismissed the case against her and allowed her to leave Saudi
Arabia. Shortly before her return to Manila,[12] she was terminated from the service by SAUDIA, without her being informed of the
cause.
On November 23, 1993, Morada filed a Complaint [13] for damages against SAUDIA, and Khaled Al-Balawi (Al- Balawi), its
country manager.
On January 19, 1994, SAUDIA filed an Omnibus Motion To Dismiss [14] which raised the following grounds, to wit: (1) that the
Complaint states no cause of action against Saudia; (2) that defendant Al-Balawi is not a real party in interest; (3) that the claim or
demand set forth in the Complaint has been waived, abandoned or otherwise extinguished; and (4) that the trial court has no
jurisdiction to try the case.

On February 10, 1994, Morada filed her Opposition (To Motion to Dismiss)[15] Saudia filed a reply[16] thereto on March 3, 1994.
On June 23, 1994, Morada filed an Amended Complaint[17] wherein Al-Balawi was dropped as party defendant. On August 11,
1994, Saudia filed its Manifestation and Motion to Dismiss Amended Complaint [18].
The trial court issued an Order[19] dated August 29, 1994 denying the Motion to Dismiss Amended Complaint filed by Saudia.
From the Order of respondent Judge [20] denying the Motion to Dismiss, SAUDIA filed on September 20, 1994, its Motion for
Reconsideration[21] of the Order dated August 29, 1994. It alleged that the trial court has no jurisdiction to hear and try the case on
the basis of Article 21 of the Civil Code, since the proper law applicable is the law of the Kingdom of Saudi Arabia.On October 14,
1994, Morada filed her Opposition[22] (To Defendants Motion for Reconsideration).
In the Reply[23] filed with the trial court on October 24, 1994, SAUDIA alleged that since its Motion for Reconsideration raised
lack of jurisdiction as its cause of action, the Omnibus Motion Rule does not apply, even if that ground is raised for the first time on
appeal. Additionally, SAUDIA alleged that the Philippines does not have any substantial interest in the prosecution of the instant
case, and hence, without jurisdiction to adjudicate the same.
Respondent Judge subsequently issued another Order [24] dated February 2, 1995, denying SAUDIAs Motion for
Reconsideration. The pertinent portion of the assailed Order reads as follows:
Acting on the Motion for Reconsideration of defendant Saudi Arabian Airlines filed, thru counsel, on September 20,
1994, and the Opposition thereto of the plaintiff filed, thru counsel, on October 14, 1994, as well as the Reply therewith
of defendant Saudi Arabian Airlines filed, thru counsel, on October 24, 1994, considering that a perusal of the plaintiffs
Amended Complaint, which is one for the recovery of actual, moral and exemplary damages plus attorneys fees, upon
the basis of the applicable Philippine law, Article 21 of the New Civil Code of the Philippines, is, clearly, within the
jurisdiction of this Court as regards the subject matter, and there being nothing new of substance which might cause
the reversal or modification of the order sought to be reconsidered, the motion for reconsideration of the defendant, is
DENIED.
SO ORDERED.[25]
Consequently, on February 20, 1995, SAUDIA filed its Petition for Certiorari and Prohibition with Prayer for Issuance of Writ of
Preliminary Injunction and/or Temporary Restraining Order[26] with the Court of Appeals.
Respondent Court of Appeals promulgated a Resolution with Temporary Restraining Order [27] dated February 23, 1995,
prohibiting the respondent Judge from further conducting any proceeding, unless otherwise directed, in the interim.
In another Resolution[28] promulgated on September 27, 1995, now assailed, the appellate court denied SAUDIAs Petition for
the Issuance of a Writ of Preliminary Injunction dated February 18, 1995, to wit:
The Petition for the Issuance of a Writ of Preliminary Injunction is hereby DENIED, after considering the Answer, with
Prayer to Deny Writ of Preliminary Injunction (Rollo, p. 135) the Reply and Rejoinder, it appearing that herein petitioner
is not clearly entitled thereto (Unciano Paramedical College, et. Al., v. Court of Appeals, et. Al., 100335, April 7, 1993,
Second Division).
SO ORDERED.
On October 20, 1995, SAUDIA filed with this Honorable Court the instant Petition [29] for Review with Prayer for Temporary
Restraining Order dated October 13, 1995.
However, during the pendency of the instant Petition, respondent Court of Appeals rendered the Decision [30] dated April 10,
1996, now also assailed. It ruled that the Philippines is an appropriate forum considering that the Amended Complaints basis for
recovery of damages is Article 21 of the Civil Code, and thus, clearly within the jurisdiction of respondent Court. It further held
that certiorari is not the proper remedy in a denial of a Motion to Dismiss, inasmuch as the petitioner should have proceeded to trial,
and in case of an adverse ruling, find recourse in an appeal.

On May 7, 1996, SAUDIA filed its Supplemental Petition for Review with Prayer for Temporary Restraining Order [31] dated April
30, 1996, given due course by this Court. After both parties submitted their Memoranda,[32] the instant case is now deemed
submitted for decision.
Petitioner SAUDIA raised the following issues:
I
The trial court has no jurisdiction to hear and try Civil Case No. Q-93-18394 based on Article 21 of the New Civil Code since the
proper law applicable is the law of the Kingdom of Saudi Arabia inasmuch as this case involves what is known in private
international law as a conflicts problem. Otherwise, the Republic of the Philippines will sit in judgment of the acts done by another
sovereign state which is abhorred.
II.
Leave of court before filing a supplemental pleading is not a jurisdictional requirement. Besides, the matter as to absence of leave of
court is now moot and academic when this Honorable Court required the respondents to comment on petitioners April 30, 1996
Supplemental Petition For Review With Prayer For A Temporary Restraining Order Within Ten (10) Days From Notice
Thereof. Further, the Revised Rules of Court should be construed with liberality pursuant to Section 2, Rule 1 thereof.
III.
Petitioner received on April 22, 1996 the April 10, 1996 decision in CA-G.R. SP NO. 36533 entitled Saudi Arabian Airlines v. Hon.
Rodolfo A. Ortiz, et al. and filed its April 30, 1996 Supplemental Petition For Review With Prayer For A Temporary Restraining Order
on May 7, 1996 at 10:29 a.m. or within the 15-day reglementary period as provided for under Section 1, Rule 45 of the Revised
Rules of Court. Therefore, the decision in CA-G.R. SP NO. 36533 has not yet become final and executory and this Honorable Court
can take cognizance of this case.[33]
From the foregoing factual and procedural antecedents, the following issues emerge for our resolution:
I.
WHETHER RESPONDENT APPELLATE COURT ERRED IN HOLDING THAT THE REGIONAL TRIAL COURT OF
QUEZON CITY HAS JURISDICTION TO HEAR AND TRY CIVIL CASE NO. Q-93-18394 ENTITLED MILAGROS P.
MORADA V. SAUDI ARABIAN AIRLINES.
II.
WHETHER RESPONDENT APPELLATE COURT ERRED IN RULING THAT IN THE CASE PHILIPPINE LAW
SHOULD GOVERN.
Petitioner SAUDIA claims that before us is a conflict of laws that must be settled at the outset. It maintains that private
respondents claim for alleged abuse of rights occurred in the Kingdom of Saudi Arabia. It alleges that the existence of a foreign
element qualifies the instant case for the application of the law of the Kingdom of Saudi Arabia, by virtue of the lex loci delicti
commissi rule.[34]
On the other hand, private respondent contends that since her Amended Complaint is based on Articles 19 [35] and 21[36] of the
Civil Code, then the instant case is properly a matter of domestic law.[37]
Under the factual antecedents obtaining in this case, there is no dispute that the interplay of events occurred in two states, the
Philippines and Saudi Arabia.
As stated by private respondent in her Amended Complaint[38] dated June 23, 1994:

2. Defendant SAUDI ARABIAN AIRLINES or SAUDIA is a foreign airlines corporation doing business in the
Philippines. It may be served with summons and other court processes at Travel Wide Associated Sales (Phils.), Inc.,
3rd Floor, Cougar Building, 114 Valero St., Salcedo Village, Makati, Metro Manila.
xxxxxxxxx
6. Plaintiff learned that, through the intercession of the Saudi Arabian government, the Indonesian authorities agreed to
deport Thamer and Allah after two weeks of detention.Eventually, they were again put in service by defendant
SAUDIA. In September 1990, defendant SAUDIA transferred plaintiff to Manila.
7. On January 14, 1992, just when plaintiff thought that the Jakarta incident was already behind her, her superiors
requested her to see MR. Ali Meniewy, Chief Legal Officer of SAUDIA, in Jeddah, Saudi Arabia. When she saw him, he
brought her to the police station where the police took her passport and questioned her about the Jakarta
incident.Miniewy simply stood by as the police put pressure on her to make a statement dropping the case against
Thamer and Allah. Not until she agreed to do so did the police return her passport and allowed her to catch the
afternoon flight out of Jeddah.
8. One year and a half later or on June 16, 1993, in Riyadh, Saudi Arabia, a few minutes before the departure of her
flight to Manila, plaintiff was not allowed to board the plane and instead ordered to take a later flight to Jeddah to see
Mr. Meniewy, the Chief Legal Officer of SAUDIA. When she did, a certain Khalid of the SAUDIA office brought her to a
Saudi court where she was asked to sign a document written in Arabic. They told her that this was necessary to close
the case against Thamer and Allah. As it turned out, plaintiff signed a notice to her to appear before the court on June
27, 1993. Plaintiff then returned to Manila.
9. Shortly afterwards, defendant SAUDIA summoned plaintiff to report to Jeddah once again and see Miniewy on June
27, 1993 for further investigation. Plaintiff did so after receiving assurance from SAUDIAs Manila manager, Aslam
Saleemi, that the investigation was routinary and that it posed no danger to her.
10. In Jeddah, a SAUDIA legal officer brought plaintiff to the same Saudi court on June 27, 1993. Nothing happened
then but on June 28, 1993, a Saudi judge interrogated plaintiff through an interpreter about the Jakarta incident. After
one hour of interrogation, they let her go. At the airport, however, just as her plane was about to take off, a SAUDIA
officer told her that the airline had forbidden her to take that flight. At the Inflight Service Office where she was told to
go, the secretary of Mr. Yahya Saddick took away her passport and told her to remain in Jeddah, at the crew quarters,
until further orders.
11. On July 3, 1993 a SAUDIA legal officer again escorted plaintiff to the same court where the judge, to her
astonishment and shock, rendered a decision, translated to her in English, sentencing her to five months imprisonment
and to 286 lashes. Only then did she realize that the Saudi court had tried her, together with Thamer and Allah, for what
happened in Jakarta. The court found plaintiff guilty of (1) adultery; (2) going to a disco, dancing, and listening to the
music in violation of Islamic laws; (3) socializing with the male crew, in contravention of Islamic tradition.
12. Because SAUDIA refused to lend her a hand in the case, plaintiff sought the help of the Philippine Embassy in
Jeddah. The latter helped her pursue an appeal from the decision of the court. To pay for her upkeep, she worked on
the domestic flights of defendant SAUDIA while, ironically, Thamer and Allah freely served the international flights. [39]
Where the factual antecedents satisfactorily establish the existence of a foreign element, we agree with petitioner that the
problem herein could present a conflicts case.
A factual situation that cuts across territorial lines and is affected by the diverse laws of two or more states is said to contain a
foreign element. The presence of a foreign element is inevitable since social and economic affairs of individuals and associations
are rarely confined to the geographic limits of their birth or conception.[40]
The forms in which this foreign element may appear are many. [41] The foreign element may simply consist in the fact that one
of the parties to a contract is an alien or has a foreign domicile, or that a contract between nationals of one State involves properties
situated in another State. In other cases, the foreign element may assume a complex form.[42]

In the instant case, the foreign element consisted in the fact that private respondent Morada is a resident Philippine national,
and that petitioner SAUDIA is a resident foreign corporation. Also, by virtue of the employment of Morada with the petitioner Saudia
as a flight stewardess, events did transpire during her many occasions of travel across national borders, particularly from Manila,
Philippines to Jeddah, Saudi Arabia, and vice versa, that caused a conflicts situation to arise.
We thus find private respondents assertion that the case is purely domestic, imprecise. A conflicts problem presents itself
here, and the question of jurisdiction[43] confronts the court a quo.
After a careful study of the private respondents Amended Complaint, [44] and the Comment thereon, we note that she aptly
predicated her cause of action on Articles 19 and 21 of the New Civil Code.
On one hand, Article 19 of the New Civil Code provides;
Art. 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice give
everyone his due and observe honesty and good faith.
On the other hand, Article 21 of the New Civil Code provides:
Art. 21. Any person who willfully causes loss or injury to another in a manner that is contrary to morals, good customs
or public policy shall compensate the latter for damages.
Thus, in Philippine National Bank (PNB) vs. Court of Appeals,[45] this Court held that:
The aforecited provisions on human relations were intended to expand the concept of torts in this jurisdiction by
granting adequate legal remedy for the untold number of moral wrongs which is impossible for human foresight to
specifically provide in the statutes.
Although Article 19 merely declares a principle of law, Article 21 gives flesh to its provisions. Thus, we agree with private
respondents assertion that violations of Articles 19 and 21 are actionable, with judicially enforceable remedies in the municipal
forum.
Based on the allegations[46] in the Amended Complaint, read in the light of the Rules of Court on jurisdiction [47] we find that the
Regional Trial Court (RTC) of Quezon City possesses jurisdiction over the subject matter of the suit. [48] Its authority to try and hear
the case is provided for under Section 1 of Republic Act No. 7691, to wit:
Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise known as the Judiciary Reorganization Act of 1980, is
hereby amended to read as follows:
SEC. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exercise exclusive jurisdiction:
xxxxxxxxx
(8) In all other cases in which demand, exclusive of interest, damages of whatever kind, attorneys fees, litigation expenses, and
costs or the value of the property in controversy exceeds One hundred thousand pesos (P100,000.00) or, in such other cases in
Metro Manila, where the demand, exclusive of the above-mentioned items exceeds Two hundred Thousand pesos
(P200,000.00). (Emphasis ours)
xxxxxxxxx
And following Section 2 (b), Rule 4 of the Revised Rules of Courtthe venue, Quezon City, is appropriate:
SEC. 2 Venue in Courts of First Instance. [Now Regional Trial Court]
(a) x x x x x x x x x

(b) Personal actions. All other actions may be commenced and tried where the defendant or any of the defendants
resides or may be found, or where the plaintiff or any of the plaintiff resides, at the election of the plaintiff.
Pragmatic considerations, including the convenience of the parties, also weigh heavily in favor of the RTC Quezon City
assuming jurisdiction. Paramount is the private interest of the litigant. Enforceability of a judgment if one is obtained is quite
obvious. Relative advantages and obstacles to a fair trial are equally important. Plaintiff may not, by choice of an inconvenient
forum, vex, harass, or oppress the defendant, e.g. by inflicting upon him needless expense or disturbance. But unless the balance is
strongly in favor of the defendant, the plaintiffs choice of forum should rarely be disturbed.[49]
Weighing the relative claims of the parties, the court a quo found it best to hear the case in the Philippines. Had it refused to
take cognizance of the case, it would be forcing plaintiff (private respondent now) to seek remedial action elsewhere, i.e. in the
Kingdom of Saudi Arabia where she no longer maintains substantial connections. That would have caused a fundamental
unfairness to her.
Moreover, by hearing the case in the Philippines no unnecessary difficulties and inconvenience have been shown by either of
the parties. The choice of forum of the plaintiff (now private respondent) should be upheld.
Similarly, the trial court also possesses jurisdiction over the persons of the parties herein. By filing her Complaint and
Amended Complaint with the trial court, private respondent has voluntary submitted herself to the jurisdiction of the court.
The records show that petitioner SAUDIA has filed several motions [50] praying for the dismissal of Moradas Amended
Complaint. SAUDIA also filed an Answer In Ex Abundante Cautelam dated February 20, 1995. What is very patent and explicit from
the motions filed, is that SAUDIA prayed for other reliefs under the premises. Undeniably, petitioner SAUDIA has effectively
submitted to the trial courts jurisdiction by praying for the dismissal of the Amended Complaint on grounds other than lack of
jurisdiction.
As held by this Court in Republic vs. Ker and Company, Ltd.:[51]
We observe that the motion to dismiss filed on April 14, 1962, aside from disputing the lower courts jurisdiction over
defendants person, prayed for dismissal of the complaint on the ground that plaintiffs cause of action has
prescribed. By interposing such second ground in its motion to dismiss, Ker and Co., Ltd. availed of an affirmative
defense on the basis of which it prayed the court to resolve controversy in its favor. For the court to validly decide the
said plea of defendant Ker & Co., Ltd., it necessarily had to acquire jurisdiction upon the latters person, who, being the
proponent of the affirmative defense, should be deemed to have abandoned its special appearance and voluntarily
submitted itself to the jurisdiction of the court.
Similarly, the case of De Midgely vs. Ferandos, held that:
When the appearance is by motion for the purpose of objecting to the jurisdiction of the court over the person, it must
be for the sole and separate purpose of objecting to the jurisdiction of the court. If his motion is for any other purpose
than to object to the jurisdiction of the court over his person, he thereby submits himself to the jurisdiction of the court.A
special appearance by motion made for the purpose of objecting to the jurisdiction of the court over the person will be
held to be a general appearance, if the party in said motion should, for example, ask for a dismissal of the action upon
the further ground that the court had no jurisdiction over the subject matter.[52]
Clearly, petitioner had submitted to the jurisdiction of the Regional Trial Court of Quezon City. Thus, we find that the trial court
has jurisdiction over the case and that its exercise thereof, justified.
As to the choice of applicable law, we note that choice-of-law problems seek to answer two important questions: (1) What
legal system should control a given situation where some of the significant facts occurred in two or more states; and (2) to what
extent should the chosen legal system regulate the situation.[53]
Several theories have been propounded in order to identify the legal system that should ultimately control. Although ideally, all
choice-of-law theories should intrinsically advance both notions of justice and predictability, they do not always do so. The forum is
then faced with the problem of deciding which of these two important values should be stressed. [54]

Before a choice can be made, it is necessary for us to determine under what category a certain set of facts or rules fall. This
process is known as characterization, or the doctrine of qualification. It is the process of deciding whether or not the facts relate to
the kind of question specified in a conflicts rule.[55] The purpose of characterization is to enable the forum to select the proper law.[56]
Our starting point of analysis here is not a legal relation, but a factual situation, event, or operative fact. [57] An essential
element of conflict rules is the indication of a test or connecting factor or point of contact. Choice-of-law rules invariably consist of a
factual relationship (such as property right, contract claim) and a connecting factor or point of contact, such as the situsof the res,
the place of celebration, the place of performance, or the place of wrongdoing.[58]

[59]

Note that one or more circumstances may be present to serve as the possible test for the determination of the applicable law.
These test factors or points of contact or connecting factors could be any of the following:
(1) The nationality of a person, his domicile, his residence, his place of sojourn, or his origin;
(2) the seat of a legal or juridical person, such as a corporation;
(3) the situs of a thing, that is, the place where a thing is, or is deemed to be situated. In particular, the lex situs is
decisive when real rights are involved;
(4) the place where an act has been done, the locus actus, such as the place where a contract has been made,
a marriage celebrated, a will signed or a tort committed.The lex loci actus is particularly important in contracts
and torts;
(5) the place where an act is intended to come into effect, e.g., the place of performance of contractual duties, or the
place where a power of attorney is to be exercised;
(6) the intention of the contracting parties as to the law that should govern their agreement, the lex loci intentionis;
(7) the place where judicial or administrative proceedings are instituted or done. The lex forithe law of the forumis
particularly important because, as we have seen earlier, matters of procedure not going to the substance of the claim
involved are governed by it; and because the lex fori applies whenever the content of the otherwise applicable foreign
law is excluded from application in a given case for the reason that it falls under one of the exceptions to the
applications of foreign law; and
(8) the flag of a ship, which in many cases is decisive of practically all legal relationships of the ship and of its master or
owner as such. It also covers contractual relationships particularly contracts of affreightment.[60] (Underscoring ours.)

After a careful study of the pleadings on record, including allegations in the Amended Complaint deemed submitted for
purposes of the motion to dismiss, we are convinced that there is reasonable basis for private respondents assertion that although
she was already working in Manila, petitioner brought her to Jeddah on the pretense that she would merely testify in an investigation
of the charges she made against the two SAUDIA crew members for the attack on her person while they were in Jakarta. As it
turned out, she was the one made to face trial for very serious charges, including adultery and violation of Islamic laws and tradition.
There is likewise logical basis on record for the claim that the handing over or turning over of the person of private respondent
to Jeddah officials, petitioner may have acted beyond its duties as employer. Petitioners purported act contributed to and amplified
or even proximately caused additional humiliation, misery and suffering of private respondent. Petitioner thereby allegedly facilitated
the arrest, detention and prosecution of private respondent under the guise of petitioners authority as employer, taking advantage of
the trust, confidence and faith she reposed upon it. As purportedly found by the Prince of Makkah, the alleged conviction and
imprisonment of private respondent was wrongful. But these capped the injury or harm allegedly inflicted upon her person and
reputation, for which petitioner could be liable as claimed, to provide compensation or redress for the wrongs done, once duly
proven.
Considering that the complaint in the court a quo is one involving torts, the connecting factor or point of contact could be the
place or places where the tortious conduct or lex loci actusoccurred. And applying the torts principle in a conflicts case, we find that
the Philippines could be said as a situs of the tort (the place where the alleged tortious conduct took place). This is because it is in
the Philippines where petitioner allegedly deceived private respondent, a Filipina residing and working here. According to her, she
had honestly believed that petitioner would, in the exercise of its rights and in the performance of its duties, act with justice, give her

her due and observe honesty and good faith. Instead, petitioner failed to protect her, she claimed. That certain acts or parts of the
injury allegedly occurred in another country is of no moment. For in our view what is important here is the place where the over-all
harm or the fatality of the alleged injury to the person, reputation, social standing and human rights of complainant, had lodged,
according to the plaintiff below (herein private respondent). All told, it is not without basis to identify the Philippines as the situs of
the alleged tort.
Moreover, with the widespread criticism of the traditional rule of lex loci delicti commissi, modern theories and rules on tort
liability[61] have been advanced to offer fresh judicial approaches to arrive at just results. In keeping abreast with the modern theories
on tort liability, we find here an occasion to apply the State of the most significant relationship rule, which in our view should be
appropriate to apply now, given the factual context of this case.
In applying said principle to determine the State which has the most significant relationship, the following contacts are to be
taken into account and evaluated according to their relative importance with respect to the particular issue: (a) the place where the
injury occurred; (b) the place where the conduct causing the injury occurred; (c) the domicile, residence, nationality, place of
incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered. [62]
As already discussed, there is basis for the claim that over-all injury occurred and lodged in the Philippines. There is likewise
no question that private respondent is a resident Filipina national, working with petitioner, a resident foreign corporation engaged
here in the business of international air carriage. Thus, the relationship between the parties was centered here, although it should be
stressed that this suit is not based on mere labor law violations. From the record, the claim that the Philippines has the most
significant contact with the matter in this dispute, [63] raised by private respondent as plaintiff below against defendant (herein
petitioner), in our view, has been properly established.
Prescinding from this premise that the Philippines is the situs of the tort complaint of and the place having the most interest in
the problem, we find, by way of recapitulation, that the Philippine law on tort liability should have paramount application to and
control in the resolution of the legal issues arising out of this case. Further, we hold that the respondent Regional Trial Court has
jurisdiction over the parties and the subject matter of the complaint; the appropriate venue is in Quezon City, which could properly
apply Philippine law. Moreover, we find untenable petitioners insistence that [s]ince private respondent instituted this suit, she has
the burden of pleading and proving the applicable Saudi law on the matter. [64] As aptly said by private respondent, she has no
obligation to plead and prove the law of the Kingdom of Saudi Arabia since her cause of action is based on Articles 19 and 21 of the
Civil Code of the Philippines. In her Amended Complaint and subsequent pleadings she never alleged that Saudi law should govern
this case.[65] And as correctly held by the respondent appellate court, considering that it was the petitioner who was invoking the
applicability of the law of Saudi Arabia, thus the burden was on it [petitioner] to plead and to establish what the law of Saudi Arabia
is.[66]
Lastly, no error could be imputed to the respondent appellate court in upholding the trial courts denial of defendants (herein
petitioners) motion to dismiss the case. Not only was jurisdiction in order and venue properly laid, but appeal after trial was
obviously available, and the expeditious trial itself indicated by the nature of the case at hand. Indubitably, the Philippines is the
state intimately concerned with the ultimate outcome of the case below not just for the benefit of all the litigants, but also for the
vindication of the countrys system of law and justice in a transnational setting. With these guidelines in mind, the trial court must
proceed to try and adjudge the case in the light of relevant Philippine law, with due consideration of the foreign element or elements
involved. Nothing said herein, of course, should be construed as prejudging the results of the case in any manner whatsoever.
WHEREFORE, the instant petition for certiorari is hereby DISMISSED. Civil Case No. Q-93-18394 entitled Milagros P.
Morada vs. Saudi Arabia Airlines is hereby REMANDED to Regional Trial Court of Quezon City, Branch 89 for further proceedings.
SO ORDERED.

U.S. Supreme Court

Perkins v. Benguet Consolidated Mining Co., 342 U.S. 437 (1952)

Perkins v. Benguet Consolidated Mining Co.

No. 85

Argued November 27-28, 1951

Decided March 3, 1952

342 U.S. 437

CERTIORARI TO THE SUPREME COURT OF OHIO

Syllabus

A foreign corporation, owning gold and silver mines in the Philippine Islands, temporarily carried on in Ohio (during the Japanese
occupation of the Philippines) a continuous and systematic, but limited, part of its general business -- consisting of directors'
meetings, business correspondence, banking, stock transfers, payment of salaries, purchasing of machinery, etc. While engaged in
doing such business in Ohio, its president was served with summons in an action in personam against the corporation filed in an
Ohio state court by a nonresident of Ohio. The cause of action did not arise in Ohio, and did not relate to the corporation's activities
there. A judgment sustaining a motion to quash the service was affirmed by the State Supreme Court.

Held:

1. The Federal Constitution does not compel Ohio to open its courts to such a case -- even though Ohio permits a complainant to
maintain a proceeding in personam in its courts against a properly served nonresident natural person to enforce a cause of action
which does not arise out of anything done within the State. Pp. 342 U. S. 440-441.

2. The Due Process Clause of the Fourteenth Amendment also does not prohibit Ohio from granting such relief against a foreign
corporation. Old Wayne Life Assn. v. McDonough, 204 U. S. 8, and Simon v. Southern R. Co., 236 U. S. 115, distinguished. Pp. 342
U. S. 441-447.

3. As a matter of federal due process, the business done by the corporation in Ohio was sufficiently substantial and of such a nature
as to permit Ohio to entertain the cause of action against it, though the cause of action arose from activities entirely distinct from its
activities in Ohio. Pp. 342 U. S. 447-449.

4. It not clearly appearing, under the Ohio practice as to the effect of the syllabus, whether the Supreme Court of Ohio rested its
decision on Ohio law or on the Fourteenth Amendment, the cause is remanded to that court for further proceedings in the light of the
opinion of this Court. Pp. 342 U. S. 441-449.

155 Ohio St. 116, 98 N.E.2d 33, vacated and remanded.

Page 342 U. S. 438

In two actions in an Ohio state court, the trial court sustained a motion to quash the service on the respondent foreign corporation.
The Court of Appeals of Ohio affirmed, 88 Ohio App. 118, 95 N.E.2d 5, as did the State Supreme Court, 155 Ohio St. 116, 98
N.E.2d 33. This Court granted certiorari. 342 U.S. 808. Judgment vacated and cause remanded, p. 342 U. S. 449.

MR. JUSTICE BURTON delivered the opinion of the Court.

This case calls for an answer to the question whether the Due Process Clause of the Fourteenth Amendment to the Constitution of
the United States precludes Ohio from subjecting a foreign corporation to the jurisdiction of its courts in this action in personam. The
corporation has been carrying on in Ohio a continuous and systematic, but limited, part of its general business. Its president, while
engaged in doing such business in Ohio, has been served with summons in this proceeding. The cause of action sued upon did not
arise in Ohio and does not relate to the corporation's activities there. For the reasons hereafter stated, we hold that the Fourteenth
Amendment leaves Ohio free to take or decline jurisdiction over the corporation.

After extended litigation elsewhere, [Footnote 1] petitioner, Idonah Slade Perkins, a nonresident of Ohio, filed two actions in
personamin the Court of Common Pleas of Clermont

Page 342 U. S. 439

County, Ohio, against the several respondents. Among those sued is the Benguet Consolidated Mining Company, here called the
mining company. It is styled a "sociedad anonima" under the laws of the Philippine Islands, where it owns and has operated
profitable gold and silver mines. In one action, petitioner seeks approximately $68,400 in dividends claimed to be due her as a

stockholder. In the other, she claims $2,500,000 damages, largely because of the company's failure to issue to her certificates for
120,000 shares of its stock.

In each case, the trial court sustained a motion to quash the service of summons on the mining company. Ohio Com.Pl., 99 N.E.2d
515. The Court of Appeals of Ohio affirmed that decision, 88 Ohio App. 118, 95 N.E.2d 5, as did the Supreme Court of Ohio, 155
Ohio St. 116, 98 N.E.2d 33. The cases were consolidated, and we granted certiorari in order to pass upon the conclusion voiced
within the court below that federal due process required the result there reached. 342 U.S. 808.

We start with the holding of the Supreme Court of Ohio, not contested here, that, under Ohio law, the mining company is to be
treated as a foreign corporation. [Footnote 2] Actual notice of the proceeding was given to the corporation

Page 342 U. S. 440

in the instant case through regular service of summons upon its president while he was in Ohio acting in that capacity. Accordingly,
there can be no jurisdictional objection based upon a lack of notice to a responsible representative of the corporation.

The answer to the question of whether the state courts of Ohio are open to a proceeding in personam, against an amply notified
foreign corporation, to enforce a cause of action not arising in Ohio and not related to the business or activities of the corporation in
that State rests entirely upon the law of Ohio, unless the Due Process Clause of the Fourteenth Amendment compels a decision
either way.

The suggestion that federal due process compels the State to open its courts to such a case has no substance.

"Provisions for making foreign corporations subject to service in the state is a matter of legislative discretion, and a failure to provide
for such service is not a denial of due process. Still less is it incumbent upon a state in furnishing such process to make the
jurisdiction over the foreign corporation wide enough to include the adjudication of transitory actions not arising in the state."

Missouri P. R. Co. v. Clarendon Co., 257 U. S. 533, 257 U. S. 535.

Page 342 U. S. 441

Also without merit is the argument that, merely because Ohio permits a complainant to maintain a proceeding in personam in its
courts against a properly served nonresident natural person to enforce a cause of action which does not arise out of anything done
in Ohio, therefore the Constitution of the United States compels Ohio to provide like relief against a foreign corporation.

A more serious question is presented by the claim that the Due Process Clause of the Fourteenth Amendment prohibits Ohio from
granting such relief against a foreign corporation. The syllabus in the report of the case below, while denying the relief sought, does

not indicate whether the Supreme Court of Ohio rested its decision on Ohio law or on the Fourteenth Amendment. The first
paragraph of that syllabus is as follows:

"1. The doing of business in this state by a foreign corporation, which has not appointed a statutory agent upon whom service of
process against the corporation can be made in this state or otherwise consented to service of summons upon it in actions brought
in this state, will not make the corporation subject to service of summons in an action in personam brought in the courts of this state
to enforce a cause of action not arising in this state, and in no way related to the business or activities of the corporation in this
state."

155 Ohio St. 116, 117, 98 N.E.2d 33, 34.

If the above statement stood alone, it might mean that the decision rested solely upon the law of Ohio. In support of that possibility,
we are told that, under the rules and practice of the Supreme Court of Ohio, only the syllabus necessarily carries the approval of that
court. [Footnote 3] As

Page 342 U. S. 442

we understand the Ohio practice, the syllabus of its Supreme Court constitutes the official opinion of that court, but it must be read in
the light of the facts and issues of the case.

Page 342 U. S. 443

The only opinion accompanying the syllabus of the court below places the concurrence of its author unequivocally upon the ground
that the Due Process Clause of the Fourteenth Amendment prohibits the Ohio courts from exercising jurisdiction over the
respondent corporation in this proceeding. [Footnote 4] That opinion is an official part of the report of the case. The report, however,
does not disclose to what extent, if any, the other members of the court may have shared the view expressed in that opinion.
Accordingly, for us to allow the judgment to stand as it is would risk an affirmance of a decision which might have been decided
differently if the court below had felt free under our decisions to do so.

The cases primarily relied on by the author of the opinion accompanying the syllabus below are Old Wayne Life Assn. v.
McDonough,204 U. S. 8, and Simon v. Southern R. Co., 236 U. S. 115. Unlike the case at bar, no actual notice of the proceedings
was received in those cases by a

Page 342 U. S. 444

responsible representative of the foreign corporation. In each case, the public official who was served with process in an attempt to
bind the foreign corporation was held to lack the necessary authority to accept service so as to bind it in a proceeding to enforce a
cause of action arising outside of the state of the forum. See 204 U.S. at 204 U. S. 22-23, and 236 U.S. at 236 U. S. 130. The

necessary result was a finding of inadequate service in each case and a conclusion that the foreign corporation was not bound by it.
The same would be true today in a like proceeding where the only service had and the only notice given was that directed to a public
official who had no authority, by statute or otherwise, to accept it in that kind of a proceeding. At the time of rendering the above
decisions, this Court was aided, in reaching its conclusion as to the limited scope of the statutory authority of the public officials, by
this Court's conception that the Due Process Clause of the Fourteenth Amendment precluded a state from giving its public officials
authority to accept service in terms broad enough to bind a foreign corporation in proceedings against it to enforce an obligation
arising outside of the state of the forum. That conception now has been modified by the rationale adopted in later decisions, and
particularly inInternational Shoe Co. v. Washington, 326 U. S. 310.

Today, if an authorized representative of a foreign corporation be physically present in the state of the forum and be there engaged
in activities appropriate to accepting service or receiving notice on its behalf, we recognize that there is no unfairness in subjecting
that corporation to the jurisdiction of the courts of that state through such service of process upon that representative. This has been
squarely held to be so in a proceeding in personam against such a corporation, at least in relation to a cause of action

Page 342 U. S. 445

arising out of the corporation's activities within the state of the forum. [Footnote 5]

The essence of the issue here, at the constitutional level, is a like one of general fairness to the corporation. Appropriate tests for
that are discussed in International Shoe Co. v. Washington, supra, at 326 U. S. 317-320. The amount and kind of activities which
must be carried on by the foreign corporation in the state of the forum so as to make it reasonable and just to subject the corporation
to the jurisdiction of that state are to be determined in each case. The corporate activities of a foreign corporation which, under state
statute, make it necessary for it to secure a license and to designate a statutory agent upon whom process may be served provide a
helpful, but not a conclusive, test. For example, the state of the forum may by statute require a foreign mining corporation to secure a
license in order lawfully to carry on there such functional intrastate operations as those of mining or refining ore. On the other hand,
if the same corporation carries on, in that state, other continuous and systematic corporate activities as it did here -- consisting of
directors' meetings, business correspondence, banking, stock transfers, payment of salaries, purchasing of machinery, etc. -- those
activities are enough to make it fair and reasonable to subject that corporation to proceedings in personam in that state, at least
insofar as the proceedings in personam seek to enforce

Page 342 U. S. 446

causes of action relating to those very activities or to other activities of the corporation within the state.

The instant case takes us one step further to a proceeding in personam to enforce a cause of action not arising out of the
corporation's activities in the state of the forum. Using the tests mentioned above, we find no requirement of federal due process that

either prohibits Ohio from opening its courts to the cause of action here presented or compels Ohio to do so. This conforms to the
realistic reasoning inInternational Shoe Co. v. Washington, supra, at 326 U. S. 318-319:

". . . there have been instances in which the continuous corporate operations within a state were thought so substantial and of such
a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities. See Missouri, K. &
T. R. Co. v. Reynolds, 255 U.S. 565; [Footnote 6] Tauza v. Susquehanna Coal Co., 220 N.Y. 259, 115 N.E. 915; cf. 227 U. S. Louis
S.W. R. Co. v. Alexander, supra, [227 U.S. 218]."

". . . some of the decisions holding the corporation amenable to suit have been supported by resort to the legal fiction that it has
given its consent to service and suit, consent being implied from its presence in the state through the acts of its authorized
agents. Lafayette Insurance Co. v. French, 18 How. 404, 59 U. S. 407; St. Clair v. Cox, supra, 106 U.S. [350,] 106 U. S.
356; Commercial Mutual Accident Co. v. Davis, supra, 213 U.S.

Page 342 U. S. 447

[245,] 213 U. S. 254; Washington v. Superior Court, 289 U. S. 361, 289 U. S. 364-365. But, more realistically, it may be said that
those authorized acts were of such a nature as to justify the fiction. Smolik v. Philadelphia & Reading Co., 222 F. 148, 151.
Henderson, The Position of Foreign Corporations in American Constitutional Law 94, 95."

". . . Whether due process is satisfied must depend, rather, upon the quality and nature of the activity in relation to the fair and
orderly administration of the laws which it was the purpose of the due process clause to insure. That clause does not contemplate
that a state may make binding a judgment in personam against an individual or corporate defendant with which the state has no
contacts, ties, or relations. Cf. 95 U. S. Neff, supra, [95 U.S. 714]; Minnesota Commercial Assn. v. Benn, 261 U. S. 140."

It remains only to consider in more detail the issue of whether, as a matter of federal due process, the business done in Ohio by the
respondent mining company was sufficiently substantial and of such a nature as to permit Ohio to entertain a cause of action against
a foreign corporation where the cause of action arose from activities entirely distinct from its activities in Ohio. See International
Shoe Co. v. Washington, supra, at 326 U. S. 318.

The Ohio Court of Appeals summarized the evidence on the subject. 88 Ohio App. at 119-125, 95 N.E.2d at 6-9. From that
summary, the following facts are substantially beyond controversy: the company's mining properties were in the Philippine Islands.
Its operations there were completely halted during the occupation of the Islands by the Japanese. During that interim, the president,
who was also the general manager and principal stockholder of the company, returned to his home in Clermont County, Ohio. There,
he maintained an office in

Page 342 U. S. 448

which he conducted his personal affairs and did many things on behalf of the company. He kept there office files of the company. He
carried on there correspondence relating to the business of the company and to its employees. He drew and distributed there salary
checks on behalf of the company, both in his own favor as president and in favor of two company secretaries who worked there with
him. He used and maintained in Clermont County, Ohio, two active bank accounts carrying substantial balances of company funds.
A bank in Hamilton County, Ohio, acted as transfer agent for the stock of the company. Several directors' meetings were held at his
office or home in Clermont County. From that office, he supervised policies dealing with the rehabilitation of the corporation's
properties in the Philippines, and he dispatched funds to cover purchases of machinery for such rehabilitation. Thus, he carried on in
Ohio a continuous and systematic supervision of the necessarily limited wartime activities of the company. He there discharged his
duties as president and general manager, both during the occupation of the company's properties by the Japanese and immediately
thereafter. While no mining properties in Ohio were owned or operated by the company, many of its wartime activities were directed
from Ohio and were being given the personal attention of its president in that State at the time he was served with summons.
Consideration of the circumstances which, under the law of Ohio, ultimately will determine whether the courts of that State will
choose to take jurisdiction over the corporation is reserved for the courts of that State. Without reaching that issue of state policy, we
conclude that, under the circumstances above recited, it would not violate federal due process for Ohio either to take or decline
jurisdiction of the corporation in this proceeding. This relieves the Ohio courts of the restriction relied upon in the opinion

Page 342 U. S. 449

accompanying the syllabus below, and which may have influenced the judgment of the court below.

Accordingly, the judgment of the Supreme Court of Ohio is vacated, and the cause is remanded to that court for further proceedings
in the light of this opinion. [Footnote 7]

It is so ordered.

EN BANC
G.R. No. L-45425

April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

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

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

P0.18

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

.18

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

.08

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

.13

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

.15

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

.07

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

.08

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

.13

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

.13

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

.16

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

.13

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

.14

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

.17

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

.13

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

.14

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

2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in the ordinary course of business,
from one of the duly authorized agents of the National Charity Sweepstakes Office one ticket bearing No. 178637 for the
sum of two pesos (P2) and that the said ticket was registered in the name of Jose Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-mentioned ticket bearing No.
178637 won one of the third prizes in the amount of P50,000 and that the corresponding check covering the abovementioned prize of P50,000 was drawn by the National Charity Sweepstakes Office in favor of Jose Gatchalian &
Company against the Philippine National Bank, which check was cashed during the latter part of December, 1934 by Jose
Gatchalian & Company;
5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo David to file the
corresponding income tax return covering the prize won by Jose Gatchalian & Company and that on December 29, 1934,
the said return was signed by Jose Gatchalian, a copy of which return is enclosed as Exhibit A and made a part hereof;
6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian & Company requesting the
payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving to said Jose Gatchalian &
Company until January 20, 1935 within which to pay the said amount of P1,499.94, a copy of which letter marked Exhibit
B is enclosed and made a part hereof;
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a reply, a copy of which marked
Exhibit C is attached and made a part hereof, requesting exemption from payment of the income tax to which reply there
were enclosed fifteen (15) separate individual income tax returns filed separately by each one of the plaintiffs, copies of
which returns are attached and marked Exhibit D-1 to D-15, respectively, in order of their names listed in the caption of
this case and made parts hereof; a statement of sale signed by Jose Gatchalian showing the amount put up by each of
the plaintiffs to cover up the attached and marked as Exhibit E and made a part hereof; and a copy of the affidavit signed
by Jose Gatchalian dated December 29, 1934 is attached and marked Exhibit F and made part thereof;
8. That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed, denied plaintiffs'
request of January 20, 1935, for exemption from the payment of tax and reiterated his demand for the payment of the sum
of P1,499.94 as income tax and gave plaintiffs until February 10, 1935 within which to pay the said tax;
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant, notwithstanding
subsequent demand made by defendant upon the plaintiffs through their attorney on March 23, 1935, a copy of which
marked Exhibit H is enclosed, defendant on May 13, 1935 issued a warrant of distraint and levy against the property of
the plaintiffs, a copy of which warrant marked Exhibit I is enclosed and made a part hereof;

10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs, the said plaintiffs on June 15,
1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under protest the sum of P601.51 as part of
the tax and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced by official receipt No. 7454879 which is
attached and marked Exhibit J and made a part hereof, and requested defendant that plaintiffs be allowed to pay under
protest the balance of the tax and penalties by monthly installments;
11. That plaintiff's request to pay the balance of the tax and penalties was granted by defendant subject to the condition
that plaintiffs file the usual bond secured by two solvent persons to guarantee prompt payment of each installments as it
becomes due;
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed and made a part hereof, to
guarantee the payment of the balance of the alleged tax liability by monthly installments at the rate of P118.70 a month,
the first payment under protest to be effected on or before July 31, 1935;
13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the sum of P602.51, a copy of
which protest is attached and marked Exhibit L, but that defendant in his letter dated August 1, 1935 overruled the protest
and denied the request for refund of the plaintiffs;
14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance with the terms and conditions
of bond filed by them, the defendant in his letter dated July 23, 1935, copy of which is attached and marked Exhibit M,
ordered the municipal treasurer of Pulilan, Bulacan to execute within five days the warrant of distraint and levy issued
against the plaintiffs on May 13, 1935;
15. That in order to avoid annoyance and embarrassment arising from the levy of their property, the plaintiffs on August
28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid under protest to the
municipal treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the unpaid balance of the income tax and
penalties demanded by defendant as evidenced by income tax receipt No. 35811 which is attached and marked Exhibit N
and made a part hereof; and that on September 3, 1936, the plaintiffs formally protested to the defendant against the
payment of said amount and requested the refund thereof, copy of which is attached and marked Exhibit O and made part
hereof; but that on September 4, 1936, the defendant overruled the protest and denied the refund thereof; copy of which
is attached and marked Exhibit P and made a part hereof; and
16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand eight hundred and sixty three
pesos and forty-four centavos (P1,863.44) paid under protest by them but that defendant refused and still refuses to
refund the said amount notwithstanding the plaintiffs' demands.
17. The parties hereto reserve the right to present other and additional evidence if necessary.
Exhibit E referred to in the stipulation is of the following tenor:
To whom it may concern:
I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on the 11th day of August, 1934, I
sold parts of my shares on ticket No. 178637 to the persons and for the amount indicated below and the part of may share
remaining is also shown to wit:
Purchaser

Amount

Address

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

P0.14

Pulilan, Bulacan.

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

.13

- Do -

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

.17

- Do -

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

.14

- Do -

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

.13

- Do -

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

.16

- Do -

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

.13

- Do -

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

.13

- Do -

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

.07

- Do -

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

.08

- Do -

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

.15

- Do -

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

.13

- Do -

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

.08

- Do -

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

.18

- Do -

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

.18

- Do -

2.00 Total cost of said

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

Name

Exhibit
No.

Purchase
Price

Price
Won

Net
prize

Expenses

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

D-1

P0.18

P4,425

P 480

3,945

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

D-2

.18

4,575

2,000

2,575

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

D-3

.08

1,875

360

1,515

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

D-4

.13

3,325

360

2,965

5. Jesus Legaspi by Maria

Cristobal .........

D-5

.15

3,825

720

3,105

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

D-6

.08

1,875

360

1,515

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

D-7

.07

1,875

360

1,515

8. Julio Gatchalian by Beatriz

Guzman .......

D-8

.13

3,150

240

2,910

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

D-9

.13

3,325

360

2,965

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

D-10

.16

4,100

960

3,140

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

D-11

.13

3,325

360

2,965

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

D-12

.14

3,325

360

2,965

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

D-13

.17

4,350

360

3,990

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

D-14

.13

3,325

360

2,965

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

D-15

.14

3,325

360

2,965

2.00

<="" td="" style="font-size: 14px; textdecoration: none; color: rgb(0, 0, 128); font50,000 family: arial, verdana;">

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced to the two following: (1) Whether the
plaintiffs formed a partnership, or merely a community of property without a personality of its own; in the first case it is admitted that
the partnership thus formed is liable for the payment of income tax, whereas if there was merely a community of property, they are
exempt from such payment; and (2) whether they should pay the tax collectively or whether the latter should be prorated among
them and paid individually.
The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last amended by section 2 of Act No. 3761,
reading as follows:
SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net income received in the
preceding calendar year from all sources by every corporation, joint-stock company, partnership, joint account (cuenta en
participacion), association or insurance company, organized in the Philippine Islands, no matter how created or organized,
but not including duly registered general copartnership (compaias colectivas), a tax of three per centum upon such
income; and a like tax shall be levied, assessed, collected, and paid annually upon the total net income received in the
preceding calendar year from all sources within the Philippine Islands by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association, or insurance company organized, authorized, or existing
under the laws of any foreign country, including interest on bonds, notes, or other interest-bearing 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.
There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment of income tax
under the law. But according to the stipulation facts the plaintiffs organized a partnership of a civil nature because each of them put
up money to buy a sweepstakes ticket for the sole purpose of dividing equally the prize which they may win, as they did in fact in the
amount of P50,000 (article 1665, Civil Code). The partnership was not only formed, but upon the organization thereof and the
winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines Charity Sweepstakes, in his capacity as copartner, as such collection the prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said
partner, in the same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and
formed a community of property only.
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.

SECOND DIVISION
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and
sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
Demosthenes B. Gadioma for petitioners.

AQUINO, J.:
This case is about the income tax liability of four brothers and sisters who sold two parcels of land which they had acquired from
their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963 square meters
located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children, the petitioners, to enable them to
build their residences. The company sold the two lots to petitioners for P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo).
Presumably, the Torrens titles issued to them would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City Securities Corporation
and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived from the sale a total profit of P134,341.88 or
P33,584 for each of them. They treated the profit as a capital gain and paid an income tax on one-half thereof or of P16,792.
In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal Revenue required
the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to individual income tax on their shares
thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42% accumulated
interest, or a total of P71,074.56.
Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full (not a mere capital
gain of which is taxable) and required them to pay deficiency income taxes aggregating P56,707.20 including the 50% fraud
surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their profit of
P134,336, in addition to the tax on capital gains already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the
meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas Trans. Co., 102 Phil. 822).
The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin dissented. Hence, the
instant appeal.
We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil Code simply
because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the profit among themselves.
To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the
dictum that the power to tax involves the power to destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider them as partners
would obliterate the distinction between a co-ownership and a partnership. The petitioners were not engaged in any joint venture by
reason of that isolated transaction.
Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build their residences on
the lots because of the high cost of construction, then they had no choice but to resell the same to dissolve the co-ownership. The
division of the profit was merely incidental to the dissolution of the co-ownership which was in the nature of things a temporary state.
It had to be terminated sooner or later. Castan Tobeas says:
Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?
El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la sociedad
presupone necesariamente la convencion, mentras que la comunidad puede existir y existe ordinariamente sin
ela; y por razon del fin objecto, en que el objeto de la sociedad es obtener lucro, mientras que el de la indivision
es solo mantener en su integridad la cosa comun y favorecer su conservacion.
Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en nuestro Derecho
positive se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre comunidad de bienes y contrato
de sociedad, la moderna orientacion de la doctrina cientifica seala como nota fundamental de diferenciacion
aparte del origen de fuente de que surgen, no siempre uniforme, la finalidad perseguida por los
interesados: lucro comun partible en la sociedad, y mera conservacion y aprovechamiento en la comunidad.
(Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership, whether or not
the persons sharing them have a joint or common right or interest in any property from which the returns are derived". There must
be an unmistakable intention to form a partnership or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts
to purchase a two-peso sweepstakes ticket with the agreement that they would divide the prize The ticket won the third prize of
P50,000. The 15 persons were held liable for income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in Oa vs.
** This view is supported by the following rulings of respondent Commissioner:
Co-owership distinguished from partnership.We find that the case at bar is fundamentally similar to the De
Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in questionpro-indiviso from
their deceased parents; they did not contribute or invest additional ' capital to increase or expand the inherited
properties; they merely continued dedicating the property to the use to which it had been put by their forebears;
they individually reported in their tax returns their corresponding shares in the income and expenses of the
'hacienda', and they continued for many years the status of co-ownership in order, as conceded by respondent,
'to preserve its (the 'hacienda') value and to continue the existing contractual relations with the Central
Azucarera de Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963).

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

FIRST DIVISION
G.R. No. 78133 October 18, 1988
MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.
De la Cuesta, De las Alas and Callanta Law Offices for petitioners.
The Solicitor General for respondents

GANCAYCO, J.:
The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue in this
petition.
On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought
another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 toMarenir
Development Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March
19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of
P60,000.00 in the sale made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing
of the tax amnesties granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required
to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.
Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax amnesties way back in
1974.
In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as coowners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section
20(b) and its income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code 1 that the
unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them
which is subject to individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners
relieved petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the unregistered
partnership. Hence, the petitioners were required to pay the deficiency income tax assessed.
Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045. In due course, the
respondent court by a majority decision of March 30, 1987, 2 affirmed the decision and action taken by respondent commissioner
with costs against petitioners.
It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact formed by petitioners
which like a corporation was subject to corporate income tax distinct from that imposed on the partners.
In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of this case,
although there might in fact be a co-ownership between the petitioners, there was no adequate basis for the conclusion that they
thereby formed an unregistered partnership which made "hem liable for corporate income tax under the Tax Code.
Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent court:
A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP
SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN
OPPOSITION THERETO RESTS UPON THE PETITIONERS.
B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT AN
UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN BY LAW
THAT WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.
C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND THEREFORE
SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.
D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT OF
OTHER TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)
The petition is meritorious.
The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4
In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds they used in
buying several real properties. They appointed their brother to manage their properties with full power to lease, collect, rent, issue
receipts, etc. They had the real properties rented or leased to various tenants for several years and they gained net profits from the
rental income. Thus, the Collector of Internal Revenue demanded the payment of income tax on a corporation, among others, from
them.
In resolving the issue, this Court held as follows:
The issue in this case is whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as well as to the

residence tax for corporations and the real estate dealers' fixed tax. With respect to the tax on corporations, the
issue hinges on the meaning of the terms corporation and partnership as used in sections 24 and 84 of said
Code, the pertinent parts of which read:
Sec. 24. Rate of the tax on corporations.There shall be levied, assessed, collected, and paid annually upon
the total net income received in the preceding taxable year from all sources by every corporation organized in,
or existing under the laws of the Philippines, no matter how created or organized but not including duly
registered general co-partnerships (companies collectives), a tax upon such income equal to the sum of the
following: ...
Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stock
companies, joint accounts (cuentas en participation), associations or insurance companies, but does not include
duly registered general co-partnerships (companies colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to
a common fund, with the intention of dividing the profits among themselves.
Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to contribute
money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties.
The first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did,
contribute money and property to a common fund. Hence, the issue narrows down to their intent in acting as
they did. Upon consideration of all the facts and circumstances surrounding the case, we are fully satisfied that
their purpose was to engage in real estate transactions for monetary gain and then divide the same among
themselves, because:
1. Said common fund was not something they found already in existence. It was not a property inherited by
them pro indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in
order to establish said common fund.
2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943,
they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon
followed, on April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April
28, 1944), they got a fourth lot for P237,234.14. The number of lots (24) acquired and transcations undertaken,
as well as the brief interregnum between each, particularly the last three purchases, is strongly indicative of a
pattern or common design that was not limited to the conservation and preservation of the aforementioned
common fund or even of the property acquired by petitioners in February, 1943. In other words, one cannot but
perceive a character of habituality peculiar to business transactions engaged in for purposes of gain.
3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of petitioners herein.
The properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum
of P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest
that there has been any change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one person, namely, Simeon
Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and
contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said properties have been
handled as if the same belonged to a corporation or business enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years,
since the first property was acquired, and over twelve (12) years, since Simeon Evangelists became the
manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up
already adverted to, or on the causes for its continued existence. They did not even try to offer an explanation
therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the
collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in
petitioners herein. Only one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point. 5
In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a
common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative
just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became
co-owners thereof.
In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the purpose was
not limited to the conservation or preservation of the common fund or even the properties acquired by them. The character of
habituality peculiar to business transactions engaged in for the purpose of gain was present.
In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any improvements
thereon. In 1966, they bought another three (3) parcels of land from one seller. It was only 1968 when they sold the two (2) parcels
of land after which they did not make any additional or new purchase. The remaining three (3) parcels were sold by them in 1970.
The transactions were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not
present.
In Evangelista, the properties were leased out to tenants for several years. The business was under the management of one of the
partners. Such condition existed for over fifteen (15) years. None of the circumstances are present in the case at bar. The coownership started only in 1965 and ended in 1970.
Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:
I wish however to make the following observation Article 1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2
and 3, provides;
(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or copossessors do or do not share any profits made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing
them have a joint or common right or interest in any property from which the returns are derived;
From the above it appears that the fact that those who agree to form a co- ownership share or do not share any
profits made by the use of the property held in common does not convert their venture into a partnership. Or the
sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein
have a joint or common right or interest in the property. This only means that, aside from the circumstance of
profit, the presence of other elements constituting partnership is necessary, such as the clear intent to form a
partnership, the existence of a juridical personality different from that of the individual partners, and the freedom
to transfer or assign any interest in the property by one with the consent of the others (Padilla, Civil Code of the
Philippines Annotated, Vol. I, 1953 ed., pp. 635-636)
It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate
for profit in the absence of other circumstances showing a contrary intention cannot be considered a
partnership.
Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are
not thereby rendered partners. They have no common stock or capital, and no community of interest as
principal proprietors in the business itself which the proceeds derived. (Elements of the Law of Partnership by
Flord D. Mechem 2nd Ed., section 83, p. 74.)

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement
to share the profits and losses on the sale of land create a partnership; the parties are only tenants in common.
(Clark vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants
in common, and to divide the profits of disposing of it, the brother and the other not being entitled to share in
plaintiffs commission, no partnership existed as between the three parties, whatever their relation may have
been as to third parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)
In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the business, and dispose of the whole property.Municipal Paving Co. vs. Herring 150 P. 1067, 50 III 470.)
The common ownership of property does not itself create a partnership between the owners, though they may
use it for the purpose of making gains; and they may, without becoming partners, agree among themselves as
to the management, and use of such property and the application of the proceeds therefrom. (Spurlock vs.
Wilson, 142 S.W. 363,160 No. App. 14.) 6
The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common
right or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different
from the individual partners, and the freedom of each party to transfer or assign the whole property.
In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the
proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties
and sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and
paid their capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be
considered to have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent
commissioner proposes.
And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no
such existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate
income tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership p. 7 However, as
petitioners have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any
further tax liability arising therefrom.
WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of March 30, 1987 is
hereby REVERSED and SET ASIDE and another decision is hereby rendered relieving petitioners of the corporate income tax
liability in this case, without pronouncement as to costs.
SO ORDERED.

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

GUTIERREZ, JR., J.:

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

xxx xxx xxx

5. Management
(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine
individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation,
three of the nine directors shall be designated by American-Standard, and the other six shall be designated by
the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto
powers over a number of corporate acts and the right to designate certain officers, such as a member of the Executive Committee
whose vote was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the Filipino investors and the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially harmonious relations between the two groups. According to the
Filipino group, a basic disagreement was due to their desire to expand the export operations of the company to which ASI objected
as it apparently had other subsidiaries of joint joint venture groups in the countries where Philippine exports were contemplated. On
March 8, 1983, the annual stockholders' meeting was held. The meeting was presided by Baldwin Young. The minutes were taken
by the Secretary, Avelino Cruz. After disposing of the preliminary items in the agenda, the stockholders then proceeded to the
election of the members of the board of directors. The ASI group nominated three persons namely; Wolfgang Aurbach, John Griffin
and David P. Whittingham. The Philippine investors nominated six, namely; Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R.
Lagdameo, Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza then nominated Mr. Luciano E. Salazar, who in turn
nominated Mr. Charles Chamsay. The chairman, Baldwin Young ruled the last two nominations out of order on the basis of section 5
(a) of the Agreement, the consistent practice of the parties during the past annual stockholders' meetings to nominate only nine
persons as nominees for the nine-member board of directors, and the legal advice of Saniwares' legal counsel. The following events
then, transpired:
... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made
by the ASI representative to the body of stockholders present that a vote be taken on the ruling of the
Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote on the ruling was taken.
The Chairman then instructed the Corporate Secretary to cast all the votes present and represented by proxy
equally for the 6 nominees of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the
2 additional persons nominated, namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr.
Jaqua protested the decision of the Chairman and announced that all votes accruing to ASI shares, a total of
1,329,695 (p. 27, Rollo, AC-G.R. SP No. 05617) were being cumulatively voted for the three ASI nominees and
Charles Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders
announced that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP
No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The Chairman, Baldwin Young,
nevertheless instructed the Secretary to cast all votes equally in favor of the three ASI nominees, namely,
Wolfgang Aurbach, John Griffin and David Whittingham and the six originally nominated by Rogelio Vinluan,
namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and
Baldwin Young. The Secretary then certified for the election of the following Wolfgang Aurbach, John Griffin,
David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A.
Boncan, Baldwin Young. The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to adjourn
was accepted by the Chairman, Baldwin Young, who announced that the motion was carried and declared the
meeting adjourned. Protests against the adjournment were registered and having been ignored, Mr. Jaqua the
ASI representative, stated that the meeting was not adjourned but only recessed and that the meeting would be
reconvened in the next room. The Chairman then threatened to have the stockholders who did not agree to the
decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and
other stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the
meeting at the elevator lobby of the American Standard Building. The continued meeting was presided by
Luciano E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin, David
Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five directors were

certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the explanation that there was a
tie among the other six (6) nominees for the four (4) remaining positions of directors and that the body decided
not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The
first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R.
Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated
as SEC Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang Aurbach, John
Griffin, David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC
Case No. 2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz
claimed to be the legitimate directors of the corporation.
The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the
Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's decision.
The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin,
David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R.
SP No. 05617). The petitions were consolidated and the appellate court in its decision ordered the remand of the case to the
Securities and Exchange Commission with the directive that a new stockholders' meeting of Saniwares be ordered convoked as
soon as possible, under the supervision of the Commission.
Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals) rendered the
questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No.
75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE
RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE
WAS NO ELECTION AT ALL.
II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL
VOTING RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING
PETITIONERS AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT
DUE PROCESS OF LAW.
III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT
OF THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds:
11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by
stockholders and the replacement of the conditions of such agreements with terms never contemplated by the
stockholders but merely dictated by the CA .
11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders
without due process of law in order that a favored group of stockholders may be illegally benefitted and
guaranteed a continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)
On the other hand, the petitioners in G.R. No. 75951 contend that:
I
THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE
BASIC INTENT OF THE AGREEMENT AND THE LAW.

II
THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN
WERE THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS
MEETING OF SANTWARES. (P. 24, Rollo-75951)
The issues raised in the petitions are interrelated, hence, they are discussed jointly.
The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders'
meeting held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the business
established by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote their
additional 10% equity during elections of Saniwares' board of directors.
The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some
other relation depends upon their actual intention which is determined in accordance with the rules governing the interpretation and
construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v.
California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)
The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed strictly
on the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a
joint venture.
They specifically mention number 16 under Miscellaneous Provisions which states:
xxx xxx xxx
c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers
in respect of any transaction hereunder. (At P. 66, 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 interpreted together attributing to the doubtful ones that sense which may result from all of them taken
jointly (Art. 1374, New Civil Code). Moreover, in order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally considered. (Art. 1371, New Civil Code). (Part I,
Original Records, SEC Case No. 2417)
It has been ruled:
In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of
an enterprise for their joint profit, the question whether they intended by their agreement to create a joint
adventure, or to assume some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div.
40,192 N Y S 653; Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33
C.J. p. 871)
In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture
and not with an ordinary corporation. As stated by the SEC:
According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of
the Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine
National group of investors, on the condition that the Agreement should contain provisions to protect ASI as the
minority.
An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as
the minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec.
3 (b) (ii) (a) of the Agreement]. ASI is contractually entitled to designate a member of the Executive Committee
and the vote of this member is required for certain transactions [Sec. 3 (b) (i)].
The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of
Saniwares [Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager
[Sec. 5 (6)]. The Agreement further provides that the sales policy of Saniwares shall be that which is normally
followed by ASI [Sec. 13 (a)] and that Saniwares should not export "Standard" products otherwise than through
ASI's Export Marketing Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and
know-how to Saniwares and the latter paid royalties for the same. (At p. 2).
xxx xxx xxx
It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors
for certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto
power. Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the supermajority voting requirements for amendments of the articles and by-laws; and most significantly to the issues of
tms case, the provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall
designate the other 6, clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns
40% of the capital stock and the Philippine National stockholders who own the balance of 60%, and that 2) ASI
is given certain protections as the minority stockholder.
Premises considered, we believe that under the Agreement there are two groups of stockholders who
established a corporation with provisions for a special contractual relationship between the parties, i.e., ASI and
the other stockholders. (pp. 4-5)
Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on
a six to three ratio. Each group is assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the
Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in

respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax
purposes and liabilities to third parties.
Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are
constrained to seek the technology and marketing assistance of huge multinational corporations of the developed world.
Arrangements are formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing expertise,
use of its brand names, and other such assistance. However, there is always a danger from such arrangements. The foreign group
may, from the start, intend to establish its own sole or monopolistic operations and merely uses the joint venture arrangement to
gain a foothold or test the Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its
operations and becomes profitable, the foreign group undermines the local majority ownership and actively tries to completely or
predominantly take over the entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To
the extent that such subversive actions can be lawfully prevented, the courts should extend protection especially in industries where
constitutional and legal requirements reserve controlling ownership to Filipino citizens.
The Lagdameo Group stated in their appellees' brief in the Court of Appeal
In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements
regarding the exercise of their voting rights.
Sec. 100. Agreements by stockholders.xxx xxx xxx
2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide
that in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may
agree, or as determined in accordance with a procedure agreed upon by them.
Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations
and Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had
95 stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from
each other but are divisible into groups representing a single Identifiable interest. For example, ASI, its
nominees and lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13
stockholders, the Chamsay family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7
stockholders, etc. If the members of one family and/or business or interest group are considered as one (which,
it is respectfully submitted, they should be for purposes of determining how closely held Saniwares is there
were as of 8 March 1983, practically only 17 stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6
of appellees' Rejoinder Memorandum dated 11 December 1984 and Annex "A" thereof).
Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20
stockholders, the undeniable fact is that it is a 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. 15-16) (Decision of SEC Hearing Officer, P.
16)
Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding
the exercise of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain:
Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that
these agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation
has twenty five stockholders, and therefore cannot qualify as a close corporation under section 96, can some of
them enter into an agreement to vote as a unit in the election of directors? It is submitted that there is no reason
for denying stockholders of corporations other than close ones the right to enter into not voting or pooling
agreements to protect their interests, as long as they do not intend to commit any wrong, or fraud on the other
stockholders not parties to the agreement. Of course, voting or pooling agreements are perhaps more useful
and more often resorted to in close corporations. But they may also be found necessary even in widely held
corporations. Moreover, since the Code limits the legal meaning of close corporations to those which comply
with the requisites laid down by section 96, it is entirely possible that a corporation which is in fact a close
corporation will not come within the definition. In such case, its stockholders should not be precluded from
entering into contracts like voting agreements if these are otherwise valid. (Campos & Lopez-Campos, op cit, p.
405)
In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors
restricts the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly
held by the SEC, is valid and binding upon the signatories thereto, which include appellants. (Rollo No. 75951,
pp. 90-94)
In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares' board of
directors, the Court of Appeals correctly stated:
As in other joint venture companies, the extent of ASI's participation in the management of the corporation is
spelled out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by
ASI and the remaining six by the other stockholders, i.e., the Filipino stockholders. This allocation of board
seats is obviously in consonance with the minority position of ASI.
Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and
adhere to their respective rights and obligations thereunder. Appellants seem to contend that any allocation of
board seats, even in joint venture corporations, are null and void to the extent that such may interfere with the
stockholder's rights to cumulative voting as provided in Section 24 of the Corporation Code. This Court should
not be prepared to hold that any agreement which curtails in any way cumulative voting should be struck down,
even if such agreement has been freely entered into by experienced businessmen and do not prejudice those
who are not parties thereto. It may well be that it would be more cogent to hold, as the Securities and Exchange
Commission has held in the decision appealed from, that cumulative voting rights may be voluntarily waived by
stockholders who enter into special relationships with each other to pursue and implement specific purposes, as
in joint venture relationships between foreign and local stockholders, so long as such agreements do not
adversely affect third parties.
In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all
that needs to be done is to give life and effect to the particular contractual rights and obligations which the
parties have assumed for themselves.
On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats
Cannot be disregarded. On the other hand, the rights of the stockholders to cumulative voting should also be
protected.

In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection,
we feel that the proper and just solution to give due consideration to both factors suggests itself quite clearly.
This Court should recognize and uphold the division of the stockholders into two groups, and at the same time
uphold the right of the stockholders within each group to cumulative voting in the process of determining who
the group's nominees would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this
means that if the Filipino stockholders cannot agree who their six nominees will be, a vote would have to be
taken among the Filipino stockholders only. During this voting, each Filipino stockholder can cumulate his votes.
ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be
able to designate more than the three directors it is allowed to designate under the Agreement, and may even
be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the
parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative
voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (Rollo75875, pp. 38-39)
The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity
pursuant to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in
electing directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation of the
Anti-Dummy Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides:
And provided finally that the election of aliens as members of the board of directors or governing body of
corporations or associations engaging in partially nationalized activities shall be allowed in proportion to their
allowable participation or share in the capital of such entities. (amendments introduced by Presidential Decree
715, section 1, promulgated May 28, 1975)
The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is
whether or not that provision is applicable to a joint venture with clearly defined agreements:
The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been
generally understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is in fact hardly distinguishable from the partnership, since their elements are similar
community of interest in the business, sharing of profits and losses, and a mutual right of control. Blackner v. Mc
Dermott, 176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal.
2d. 183, 288 P. 2d. 12 289 P. 2d. 242 [1955]). The main distinction cited by most opinions in common law
jurisdictions is that the partnership contemplates a general business with some degree of continuity, while the
joint venture is formed for the execution of a single transaction, and is thus of a temporary nature. (Tufts v.
Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v.
Megargel 266 Fed. 811 [1920]). This observation is not entirely accurate in this jurisdiction, since under the Civil
Code, a partnership may be particular or universal, and a particular partnership may have for its object a
specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under Philippine law, a joint venture is
a form of partnership and should thus be governed by the law of partnerships. The Supreme Court has however
recognized a distinction between these two business forms, and has held that although a corporation cannot
enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12, Tuazon v.
Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases, Corporation
Code 1981)
Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture. (O'
Hara v. Harman 14 App. Dev. (167) 43 NYS 556).
Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the ASI Group may
vote their additional equity lies in the agreement of the parties.
Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of director seats
under Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative voting in the process of
determining who the group's nominees would be under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of

the Agreement relates to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates to the
manner of voting for these nominees.
This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors.
To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden to them would
obliterate their minority status as agreed upon by the parties. As aptly stated by the appellate court:
... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would
be able to designate more than the three directors it is allowed to designate under the Agreement, and may
even be able to get a majority of the board seats, a result which is clearly contrary to the contractual intent of
the parties.
Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative
voting. Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible
violation or circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization
requirements of the Constitution and the laws if ASI is allowed to nominate more than three directors. (At p. 39,
Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible domination
by the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the Constitution and
circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to
elect board directors in proportion to their share in the capital of the entity. It is to be noted, however, that the same law also limits
the election of aliens as members of the board of directors in proportion to their allowance participation of said entity. In the instant
case, the foreign Group ASI was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in
future dealings, this limitation of six to three board seats should always be maintained as long as the joint venture agreement exists
considering that in limiting 3 board seats in the 9-man board of directors there are provisions already agreed upon and embodied in
the parties' Agreement to protect the interests arising from the minority status of the foreign investors.
With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the appellate court
declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of Saniwares at the March 8,1983
annual stockholders' meeting.
On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting during the election
of the board of directors of the enterprise as ruled by the appellate court and submits that the six (6) directors allotted the Filipino
stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are allowed to
select their nominees separately and not as a common slot determined by the majority of their group.
Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be interpreted in
isolation. This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to
the manner of voting for these nominees which is cumulative voting while section 5(a) relates to the manner of nominating the
members of the board of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its
legality.
The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure cannot, however, be
ignored. The validity of the cumulative voting procedure is dependent on the directors thus elected being genuine members of the
Filipino group, not voters whose interest is to increase the ASI share in the management of Saniwares. The joint venture character
of the enterprise must always be taken into account, so long as the company exists under its original agreement. Cumulative voting
may not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are
substantial safeguards in the Agreement which are intended to preserve the majority status of the Filipino investors as well as to
maintain the minority status of the foreign investors group as earlier discussed. They should be maintained.

WHEREFORE, the petitions in G.R. Nos. 75975-76 and G.R. No. 75875 are DISMISSED and the petition in G.R. No. 75951 is partly
GRANTED. The amended decision of the Court of Appeals is MODIFIED in that Messrs. Wolfgang Aurbach John Griffin, David
Whittingham Emesto V. Lagdameo, Baldwin Young, Raul A. Boncan, Ernesto R. Lagdameo, Jr., Enrique Lagdameo, and George F.
Lee are declared as the duly elected directors of Saniwares at the March 8,1983 annual stockholders' meeting. In all other respects,
the questioned decision is AFFIRMED. Costs against the petitioners in G.R. Nos. 75975-76 and G.R. No. 75875.
SO ORDERED.

FIRST DIVISION
[G.R. No. 127405. October 4, 2000]
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A. ANAY, respondents.
DECISION
YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No. 41616, [1] affirming the Decision of the
Regional Trial Court of Makati, Branch 140, in Civil Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private respondent Nenita A. Anay met petitioner
William T. Belo, then the vice-president for operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint venture with her for the importation and
local distribution of kitchen cookwares. Belo volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend Company, a manufacturer of kitchen wares in
Wisconsin, U.S.A. Under the joint venture, Belo acted as capitalist, Tocao as president and general manager, and Anay as head of
the marketing department and later, vice-president for sales. Anay organized the administrative staff and sales force while Tocao
hired and fired employees, determined commissions and/or salaries of the employees, and assigned them to different branches.
The parties agreed that Belos name should not appear in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anays name in securing distributorship of cookware from that company. The parties agreed
further that Anay would be entitled to: (1) ten percent (10%) of the annual net profits of the business; (2) overriding commission of
six percent (6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make; and (4) two percent (2%) for
her demonstration services. The agreement was not reduced to writing on the strength of Belos assurances that he was sincere,
dependable and honest when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend Company and organized the administrative
staff and the sales force, the cookware business took off successfully. They operated under the name of Geminesse Enterprise, a
sole proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building, Ayala Avenue, Makati City. Belo made
good his monetary commitments to Anay. Thereafter, Roger Muencheberg of West Bend Company invited Anay to the
distributor/dealer meeting in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the southwestern regional convention in
Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the invitation with the consent of Marjorie Tocao who, as
president and general manager of Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila on
July 13, 1987. A portion of the letter reads:
Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20) years now, acquired the distributorship of
Royal Queen cookware for Geminesse Enterprise, is the Vice President Sales Marketing and a business partner of our company, will attend in
response to the invitation. (Italics supplied.)[3]
Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task of saving the business on account of
the unsatisfactory sales record in the Makati and Cubao offices. On August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao [4] for her excellent job performance. On October 7, 1987, in the presence of
Anay, Belo signed a memo [5] entitling her to a thirty-seven percent (37%) commission for her personal sales "up Dec 31/87. Belo
explained to her that said commission was apart from her ten percent (10%) share in the profits. On October 9, 1987, Anay learned
that Marjorie Tocao had signed a letter [6] addressed to the Cubao sales office to the effect that she was no longer the vice-president
of Geminesse Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing manager, that Marjorie
Tocao had barred her from holding office and conducting demonstrations in both Makati and Cubao offices. [7] Anay attempted to
contact Belo. She wrote him twice to demand her overriding commission for the period of January 8, 1988 to February 5, 1988 and
the audit of the company to determine her share in the net profits. When her letters were not answered, Anay consulted her lawyer,
who, in turn, wrote Belo a letter. Still, that letter was not answered.
Anay still received her five percent (5%) overriding commission up to December 1987. The following year, 1988, she did not
receive the same commission although the company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money with damages [8] against Marjorie
D. Tocao and William Belo before the Regional Trial Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and severally, the following: (1) P32,00.00 as
unpaid overriding commission from January 8, 1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00
as exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse Enterprise from the inception of its
business operation until she was illegally dismissed to determine her ten percent (10%) share in the net profits. She further prayed
that she be paid the five percent (5%) overriding commission on the remaining 150 West Bend cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with Anay that was neither reduced in writing,
nor ratified, was either unenforceable or void or inexistent. As far as Belo was concerned, his only role was to introduce Anay to
Marjorie Tocao. There could not have been a partnership because, as Anay herself admitted, Geminesse Enterprise was the sole

proprietorship of Marjorie Tocao. Because Anay merely acted as marketing demonstrator of Geminesse Enterprise for an agreed
remuneration, and her complaint referred to either her compensation or dismissal, such complaint should have been lodged with the
Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account of ill-will and resentment because
Marjorie Tocao did not allow her to lord it over in the Geminesse Enterprise. Anay had acted like she owned the enterprise because
of her experience and expertise. Hence, petitioners were the ones who suffered actual damages including unreturned and
unaccounted stocks of Geminesse Enterprise, and serious anxiety, besmirched reputation in the business world, and various
damages not less than P500,000.00. They also alleged that, to vindicate their names, they had to hire counsel for a fee of
P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was an employee or partner of Marjorie
Tocao and Belo, and (b) whether or not the parties are entitled to damages. [10]
In their defense, Belo denied that Anay was supposed to receive a share in the profit of the business. He, however, admitted
that the two had agreed that Anay would receive a three to four percent (3-4%) share in the gross sales of the cookware. He denied
contributing capital to the business or receiving a share in its profits as he merely served as a guarantor of Marjorie Tocao, who was
new in the business. He attended and/or presided over business meetings of the venture in his capacity as a guarantor but he never
participated in decision-making. He claimed that he wrote the memo granting the plaintiff thirty-seven percent (37%) commission
upon her dismissal from the business venture at the request of Tocao, because Anay had no other income.
For her part, Marjorie Tocao denied having entered into an oral partnership agreement with Anay. However, she admitted that
Anay was an expert in the cookware business and hence, they agreed to grant her the following commissions: thirty-seven percent
(37%) on personal sales; five percent (5%) on gross sales; two percent (2%) on product demonstrations, and two percent (2%) for
recruitment of personnel. Marjorie denied that they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed
that she got the capital for the business out of the sale of the sewing machines used in her garments business and from Peter Lo, a
Singaporean friend-financier who loaned her the funds with interest. Because she treated Anay as her co-equal, Marjorie received
the same amounts of commissions as her. However, Anay failed to account for stocks valued at P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as follows:
WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years 1987 and 1988
pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%) share of plaintiff in the net profits
of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty (150) cookware
sets available for disposition when plaintiff was wrongfully excluded from the partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period covering
January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.
SO ORDERED.
The trial court held that there was indeed an oral partnership agreement between the plaintiff and the defendants, based on
the following: (a) there was an intention to create a partnership; (b) a common fund was established through contributions consisting
of money and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth Bantilan, Anays cousin and the
administrative officer of Geminesse Enterprise from August 21, 1986 until it was absorbed by Royal International, Inc., buttressed
the fact that a partnership existed between the parties. The letter of Roger Muencheberg of West Bend Company stating that he
awarded the distributorship to Anay and Marjorie Tocao because he was convinced that with Marjories financial contribution and
Anays experience, the combination of the two would be invaluable to the partnership, also supported that conclusion. Belos claim
that he was merely a guarantor has no basis since there was no written evidence thereof as required by Article 2055 of the Civil

Code. Moreover, his acts of attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a memo giving
Anay 37% commission on personal sales belied this. On the contrary, it demonstrated his involvement as a partner in the business.
The trial court further held that the payment of commissions did not preclude the existence of the partnership inasmuch as
such practice is often resorted to in business circles as an impetus to bigger sales volume. It did not matter that the agreement was
not in writing because Article 1771 of the Civil Code provides that a partnership may be constituted in any form. The fact that
Geminesse Enterprise was registered in Marjorie Tocaos name is not determinative of whether or not the business was managed
and operated by a sole proprietor or a partnership. What was registered with the Bureau of Domestic Trade was merely the
business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership is an innocent partner. Hence, the guilty
partner must give him his due upon the dissolution of the partnership as well as damages or share in the profits realized from the
appropriation of the partnership business and goodwill. An innocent partner thus possesses pecuniary interest in every existing
contract that was incomplete and in the trade name of the co-partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of damages awarded by the trial court were
reduced to P50,000.00 for moral damages and P50,000.00 as exemplary damages. Their Motion for Reconsideration was denied by
the Court of Appeals for lack of merit. [12]Petitioners Belo and Marjorie Tocao are now before this Court on a petition for review
on certiorari, asserting that there was no business partnership between them and herein private respondent Nenita A. Anay who is,
therefore, not entitled to the damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a partnership existed between them and
private respondent Anay because Geminesse Enterprise came into being exactly a year before the alleged partnership was formed,
and that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with petitioner Tocao contributing nothing,
without any memorandum whatsoever regarding the alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within the exclusive domain of both the trial and
appellate courts. This Court cannot set aside factual findings of such courts absent any showing that there is no evidence to support
the conclusion drawn by the courta quo.[14] In this case, both the trial court and the Court of Appeals are one in ruling that petitioners
and private respondent established a business partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1) two or more persons bind themselves to
contribute money, property or industry to a common fund; and (2) intention on the part of the partners to divide the profits among
themselves.[15] It may be constituted in any form; a public instrument is necessary only where immovable property or real rights are
contributed thereto.[16] This implies that since a contract of partnership is consensual, an oral contract of partnership is as good as a
written one. Where no immovable property or real rights are involved, what matters is that the parties have complied with the
requisites of a partnership. The fact that there appears to be no record in the Securities and Exchange Commission of a public
instrument embodying the partnership agreement pursuant to Article 1772 of the Civil Code [17] did not cause the nullification of the
partnership. The pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the partners, even in case of failure to comply with
the requirements of article 1772, first paragraph.
Petitioners admit that private respondent had the expertise to engage in the business of distributorship of cookware. Private
respondent contributed such expertise to the partnership and hence, under the law, she was the industrial or managing partner. It
was through her reputation with the West Bend Company that the partnership was able to open the business of distributorship of
that companys cookware products; it was through the same efforts that the business was propelled to financial success. Petitioner
Tocao herself admitted private respondents indispensable role in putting up the business when, upon being asked if private
respondent held the positions of marketing manager and vice-president for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only me there then her
and then two (2) people, so about four (4). Now, after that when she recruited already Oscar Abella and Lina TordaCruz these two (2) people were given the designation of marketing managers of which definitely Nita as superior to
them would be the Vice President.[18]
By the set-up of the business, third persons were made to believe that a partnership had indeed been forged between petitioners
and private respondents. Thus, the communication dated June 4, 1986 of Missy Jagler of West Bend Company to Roger
Muencheberg of the same company states:

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge does not have cookware experience. Nita Anay
has started to gather former managers, Lina Torda and Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela,
Menchu Javier. They will continue to gather other key people and build up the organization. All they need is the finance and the products to sell.
[19]

On the other hand, petitioner Belos denial that he financed the partnership rings hollow in the face of the established fact that
he presided over meetings regarding matters affecting the operation of the business. Moreover, his having authorized in writing on
October 7, 1987, on a stationery of his own business firm, Wilcon Builders Supply, that private respondent should receive thirtyseven (37%) of the proceeds of her personal sales, could not be interpreted otherwise than that he had a proprietary interest in the
business. His claim that he was merely a guarantor is belied by that personal act of proprietorship in the business. Moreover, if he
was indeed a guarantor of future debts of petitioner Tocao under Article 2053 of the Civil Code, [20] he should have presented
documentary evidence therefor. While Article 2055 of the Civil Code simply provides that guaranty must be express, Article 1403,
the Statute of Frauds, requires that a special promise to answer for the debt, default or miscarriage of another be in writing. [21]
Petitioner Tocao, a former ramp model, [22] was also a capitalist in the partnership. She claimed that she herself financed the
business. Her and petitioner Belos roles as both capitalists to the partnership with private respondent are buttressed by petitioner
Tocaos admissions that petitioner Belo was her boyfriend and that the partnership was not their only business venture
together. They also established a firm that they called Wiji, the combination of petitioner Belos first name, William, and her
nickname, Jiji.[23] The special relationship between them dovetails with petitioner Belos claim that he was acting in behalf of
petitioner Tocao. Significantly, in the early stage of the business operation, petitioners requested West Bend Company to allow them
to utilize their banking and trading facilities in Singapore in the matter of importation and payment of the cookware products. [24] The
inevitable conclusion, therefore, was that petitioners merged their respective capital and infused the amount into the partnership of
distributing cookware with private respondent as the managing partner.
The business venture operated under Geminesse Enterprise did not result in an employer-employee relationship between
petitioners and private respondent. While it is true that the receipt of a percentage of net profits constitutes only prima
facie evidence that the recipient is a partner in the business,[25] the evidence in the case at bar controverts an employer-employee
relationship between the parties. In the first place, private respondent had a voice in the management of the affairs of the cookware
distributorship,[26] including selection of people who would constitute the administrative staff and the sales force. Secondly, petitioner
Tocaos admissions militate against an employer-employee relationship. She admitted that, like her who owned Geminesse
Enterprise,[27] private respondent received only commissions and transportation and representation allowances [28] and not a fixed
salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go over this. Exh. Y is
denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you please go over this and tell the Honorable
Court whether you ever came across this document and know of your own knowledge the amount --A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain percentage for promotions,
advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: Overrides Marjorie Ann
Tocao P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission, representation, advertising
and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same P21,410.50 is merely
by coincidence?

A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense because of her
expertise in the business she is vital to my business. So, as part of the incentive I offer her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company P21,140.50 is your
way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is --A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there you will acknowledge
you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]
If indeed petitioner Tocao was private respondents employer, it is difficult to believe that they shall receive the same income in
the business. In a partnership, each partner must share in the profits and losses of the venture, except that the industrial partner
shall not be liable for the losses. [31] As an industrial partner, private respondent had the right to demand for a formal accounting of
the business and to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of Geminesse Enterprise, a sole proprietorship, is of
no moment. What was registered with the Bureau of Domestic Trade on August 19, 1987 was merely the name of that enterprise.
[33]
While it is true that in her undated application for renewal of registration of that firm name, petitioner Tocao indicated that it would
be engaged in retail of kitchenwares, cookwares, utensils, skillet, [34] she also admitted that the enterprise was only 60% to 70% for
the cookware business, while 20% to 30% of its business activity was devoted to the sale of water sterilizer or purifier. [35] Indubitably
then, the business name Geminesse Enterprise was used only for practical reasons - it was utilized as the common name for
petitioner Tocaos various business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the unaccounted and unremitted stocks of Geminesse
Enterprise amounting to P208,250.00.[36] Obviously a ploy to offset the damages awarded to private respondent, that claim, more
than anything else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this Court said:

The best evidence of the existence of the partnership, which was not yet terminated (though in the winding up stage), were the unsold goods and
uncollected receivables, which were presented to the trial court. Since the partnership has not been terminated, the petitioner and private
complainant remained as co-partners. x x x.[37]
It is not surprising then that, even after private respondent had been unceremoniously booted out of the partnership in October
1987, she still received her overriding commission until December 1987.
Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the partnership to reap for herself and/or for
petitioner Belo financial gains resulting from private respondents efforts to make the business venture a success. Thus, as petitioner
Tocao became adept in the business operation, she started to assert herself to the extent that she would even shout at private
respondent in front of other people. [38] Her instruction to Lina Torda Cruz, marketing manager, not to allow private respondent to hold
office in both the Makati and Cubao sales offices concretely spoke of her perception that private respondent was no longer
necessary in the business operation,[39] and resulted in a falling out between the two. However, a mere falling out or
misunderstanding between partners does not convert the partnership into a sham organization. [40] The partnership exists until
dissolved under the law. Since the partnership created by petitioners and private respondent has no fixed term and is therefore a
partnership at will predicated on their mutual desire and consent, it may be dissolved by the will of a partner. Thus:
x x x. The right to choose with whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued
existence is, in turn, dependent on the constancy of that mutual resolve, along with each partners capability to give it, and the absence of cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the partnership at will. He
must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the partnership but that it can result in a
liability for damages.[41]
An unjustified dissolution by a partner can subject him to action for damages because by the mutual agency that arises in a
partnership, the doctrine of delectus personae allows the partners to have the power, although not necessarily the right to dissolve
the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the partnership is shown by her memo to the
Cubao office plainly stating that private respondent was, as of October 9, 1987, no longer the vice-president for sales of Geminesse
Enterprise.[43] By that memo, petitioner Tocao effected her own withdrawal from the partnership and considered herself as having
ceased to be associated with the partnership in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by the partnership. This is manifest in petitioners claim for
stocks that had been entrusted to private respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings upon which it is based is primarily the
task of the trial court.[45] The Court of Appeals may modify that amount only when its factual findings are diametrically opposed to
that of the lower court,[46] or the award is palpably or scandalously and unreasonably excessive. [47] However, exemplary damages
that are awarded by way of example or correction for the public good, [48] should be reduced to P50,000.00, the amount correctly
awarded by the Court of Appeals. Concomitantly, the award of moral damages of P100,000.00 was excessive and should be
likewise reduced to P50,000.00. Similarly, attorneys fees that should be granted on account of the award of exemplary damages
and petitioners evident bad faith in refusing to satisfy private respondents plainly valid, just and demandable claims, [49]appear to
have been excessively granted by the trial court and should therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership among petitioners and private
respondent is ordered dissolved, and the parties are ordered to effect the winding up and liquidation of the partnership pursuant to
the pertinent provisions of the Civil Code.This case is remanded to the Regional Trial Court for proper proceedings relative to said
dissolution. The appealed decisions of the Regional Trial Court and the Court of Appeals are AFFIRMED with MODIFICATIONS, as
follows --1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership affairs for the years 1987 and 1988, pursuant
to Article 1809 of the Civil Code, in order to determine private respondents ten percent (10%) share in the net profits of the partnership;
2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition since the time private respondent was wrongfully excluded from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission on the total production which, for the period
covering January 8, 1988 to February 5, 1988, amounted to P32,000.00;
4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the amount of P50,000.00, exemplary damages in the
amount of P50,000.00 and attorneys fees in the amount of P25,000.00.
SO ORDERED.

FIRST DIVISION
[G.R. No. 127405. September 20, 2001]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS and NENITA A. ANAY, respondents.
RES OLUTIO N
YNARES-SANTIAGO, J.:
The inherent powers of a Court to amend and control its processes and orders so as to make them conformable to law and justice includes
the right to reverse itself, especially when in its honest opinion it has committed an error or mistake in judgment, and that to adhere to its decision
will cause injustice to a party litigant.[1]
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed a Motion for Reconsideration of our Decision dated October
4, 2000. They maintain that there was no partnership bettween petitioner Belo, on the one hand, and respondent Nenita A. Anay, on the other
hand; and that the latter being merely an employee of petitioner Tocao.
After a careful review of the evidence presented, we are convinced that, indeed, petitioner Belo acted merely as guarantor of Geminesse
Enterprise. This was categorically affirmed by respondents own witness, Elizabeth Bantilan, during her cross-examination. Furthermore, Bantilan
testified that it was Peter Lo who was the companys financier. Thus:
Q You mentioned a while ago the name William Belo. Now, what is the role of William Belo with Geminesse Enterprise?
A William Belo is the friend of Marjorie Tocao and he was the guarantor of the company.
Q What do you mean by guarantor?
A He guarantees the stocks that she owes somebody who is Peter Lo and he acts as guarantor for us. We can borrow money from him.
Q You mentioned a certain Peter Lo. Who is this Peter Lo?
A Peter Lo is based in Singapore.
Q What is the role of Peter Lo in the Geminesse Enterprise?
A He is the one fixing our orders that open the L/C.
Q You mean Peter Lo is the financier?
A Yes, he is the financier.
Q And the defendant William Belo is merely the guarantor of Geminesse Enterprise, am I correct?
A Yes, sir.[2]
The foregoing was neither refuted nor contradicted by respondents evidence. It should be recalled that the business relationship created
between petitioner Tocao and respondent Anay was an informal partnership, which was not even recorded with the Securities and Exchange
Commission. As such, it was understandable that Belo, who was after all petitioner Tocaos good friend and confidante, would occasionally
participate in the affairs of the business, although never in a formal or official capacity. [3] Again, respondents witness, Elizabeth Bantilan,
confirmed that petitioner Belos presence in Geminesse Enterprises meetings was merely as guarantor of the company and to help petitioner
Tocao.[4]
Furthermore, no evidence was presented to show that petitioner Belo participated in the profits of the business enterprise. Respondent
herself professed lack of knowledge that petitioner Belo received any share in the net income of the partnership. [5] On the other hand, petitioner
Tocao declared that petitioner Belo was not entitled to any share in the profits of Geminesse Enterprise. [6] With no participation in the profits,
petitioner Belo cannot be deemed a partner since the essence of a partnership is that the partners share in the profits and losses. [7]

Consequently, inasmuch as petitioner Belo was not a partner in Geminesse Enterprise, respondent had no cause of action against him and
her complaint against him should accordingly be dismissed.
As regards the award of damages, petitioners argue that respondent should be deemed in bad faith for failing to account for stocks of
Geminesse Enterprise amounting to P208,250.00 and that, accordingly, her claim for damages should be barred to that extent. We do not
agree. Given the circumstances surrounding private respondents sudden ouster from the partnership by petitioner Tocao, her act of withholding
whatever stocks were in her possession and control was justified, if only to serve as security for her claims against the partnership. However,
while we do not agree that the same renders private respondent in bad faith and should bar her claim for damages, we find that the said sum of
P208,250.00 should be deducted from whatever amount is finally adjudged in her favor on the basis of the formal account of the partnership
affairs to be submitted to the Regional Trial Court.
WHEREFORE, based on the foregoing, the Motion for Reconsideration of petitioners is PARTIALLY GRANTED. The Regional Trial
Court of Makati is hereby ordered to DISMISS the complaint, docketed as Civil Case No. 88-509, as against petitioner William T. Belo only. The
sum of P208,250.00 shall be deducted from whatever amount petitioner Marjorie Tocao shall be held liable to pay respondent after the formal
accounting of the partnership affairs.
SO ORDERED.

THIRD DIVISION
[G.R. No. 135813. October 25, 2001]
FERNANDO SANTOS, petitioner, vs. Spouses ARSENIO and NIEVES REYES, respondents.
DECISION
PANGANIBAN, J.:
As a general rule, the factual findings of the Court of Appeals affirming those of the trial court are binding on the Supreme
Court. However, there are several exceptions to this principle. In the present case, we find occasion to apply both the rule and one of the
exceptions.
The Case
Before us is a Petition for Review on Certiorari assailing the November 28, 1997 Decision, [1] as well as the August 17, 1998 and the
October 9, 1998 Resolutions,[2] issued by the Court of Appeals (CA) in CA-GR CV No. 34742. The Assailed Decision disposed as follows:
WHEREFORE, the decision appealed from is AFFIRMED save as for the counterclaim which is hereby DISMISSED. Costs against [petitioner].
[3]

Resolving respondents Motion for Reconsideration, the August 17, 1998 Resolution ruled as follows:
WHEREFORE, [respondents] motion for reconsideration is GRANTED. Accordingly, the courts decision dated November 28, 1997 is hereby
MODIFIED in that the decision appealed from is AFFIRMED in toto, with costs against [petitioner].[4]
The October 9, 1998 Resolution denied for lack of merit petitioners Motion for Reconsideration of the August 17, 1998 Resolution. [5]
The Facts
The events that led to this case are summarized by the CA as follows:
Sometime in June, 1986, [Petitioner] Fernando Santos and [Respondent] Nieves Reyes were introduced to each other by one Meliton Zabat
regarding a lending business venture proposed by Nieves. It was verbally agreed that [petitioner would] act as financier while [Nieves] and Zabat
[would] take charge of solicitation of members and collection of loan payments. The venture was launched on June 13, 1986, with the
understanding that [petitioner] would receive 70% of the profits while x x x Nieves and Zabat would earn 15% each.
In July, 1986, x x x Nieves introduced Cesar Gragera to [petitioner]. Gragera, as chairman of the Monte Maria Development
Corporation[6] (Monte Maria, for brevity), sought short-term loans for members of the corporation. [Petitioner] and Gragera executed an
agreement providing funds for Monte Marias members. Under the agreement, Monte Maria, represented by Gragera, was entitled to P1.31
commission per thousand paid daily to [petitioner] (Exh. A). x x x Nieves kept the books as representative of [petitioner] while [Respondent]
Arsenio, husband of Nieves, acted as credit investigator.

On August 6, 1986, [petitioner], x x x [Nieves] and Zabat executed the Article of Agreement which formalized their earlier verbal arrangement.
[Petitioner] and [Nieves] later discovered that their partner Zabat engaged in the same lending business in competition with their
partnership[.] Zabat was thereby expelled from the partnership. The operations with Monte Maria continued.
On June 5, 1987, [petitioner] filed a complaint for recovery of sum of money and damages. [Petitioner] charged [respondents], allegedly in their
capacities as employees of [petitioner], with having misappropriated funds intended for Gragera for the period July 8, 1986 up to March 31,
1987. Upon Grageras complaint that his commissions were inadequately remitted, [petitioner] entrusted P200,000.00 to x x x Nieves to be given
to Gragera. x x x Nieves allegedly failed to account for the amount. [Petitioner] asserted that after examination of the records, he found that of the
total amount of P4,623,201.90 entrusted to [respondents], onlyP3,068,133.20 was remitted to Gragera, thereby leaving the balance
of P1,555,065.70 unaccounted for.
In their answer, [respondents] asserted that they were partners and not mere employees of [petitioner]. The complaint, they alleged, was filed to
preempt and prevent them from claiming their rightful share to the profits of the partnership.
x x x Arsenio alleged that he was enticed by [petitioner] to take the place of Zabat after [petitioner] learned of Zabats activities. Arsenio resigned
from his job at the Asian Development Bank to join the partnership.
For her part, x x x Nieves claimed that she participated in the business as a partner, as the lending activity with Monte Maria originated from her
initiative. Except for the limited period of July 8, 1986 through August 20, 1986, she did not handle sums intended for Gragera. Collections were
turned over to Gragera because he guaranteed 100% payment of all sums loaned by Monte Maria. Entries she made on worksheets were based on
this assumptive 100% collection of all loans. The loan releases were made less Grageras agreed commission. Because of this arrangement, she
neither received payments from borrowers nor remitted any amount to Gragera. Her job was merely to make worksheets (Exhs. 15 to 15DDDDDDDDDD) to convey to [petitioner] how much he would earn if all the sums guaranteed by Gragera were collected.
[Petitioner] on the other hand insisted that [respondents] were his mere employees and not partners with respect to the agreement with
Gragera. He claimed that after he discovered Zabats activities, he ceased infusing funds, thereby causing the extinguishment of the
partnership. The agreement with Gragera was a distinct partnership [from] that of [respondent] and Zabat. [Petitioner] asserted that [respondents]
were hired as salaried employees with respect to the partnership between [petitioner] and Gragera.
[Petitioner] further asserted that in Nieves capacity as bookkeeper, she received all payments from which Nieves deducted Grageras
commission. The commission would then be remitted to Gragera. She likewise determined loan releases.
During the pre-trial, the parties narrowed the issues to the following points: whether [respondents] were employees or partners of [petitioner],
whether [petitioner] entrusted money to [respondents] for delivery to Gragera, whether the P1,555,068.70 claimed under the complaint was
actually remitted to Gragera and whether [respondents] were entitled to their counterclaim for share in the profits. [7]
Ruling of the Trial Court
In its August 13, 1991 Decision, the trial court held that respondents were partners, not mere employees, of petitioner. It further ruled that
Gragera was only a commission agent of petitioner, not his partner. Petitioner moreover failed to prove that he had entrusted any money to
Nieves. Thus, respondents counterclaim for their share in the partnership and for damages was granted. The trial court disposed as follows:
39. WHEREFORE, the Court hereby renders judgment as follows:
39.1. THE SECOND AMENDED COMPLAINT dated July 26, 1989 is DISMISSED.
39.2. The [Petitioner] FERNANDO J. SANTOS is ordered to pay the [Respondent] NIEVES S. REYES, the following:
39.2.1. P3,064,428.00 - The 15 percent share of the [respondent] NIEVES S. REYES in the profits of her
joint venture with the [petitioner].
39.2.2. Six (6) percent of - As damages from P3,064,428.00 August 3, 1987 until the P3,064,428.00 is
fully paid.
39.2.3. P50,000.00 - As moral damages

39.2.4. P10,000.00 - As exemplary damages

39.3. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondent] ARSENIO REYES, the following:
39.3.1. P2,899,739.50 - The balance of the 15 percent share of the [respondent] ARSENIO REYES in the
profits of his joint venture with the
[petitioner].
39.3.2. Six (6) percent of - As damages from P2,899,739.50 August 3, 1987 until the P2,899,739.50 is
fully paid.
39.3.3. P25,000.00 - As moral damages
39.3.4. P10,000.00 - As exemplary damages
39.4. The [petitioner] FERNANDO J. SANTOS is ordered to pay the [respondents]:
39.4.1. P50,000.00 - As attorneys fees; and
39.4.2 The cost of the suit.[8]
Ruling of the Court of Appeals
On appeal, the Decision of the trial court was upheld, and the counterclaim of respondents was dismissed. Upon the latters Motion for
Reconsideration, however, the trial courts Decision was reinstated in toto. Subsequently, petitioners own Motion for Reconsideration was denied
in the CA Resolution of October 9, 1998.
The CA ruled that the following circumstances indicated the existence of a partnership among the parties: (1) it was Nieves who broached
to petitioner the idea of starting a money-lending business and introduced him to Gragera; (2) Arsenio received dividends or profit-shares
covering the period July 15 to August 7, 1986 (Exh. 6); and (3) the partnership contract was executed after the Agreement with Gragera and
petitioner and thus showed the parties intention to consider it as a transaction of the partnership. In their common venture, petitioner invested
capital while respondents contributed industry or services, with the intention of sharing in the profits of the business.
The CA disbelieved petitioners claim that Nieves had misappropriated a total of P200,000 which was supposed to be delivered to Gragera
to cover unpaid commissions. It was his task to collect the amounts due, while hers was merely to prepare the daily cash flow reports (Exhs. 1515DDDDDDDDDD) to keep track of his collections.
Hence, this Petition.[9]
Issue
Petitioner asks this Court to rule on the following issues:[10]
Whether or not Respondent Court of Appeals acted with grave abuse of discretion tantamount to excess or lack of jurisdiction in:
1. Holding that private respondents were partners/joint venturers and not employees of Santos in connection with the agreement
between Santos and Monte Maria/Gragera;
2. Affirming the findings of the trial court that the phrase Received by on documents signed by Nieves Reyes signified receipt of
copies of the documents and not of the sums shown thereon;
3. Affirming that the signature of Nieves Reyes on Exhibit E was a forgery;
4. Finding that Exhibit H [did] not establish receipt by Nieves Reyes of P200,000.00 for delivery to Gragera;

5. Affirming the dismissal of Santos [Second] Amended Complaint;

6. Affirming the decision of the trial court, upholding private respondents counterclaim;
7. Denying Santos motion for reconsideration dated September 11, 1998.
Succinctly put, the following were the issues raised by petitioner: (1) whether the parties relationship was one of partnership or of
employer-employee; (2) whether Nieves misappropriated the sums of money allegedly entrusted to her for delivery to Gragera as his
commissions; and (3) whether respondents were entitled to the partnership profits as determined by the trial court.
The Courts Ruling
The Petition is partly meritorious.
First Issue:
Business Relationship
Petitioner maintains that he employed the services of respondent spouses in the money-lending venture with Gragera, with Nieves as
bookkeeper and Arsenio as credit investigator. That Nieves introduced Gragera to Santos did not make her a partner. She was only a witness to
the Agreement between the two. Separate from the partnership between petitioner and Gragera was that which existed among petitioner, Nieves
and Zabat, a partnership that was dissolved when Zabat was expelled.
On the other hand, both the CA and the trial court rejected petitioners contentions and ruled that the business relationship was one of
partnership. We quote from the CA Decision, as follows:
[Respondents] were industrial partners of [petitioner]. x x x Nieves herself provided the initiative in the lending activities with Monte Maria. In
consonance with the agreement between appellant, Nieves and Zabat (later replaced by Arsenio), [respondents] contributed industry to the
common fund with the intention of sharing in the profits of the partnership. [Respondents] provided services without which the partnership would
not have [had] the wherewithal to carry on the purpose for which it was organized and as such [were] considered industrial partners (Evangelista
v. Abad Santos, 51 SCRA 416 [1973]).
While concededly, the partnership between [petitioner,] Nieves and Zabat was technically dissolved by the expulsion of Zabat therefrom, the
remaining partners simply continued the business of the partnership without undergoing the procedure relative to dissolution. Instead, they invited
Arsenio to participate as a partner in their operations. There was therefore, no intent to dissolve the earlier partnership. The partnership between
[petitioner,] Nieves and Arsenio simply took over and continued the business of the former partnership with Zabat, one of the incidents of which
was the lending operations with Monte Maria.
xxxxxxxxx
Gragera and [petitioner] were not partners. The money-lending activities undertaken with Monte Maria was done in pursuit of the business for
which the partnership between [petitioner], Nieves and Zabat (later Arsenio) was organized. Gragera who represented Monte Maria was merely
paid commissions in exchange for the collection of loans. The commissions were fixed on gross returns, regardless of the expenses incurred in the
operation of the business. The sharing of gross returns does not in itself establish a partnership.[11]
We agree with both courts on this point. By the contract of partnership, two or more persons bind themselves to contribute money, property
or industry to a common fund, with the intention of dividing the profits among themselves. [12] The Articles of Agreement stipulated that the
signatories shall share the profits of the business in a 70-15-15 manner, with petitioner getting the lions share. [13] This stipulation clearly proved
the establishment of a partnership.
We find no cogent reason to disagree with the lower courts that the partnership continued lending money to the members of the Monte
Maria Community Development Group, Inc., which later on changed its business name to Private Association for Community Development, Inc.
(PACDI). Nieves was not merely petitioners employee. She discharged her bookkeeping duties in accordance with paragraphs 2 and 3 of the
Agreement, which states as follows:

2. That the SECOND PARTY and THIRD PARTY shall handle the solicitation and screening of prospective borrowers, and shall x x x each be
responsible in handling the collection of the loan payments of the borrowers that they each solicited.
3. That the bookkeeping and daily balancing of account of the business operation shall be handled by the SECOND PARTY.[14]
The Second Party named in the Agreement was none other than Nieves Reyes. On the other hand, Arsenios duties as credit investigator are
subsumed under the phrase screening of prospective borrowers. Because of this Agreement and the disbursement of monthly allowances and
profit shares or dividends (Exh. 6) to Arsenio, we uphold the factual finding of both courts that he replaced Zabat in the partnership.
Indeed, the partnership was established to engage in a money-lending business, despite the fact that it was formalized only after the
Memorandum of Agreement had been signed by petitioner and Gragera. Contrary to petitioners contention, there is no evidence to show that a
different business venture is referred to in this Agreement, which was executed on August 6, 1986, or about a month after the Memorandum had
been signed by petitioner and Gragera on July 14, 1986. The Agreement itself attests to this fact:
WHEREAS, the parties have decided to formalize the terms of their business relationship in order that their respective interests may be properly
defined and established for their mutual benefit and understanding. [15]
Second Issue:
No Proof of Misappropriation of Grageras Unpaid Commission
Petitioner faults the CA finding that Nieves did not misappropriate money intended for Grageras commission. According to him, Gragera
remitted his daily collection to Nieves. This is shown by Exhibit B (the Schedule of Daily Payments), which bears her signature under the words
received by. For the period July 1986 to March 1987, Gragera should have earned a total commission of P4,282,429.30. However,
only P3,068,133.20 was received by him. Thus, petitioner infers that she misappropriated the difference of P1,214,296.10, which represented the
unpaid commissions. Exhibit H is an untitled tabulation which, according to him, shows that Gragera was also entitled to a commission
of P200,000, an amount that was never delivered by Nieves.[16]
On this point, the CA ruled that Exhibits B, F, E and H did not show that Nieves received for delivery to Gragera any amount from which
the P1,214,296.10 unpaid commission was supposed to come, and that such exhibits were insufficient proof that she had
embezzled P200,000. Said the CA:
The presentation of Exhibit D vaguely denominated as members ledger does not clearly establish that Nieves received amounts from Monte
Marias members. The document does not clearly state what amounts the entries thereon represent. More importantly, Nieves made the entries for
the limited period of January 11, 1987 to February 17, 1987 only while the rest were made by Grageras own staff.
Neither can we give probative value to Exhibit E which allegedly shows acknowledgment of the remittance of commissions to Verona
Gonzales. The document is a private one and its due execution and authenticity have not been duly proved as required in [S]ection 20, Rule 132
of the Rules of Court which states:
Sec. 20. Proof of Private Document Before any private document offered as authentic is received in evidence, its due execution and authenticity
must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be.
The court a quo even ruled that the signature thereon was a forgery, as it found that:
x x x. But NIEVES denied that Exh. E-1 is her signature; she claimed that it is a forgery. The initial stroke of Exh. E-1 starts from up and goes
downward. The initial stroke of the genuine signatures of NIEVES (Exhs. A-3, B-1, F-1, among others) starts from below and goes upward. This
difference in the start of the initial stroke of the signatures Exhs. E-1 and of the genuine signatures lends credence to Nieves claim that the
signature Exh. E-1 is a forgery.

xxxxxxxxx
Nieves testimony that the schedules of daily payment (Exhs. B and F) were based on the predetermined 100% collection as guaranteed by
Gragera is credible and clearly in accord with the evidence. A perusal of Exhs. B and F as well as Exhs. 15 to 15-DDDDDDDDDD reveal that the
entries were indeed based on the 100% assumptive collection guaranteed by Gragera. Thus, the total amount recorded on Exh. B is exactly the
number of borrowers multiplied by the projected collection ofP150.00 per borrower. This holds true for Exh. F.
Corollarily, Nieves explanation that the documents were pro forma and that she signed them not to signify that she collected the amounts but that
she received the documents themselves is more believable than [petitioners] assertion that she actually handled the amounts.
Contrary to [petitioners] assertion, Exhibit H does not unequivocally establish that x x x Nieves received P200,000.00 as commission for
Gragera. As correctly stated by the court a quo, the document showed a liquidation of P240,000.00 and not P200,000.00.
Accordingly, we find Nieves testimony that after August 20, 1986, all collections were made by Gragera believable and worthy of
credence. Since Gragera guaranteed a daily 100% payment of the loans, he took charge of the collections. As [petitioners] representative, Nieves
merely prepared the daily cash flow reports (Exh. 15 to 15 DDDDDDDDDD) to enable [petitioner] to keep track of Grageras operations. Gragera
on the other hand devised the schedule of daily payment (Exhs. B and F) to record the projected gross daily collections.
As aptly observed by the court a quo:
26.1. As between the versions of SANTOS and NIEVES on how the commissions of GRAGERA [were] paid to him[,] that of NIEVES is more
logical and practical and therefore, more believable. SANTOS version would have given rise to this improbable situation: GRAGERA would
collect the daily amortizations and then give them to NIEVES; NIEVES would get GRAGERAs commissions from the amortizations and then
give such commission to GRAGERA.[17]
These findings are in harmony with the trial courts ruling, which we quote below:
21. Exh. H does not prove that SANTOS gave to NIEVES and the latter received P200,000.00 for delivery to GRAGERA. Exh. H shows under
its sixth column ADDITIONAL CASH that the additional cash was P240,000.00. If Exh. H were the liquidation of the P200,000.00 as alleged by
SANTOS, then his claim is not true.This is so because it is a liquidation of the sum of P240,000.00.
21.1. SANTOS claimed that he learned of NIEVES failure to give the P200,000.00 to GRAGERA when he received the latters letter complaining
of its delayed release. Assuming as true SANTOS claim that he gave P200,000.00 to GRAGERA, there is no competent evidence that NIEVES
did not give it to GRAGERA. The only proof that NIEVES did not give it is the letter. But SANTOS did not even present the letter in
evidence. He did not explain why he did not.
21.2. The evidence shows that all money transactions of the money-lending business of SANTOS were covered by petty cash vouchers. It is
therefore strange why SANTOS did not present any voucher or receipt covering the P200,000.00.[18]
In sum, the lower courts found it unbelievable that Nieves had embezzled P1,555,068.70 from the partnership. She did not
remit P1,214,296.10 to Gragera, because he had deducted his commissions before remitting his collections. Exhibits B and F are merely
computations of what Gragera should collect for the day; they do not show that Nieves received the amounts stated therein. Neither is there
sufficient proof that she misappropriated P200,000, because Exhibit H does not indicate that such amount was received by her; in fact, it shows a
different figure.
Petitioner has utterly failed to demonstrate why a review of these factual findings is warranted. Well-entrenched is the basic rule that
factual findings of the Court of Appeals affirming those of the trial court are binding and conclusive on the Supreme Court. [19] Although there are
exceptions to this rule, petitioner has not satisfactorily shown that any of them is applicable to this issue.
Third Issue:
Accounting of Partnership
Petitioner refuses any liability for respondents claims on the profits of the partnership. He maintains that both business propositions were
flops, as his investments were consumed and eaten up by the commissions orchestrated to be due Gragera a situation that could not have been
rendered possible without complicity between Nieves and Gragera.

Respondent spouses, on the other hand, postulate that petitioner instituted the action below to avoid payment of the demands of Nieves,
because sometime in March 1987, she signified to petitioner that it was about time to get her share of the profits which had already accumulated
to some P3 million. Respondents add that while the partnership has not declared dividends or liquidated its earnings, the profits are already
reflected on paper. To prove the counterclaim of Nieves, the spouses show that from June 13, 1986 up to April 19, 1987, the profit
totaled P20,429,520 (Exhs. 10 et seq. and 15 et seq.). Based on that income, her 15 percent share under the joint venture amounts to P3,064,428
(Exh. 10-I-3); and Arsenios, P2,026,000 minus the P30,000 which was already advanced to him (Petty Cash Vouchers, Exhs. 6, 6-A to 6-B).
The CA originally held that respondents counterclaim was premature, pending an accounting of the partnership. However, in its assailed
Resolution of August 17, 1998, it turned volte face. Affirming the trial courts ruling on the counterclaim, it held as follows:
We earlier ruled that there is still need for an accounting of the profits and losses of the partnership before we can rule with certainty as to the
respective shares of the partners. Upon a further review of the records of this case, however, there appears to be sufficient basis to determine the
amount of shares of the parties and damages incurred by [respondents]. The fact is that the court a quo already made such a determination [in its]
decision dated August 13, 1991 on the basis of the facts on record. [20]
The trial courts ruling alluded to above is quoted below:
27. The defendants counterclaim for the payment of their share in the profits of their joint venture with SANTOS is supported by the evidence.
27.1. NIEVES testified that: Her claim to a share in the profits is based on the agreement (Exhs. 5, 5-A and 5-B). The profits are shown in the
working papers (Exhs. 10 to 10-I, inclusive) which she prepared. Exhs. 10 to 10-I (inclusive) were based on the daily cash flow reports of which
Exh. 3 is a sample. The originals of the daily cash flow reports (Exhs. 3 and 15 to 15-D (10) were given to SANTOS. The joint venture had a net
profit of P20,429,520.00 (Exh. 10-I-1), from its operations from June 13, 1986 to April 19, 1987 (Exh. 1-I-4). She had a share of P3,064,428.00
(Exh. 10-I-3) and ARSENIO, about P2,926,000.00, in the profits.
27.1.1 SANTOS never denied NIEVES testimony that the money-lending business he was engaged in netted a profit and that the originals of the
daily case flow reports were furnished to him. SANTOS however alleged that the money-lending operation of his joint venture with NIEVES and
ZABAT resulted in a loss of about half a million pesos to him. But such loss, even if true, does not negate NIEVES claim that overall, the joint
venture among them SANTOS, NIEVES and ARSENIO netted a profit. There is no reason for the Court to doubt the veracity of [the testimony
of] NIEVES.
27.2 The P26,260.50 which ARSENIO received as part of his share in the profits (Exhs. 6, 6-A and 6-B) should be deducted from his total share.
[21]

After a close examination of respondents exhibits, we find reason to disagree with the CA. Exhibit 10-I[22] shows that the partnership
earned a total income ofP20,429,520 for the period June 13, 1986 until April 19, 1987. This entry is derived from the sum of the amounts under
the following column headings: 2-Day Advance Collection, Service Fee, Notarial Fee, Application Fee, Net Interest Income and Interest Income
on Investment. Such entries represent the collections of the money-lending business or its gross income.
The total income shown on Exhibit 10-I did not consider the expenses sustained by the partnership. For instance, it did not factor in the
gross loan releases representing the money loaned to clients. Since the business is money-lending, such releases are comparable with the
inventory or supplies in other business enterprises.
Noticeably missing from the computation of the total income is the deduction of the weekly allowance disbursed to respondents. Exhibits I
et seq. and J et seq.[23]show that Arsenio received allowances from July 19, 1986 to March 27, 1987 in the aggregate amount of P25,500; and
Nieves, from July 12, 1986 to March 27, 1987 in the total amount of P25,600. These allowances are different from the profit already received by
Arsenio. They represent expenses that should have been deducted from the business profits. The point is that all expenses incurred by the moneylending enterprise of the parties must first be deducted from the total income in order to arrive at the net profit of the partnership. The share of
each one of them should be based on this net profit and not from the gross income or total income reflected in Exhibit 10-I, which the two courts
invariably referred to as cash flow sheets.
Similarly, Exhibits 15 et seq.,[24] which are the Daily Cashflow Reports, do not reflect the business expenses incurred by the parties,
because they show only the daily cash collections. Contrary to the rulings of both the trial and the appellate courts, respondents exhibits do not
reflect the complete financial condition of the money-lending business. The lower courts obviously labored over a mistaken notion that Exhibit
10-I-1 represented the net profits earned by the partnership.

For the purpose of determining the profit that should go to an industrial partner (who shares in the profits but is not liable for the losses),
the gross income from all the transactions carried on by the firm must be added together, and from this sum must be subtracted the expenses or
the losses sustained in the business. Only in the difference representing the net profits does the industrial partner share. But if, on the contrary, the
losses exceed the income, the industrial partner does not share in the losses.[25]
When the judgment of the CA is premised on a misapprehension of facts or a failure to notice certain relevant facts that would otherwise
justify a different conclusion, as in this particular issue, a review of its factual findings may be conducted, as an exception to the general rule
applied to the first two issues.[26]
The trial court has the advantage of observing the witnesses while they are testifying, an opportunity not available to appellate
courts. Thus, its assessment of the credibility of witnesses and their testimonies are accorded great weight, even finality, when supported by
substantial evidence; more so when such assessment is affirmed by the CA. But when the issue involves the evaluation of exhibits or documents
that are attached to the case records, as in the third issue, the rule may be relaxed. Under that situation, this Court has a similar opportunity to
inspect, examine and evaluate those records, independently of the lower courts. Hence, we deem the award of the partnership share, as computed
by the trial court and adopted by the CA, to be incomplete and not binding on this Court.
WHEREFORE, the Petition is partly GRANTED. The assailed November 28, 1997 Decision is AFFIRMED, but the challenged
Resolutions dated August 17, 1998 and October 9, 1998 are REVERSED and SET ASIDE. No costs.
SO ORDERED.

EN BANC
G.R. No. L-19342 May 25, 1972
LORENZO T. OA and HEIRS OF JULIA BUALES, namely: RODOLFO B. OA, MARIANO B. OA, LUZ B. OA, VIRGINIA
B. OA and LORENZO B. OA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Orlando Velasco for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete, and Special Attorney Purificacion
Ureta for respondent.

BARREDO, J.:p
Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above, holding that
petitioners have constituted an unregistered partnership and are, therefore, subject to the payment of the deficiency corporate
income taxes assessed against them by respondent Commissioner of Internal Revenue for the years 1955 and 1956 in the total
sum of P21,891.00, plus 5% surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of Section 51 (e)
(2) of the Internal Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well as the
resolution of said court denying petitioners' motion for reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oa and her five
children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila for the settlement of
her estate. Later, Lorenzo T. Oa the surviving spouse was appointed administrator of the estate of said
deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the administrator submitted the project of partition,
which was approved by the Court on May 16, 1949 (See Exhibit K). Because three of the heirs, namely Luz,
Virginia and Lorenzo, Jr., all surnamed Oa, were still minors when the project of partition was approved,
Lorenzo T. Oa, their father and administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of
First Instance of Manila for appointment as guardian of said minors. On November 14, 1949, the Court
appointed him guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.).
The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided one-half
(1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses with a total assessed
value of P17,590.00 and an undetermined amount to be collected from the War Damage Commission. Later,
they received from said Commission the amount of P50,000.00, more or less. This amount was not divided
among them but was used in the rehabilitation of properties owned by them in common (t.s.n., p. 46). Of the ten
parcels of land aforementioned, two were acquired after the death of the decedent with money borrowed from
the Philippine Trust Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).
The project of partition also shows that the estate shares equally with Lorenzo T. Oa, the administrator thereof,
in the obligation of P94,973.00, consisting of loans contracted by the latter with the approval of the Court (see p.
3 of Exhibit K; or see p. 74, BIR rec.).
Although the project of partition was approved by the Court on May 16, 1949, no attempt was made to divide
the properties therein listed. Instead, the properties remained under the management of Lorenzo T. Oa who
used said properties in business by leasing or selling them and investing the income derived therefrom and the
proceeds from the sales thereof in real properties and securities. As a result, petitioners' properties and
investments gradually increased from P105,450.00 in 1949 to P480,005.20 in 1956 as can be gleaned from the
following year-end balances:

Y
e
a
r

Invest
ment

Lan
d

Buil
ding

Accou
nt

Acc
ount

Acc
ount

1949

P87,860.00

P17,590.00

1950

P24,657.65

128,566.72

96,076.26

1951

51,301.31

120,349.28

110,605.11

1952

67,927.52

87,065.28

152,674.39

1953

61,258.27

84,925.68

161,463.83

1954

63,623.37

99,001.20

167,962.04

1955

100,786.00

120,249.78

169,262.52

1956

175,028.68

135,714.68

169,262.52

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)
From said investments and properties petitioners derived such incomes as profits from installment sales of
subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR
rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of account kept by Lorenzo T. Oa where
the corresponding shares of the petitioners in the net income for the year are also known. Every year,
petitioners returned for income tax purposes their shares in the net income derived from said properties and
securities and/or from transactions involving them (Exhibit 3, supra; t.s.n., pp. 25-26). However, petitioners did
not actually receive their shares in the yearly income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always
left in the hands of Lorenzo T. Oa who, as heretofore pointed out, invested them in real properties and
securities. (See Exhibit 3, t.s.n., pp. 50, 102-104).
On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that petitioners
formed an unregistered partnership and therefore, subject to the corporate income tax, pursuant to Section 24,
in relation to Section 84(b), of the Tax Code. Accordingly, he assessed against the petitioners the amounts of
P8,092.00 and P13,899.00 as corporate income taxes for 1955 and 1956, respectively. (See Exhibit 5,
amended by Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested against the assessment and asked for
reconsideration of the ruling of respondent that they have formed an unregistered partnership. Finding no merit
in petitioners' request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for
Respondent, June 12, 1961).
The original assessment was as follows:
1955
Net income as per investigation ................ P40,209.89
Income tax due thereon ............................... 8,042.00
25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50
1956

Net income as per investigation ................ P69,245.23

Income tax due thereon ............................... 13,849.00
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of the Supreme
Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the questioned
assessment refers solely to the income tax proper for the years 1955 and 1956 and the "Compromise for nonfiling," the latter item obviously referring to the compromise in lieu of the criminal liability for failure of petitioners
to file the corporate income tax returns for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C
to Petition)
Petitioners have assigned the following as alleged errors of the Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-OWNERS
OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM TRANSACTIONS THEREFROM
(sic);
III.
THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR
CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED PARTNERSHIP,
THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE AN
UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY INVESTED THE PROFITS FROM
THE PROPERTIES OWNED IN COMMON AND THE LOANS RECEIVED USING THE INHERITED
PROPERTIES AS COLLATERALS;
V.
ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT OF TAX
APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE PETITIONERS AS
INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS ACCRUING FROM THE
PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF THE UNREGISTERED
PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of Tax Appeals,
should petitioners be considered as co-owners of the properties inherited by them from the deceased Julia Buales and the profits
derived from transactions involving the same, or, must they be deemed to have formed an unregistered partnership subject to tax
under Sections 24 and 84(b) of the National Internal Revenue Code? (2) Assuming they have formed an unregistered partnership,
should this not be only in the sense that they invested as a common fund the profits earned by the properties owned by them in
common and the loans granted to them upon the security of the said properties, with the result that as far as their respective shares
in the inheritance are concerned, the total income thereof should be considered as that of co-owners and not of the unregistered
partnership? And (3) assuming again that they are taxable as an unregistered partnership, should not the various amounts already
paid by them for the same years 1955 and 1956 as individual income taxes on their respective shares of the profits accruing from
the properties they owned in common be deducted from the deficiency corporate taxes, herein involved, assessed against such
unregistered partnership by the respondent Commissioner?

Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in interest died way
back on March 23, 1944 and the project of partition of her estate was judicially approved as early as May 16, 1949, and presumably
petitioners have been holding their respective shares in their inheritance since those dates admittedly under the administration or
management of the head of the family, the widower and father Lorenzo T. Oa, the assessment in question refers to the later years
1955 and 1956. We believe this point to be important because, apparently, at the start, or in the years 1944 to 1954, the respondent
Commissioner of Internal Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he
considered them as having formed an unregistered partnership. At least, there is nothing in the record indicating that an earlier
assessment had already been made. Such being the case, and We see no reason how it could be otherwise, it is easily
understandable why petitioners' position that they are co-owners and not unregistered co-partners, for the purposes of the
impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the fact that they were not similarly
assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to the project of
partition approved in 1949, "the properties remained under the management of Lorenzo T. Oa who used said properties in
business by leasing or selling them and investing the income derived therefrom and the proceed from the sales thereof in real
properties and securities," as a result of which said properties and investments steadily increased yearly from P87,860.00 in "land
account" and P17,590.00 in "building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and
P169,262.52 in "building account" in 1956. And all these became possible because, admittedly, petitioners never actually received
any share of the income or profits from Lorenzo T. Oa and instead, they allowed him to continue using said shares as part of the
common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective shares of the
profits of their common business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the properties
inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said properties were sold at
considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oa, in the purchase and sale of corporate
securities. It is likewise admitted that all the profits from these ventures were divided among petitioners proportionately in
accordance with their respective shares in the inheritance. In these circumstances, it is Our considered view that from the moment
petitioners allowed not only the incomes from their respective shares of the inheritance but even the inherited properties themselves
to be used by Lorenzo T. Oa as a common fund in undertaking several transactions or in business, with the intention of deriving
profit to be shared by them proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in
effect, they thereby formed an unregistered partnership within the purview of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners rather than
unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the partition and distribution of
the estate of the deceased, all the income thereof does belong commonly to all the heirs, obviously, without them becoming thereby
unregistered co-partners, but it does not necessarily follow that such status as co-owners continues until the inheritance is actually
and physically distributed among the heirs, for it is easily conceivable that after knowing their respective shares in the partition, they
might decide to continue holding said shares under the common management of the administrator or executor or of anyone chosen
by them and engage in business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any
inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants therein to be
unregistered co-partners for tax purposes, that their common fund "was not something they found already in existence" and that "it
was not a property inherited by them pro indiviso," but it is certainly far fetched to argue therefrom, as petitioners are doing here,
that ergo, in all instances where an inheritance is not actually divided, there can be no unregistered co-partnership. As already
indicated, for tax purposes, the co-ownership of inherited properties is automatically converted into an unregistered partnership the
moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce
profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed
in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. The reason for this is
simple. From the moment of such partition, the heirs are entitled already to their respective definite shares of the estate and the
incomes thereof, for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs, and,
accordingly he becomes liable individually for all taxes in connection therewith. If after such partition, he allows his share to be held
in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his
share, there can be no doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed. This is exactly what happened to petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing of gross returns
does not of itself establish a partnership, whether or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived," and, for that matter, on any other provision of said code on partnerships is unavailing.
In Evangelista, supra, this Court clearly differentiated the concept of partnerships under the Civil Code from that of unregistered
partnerships which are considered as "corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr.
Justice Roberto Concepcion, now Chief Justice, elucidated on this point thus:
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and
different from "partnerships". When our Internal Revenue Code includes "partnerships" among the entities
subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said

Code exempts from the aforementioned tax "duly registered general partnerships," which constitute precisely
one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said
Code, "the term corporation includes partnerships, no matter how created or organized." This qualifying
expression clearly indicates that a joint venture need not be undertaken in any of the standard forms, or in
confirmity with the usual requirements of the law on partnerships, in order that one could be deemed constituted
for purposes of the tax on corporation. Again, pursuant to said section 84(b),the term "corporation" includes,
among others, "joint accounts,(cuentas en participacion)" and "associations", none of which has a legal
personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded
that personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above
stated, "duly registered general co-partnerships" which are possessed of the aforementioned personality
have been expressly excluded by law (sections 24 and 84[b]) from the connotation of the term "corporation." ....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a partnership. Under the term "partnership" it includes not
only a partnership as known in common law but, as well, a syndicate, group, pool, joint
venture, or other unincorporated organization which carries on any business, financial
operation, or venture, and which is not, within the meaning of the Code, a trust, estate, or a
corporation. ... . (7A Merten's Law of Federal Income Taxation, p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on. ... . (8 Merten's Law of Federal Income Taxation, p. 562
Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal Revenue Code includes these partnerships
with the exception only of duly registered general copartnerships within the purview of the term
"corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said
Code is concerned, and are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July 29,
1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes in question, of
their inherited properties from those acquired by them subsequently, We consider as justified the following ratiocination of the Tax
Court in denying their motion for reconsideration:
In connection with the second ground, it is alleged that, if there was an unregistered partnership, the holding
should be limited to the business engaged in apart from the properties inherited by petitioners. In other words,
the taxable income of the partnership should be limited to the income derived from the acquisition and sale of
real properties and corporate securities and should not include the income derived from the inherited properties.
It is admitted that the inherited properties and the income derived therefrom were used in the business of
buying and selling other real properties and corporate securities. Accordingly, the partnership income must
include not only the income derived from the purchase and sale of other properties but also the income of the
inherited properties.
Besides, as already observed earlier, the income derived from inherited properties may be considered as individual income of the
respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but the moment their respective
known shares are used as part of the common assets of the heirs to be used in making profits, it is but proper that the income of
such shares should be considered as the part of the taxable income of an unregistered partnership. This, We hold, is the clear intent
of the law.
Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the aforementioned
resolution denying petitioners' motion for reconsideration of the decision of said court. Pertinently, the court ruled this wise:
In support of the third ground, counsel for petitioners alleges:
Even if we were to yield to the decision of this Honorable Court that the herein petitioners
have formed an unregistered partnership and, therefore, have to be taxed as such, it might
be recalled that the petitioners in their individual income tax returns reported their shares of
the profits of the unregistered partnership. We think it only fair and equitable that the
various amounts paid by the individual petitioners as income tax on their respective shares

of the unregistered partnership should be deducted from the deficiency income tax found
by this Honorable Court against the unregistered partnership. (page 7, Memorandum for
the Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that the taxable income of the partnership must be reduced by the
amounts of income tax paid by each petitioner on his share of partnership profits. This is not correct; rather, it
should be the other way around. The partnership profits distributable to the partners (petitioners herein) should
be reduced by the amounts of income tax assessed against the partnership. Consequently, each of the
petitioners in his individual capacity overpaid his income tax for the years in question, but the income tax due
from the partnership has been correctly assessed. Since the individual income tax liabilities of petitioners are
not in issue in this proceeding, it is not proper for the Court to pass upon the same.
Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as individual income tax
cannot be credited as part payment of the taxes herein in question. It is argued that to sanction the view of the Tax Court is to oblige
petitioners to pay double income tax on the same income, and, worse, considering the time that has lapsed since they paid their
individual income taxes, they may already be barred by prescription from recovering their overpayments in a separate action. We do
not agree. As We see it, the case of petitioners as regards the point under discussion is simply that of a taxpayer who has paid the
wrong tax, assuming that the failure to pay the corporate taxes in question was not deliberate. Of course, such taxpayer has the
right to be reimbursed what he has erroneously paid, but the law is very clear that the claim and action for such reimbursement are
subject to the bar of prescription. And since the period for the recovery of the excess income taxes in the case of herein petitioners
has already lapsed, it would not seem right to virtually disregard prescription merely upon the ground that the reason for the delay is
precisely because the taxpayers failed to make the proper return and payment of the corporate taxes legally due from them. In
principle, it is but proper not to allow any relaxation of the tax laws in favor of persons who are not exactly above suspicion in their
conduct vis-a-vis their tax obligation to the State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with costs against petitioners.

THIRD DIVISION

G.R. No. 101847 May 27, 1993

LOURDES NAVARRO AND MENARDO NAVARRO, petitioners,
vs.
COURT OF APPEALS, JUDGE BETHEL KATALBAS-MOSCARDON, Presiding Judge, Regional Trial Court of Bacolod City,
Branch 52, Sixth Judicial Region and Spouses OLIVIA V. YANSON AND RICARDO B. YANSON, respondents.
George L. Howard Law Office for petitioners
Geocadin, Vinco, Guance, Laudenorio & Cario Law Office for private respondents.

MELO, J.:
Assailed and sought to be set aside by the petition before us is the Resolution of the Court of Appeals dated June 20, 1991 which
dismissed the petition for annulment of judgment filed by the Spouses Lourdes and Menardo Navarro, thusly:
The instant petition for annulment of decision is DISMISSED.
1. Judgments may be annulled only on the ground of extrinsic or collateral fraud, as distinguished from intrinsic
fraud (Canlas vs. Court of Appeals, 164 SCRA 160, 170). No such ground is alleged in the petition.
2. Even if the judgment rendered by the respondent Court were erroneous, it is not necessarily void (Chereau
vs. Fuentebella, 43 Phil. 216). Hence, it cannot be annulled by the proceeding sought to be commenced by the
petitioners.
3. The petitioners' remedy against the judgment enforcement of which is sought to be stopped should have
been appeal.
SO ORDERED. (pp. 24-25, Rollo.)
The antecedent facts of the case are as follows:
On July 23, 1976, herein private respondent Olivia V. Yanson filed a complaint against petitioner Lourdes Navarro for "Delivery of
Personal Properties With Damages". The complaint incorporated an application for a writ of replevin. The complaint was later
docketed as Civil Case No. 716 (12562) of the then Court of First Instance of Bacolod (Branch 55) and was subsequently amended
to include private respondent's husband, Ricardo B. Yanson, as co-plaintiff, and petitioner's husband, as co-defendant.

On July 27, 1976, then Executive Judge Oscar R. Victoriano (later to be promoted and to retire as Presiding Justice of the Court of
Appeals) approved private respondents' application for a writ of replevin. The Sheriff's Return of Service dated March 3, 1978
affirmed receipt by private respondents of all pieces of personal property sought to be recovered from petitioners.
On April 30, 1990, Presiding Judge Bethel Katalbas-Moscardon rendered a decision, disposing as follows :
Accordingly, in the light of the aforegoing findings, all chattels already recovered by plaintiff by virtue of the Writ
of Replevin and as listed in the complaint are hereby sustained to belong to plaintiff being the owner of these
properties; the motor vehicle, particularly that Ford Fiera Jeep registered in and which had remain in the
possession of the defendant is likewise declared to belong to her, however, said defendant is hereby ordered to
reimburse plaintiff the sum of P6,500.00 representing the amount advanced to pay part of the price therefor;
and said defendant is likewise hereby ordered to return to plaintiff such other equipment[s] as were brought by
the latter to and during the operation of their business as were listed in the complaint and not recovered as yet
by virtue of the previous Writ of Replevin. (p. 12, Rollo.)
Petitioner received a copy of the decision on January 10, 1991 (almost 9 months after its rendition) and filed on January 16, 1991 a
"Motion for Extension of Time To File a Motion for Reconsideration". This was granted on January 18, 1991. Private respondents
filed their opposition, citing the ruling in the case of Habaluyas Enterprises, Inc. vs. Japson (142 SCRA 208 [1986]) proscribing the
filing of any motion for extension of time to file a motion for a new trial or reconsideration. The trial judge vacated the order dated
January 18, 1991 and declared the decision of April 30, 1990 as final and executory. (Petitioners' motion for reconsideration was
subsequently filed on February 1, 1991 or 22 days after the receipt of the decision).
On February 4, 1991, the trial court issued a writ of execution (Annex "5", p. 79, Rollo). The Sheriff's Return of Service (Annex "6",
p. 82, Rollo) declared that the writ was "duly served and satisfied". A receipt for the amount of P6,500.00 issued by Mrs. Lourdes
Yanson, co-petitioner in this case, was likewise submitted by the Sheriff (Annex "7", p. 83, Rollo).
On June 26, 1991, petitioners filed with respondent court a petition for annulment of the trial court's decision, claiming that the trial
judge erred in declaring the non-existence of a partnership, contrary to the evidence on record.
The appellate court, as aforesaid, outrightly dismissed the petition due to absence of extrinsic or collateral fraud, observing further
that an appeal was the proper remedy.
In the petition before us, petitioners claim that the trial judge ignored evidence that would show that the parties "clearly intended to
form, and (in fact) actually formed a verbal partnership engaged in the business of Air Freight Service Agency in Bacolod"; and that
the decision sustaining the writ of replevin is void since the properties belonging to the partnership do not actually belong to any of
the parties until the final disposition and winding up of the partnership" (p. 15, Rollo). These issues, however, were extensively
discussed by the trial judge in her 16-page, single-spaced decision.
We agree with respondents that the decision in this case has become final. In fact a writ of execution had been issued and was
promptly satisfied by the payment of P6,500.00 to private respondents.
Having lost their right to appeal, petitioners resorted to annulment proceedings to justify a belated judicial review of their case. This
was, however, correctly thrown out by the Court of Appeals because petitioners failed to cite extrinsic or collateral fraud to warrant
the setting aside of the trial court's decision. We respect the appellate court's finding in this regard.
Petitioners have come to us in a petition for review. However, the petition is focused solely on factual issues which can no longer be
entertained. Petitioners' arguments are all directed against the decision of the regional trial court; not a word is said in regard to the
appellate's court disposition of their petition for annulment of judgment. Verily, petitioners keeps on pressing that the idea of a
partnership exists on account of the so-called admissionsin judicio. But the factual premises of the trial court were more than
enough to suppress and negate petitioners submissions along this line:
To be resolved by this Court factually involved in the issue of whether there was a partnership that existed
between the parties based on their verbal contention; whether the properties that were commonly used in the
operation of Allied Air Freight belonged to the alleged partnership business; and the status of the parties in this
transaction of alleged partnership. On the other hand, the legal issues revolves on the dissolution and winding
up in case a partnership so existed as well as the issue of ownership over the properties subject matter of
recovery.

As a premise, Article 1767 of the New Civil Code defines the contract of partnership to quote:
Art. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the proceeds among themselves.
xxx xxx xxx
Corollary to this definition is the provision in determining whether a partnership exist as so provided under
Article 1769, to wit:
xxx xxx xxx
Furthermore, the Code provides under Article 1771 and 1772 that while a partnership may be constituted in any
form, a public instrument is necessary where immovables or any rights is constituted. Likewise, if the
partnership involves a capitalization of P3,000.00 or more in money or property, the same must appear in a
public instrument which must be recorded in the Office of the Securities and Exchange Commission. Failure to
comply with these requirements shall only affect liability of the partners to third persons.
In consideration of the above, it is undeniable that both the plaintiff and the defendant-wife made admission to
have entered into an agreement of operating this Allied Air Freight Agency of which the plaintiff personally
constituted with the Manila Office in a sense that the plaintiff did supply the necessary equipments and money
while her brother Atty. Rodolfo Villaflores was the Manager and the defendant the Cashier. It was also admitted
that part of this agreement was an equal sharing of whatever proceeds realized. Consequently, the plaintiff
brought into this transaction certain chattels in compliance with her obligation. The same has been done by the
herein brother and the herein defendant who started to work in the business. A cursory examination of the
evidences presented no proof that a partnership, whether oral or written had been constituted at the inception of
this transaction. True it is that even up to the filing of this complaint those movables brought by the plaintiff for
the use in the operation of the business remain registered in her name.
While there may have been co-ownership or co-possession of some items and/or any sharing of proceeds by
way of advances received by both plaintiff and the defendant, these are not indicative and supportive of the
existence of any partnership between them. Article 1769 of the New Civil Code is explicit. Even the books and
records retrieved by the Commissioner appointed by the Court did not show proof of the existence of a
partnership as conceptualized by law. Such that if assuming that there were profits realized in 1975 after the
two-year deficits were compensated, this could only be subject to an equal sharing consonant to the agreement
to equally divide any profit realized. However, this Court cannot overlook the fact that the Audit Report of the
appointed Commissioner was not highly reliable in the sense that it was more of his personal estimate of what
is available on hand. Besides, the alleged profits was a difference found after valuating the assets and not
arising from the real operation of the business. In accounting procedures, strictly, this could not be profit but a
net worth.
In view of the above factual findings of the Court it follows inevitably therefore that there being no partnership
that existed, any dissolution, liquidation or winding up is beside the point. The plaintiff himself had summarily
ceased from her contract of agency and it is a personal prerogative to desist. On the other hand, the
assumption by the defendant in negotiating for herself the continuance of the Agency with the principal in Manila
is comparable to plaintiff's. Any account of plaintiff with the principal as alleged, bore no evidence as no
collection was ever demanded of from her. The alleged P20,000.00 assumption specifically, as would have
been testified to by the defendant's husband remain a mere allegation.
As to the properties sought to be recovered, the Court sustains the possession by plaintiff of all equipments and
chattels recovered by virtue of the Writ of Replevin. Considering the other vehicle which appeared registered in
the name of the defendant, and to which even she admitted that part of the purchase price came from the
business claimed mutually operated, although the Court have not as much considered all entries in the Audit
Report as totally reliable to be sustained insofar as the operation of the business is concerned, nevertheless,
with this admission of the defendant and the fact that as borne out in said Report there has been disbursed and
paid for in this vehicle out of the business funds in the total sum of P6,500.00, it is only fitting and proper that
validity of these disbursements must be sustained as true (Exhs. M-1 to M-3, p. 180, Records). In this
connection and taking into account the earlier agreement that only profits were to be shared equally, the plaintiff

must be reimbursed of this cost if only to allow the defendant continuous possession of the vehicle in question.
It is a fundamental moral, moral and civil injunction that no one shall enrich himself at the expense of another.
(pp. 71-75, Rollo.)
Withal, the appellate court acted properly in dismissing the petition for annulment of judgment, the issue raised therein having been
directly litigated in, and passed upon by, the trial court.
WHEREFORE, the petition is DISMISSED. The Resolution of the Court of Appeals dated June 20, 1991 is AFFIRMED in all
respects.
No special pronouncement is made as to costs.
SO ORDERED.

SECOND DIVISION
G.R. No. L-47045 November 22, 1988
NOBIO SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.
Y.G. Villaruz & Associates for petitioner.
Pelagio R. Lachica for private respondent.

REGALADO, J.:
The extensive discussion and exhaustive disquisition in the decision 1 of the respondent Court 2 should have written finis to this
case without further recourse to Us. The assignment of errors and arguments raised in the respondent Court by herein private
respondent, as the petitioner therein, having been correctly and justifiedly sustained by said court without any reversible error in its
conclusions, the present petition must fail.
The assailed decision details the facts and proceedings which spawned the present controversy as follows:
Petitioner brought an action in the City Court of Dipolog for collection of a sum of P5,217.25 based on
promissory notes executed by the herein private respondent Nobio Sardane in favor of the herein petitioner.
Petitioner bases his right to collect on Exhibits B, C, D, E, F, and G executed on different dates and signed by
private respondent Nobio Sardane. Exhibit B is a printed promissory note involving Pl,117.25 and dated May 13,
1972. Exhibit C is likewise a printed promissory note and denotes on its face that the sum loaned was
Pl,400.00. Exhibit D is also a printed promissory note dated May 31, 1977 involving an amount of P100.00.

Exhibit E is what is commonly known to the layman as 'vale' which reads: 'Good for: two hundred pesos (Sgd)
Nobio Sardane'. Exhibit F is stated in the following tenor: 'Received from Mr. Romeo Acojedo the sum Pesos:
Two Thousand Two Hundred (P2,200.00) ONLY, to be paid on or before December 25, 1975. (Sgd) Nobio
Sardane.' Exhibit G and H are both vales' involving the same amount of one hundred pesos, and dated August
25, 1972 and September 12, 1972 respectively.
It has been established in the trial court that on many occasions, the petitioner demanded the payment of the
total amount of P5,217.25. The failure of the private respondent to pay the said amount prompted the petitioner
to seek the services of lawyer who made a letter (Exhibit 1) formally demanding the return of the sum loaned.
Because of the failure of the private respondent to heed the demands extrajudicially made by the petitioner, the
latter was constrained to bring an action for collection of sum of money.
During the scheduled day for trial, private respondent failed to appear and to file an answer. On motion by the
petitioner, the City Court of Dipolog issued an order dated May 18, 1976 declaring the private respondent in
default and allowed the petitioner to present his evidence ex-parte. Based on petitioner's evidence, the City
Court of Dipolog rendered judgment by default in favor of the petitioner.
Private respondent filed a motion to lift the order of default which was granted by the City Court in an order
dated May 24, 1976, taking into consideration that the answer was filed within two hours after the hearing of the
evidence presented ex-parte by the petitioner.
After the trial on the merits, the City Court of Dipolog rendered its decision on September 14, 1976, the
dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendant
as follows:
(a) Ordering the defendant to pay unto the plaintiff the sum of Five Thousand Two Hundred Seventeen Pesos
and Twenty-five centavos (P5,217.25) plus legal interest to commence from April 23, 1976 when this case was
filed in court; and
(b) Ordering the defendant to pay the plaintiff the sum of P200.00 as attorney's fee and to pay the cost of this
proceeding. 3
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte which reversed the decision of the
lower court by dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-appellant P500.00 each for
actual damages, moral damages, exemplary damages and attorney's fees, as well as the costs of suit. Plaintiff-appellee then sought
the review of said decision by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized into two decisive issues, firstly, whether the oral testimony for
the therein private respondent Sardane that a partnership existed between him and therein petitioner Acojedo are admissible to vary
the meaning of the abovementioned promissory notes; and, secondly, whether because of the failure of therein petitioner to crossexamine therein private respondent on his sur-rebuttal testimony, there was a waiver of the presumption accorded in favor of said
petitioner by Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the pleadings of the parties herein put in issue the imperfection or
ambiguity of the documents in question", hence "the appellant can avail of the parol evidence rule to prove his side of the case, that
is, the said amount taken by him from appellee is or was not his personal debt to appellee, but expenses of the partnership between
him and appellee."
Consequently, said trial court concluded that the promissory notes involved were merely receipts for the contributions to said
partnership and, therefore, upheld the claim that there was ambiguity in the promissory notes, hence parol evidence was allowable
to vary or contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:

Sec. 7. Evidence of written agreements.When the terms of an agreement have been reduced to writing, it is
to be considered as containing all such terms, and, therefore, there can be, between the parties and their
successors in interest, no evidence of the terms of the agreement other than the contents of the writing except
in the following cases:
(a) Where a mistake or imperfection of the writing or its failure to express the the true intent and agreement of
the parties, or the validity of the agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the writing.
As correctly pointed out by the respondent Court the exceptions to the rule do not apply in this case as there is no ambiguity in the
writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed promissory notes containing a promise to pay a sum certain
in money, payable on demand and the promise to bear the costs of litigation in the event of the private
respondent's failure to pay the amount loaned when demanded extrajudicially. Likewise, the vales denote that
the private respondent is obliged to return the sum loaned to him by the petitioner. On their face, nothing
appears to be vague or ambigous, for the terms of the promissory notes clearly show that it was incumbent
upon the private respondent to pay the amount involved in the promissory notes if and when the petitioner
demands the same. It was clearly the intent of the parties to enter into a contract of loan for how could an
educated man like the private respondent be deceived to sign a promissory note yet intending to make such a
writing to be mere receipts of the petitioner's supposed contribution to the alleged partnership existing between
the parties?
It has been established in the trial court that, the private respondent has been engaged in business for quite a
long period of time--as owner of the Sardane Trucking Service, entering into contracts with the government for
the construction of wharfs and seawall; and a member of the City Council of Dapitan (TSN, July 20, 1976, pp.
57-58).<re||an1w> It indeed puzzles us how the private respondent could have been misled into signing a
document containing terms which he did not mean them to be. ...
xxx xxx xxx
The private respondent admitted during the cross-examination made by petitioner's counsel that he was the one
who was responsible for the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How could he
purportedly rely on such a flimsy pretext that the promissory notes were receipts of the petitioner's
contribution? 4
The Court of Appeals held, and We agree, that even if evidence aliunde other than the promissory notes may be admitted to alter
the meaning conveyed thereby, still the evidence is insufficient to prove that a partnership existed between the private parties
hereto.
As manager of the basnig Sarcado naturally some degree of control over the operations and maintenance thereof had to be
exercised by herein petitioner. The fact that he had received 50% of the net profits does not conclusively establish that he was a
partner of the private respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of
the profits of a business is prima facie evidence that he is a partner in the business, no such inference shall be drawn if such profits
were received in payment as wages of an employee. Furthermore, herein petitioner had no voice in the management of the affairs of
the basnig. Under similar facts, this Court in the early case of Fortis vs. Gutierrez Hermanos, 5 in denying the claim of the plaintiff
therein that he was a partner in the business of the defendant, declared:
This contention cannot be sustained. It was a mere contract of employment. The plaintiff had no voice nor vote
in the management of the affairs of the company. The fact that the compensation received by him was to be
determined with reference to the profits made by the defendant in their business did not in any sense make him
a partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved the same factual and legal milieu.

There are other considerations noted by respondent Court which negate herein petitioner's pretension that he was a partner and not
a mere employee indebted to the present private respondent. Thus, in an action for damages filed by herein private respondent
against the North Zamboanga Timber Co., Inc. arising from the operations of the business, herein petitioner did not ask to be joined
as a party plaintiff. Also, although he contends that herein private respondent is the treasurer of the alleged partnership, yet it is the
latter who is demanding an accounting. The advertence of the Court of First Instance to the fact that the casco bears the name of
herein petitioner disregards the finding of the respondent Court that it was just a concession since it was he who obtained the
engine used in the Sardaco from the Department of Local Government and Community Development. Further, the use by the parties
of the pronoun "our" in referring to "our basnig, our catch", "our deposit", or "our boseros" was merely indicative of the camaraderie
and not evidentiary of a partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid promissory notes do not express the true intent and
agreement of the parties, are binding on Us since there is no showing that they fall within the exceptions to the rule limiting the
scope of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for ready reference, reads:
Sec. 8. How to contest genuineness of such documents.When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the
genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under
oath, specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply
when the adverse party does not appear to be a party to the instrument or when compliance with an order for
the inspection of the original instrument is refused.
The record shows that herein petitioner did not deny under oath in his answer the authenticity and due execution of the promissory
notes which had been duly pleaded and attached to the complaint, thereby admitting their genuineness and due execution. Even in
the trial court, he did not at all question the fact that he signed said promissory notes and that the same were genuine. Instead, he
presented parol evidence to vary the import of the promissory notes by alleging that they were mere receipts of his contribution to
the alleged partnership.
His arguments on this score reflect a misapprehension of the rule on parol evidence as distinguished from the rule on actionable
documents. As the respondent Court correctly explained to herein petitioner, what he presented in the trial Court was testimonial
evidence that the promissory notes were receipts of his supposed contributions to the alleged partnership which testimony, in the
light of Section 7, Rule 130, could not be admitted to vary or alter the explicit meaning conveyed by said promissory notes. On the
other hand, the presumed genuineness and due execution of said promissory notes were not affected, pursuant to the provisions of
Section 8, Rule 8, since such aspects were not at all questioned but, on the contrary, were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which was reiterated in Central Surety & Insurance Co.
vs. C. N. Hodges, et al. 8 does not sustain his thesis that the herein private respondent had "waived the mantle of protection given
him by Rule 8, Sec. 8". It is true that such implied admission of genuineness and due execution may be waived by a party but only if
he acts in a manner indicative of either an express or tacit waiver thereof. Petitioner, however, either overlooked or ignored the fact
that, as held in Yu Chuck, and the same is true in other cases of Identical factual settings, such a finding of waiver is proper where a
case has been tried in complete disregard of the rule and the plaintiff having pleaded a document by copy, presents oral evidence to
prove the due execution of the document and no objections are made to the defendant's evidence in refutation. This situation does
not obtain in the present case hence said doctrine is obviously inapplicable.
Neither did the failure of herein private respondent to cross-examine herein petitioner on the latter's sur-rebuttal testimony constitute
a waiver of the aforesaid implied admission. As found by the respondent Court, said sur-rebuttal testimony consisted solely of the
denial of the testimony of herein private respondent and no new or additional matter was introduced in that sur-rebuttal testimony to
exonerate herein petitioner from his obligations under the aforesaid promissory notes.
On the foregoing premises and considerations, the respondent Court correctly reversed and set aside the appealed decision of the
Court of First Instance of Zamboanga del Norte and affirmed in full the decision of the City Court of Dipolog City in Civil Case No. A1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent Court, herein petitioner, as the private respondent
therein, raised a third unresolved issue that the petition for review therein should have been dismissed for lack of jurisdiction since
the lower Court's decision did not affirm in full the judgment of the City Court of Dipolog, and which he claimed was a sine qua

non for such a petition under the law then in force. He raises the same point in his present appeal and We will waive the procedural
technicalities in order to put this issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative relief from the respondent Court praying that it
sustain the decision of the trial Court, thereby invoking and submitting to its jurisdiction which he would now assail. Furthermore, the
objection that he raises is actually not one of jurisdiction but of procedure.9
At any rate, it will be noted that petitioner anchors his said objection on the provisions of Section 29, Republic Act 296 as amended
by Republic Act 5433 effective September 9, 1968. Subsequently, the procedure for appeal to the Court of Appeals from decisions of
the then courts of first instance in the exercise of their appellate jurisdiction over cases originating from the municipal courts was
provided for by Republic Act 6031, amending Section 45 of the Judiciary Act effective August 4, 1969. The requirement for
affirmance in full of the inferior court's decision was not adopted or reproduced in Republic Act 6031. Also, since Republic Act 6031
failed to provide for the procedure or mode of appeal in the cases therein contemplated, the Court of Appeals en banc provided
thereof in its Resolution of August 12, 1971, by requiring a petition for review but which also did not require for its availability that the
judgment of the court of first instance had affirmed in full that of the lower court. Said mode of appeal and the procedural
requirements thereof governed the appeal taken in this case from the aforesaid Court of First Instance to the Court of Appeals in
1977. 10 Herein petitioner's plaint on this issue is, therefore, devoid of merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs against herein petitioner.
SO ORDERED.

EN BANC
G.R. Nos. L-24020-21

July 29, 1968

FLORENCIO REYES and ANGEL REYES, petitioners,

vs.
COMMISSIONER OF INTERNAL REVENUE and HON. COURT OF TAX APPEALS, respondents.
Jose W. Diokno and Domingo Sandoval for petitioners.
Office of the Solicitor General for respondents.
FERNANDO, J.:
Petitioners in this case were assessed by respondent Commissioner of Internal Revenue the sum of P46,647.00 as income tax,
surcharge and compromise for the years 1951 to 1954, an assessment subsequently reduced to P37,528.00. This assessment
sought to be reconsidered unsuccessfully was the subject of an appeal to respondent Court of Tax Appeals. Thereafter, another
assessment was made against petitioners, this time for back income taxes plus surcharge and compromise in the total sum of
P25,973.75, covering the years 1955 and 1956. There being a failure on their part to have such assessments reconsidered, the
matter was likewise taken to the respondent Court of Tax Appeals. The two cases1 involving as they did identical issues and
ultimately traceable to facts similar in character were heard jointly with only one decision being rendered.
In that joint decision of respondent Court of Tax Appeals, the tax liability for the years 1951 to 1954 was reduced to P37,128.00 and
for the years 1955 and 1956, to P20,619.00 as income tax due "from the partnership formed" by petitioners.2 The reduction was due
to the elimination of surcharge, the failure to file the income tax return being accepted as due to petitioners honest belief that no
such liability was incurred as well as the compromise penalties for such failure to file. 3 A reconsideration of the aforesaid decision
was sought and denied by respondent Court of Tax Appeals. Hence this petition for review.
The facts as found by respondent Court of Tax Appeals, which being supported by substantial evidence, must be respected 4 follow:
"On October 31, 1950, petitioners, father and son, purchased a lot and building, known as the Gibbs Building, situated at 671
Dasmarias Street, Manila, for P835,000.00, of which they paid the sum of P375,000.00, leaving a balance of P460,000.00,
representing the mortgage obligation of the vendors with the China Banking Corporation, which mortgage obligations were assumed
by the vendees. The initial payment of P375,000.00 was shared equally by petitioners. At the time of the purchase, the building was
leased to various tenants, whose rights under the lease contracts with the original owners, the purchasers, petitioners herein,
agreed to respect. The administration of the building was entrusted to an administrator who collected the rents; kept its books and
records and rendered statements of accounts to the owners; negotiated leases; made necessary repairs and disbursed payments,
whenever necessary, after approval by the owners; and performed such other functions necessary for the conservation and
preservation of the building. Petitioners divided equally the income of operation and maintenance. The gross income from rentals of
the building amounted to about P90,000.00 annually."5
From the above facts, the respondent Court of Tax Appeals applying the appropriate provisions of the National Internal Revenue
Code, the first of which imposes an income tax on corporations "organized in, or existing under the laws of the Philippines, no
matter how created or organized but not including duly registered general co-partnerships (companias colectivas), ...," 6 a term,
which according to the second provision cited, includes partnerships "no matter how created or organized, ...," 7 and applying the
leading case of Evangelista v. Collector of Internal Revenue,8 sustained the action of respondent Commissioner of Internal
Revenue, but reduced the tax liability of petitioners, as previously noted.
Petitioners maintain the view that the Evangelista ruling does not apply; for them, the situation is
dissimilar.1wph1.tConsequently they allege that the reliance by respondent Court of Tax Appeals was unwarranted and the
decision should be set aside. If their interpretation of the authoritative doctrine therein set forth commands assent, then clearly what
respondent Court of Tax Appeals did fails to find shelter in the law. That is the crux of the matter. A perusal of the Evangelista
decision is therefore unavoidable.
As noted in the opinion of the Court, penned by the present Chief Justice, the issue was whether petitioners are subject to the tax on
corporations provided for in section 24 of Commonwealth Act No. 466, otherwise known as the National Internal Revenue
Code, ..."9 After referring to another section of the National Internal Revenue Code, which explicitly provides that the term
corporation "includes partnerships" and then to Article 1767 of the Civil Code of the Philippines, defining what a contract of
partnership is, the opinion goes on to state that "the essential elements of a partnership are two, namely: (a) an agreement to
contribute money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first
element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to and did, contribute money and property
to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary
gain and then divide the same among themselves, ..."10

In support of the above conclusion, reference was made to the following circumstances, namely, the common fund being created
purposely not something already found in existence, the investment of the same not merely in one transaction but in a series of
transactions; the lots thus acquired not being devoted to residential purposes or to other personal uses of petitioners in that case;
such properties having been under the management of one person with full power to lease, to collect rents, to issue receipts, to
bring suits, to sign letters and contracts and to endorse notes and checks; the above conditions having existed for more than 10
years since the acquisition of the above properties; and no testimony having been introduced as to the purpose "in creating the set
up already adverted to, or on the causes for its continued existence."11 The conclusion that emerged had all the imprint of
inevitability. Thus: "Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the
collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein." 12
It may be said that there could be a differentiation made between the circumstances above detailed and those existing in the
present case. It does not suffice though to preclude the applicability of the Evangelista decision. Petitioners could harp on these
being only one transaction. They could stress that an affidavit of one of them found in the Bureau of Internal Revenue records would
indicate that their intention was to house in the building acquired by them the respective enterprises, coupled with a plan of effecting
a division in 10 years. It is a little surprising then that while the purchase was made on October 31, 1950 and their brief as
petitioners filed on October 20, 1965, almost 15 years later, there was no allegation that such division as between them was in fact
made. Moreover, the facts as found and as submitted in the brief made clear that the building in question continued to be leased by
other parties with petitioners dividing "equally the income ... after deducting the expenses of operation and
maintenance ..."13 Differences of such slight significance do not call for a different ruling.
It is obvious that petitioners' effort to avoid the controlling force of the Evangelista ruling cannot be deemed successful. Respondent
Court of Tax Appeals acted correctly. It yielded to the command of an authoritative decision; it recognized its binding character.
There is clearly no merit to the second error assigned by petitioners, who would deny its applicability to their situation.
The first alleged error committed by respondent Court of Tax Appeals in holding that petitioners, in acquiring the Gibbs Building,
established a partnership subject to income tax as a corporation under the National Internal Revenue Code is likewise untenable. In
their discussion in their brief of this alleged error, stress is laid on their being co-owners and not partners. Such an allegation was
likewise made in the Evangelista case.
This is the way it was disposed of in the opinion of the present Chief Justice: "This pretense was correctly rejected by the Court of
Tax Appeals."14 Then came the explanation why: "To begin with, the tax in question is one imposed upon "corporations", which,
strictly speaking, are distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships" among the
entities subject to the tax on "corporations", said Code must allude, therefore, to organizations which are not
necessarily "partnerships", in the technical sense of the term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships", which constitute precisely one of the most typical forms of partnerships in
this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes partnerships, no matter how
created or organized." This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard
forms, or in conformity with the usual requirements of the law on partnerships, in order that one could be deemed constituted for
purposes of the tax on corporations. Again, pursuant to said section 84(b), the term "corporation" includes, among others, "joint
accounts, (cuentas en participacion)" and "associations", none of which has a legal personality of its own, independent of that of its
members. Accordingly, the lawmaker could not have regarded that personality as a condition essential to the existence of the
partnerships therein referred to. In fact, as above stated, "duly registered general copartnerships" which are possessed of the
aforementioned personality - have been expressly excluded by law (sections 24 and 84[b]) from the connotation of the term
"corporation"."15 The opinion went on to summarize the matter aptly: "For purposes of the tax on corporations,our National Internal
Revenue Code, include these partnerships with the exception only of duly registered general co-partnerships within the purview
of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a partnership, insofar as said Code is
concerned, and are subject to the income tax for corporations."16
In the light of the above, it cannot be said that the respondent Court of Tax Appeals decided the matter incorrectly. There is no
warrant for the assertion that it failed to apply the settled law to uncontroverted facts. Its decision cannot be successfully assailed.
Moreover, an observation made in Alhambra Cigar & Cigarette Manufacturing Co. v. Commissioner of Internal Revenue, 17 is wellworth recalling. Thus: "Nor as a matter of principle is it advisable for this Court to set aside the conclusion reached by an agency
such as the Court of Tax Appeals which is, by the very nature of its functions, dedicated exclusively to the study and consideration of
tax problems and has necessarily developed an expertise on the subject, unless, as did not happen here, there has been an abuse
or improvident exercise of its authority."
WHEREFORE, the decision of the respondent Court of Tax Appeals ordering petitioners "to pay the sums of P37,128.00 as income
tax due from the partnership formed by herein petitioners for the years 1951 to 1954 and P20,619.00 for the years 1955 and 1956

within thirty days from the date this decision becomes final, plus the corresponding surcharge and interest in case of delinquency," is
affirmed. With costs against petitioners.

EN BANC
G.R. No. L-9996

October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and FRANCISCA EVANGELISTA, petitioners,

vs.
THE COLLECTOR OF INTERNAL REVENUE and THE COURT OF TAX APPEALS, respondents.
Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.
Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and Solicitor Felicisimo R. Rosete for
Respondents.
CONCEPCION, J.:
This is a petition filed by Eufemia Evangelista, Manuela Evangelista and Francisca Evangelista, for review of a decision of the Court
of Tax Appeals, the dispositive part of which reads:
FOR ALL THE FOREGOING, we hold that the petitioners are liable for the income tax, real estate dealer's tax and the
residence tax for the years 1945 to 1949, inclusive, in accordance with the respondent's assessment for the same in the
total amount of P6,878.34, which is hereby affirmed and the petition for review filed by petitioner is hereby dismissed with
costs against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the sum of P59,1400.00 which amount together with their personal
monies was used by them for the purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs. Josefina Florentino a lot with an area of 3,713.40 sq. m. including
improvements thereon from the sum of P100,000.00; this property has an assessed value of P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs. Josefa Oppus 21 parcels of land with an aggregate area of 3,718.40 sq.
m. including improvements thereon for P130,000.00; this property has an assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the Insular Investments Inc., a lot of 4,353 sq. m. including improvements
thereon for P108,825.00. This property has an assessed value of P4,983.00 as of 1948;
5. That on April 28, 1944 they bought form Mrs. Valentina Afable a lot of 8,371 sq. m. including improvements thereon for
P237,234.34. This property has an assessed value of P59,140.00 as of 1948;
6. That in a document dated August 16, 1945, they appointed their brother Simeon Evangelista to 'manage their
properties with full power to lease; to collect and receive rents; to issue receipts therefor; in default of such payment, to
bring suits against the defaulting tenants; to sign all letters, contracts, etc., for and in their behalf, and to endorse and
deposit all notes and checks for them;
7. That after having bought the above-mentioned real properties the petitioners had the same rented or leases to various
tenants;
8. That from the month of March, 1945 up to an including December, 1945, the total amount collected as rents on their
real properties was P9,599.00 while the expenses amounted to P3,650.00 thereby leaving them a net rental income of
P5,948.33;

9. That on 1946, they realized a gross rental income of in the sum of P24,786.30, out of which amount was deducted in
the sum of P16,288.27 for expenses thereby leaving them a net rental income of P7,498.13;
10. That in 1948, they realized a gross rental income of P17,453.00 out of the which amount was deducted the sum of
P4,837.65 as expenses, thereby leaving them a net rental income of P12,615.35.
It further appears that on September 24, 1954 respondent Collector of Internal Revenue demanded the payment of income tax on
corporations, real estate dealer's fixed tax and corporation residence tax for the years 1945-1949, computed, according to
assessment made by said officer, as follows:

INCOME TAXES

1945

14.84

1946

1,144.71

1947

10.34

1948

1,912.30

1949

1,575.90

Total including surcharge and compromise

P6,157.09

REAL ESTATE DEALER'S FIXED TAX

1946

P37.50

1947

150.00

1948

150.00

1949

150.00

Total including penalty

P527.00

RESIDENCE TAXES OF CORPORATION

1945

P38.75

1946

38.75

1947

38.75

1948

38.75

1949

38.75

Total including surcharge

P193.75

TOTAL TAXES DUE

P6,878.34.

Said letter of demand and corresponding assessments were delivered to petitioners on December 3, 1954, whereupon they
instituted the present case in the Court of Tax Appeals, with a prayer that "the decision of the respondent contained in his letter of
demand dated September 24, 1954" be reversed, and that they be absolved from the payment of the taxes in question, with costs
against the respondent.
After appropriate proceedings, the Court of Tax Appeals the above-mentioned decision for the respondent, and a petition for
reconsideration and new trial having been subsequently denied, the case is now before Us for review at the instance of the
petitioners.
The issue in this case whether petitioners are subject to the tax on corporations provided for in section 24 of Commonwealth Act.
No. 466, otherwise known as the National Internal Revenue Code, as well as to the residence tax for corporations and the real
estate dealers fixed tax. With respect to the tax on corporations, the issue hinges on the meaning of the terms "corporation" and
"partnership," as used in section 24 and 84 of said Code, the pertinent parts of which read:

SEC. 24. Rate of tax on corporations.There shall be levied, assessed, collected, and paid annually upon the total net
income received in the preceding taxable year from all sources by every corporation organized in, or existing under the
laws of the Philippines, no matter how created or organized but not including duly registered general co-partnerships
(compaias colectivas), a tax upon such income equal to the sum of the following: . . .
SEC. 84 (b). The term 'corporation' includes partnerships, no matter how created or organized, joint-stock companies,
joint accounts (cuentas en participacion), associations or insurance companies, but does not include duly registered
general copartnerships. (compaias colectivas).
Article 1767 of the Civil Code of the Philippines provides:
By the contract of partnership two or more persons bind themselves to contribute money, properly, or industry to a
common fund, with the intention of dividing the profits among themselves.
Pursuant to the article, the essential elements of a partnership are two, namely: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute money and property to a common fund.
Hence, the issue narrows down to their intent in acting as they did. Upon consideration of all the facts and circumstances
surrounding the case, we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then
divide the same among themselves, because:
1. Said common fund was not something they found already in existence. It was not property inherited by them pro
indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to establish
said common fund.
2. They invested the same, not merely not merely in one transaction, but in a series of transactions. On February 2, 1943,
they bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed on
April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they got a
fourth lot for P237,234.14. The number of lots (24) acquired and transactions undertaken, as well as the brief interregnum
between each, particularly the last three purchases, is strongly indicative of a pattern or common design that was not
limited to the conservation and preservation of the aforementioned common fund or even of the property acquired by the
petitioners in February, 1943. In other words, one cannot but perceive a character of habitually peculiar to business
transactions engaged in the purpose of gain.
3. The aforesaid lots were not devoted to residential purposes, or to other personal uses, of petitioners herein. The
properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of P70,068.30
by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there has been any
change in the utilization thereof.
4. Since August, 1945, the properties have been under the management of one person, namely Simeon Evangelista, with
full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse and
deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same belonged to a
corporation or business and enterprise operated for profit.
5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since the
first property was acquired, and over twelve (12) years, since Simeon Evangelista became the manager.
6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already adverted
to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.
Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the collective effect of
these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. Only one or two of
the aforementioned circumstances were present in the cases cited by petitioners herein, and, hence, those cases are not in point.
Petitioners insist, however, that they are mere co-owners, not copartners, for, in consequence of the acts performed by them, a legal
entity, with a personality independent of that of its members, did not come into existence, and some of the characteristics of
partnerships are lacking in the case at bar. This pretense was correctly rejected by the Court of Tax Appeals.
To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are distinct and different from
"partnerships". When our Internal Revenue Code includes "partnerships" among the entities subject to the tax on "corporations",
said Code must allude, therefore, to organizations which are not necessarily "partnerships", in the technical sense of the term. Thus,
for instance, section 24 of said Code exempts from the aforementioned tax "duly registered general partnerships which constitute
precisely one of the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section 84(b) of said Code, "the

term corporation includes partnerships, no matter how created or organized." This qualifying expression clearly indicates that a joint
venture need not be undertaken in any of the standard forms, or in conformity with the usual requirements of the law on
partnerships, in order that one could be deemed constituted for purposes of the tax on corporations. Again, pursuant to said section
84(b), the term "corporation" includes, among other, joint accounts, (cuentas en participation)" and "associations," none of which
has a legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not have regarded that
personality as a condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered
general copartnerships" which are possessed of the aforementioned personality have been expressly excluded by law
(sections 24 and 84 [b] from the connotation of the term "corporation" It may not be amiss to add that petitioners' allegation to the
effect that their liability in connection with the leasing of the lots above referred to, under the management of one person even if
true, on which we express no opinion tends to increase the similarity between the nature of their venture and that corporations,
and is, therefore, an additional argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States, "corporations" are taxed differently from "partnerships". By specific
provisions of said laws, such "corporations" include "associations, 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 joint-stock corporation or company, a
'business' trusts a 'Massachusetts' trust, a 'common law' trust, and 'investment' trust (whether of the fixed or the
management type), an interinsuarance exchange operating through an attorney in fact, a partnership association, and any
other type of organization (by whatever name known) which is not, within the meaning of the Code, a trust or an estate, or
a partnership. (7A Mertens Law of Federal Income Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under the term 'partnership 'it includes not only a partnership as known at
common law but, as well, a syndicate, group, pool, joint venture or other unincorporated organizations which carries on
any business financial operation, or venture, and which is not, within the meaning of the Code, a trust, estate, or a
corporation. . . (7A Merten's Law of Federal Income taxation, p. 789; emphasis supplied.)
The term 'partnership' includes a syndicate, group, pool, joint venture or other unincorporated organization, through or by
means of which any business, financial operation, or venture is carried on, . . .. ( 8 Merten's Law of Federal Income
Taxation, p. 562 Note 63; emphasis supplied.) .
For purposes of the tax on corporations, our National Internal Revenue Code, includes these partnerships with the exception only
of duly registered general copartnerships within the purview of the term "corporation." It is, therefore, clear to our mind that
petitioners herein constitute a partnership, insofar as said Code is concerned and are subject to the income tax for corporations.
As regards the residence of tax for corporations, section 2 of Commonwealth Act No. 465 provides in part:
Entities liable to residence tax.-Every corporation, no matter how created or organized, whether domestic or resident
foreign, engaged in or doing business in the Philippines shall pay an annual residence tax of five pesos and an annual
additional tax which in no case, shall exceed one thousand pesos, in accordance with the following schedule: . . .
The term 'corporation' as used in this Act includes joint-stock company, partnership, joint account (cuentas en
participacion), association or insurance company, no matter how created or organized. (emphasis supplied.)
Considering that the pertinent part of this provision is analogous to that of section 24 and 84 (b) of our National Internal Revenue
Code (commonwealth Act No. 466), and that the latter was approved on June 15, 1939, the day immediately after the approval of
said Commonwealth Act No. 465 (June 14, 1939), it is apparent that the terms "corporation" and "partnership" are used in both
statutes with substantially the same meaning. Consequently, petitioners are subject, also, to the residence tax for corporations.
Lastly, the records show that petitioners have habitually engaged in leasing the properties above mentioned for a period of over
twelve years, and that the yearly gross rentals of said properties from June 1945 to 1948 ranged from P9,599 to P17,453. Thus,
they are subject to the tax provided in section 193 (q) of our National Internal Revenue Code, for "real estate dealers," inasmuch as,
pursuant to section 194 (s) thereof:
'Real estate dealer' includes any person engaged in the business of buying, selling, exchanging, leasing, or renting
property or his own account as principal and holding himself out as a full or part time dealer in real estate or as an owner
of rental property or properties rented or offered to rent for an aggregate amount of three thousand pesos or more a
year. . . (emphasis supplied.)

Wherefore, the appealed decision of the Court of Tax appeals is hereby affirmed with costs against the petitioners herein. It is so
ordered.

SECOND DIVISION

G.R. No. L-41182-3 April 16, 1988

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

SARMIENTO , J.:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari. The facts are beyond dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for the appellant Exhibit 2 for the appellees) entered into on Oct. 19,
1960 by and between Mrs. Segundina Noguera, party of the first part; the Tourist World Service, Inc.,
represented by Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as appellants, the
Tourist World Service, Inc. leased the premises belonging to the party of the first part at Mabini St., Manila for
the former-s use as a branch office. In the said contract the party of the third part held herself solidarily liable
with the party of the part for the prompt payment of the monthly rental agreed on. When the branch office was
opened, the same was run by the herein appellant Una 0. Sevilla payable to Tourist World Service Inc. by any
airline for any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina Sevilla and 3% was to be
withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc. appears to have been informed that
Lina Sevilla was connected with a rival firm, the Philippine Travel Bureau, and, since the branch office was
anyhow losing, the Tourist World Service considered closing down its office. This was firmed up by two
resolutions of the board of directors of Tourist World Service, Inc. dated Dec. 2, 1961 (Exhibits 12 and 13), the
first abolishing the office of the manager and vice-president of the Tourist World Service, Inc., Ermita Branch,
and the second,authorizing the corporate secretary to receive the properties of the Tourist World Service then
located at the said branch office. It further appears that on Jan. 3, 1962, the contract with the appellees for the
use of the Branch Office premises was terminated and while the effectivity thereof was Jan. 31, 1962, the
appellees no longer used it. As a matter of fact appellants used it since Nov. 1961. Because of this, and to
comply with the mandate of the Tourist World Service, the corporate secretary Gabino Canilao went over to the
branch office, and, finding the premises locked, and, being unable to contact Lina Sevilla, he padlocked the
premises on June 4, 1962 to protect the interests of the Tourist World Service. When neither the appellant Lina
Sevilla nor any of her employees could enter the locked premises, a complaint wall filed by the herein
appellants against the appellees with a prayer for the issuance of mandatory preliminary injunction. Both
appellees answered with counterclaims. For apparent lack of interest of the parties therein, the trial court
ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing her counterclaim which the
court a quo, in an order dated June 8, 1963, granted permitting her to present evidence in support of her
counterclaim.
On June 17,1963, appellant Lina Sevilla refiled her case against the herein appellees and after the issues were
joined, the reinstated counterclaim of Segundina Noguera and the new complaint of appellant Lina Sevilla were
jointly heard following which the court a quo ordered both cases dismiss for lack of merit, on the basis of which
was elevated the instant appeal on the following assignment of errors:
I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF PLAINTIFF-APPELLANT MRS.
LINA O. SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA 0. SEVILA'S ARRANGEMENT
(WITH APPELLEE TOURIST WORLD SERVICE, INC.) WAS ONE MERELY OF EMPLOYER-EMPLOYEE

RELATION AND IN FAILING TO HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS
VENTURE.
III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA IS
ESTOPPED FROM DENYING THAT SHE WAS A MERE EMPLOYEE OF DEFENDANT-APPELLEE TOURIST
WORLD SERVICE, INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO RIGHT TO EVICT
APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE BY TAKING THE LAW INTO THEIR
OWN HANDS.
V. THE LOWER COURT ERRED IN NOT CONSIDERING AT .ALL APPELLEE NOGUERA'S RESPONSIBILITY
FOR APPELLANT LINA O. SEVILLA'S FORCIBLE DISPOSSESSION OF THE A. MABINI PREMISES.
VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT APPELLANT MRS. LINA O. SEVILLA
SIGNED MERELY AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the issues to be resolved are:
1. Whether the appellee Tourist World Service unilaterally disco the telephone line at the branch office on
Ermita;
2. Whether or not the padlocking of the office by the Tourist World Service was actionable or not; and
3. Whether or not the lessee to the office premises belonging to the appellee Noguera was appellees TWS or
TWS and the appellant.
In this appeal, appealant Lina Sevilla claims that a joint bussiness venture was entered into by and between her
and appellee TWS with offices at the Ermita branch office and that she was not an employee of the TWS to the
end that her relationship with TWS was one of a joint business venture appellant made declarations showing:
1. Appellant Mrs. Lina 0. Sevilla, a prominent figure and wife of an eminent eye, ear and
nose specialist as well as a imediately columnist had been in the travel business prior to
the establishment of the joint business venture with appellee Tourist World Service, Inc. and
appellee Eliseo Canilao, her compadre, she being the godmother of one of his children,
with her own clientele, coming mostly from her own social circle (pp. 3-6 tsn. February
16,1965).
2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October 1960 (Exh.
'A') covering the premises at A. Mabini St., she expressly warranting and holding [sic]
herself 'solidarily' liable with appellee Tourist World Service, Inc. for the prompt payment of
the monthly rentals thereof to other appellee Mrs. Noguera (pp. 14-15, tsn. Jan. 18,1964).
3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World Service,
Inc., which had its own, separate office located at the Trade & Commerce Building; nor was
she an employee thereof, having no participation in nor connection with said business at
the Trade & Commerce Building (pp. 16-18 tsn Id.).
4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own bookings
her own business (and not for any of the business of appellee Tourist World Service, Inc.)
obtained from the airline companies. She shared the 7% commissions given by the airline
companies giving appellee Tourist World Service, Lic. 3% thereof aid retaining 4% for
herself (pp. 18 tsn. Id.)
5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A. Mabini St.
office, paying for the salary of an office secretary, Miss Obieta, and other sundry expenses,

aside from desicion the office furniture and supplying some of fice furnishings (pp. 15,18
tsn. April 6,1965), appellee Tourist World Service, Inc. shouldering the rental and other
expenses in consideration for the 3% split in the co procured by appellant Mrs. Sevilla (p.
35 tsn Feb. 16,1965).
6. It was the understanding between them that appellant Mrs. Sevilla would be given the
title of branch manager for appearance's sake only (p. 31 tsn. Id.), appellee Eliseo Canilao
admit that it was just a title for dignity (p. 36 tsn. June 18, 1965- testimony of appellee
Eliseo Canilao pp. 38-39 tsn April 61965-testimony of corporate secretary Gabino Canilao
(pp- 2-5, Appellants' Reply Brief)
Upon the other hand, appellee TWS contend that the appellant was an employee of the appellee Tourist World
Service, Inc. and as such was designated manager. 1
xxx xxx xxx
The trial court 2 held for the private respondent on the premise that the private respondent, Tourist World Service, Inc., being the true
lessee, it was within its prerogative to terminate the lease and padlock the premises. 3 It likewise found the petitioner, Lina Sevilla, to
be a mere employee of said Tourist World Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent
Court of Appeal 5 rendered an affirmance.
The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN HOLDING THAT
"THE PADLOCKING OF THE PREMISES BY TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT
OF THE APPELLANT LINA SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA OR ANY OF HER EMPLOYEES AND
WITHOUT INFORMING COUNSEL FOR THE APPELLANT (SEVILIA), WHO IMMEDIATELY BEFORE THE PADLOCKING
INCIDENT, WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD SERVICE (ADMITTEDLY THE
PERSON WHO PADLOCKED THE SAID OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE CONTROVERSY BETWEEN THE
APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE ... (DID NOT) ENTITLE THE LATTER TO THE RELIEF OF
DAMAGES" (ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE
OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING
APPELLANT SEVILLA RELIEF BECAUSE SHE HAD "OFFERED TO WITHDRAW HER COMP PROVIDED THAT ALL CLAIMS
AND COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING-IN FACT
NOT PASSING AND RESOLVING-APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21 OF THE
CIVIL CODE ON RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED ITS DISCRETION IN DENYING APPEAL
APPELLANT SEVILLA RELIEF YET NOT RESOLVING HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST
WORLD SERVICE INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT BE TERMINATED OR
REVOKED UNILATERALLY BY TOURIST WORLD SERVICE INC. 6
As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla and Tourist World Service,
Inc. The respondent Court of see fit to rule on the question, the crucial issue, in its opinion being "whether or not the padlocking of

the premises by the Tourist World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to
the relief of damages prayed for and whether or not the evidence for the said appellant supports the contention that the appellee
Tourist World Service, Inc. unilaterally and without the consent of the appellant disconnected the telephone lines of the Ermita
branch office of the appellee Tourist World Service, Inc. 7 Tourist World Service, Inc., insists, on the other hand, that Lina SEVILLA
was a mere employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on the lease
executed with the private respondent, Segundina Noguera. The petitioners contend, however, that relation between the between
parties was one of joint venture, but concede that "whatever might have been the true relationship between Sevilla and Tourist
World Service," the Rule of Law enjoined Tourist World Service and Canilao from taking the law into their own hands, 8 in reference
to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World Service, Inc., maintains, that the
relation between the parties was in the character of employer and employee, the courts would have been without jurisdiction to try
the case, labor disputes being the exclusive domain of the Court of Industrial Relations, later, the Bureau Of Labor Relations,
pursuant to statutes then in force. 9
In this jurisdiction, there has been no uniform test to determine the evidence of an employer-employee relation. In general, we have
relied on the so-called right of control test, "where the person for whom the services are performed reserves a right to control
not only the end to be achieved but also the means to be used in reaching such end." 10 Subsequently, however, we have
considered, in addition to the standard of right-of control, the existing economic conditions prevailing between the parties, like the
inclusion of the employee in the payrolls, in determining the existence of an employer-employee relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private respondent Tourist World Service,
Inc., either as to the result of the enterprise or as to the means used in connection therewith. In the first place, under the contract of
lease covering the Tourist Worlds Ermita office, she had bound herself insolidum as and for rental payments, an arrangement that
would be like claims of a master-servant relationship. True the respondent Court would later minimize her participation in the lease
as one of mere guaranty, 12 that does not make her an employee of Tourist World, since in any case, a true employee cannot be
made to part with his own money in pursuance of his employer's business, or otherwise, assume any liability thereof. In that event,
the parties must be bound by some other relation, but certainly not employment.
In the second place, and as found by the Appellate Court, '[w]hen the branch office was opened, the same was run by the herein
appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline for any fare brought in on the effort of Mrs. Lina
Sevilla. 13 Under these circumstances, it cannot be said that Sevilla was under the control of Tourist World Service, Inc. "as to the
means used." Sevilla in pursuing the business, obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in commissions from airline
bookings, the remaining 3% going to Tourist World. Unlike an employee then, who earns a fixed salary usually, she earned
compensation in fluctuating amounts depending on her booking successes.
The fact that Sevilla had been designated 'branch manager" does not make her, ergo, Tourist World's employee. As we said,
employment is determined by the right-of-control test and certain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting Lina Sevilla's own, that is,
that the parties had embarked on a joint venture or otherwise, a partnership. And apparently, Sevilla herself did not recognize the
existence of such a relation. In her letter of November 28, 1961, she expressly 'concedes your [Tourist World Service, Inc.'s] right to
stop the operation of your branch office 14 in effect, accepting Tourist World Service, Inc.'s control over the manner in which the
business was run. A joint venture, including a partnership, presupposes generally a of standing between the joint co-venturers or
partners, in which each party has an equal proprietary interest in the capital or property contributed 15 and where each party
exercises equal rights in the conduct of the business. 16 furthermore, the parties did not hold themselves out as partners, and the
building itself was embellished with the electric sign "Tourist World Service, Inc. 17in lieu of a distinct partnership name.
It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private respondent, Tourist World
Service, Inc.'s Ermita office, she must have done so pursuant to a contract of agency. It is the essence of this contract that the agent
renders services "in representation or on behalf of another. 18 In the case at bar, Sevilla solicited airline fares, but she did so for and
on behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of
commissions. And as we said, Sevilla herself based on her letter of November 28, 1961, pre-assumed her principal's authority as
owner of the business undertaking. We are convinced, considering the circumstances and from the respondent Court's recital of
facts, that the ties had contemplated a principal agent relationship, rather than a joint managament or a partnership..

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible with the intent of the parties,
cannot be revoked at will. The reason is that it is one coupled with an interest, the agency having been created for mutual interest,
of the agent and the principal. 19 It appears that Lina Sevilla is a bona fidetravel agent herself, and as such, she had acquired an
interest in the business entrusted to her. Moreover, she had assumed a personal obligation for the operation thereof, holding herself
solidarily liable for the payment of rentals. She continued the business, using her own name, after Tourist World had stopped further
operations. Her interest, obviously, is not to the commissions she earned as a result of her business transactions, but one that
extends to the very subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be revoked
at the pleasure of the principal. Accordingly, the revocation complained of should entitle the petitioner, Lina Sevilla, to damages.
As we have stated, the respondent Court avoided this issue, confining itself to the telephone disconnection and padlocking
incidents. Anent the disconnection issue, it is the holding of the Court of Appeals that there is 'no evidence showing that the Tourist
World Service, Inc. disconnected the telephone lines at the branch office. 20Yet, what cannot be denied is the fact that Tourist World
Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in the disconnection now
complained of, it had clearly condoned it, and as owner of the telephone lines, it must shoulder responsibility therefor.
The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the fact that Tourist World
Service, Inc. was the lessee named in the lease con-tract did not accord it any authority to terminate that contract without notice to
its actual occupant, and to padlock the premises in such fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a
personal stake in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not a stranger to
that contract having been explicitly named therein as a third party in charge of rental payments (solidarily with Tourist World, Inc.).
She could not be ousted from possession as summarily as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put the petitioner, Lina Sevilla,
in a bad light following disclosures that she had worked for a rival firm. To be sure, the respondent court speaks of alleged business
losses to justify the closure '21 but there is no clear showing that Tourist World Ermita Branch had in fact sustained such reverses,
let alone, the fact that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that following
such an information (that Sevilla was working for another company), Tourist World's board of directors adopted two resolutions
abolishing the office of 'manager" and authorizing the corporate secretary, the respondent Eliseo Canilao, to effect the takeover of its
branch office properties. On January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally,
without notice to her.
It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked, personally by the respondent
Canilao, on the pretext that it was necessary to Protect the interests of the Tourist World Service. " 22 It is strange indeed that Tourist
World Service, Inc. did not find such a need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would
not pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after office hours, she could not
have been anywhere near the premises. Capping these series of "offensives," it cut the office's telephone lines, paralyzing
completely its business operations, and in the process, depriving Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevillsa it had perceived to be disloyalty on
her part. It is offensive, in any event, to elementary norms of justice and fair play.
We rule therefore, that for its unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc.,
should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for "breaches of contract where the
defendant acted ... in bad faith. 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to Lina Sevilla from its brazen
conduct subsequent to the cancellation of the power of attorney granted to her on the authority of Article 21 of the Civil Code, in
relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage. 24
ART. 2219. Moral damages 25 may be recovered in the following and analogous cases:
xxx xxx xxx
(10) Acts and actions refered into article 21, 26, 27, 28, 29, 30, 32, 34, and 35.

The respondent, Eliseo Canilao, as a joint tortfeasor is likewise hereby ordered to respond for the same damages in a solidary
capacity.
Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been shown that she had connived
with Tourist World Service, Inc. in the disconnection and padlocking incidents. She cannot therefore be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral damages,24 P10,000.00 as exemplary damages,25 and P5,000.00 as
nominal 26 and/or temperate 27 damages, to be just, fair, and reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31, 1975, by the respondent
Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent, Tourist World Service, Inc., and Eliseo Canilao,
are ORDERED jointly and severally to indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as and for moral damages, the sum
of P10,000.00, as and for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.

THIRD DIVISION
[G.R. No. 143340. August 15, 2001]
LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners, vs. LAMBERTO T. CHUA, respondent.
DECISION
GONZAGA-REYES, J.:
Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision [1] of the Court of Appeals dated January
31, 2000 in the case entitled Lamberto T. Chua vs.
Lilibeth Sunga Chan and Cecilia Sunga and of the Resolution dated May 23, 2000 denying the motion for reconsideration of herein
petitioners Lilibeth Sunga Chan and Cecilia Sunga (hereafter collectively referred to as petitioners).
The pertinent facts of this case are as follows:
On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga Chan (hereafter petitioner Lilibeth)
and Cecilia Sunga (hereafter petitioner Cecilia), daughter and wife, respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for Winding
Up of Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of Preliminary Attachment with the Regional
Trial Court, Branch 11, Sindangan, Zamboanga del Norte.
Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the distribution of Shellane Liquefied Petroleum
Gas (LPG) in Manila.For business convenience, respondent and Jacinto allegedly agreed to register the business name of their partnership,
SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of Jacinto as a sole proprietorship. Respondent allegedly delivered
his initial capital contribution of P100,000.00 to Jacinto while the latter in turn produced P100,000.00 as his counterpart contribution, with the
intention that the profits would be equally divided between them. The partnership allegedly had Jacinto as manager, assisted by Josephine Sy
(hereafter Josephine), a sister of the wife of respondent, Erlinda Sy. As compensation, Jacinto would receive a managers fee or remuneration of
10% of the gross profit and Josephine would receive 10% of the net profits, in addition to her wages and other remuneration from the business.

Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation went quite well and was
profitable. Respondent claimed that he could attest to the success of their business because of the volume of orders and deliveries of filled
Shellane cylinder tanks supplied by Pilipinas Shell Petroleum Corporation. While Jacinto furnished respondent with the merchandise inventories,
balance sheets and net worth of Shellite from 1977 to 1989, respondent however suspected that the amount indicated in these documents were
understated and undervalued by Jacinto and Josephine for their own selfish reasons and for tax avoidance.
Upon Jacintos death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his daughter, petitioner Lilibeth, took
over the operations, control, custody, disposition and management of Shellite without respondents consent.
Despite respondents repeated demands upon petitioners for accounting, inventory, appraisal, winding up and restitution of his net shares in
the partnership, petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite, converting to her own use and
advantage its properties.
On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out of alibis and reasons to evade respondents demands, she
disbursed out of the partnership funds the amount of P200,000.00 and partially paid the same to respondent. Petitioner Lilibeth allegedly
informed respondent that the P200,000.00 represented partial payment of the latters share in the partnership, with a promise that the former would
make the complete inventory and winding up of the properties of the business establishment. Despite such commitment, petitioners allegedly
failed to comply with their duty to account, and continued to benefit from the assets and income of Shellite to the damage and prejudice of
respondent.
On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and Exchange Commission (SEC) in
Manila, not the Regional Trial Court in Zambaonga del Norte had jurisdiction over the action. Respondent opposed the motion to dismiss.
On January 12, 1993, the trial court finding the complaint sufficient in form and substance denied the motion to dismiss.
On January 30, 1993, petitioners filed their Answer with Compulsory Counterclaims, contending that they are not liable for partnership
shares, unreceived income/profits, interests, damages and attorneys fees, that respondent does not have a cause of action against them, and that
the trial court has no jurisdiction over the nature of the action, the SEC being the agency that has original and exclusive jurisdiction over the
case. As counterclaim, petitioner sought attorneys fees and expenses of litigation.
On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim for winding up of partnership affairs,
accounting and recovery of shares in partnership affairs, accounting and recovery of shares in partnership assets /properties should be dismissed
and prosecuted against the estate of deceased Jacinto in a probate or intestate proceeding.
On August 16, 1993, the trial court denied the second motion to dismiss for lack of merit.
On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with the Court of Appeals docketed as
CA-G.R. SP No. 32499 questioning the denial of the motion to dismiss.
On November 29, 1993, petitioners filed with the trial court a Motion to Suspend 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 present evidence for their failure to attend the scheduled
date for reception of evidence despite notice.
On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive portion of the Decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, as follows:
(1) DIRECTING them to render an accounting in acceptable form under accounting procedures and standards of the properties, assets, income
and profits of the Shellite Gas Appliance Center since the time of death of Jacinto L. Sunga, from whom they continued the business operations
including all businesses derived from the Shellite Gas Appliance Center; submit an inventory, and appraisal of all these properties, assets, income,
profits, etc. to the Court and to plaintiff for approval or disapproval;
(2) ORDERING them to return and restitute to the partnership any and all properties, assets, income and profits they misapplied and converted to
their own use and advantage that legally pertain to the plaintiff and account for the properties mentioned in pars. A and B on pages 4-5 of this
petition as basis;
(3) DIRECTING them to restitute and pay to the plaintiff shares and interest of the plaintiff in the partnership of the listed properties, assets and
good will (sic) in schedules A, B and C, on pages 4-5 of the petition;
(4) ORDERING them to pay the plaintiff earned but unreceived income and profits from the partnership from 1988 to may 30, 1992, when the
plaintiff learned of the closure of the store the sum of P35,000.00 per month, with legal rate of interest until fully paid;
(5) ORDERING them to wind up the affairs of the partnership and terminate its business activities pursuant to law, after delivering to the plaintiff
all the interest, shares, participation and equity in the partnership, or the value thereof in money or moneys worth, if the properties are not
physically divisible;
(6) FINDING them especially Lilibeth 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]
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 assumingarguendo 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 against a deceased person (Jacinto), now represented by petitioners.
We are not persuaded.
A partnership may be constituted in any form, except where immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary.[6] Hence, based on the intention of the parties, as gathered from the facts and ascertained from their language
and conduct, a verbal contract of partnership may arise. [7] The essential points that must be proven to show that a partnership was agreed upon are
(1) mutual contribution to a common stock, and (2) a joint interest in the profits. [8] Understandably so, in view of the absence of a written contract
of partnership between respondent and Jacinto, respondent resorted to the introduction of documentary and testimonial evidence to prove said
partnership. The crucial issue to settle then is whether or not the Dead Mans Statute applies to this case so as to render inadmissible respondents
testimony and that of his witness, Josephine.
The Dead Mans Statute provides that if one party to the alleged transaction is precluded from testifying by death, insanity, or other mental
disabilities, the surviving party is not entitled to the undue advantage of giving his own uncontradicted and unexplained account of the
transaction.[9] But before this rule can be successfully invoked to bar the introduction of testimonial evidence, it is necessary that:
1. The witness is a party or assignor of a party to a case or persons in whose behalf a case is prosecuted.
2. The action is against an executor or administrator or other representative of a deceased person or a person of unsound mind;
3. The subject-matter of the action is a claim or demand against the estate of such deceased person or against person of unsound
mind;
4. His testimony refers to any matter of fact which occurred before the death of such deceased person or before such person became
of unsound mind.[10]
Two reasons forestall the application of the Dead Mans Statute to this case.
First, petitioners filed a compulsory counterclaim[11] against respondent in their answer before the trial court, and with the filing of their
counterclaim, petitioners themselves effectively removed this case from the ambit of the Dead Mans Statute. [12] Well entrenched is the rule that
when it is the executor or administrator or representatives of the estate that sets up the counterclaim, the plaintiff, herein respondent, may testify
to occurrences before the death of the deceased to defeat the counterclaim. [13] Moreover, as defendant in the counterclaim, respondent is not
disqualified from testifying as to matters of fact occurring before the death of the deceased, said action not having been brought against but by the
estate or representatives of the deceased.[14]
Second, the testimony of Josephine is not covered by the Dead Mans Statute for the simple reason that she is not a party or assignor of a
party to a case or persons in whose behalf a case is prosecuted. Records show that respondent offered the testimony of Josephine to establish the
existence of the partnership between respondent and Jacinto. Petitioners insistence that Josephine is the alter ego of respondent does not make her
an assignor because the term assignor of a party means assignor of a cause of action which has arisen, and not the assignor of a right assigned
before any cause of action has arisen.[15] Plainly then, Josephine is merely a witness of respondent, the latter being the party plaintiff.
We are not convinced by petitioners allegation that Josephines testimony lacks probative value because she was allegedly coerced by
respondent, her brother-in-law, to testify in his favor. Josephine merely declared in court that she was requested by respondent to testify and that
if she were not requested to do so she would not have testified. We fail to see how we can conclude from this candid admission that Josephines
testimony is involuntary when she did not in any way categorically say that she was forced to be a witness of respondent. Also, the fact that
Josephine is the sister of the wife of respondent does not diminish the value of her testimony since relationship per se, without more, does not
affect the credibility of witnesses.[16]
Petitioners reliance alone on the Dead Mans Statute to defeat respondents claim cannot prevail over the factual findings of the trial court
and the Court of Appeals that a partnership was established between respondent and Jacinto. Based not only on the testimonial evidence, but the

documentary evidence as well, the trial court and the Court of Appeals considered the evidence for respondent as sufficient to prove the formation
of a partnership, albeit an informal one.
Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial precedents, a factual matter like the
finding of the existence of a partnership between respondent and Jacinto cannot be inquired into by this Court on review.[17] This Court can no
longer be tasked to go over the proofs presented by the parties and analyze, assess and weigh them to ascertain if the trial court and the appellate
court were correct in according superior credit to this or that piece of evidence of one party or the other. [18] It must be also pointed out that
petitioners failed to attend the presentation of evidence of respondent. Petitioners cannot now turn to this Court to question the admissibility and
authenticity of the documentary evidence of respondent when petitioners failed to object to the admissibility of the evidence at the time that such
evidence was offered.[19]
With regard to petitioners insistence that laches and/or prescription should have extinguished respondents claim, we agree with the trial
court and the Court of Appeals that the action for accounting filed by respondent three (3) years after Jacintos death was well within the
prescribed period. The Civil Code provides that an action to enforce an oral contract prescribes in six (6) years [20] while the right to demand an
accounting for a partners interest as against the person continuing the business accrues at the date of dissolution, in the absence of any contrary
agreement.[21] Considering that the death of a partner results in the dissolution of the partnership [22], in this case, it was after Jacintos death that
respondent as the surviving partner had the right to an account of his interest as against petitioners. It bears stressing that while Jacintos death
dissolved the partnership, the dissolution did not immediately terminate the partnership. The Civil Code[23] expressly provides that upon
dissolution, the partnership continues and its legal personality is retained until the complete winding up of its business, culminating in its
termination.[24]
In a desperate bid to cast doubt on the validity of the oral partnership between respondent and Jacinto, petitioners maintain that said
partnership that had an initial capital of P200,000.00 should have been registered with the Securities and Exchange Commission (SEC) since
registration is mandated by the Civil Code. True, Article 1772 of the Civil Code requires that partnerships with a capital of P3,000.00 or more
must register with the SEC, however, this registration requirement is not mandatory. Article 1768 of the Civil Code[25] explicitly provides that the
partnership retains its juridical personality even if it fails to register. The failure to register the contract of partnership does not invalidate the same
as among the partners, so long as the contract has the essential requisites, because the main purpose of registration is to give notice to third
parties, and it can be assumed that the members themselves knew of the contents of their contract. [26] In the case at bar, non-compliance with this
directory provision of the law will not invalidate the partnership considering that the totality of the evidence proves that respondent and Jacinto
indeed forged the partnership in question.
WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is AFFIRMED.
SO ORDERED.

FIRST DIVISION

J. TIOSEJO INVESTMENT CORP.,

G.R. No. 174149

Petitioner,
Present:

CORONA, C.J.,
Chairperson,
VELASCO, JR.,
- versus -

LEONARDO-DE CASTRO,
PEREZ, and
MENDOZA,* JJ.

Promulgated:

SPOUSES BENJAMIN AND ELEANOR ANG,

September 8, 2010

Respondents.

x--------------------------------------------------x

DECISION

PEREZ, J.:

Filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, the petition for review at bench seeks the reversal of
the Resolutions dated 23 May 2006 and 9 August 2006 issued by the Third Division of the Court of Appeals (CA) in
CA-G.R. SP No. 93841 which, respectively, dismissed the petition for review of petitioner J. Tiosejo Investment Corp.
(JTIC) 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 as The Meditel on the formers 9,502
square meter 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 Housing and Land Use Regulatory Board (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

total P2,077,334.25.

[8]

A-1006,

for

the

agreed

contract

price

of P52,597.88 per

square

meter

or

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 ofP313,500.00.[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 turnover 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]

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 Meditelwas 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 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 motion for reconsideration of the foregoing decision, [19] petitioner filed a Notice of Appeal
dated 28 February 2005 which was docketed before the Office of the President (OP) as O.P. Case No. 05-B-072. [20] On
3 March 2005, the OP issued an order directing petitioner to submit its appeal memorandum within 15 days from
receipt thereof.[21] Acting on the motion therefor filed, the OP also issued another order on the same date, granting
petitioner a period of 15 days from 28 February 2005 or until 15 March 2005 within which to file its appeal
memorandum.[22] In view of petitioners filing of a second motion for extension dated 15 March 2005, [23] the OP
issued the 18 March 2005 order granting the former an additional 10 days from 15 March 2005 or until 25 March

2005 within which to file its appeal memorandum, provided no further extension 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 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 (Land Bank of

the Philippines vs. Natividad, 458 SCRA 441 [2005]). If the failure of the petitioners counsel to
cope up with heavy workload should be considered a valid justification to sidestep the
reglementary period, there would be no end to litigations so long as counsel had not been
sufficiently diligent or experienced (LTS Philippine Corporation vs. Maliwat, 448 SCRA 254, 259260 [2005], citing Sublay vs. National Labor Relations Commission, 324 SCRA 188 [2000]).

Moreover, lawyers should not assume that their motion for extension or postponement
will be granted the length of time they pray for (Ramos vs. Dajoyag, 378 SCRA 229 [2002]).

SO ORDERED.[35]

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

COURT OF APPEALS
TECHNICALITY;

ERRED

IN

DISMISSING

THE

PETITION

ON

MERE

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

The 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 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 the1997 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 respondents claims and the P10,000.00 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. Non-performance by either party of its obligations under this
Agreement shall be excused when the same is due to Force Majeure. In such cases, the defaulting
party must exercise due diligence to minimize the breach and to remedy the same at the soonest
possible time. In the event that either party defaults or breaches any of the provisions of this
Agreement other than by reason of Force Majeure, the other party shall have the right to
terminate this Agreement by giving notice to the defaulting party, without prejudice to the filing
of a civil case for damages arising from the breach of the defaulting party.

In the event that the Developer shall be rendered unable to complete the Condominium Project,
and such failure is directly and solely attributable to the Developer, the Owner shall send written
notice to the Developer to cause the completion of the Condominium Project. If the developer fails
to comply within One Hundred Eighty (180) days from such notice or, within such time, indicates
its incapacity to complete the Project, the Owner shall have the right to take over the construction
and cause the completion thereof. If the Owner exercises its right to complete the Condominium
Project under these circumstances, this Agreement shall be automatically rescinded upon written

notice to the Developer and the latter shall hold the former free and harmless from any and all
liabilities to third persons arising from such rescission. In any case, the Owner shall respect and
strictly comply with any covenant entered into by the Developer and third parties with respect to
any of its units in the Condominium Project. To enable the owner to comply with this contingent
liability, the Developer shall furnish the Owner with a copy of its contracts with the said buyers on
a month-to-month basis. Finally, in case the Owner would be constrained to assume the
obligations of the Developer to its own buyers, the Developer shall lose its right to ask for
indemnity for whatever it may have spent in the Development of the Project.

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)

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

EN BANC
G.R. No. L-9393

August 20, 1915

FEDERICO LOPEZ, ET AL, plaintiffs-appellees,

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

EN BANC

G.R. No. L-35840

March 31, 1933

FRANCISCO BASTIDA, plaintiff-appellee,

vs.
MENZI & Co., INC., J.M. MENZI and P.C. SCHLOBOHM, defendants.
MENZI & CO., appellant.
Romualdez Brothers and Harvey and O'Brien for appellant.
Jose M. Casal, Alberto Barretto and Gibbs and McDonough for appellee.
VICKERS, J.:
This is an appeal by Menzi & Co., Inc., one of the defendants, from a decision of the Court of First Instance of Manila. The case was
tried on the amended complaint dated May 26, 1928 and defendants' amended answer thereto of September 1, 1928. For the sake
of clearness, we shall incorporate herein the principal allegations of the parties.
FIRST CAUSE OF ACTION
Plaintiff alleged:
I
That the defendant J.M. Menzi, together with his wife and daughter, owns ninety-nine per cent (99%) of the capital stock of the
defendant Menzi & Co., Inc., that the plaintiff has been informed and therefore believes that the defendant J.M. Menzi, his wife and
daughter, together with the defendant P.C. Schlobohm and one Juan Seiboth, constitute the board of directors of the defendant,
Menzi & Co., Inc.;
II
That on April 27, 1922, the defendant Menzi & Co., Inc. through its president and general manager, J.M. Menzi, under the authority
of the board of directors, entered into a contract with the plaintiff to engage in the business of exploiting prepared fertilizers, as
evidenced by the contract marked Exhibit A, attached to the original complaint as a part thereof, and likewise made a part of the
amended complaint, as if it were here copied verbatim;
III
That in pursuance of said contract, plaintiff and defendant Menzi & Co., Inc., began to manufacture prepared fertilizers, the former
superintending the work of actual preparation, and the latter, through defendants J.M. Menzi and P. C. Schlobohm, managing the
business and opening an account entitled "FERTILIZERS" on the books of the defendant Menzi & Co., Inc., where all the accounts
of the partnership business were supposed to be kept; the plaintiff had no participation in the making of these entries, which were
wholly in the defendants' charge, under whose orders every entry was made;
IV
That according to paragraph 7 of the contract Exhibit A, the defendant Menzi & Co., Inc., was obliged to render annual balance
sheets to be plaintiff upon the 30th day of June of each year; that the plaintiff had no intervention in the preparation of these yearly
balances, nor was he permitted to have any access to the books of account; and when the balance sheets were shown him, he,
believing in good faith that they contained the true statement of the partnership business, and relying upon the good faith of the
defendants, Menzi & Co., Inc., J.M. Menzi, and P.C. Schlobohm, accepted and signed them, the last balance sheet having been
rendered in the year 1926;
V
That by reason of the foregoing facts and especially those set forth in the preceding paragraph, the plaintiff was kept in ignorance of
the defendants' acts relating to the management of the partnership funds, and the keeping of accounts, until he was informed and
so believes and alleges, that the defendants had conspired to conceal from him the true status of the business, and to his damage
and prejudice made false entries in the books of account and in the yearly balance sheets, the exact nature and amount of which it
is impossible to ascertain, even after the examination of the books of the business, due to the defendants' refusal to furnish all the
books and data required for the purpose, and the constant obstacles they have placed in the way of the examination of the books of
account and vouchers;

VI
That when the plaintiff received the information mentioned in the preceding paragraph, he demanded that the defendants permit him
to examine the books and vouchers of the business, which were in their possession, in order to ascertain the truth of the alleged
false entries in the books and balance sheets submitted for his approval, but the defendants refused, and did not consent to the
examination until after the original complaint was filed in this case; but up to this time they have refused to furnish all the books,
data, and vouchers necessary for a complete and accurate examination of all the partnership's accounts; and
VII
That as a result of the partial examination of the books of account of the business, the plaintiff has, through his accountants,
discovered that the defendants, conspiring and confederating together, presented to the plaintiff during the period covered by the
partnership contract false and incorrect accounts,
(a) For having included therein undue interest;
(b) For having entered, as a charge to fertilizers, salaries and wages which should have been paid and were in fact paid
by the defendant Menzi & Co., Inc.;
(c) For having collected from the partnership the income tax which should have been paid for its own account by Menzi &
Co., Inc.;
(d) For having collected, to the damage and prejudice of the plaintiff, commissions on the purchase of materials for the
manufacture of fertilizers;
(e) For having appropriated, to the damage and prejudice of the plaintiff, the profits obtained from the sale of fertilizers
belonging to the partnership and bought with its own funds; and
(f) For having appropriated to themselves all rebates for freight insurance, taxes, etc., upon materials for fertilizer bought
abroad, no entries of said rebates having been made on the books to the credit of the partnership.
Upon the strength of the facts set out in this first cause of action, the plaintiff prays the court:
1. To prohibit the defendants, each and every one of them, from destroying and concealing the books and papers of the
partnership constituted between the defendant Menzi & Co., Inc., and the plaintiff;
2. To summon each and every defendant to appear and give a true account of all facts relating to the partnership between
the plaintiff and the defendant Menzi & Co., Inc., and of each and every act and transaction connected with the business
of said partnership from the beginning to April 27, 1927, and a true statement of all merchandise of whatever description,
purchased for said partnership, and of all the expenditures and sale of every kind, together with the true amount thereof,
besides the sums received by the partnership from every source together with their exact nature, and a true and complete
account of the vouchers for all sums paid by the partnership, and of the salaries paid to its employees;
3. To declare null and void the yearly balances submitted by the defendants to the plaintiff from 1922 to 1926, both
inclusive;
4. To order the defendants to give a true statement of all receipts and disbursements of the partnership during the period
of its existence, besides granting the plaintiff any other remedy that the court may deem just and equitable.
EXHIBIT A
CONTRATO
que se celebra entre los Sres. Menzi y Compaia, de Manila, como Primera Parte, y D. Francisco Bastada, tambien de
Manila, como Segunda Parte, bajo las siguientes
CONDICIONES
1. El objeto de este contrato es la explotacion del negocio de Abonos o Fertilizantes Preparados, para diversas
aplicaciones agricolas;

2. La duracion de este contrato sera de cinco aos, a contrar desde la fecha de su firma;
3. La Primera Parte se compromete a facilitar la ayuda financiera necesaria para el negocio;
4. La Segunda Parte se compromete a poner su entero tiempo y toda su experiencia a la disposicion del negocio;
5. La Segunda Parte no podra, directa o indirectamente, dedicarse por si sola ni en sociedad con otras personas, o de
manera alguna que no sea con la Primera Parte, al negecio de Abonos, simples o preparados, o de materia alguna que
se aplique comunmente a la fertilizacion de suelos y plantas, durante la vigencia de este contrato, a menos que obtenga
autorizacion expresa de la Primera Parte para ello;
6. La Primera Parte no podra dedicarse, por si sola ni en sociedad o combinacion con otras personas o entidades, ni de
otro modo que en sociedad con la Segunda Parte, al negocio de Abonos o Fertilizantes preparados, ya sean ellos
importados, ya preparados en las Islas Fllipinas; tampoco podra dedicarse a la venta o negocio de materias o productos
que tengan aplicacion como fertilizantes, o que se usen en la composicion de fertilizantes o abonos, si ellos son
productos de suelo de la manufactura filipinos, pudiendo sin embargo vender o negociar en materim fertilizantes simples
importados de los Estados Unidos o del Extranjero;
7. La Primera Parte se obliga a ceder y a hacer efectivo a la Segunda Parte el 35 por ciento (treinta y cinco por ciento)
de las utilidades netas del negocio de abonos, liquidables el 30 de junio de cada ao;
8. La Primera Parte facilitara la Segunda, mensualmente, la cantidad de P300 (trescientos pesos), a cuenta de su parte
de beneficios.
9. Durante el ao 1923 la Parte concedera a la Segunda permiso para que este se ausente de Filipinas por un periodo
de tiempo que no exceda de un ao, sin menoscabo para derechos de la Segunda Parte con arreglo a este contrato.
En testimonio de lo cual firmamos el presente en la Ciudad de Manila, I. F., a veintisiete de abril de 1922.
MENZI & CO., INC.
Por (Fdo.) J. MENZI
General Manager
Primera Parte
(Fdo.) F. BASTIDA
Segunda Parte
MENZI & CO., INC.
(Fdo.) MAX KAEGI
Acting Secretary
Defendants denied all the allegations of the amended complaint, except the formal allegations as to the parties, and as a special
defense to the first cause of action alleged:
1. That the defendant corporation, Menzi & Co., Inc., has been engaged in the general merchandise business in the
Philippine Islands since its organization in October, 1921, including the importation and sale of all kinds of goods, wares,
and merchandise, and especially simple fertilizer and fertilizer ingredients, and as a part of that business, it has been
engaged since its organization in the manufacture and sale of prepared fertilizers for agricultural purposes, and has used
for that purpose trade-marks belonging to it;
2. That on or about November, 1921, the defendant, Menzi & CO., Inc., made and entered into an employment agreement
with the plaintiff, who represented that he had had much experience in the mixing of fertilizers, to superintend the mixing
of the ingredients in the manufacture of prepared fertilizers in its fertilizer department and to obtain orders for such
prepared fertilizers subject to its approval, for a compensation of 50 per cent of the net profits which it might derive from
the sale of the fertilizers prepared by him, and that said Francisco Bastida worked under said agreement until April 27,
1922, and received the compensation agreed upon for his services; that on the said 27th of April, 1922, the said Menzi &
Co., Inc., and the said Francisco Bastida made and entered into the written agreement, which is marked Exhibit A, and
made a part of the amended complaint in this case, whereby they mutually agreed that the employment of the said
Francisco Bastida by the said Menzi & Co., Inc., in the capacity stated, should be for a definite period of five years from
that date and under the other terms and conditions stated therein, but with the understanding and agreement that the said
Francisco Bastida should receive as compensation for his said services only 35 per cent of the net profits derived from the
sale of the fertilizers prepared by him during the period of the contract instead of 50 per cent of such profits, as provided in
his former agreement; that the said Francisco Bastida was found to be incompetent to do anything in relation to its said

fertilizer business with the exception of over-seeing the mixing of the ingredients in the manufacture of the same, and on
or about the month of December, 1922, the defendant, Menzi & Inc., in order to make said business successful, was
obliged to and actually did assume the full management and direction of said business;
3. That the accounts of the business of the said fertilizer department of Menzi & Co., Inc., were duly kept in the regular
books of its general business, in the ordinary course thereof, up to June 30, 1923, and that after that time and during the
remainder of the period of said agreement, for the purpose of convenience in determining the amount of compensation
due to the plaintiff under his agreement, separate books of account for its said fertilizer business were duly, kept in the
name of 'Menzi & Co., Inc., Fertilizer', and used exclusively for that purpose and it was mutually agreed between the said
Francisco Bastida and the said Menzi & Co., Inc., that the yearly balances for the determination of the net profits of said
business due to the said plaintiff as compensation for his services under said agreement would be made as of December
31st, instead of June 30th, of each year, during the period of said agreement; that the accounts of the business of its said
fertilizer department, as recorded in its said books, and the vouchers and records supporting the same, for each year of
said business have been duly audited by Messrs. White, Page & Co., certified public accountants, of Manila, who, shortly
after the close of business at the end of each year up to and including the year 1926, have prepared therefrom a
manufacturing and profit and loss account and balance sheet, showing the status of said business and the share of the
net profits pertaining to the plaintiff as his compensation under said agreement; that after the said manufacturing and
profit and the loss account and balance sheet for each year of the business of its said fertilizer department up to and
including the year 1926, had been prepared by the said auditors and certified by them, they were shown to and examined
by the plaintiff, and duly accepted, and approved by him, with full knowledge of their contents, and as evidence of such
approval, he signed his name on each of them, as shown on the copies of said manufacturing and profit and loss account
and balance sheet for each year up to and including the year 1926, which are attached to the record of this case, and
which are hereby referred to and made a part of this amended answer, and in accordance therewith, the said plaintiff has
actually received the portion of the net profits of its said business for those years pertaining to him for his services under
said agreement; that at no time during the course of said fertilizer business and the liquidation thereof has the plaintiff
been in any way denied access to the books and records pertaining thereto, but on the contrary, said books and records
have been subject to his inspection and examination at any time during business hours, and even since the
commencement of this action, the plaintiff and his accountants, Messrs. Haskins & Sells, of Manila, have been going over
and examining said books and records for months and the defendant, Menzi & Co. Inc., through its officers, have turned
over to said plaintiff and his accountant the books and records of said business and even furnished them suitable
accommodations in its own office to examine the same;
4. That prior to the termination of the said agreement, Exhibit A, the defendant, Menzi & Co., Inc., duly notified the plaintiff
that it would not under any conditions renew his said agreement or continue his said employment with it after its
expiration, and after the termination of said agreement of April 27, 1927, the said Menzi & Co., Inc., had the certified
public accountants, White, Page & Co., audit the accounts of the business of its said fertilizer department for the four
months of 1927 covered by plaintiff's agreement and prepare a manufacturing and profit and loss account and balance
sheet of said business showing the status of said business at the termination of said agreement, a copy of which was
shown to and explained to the plaintiff; that at that time there were accounts receivable to be collected for business
covered by said agreement of over P100,000, and there was guano, ashes, fine tobacco and other fertilizer ingredients on
hand of over P75,000, which had to be disposed of by Menzi & Co., Inc., or valued by the parties, before the net profits of
said business for the period of the agreement could be determined; that Menzi & Co., Inc., offered to take the face value
of said accounts and the cost value of the other properties for the purpose of determining the profits of said business for
that period, and to pay to the plaintiff at that time his proportion of such profits on that basis, which the plaintiff refused to
accept, and being disgruntled because the said Menzi & Co., Inc., would not continue him in its service, the said plaintiff
commenced this action, including therein not only Menzi & Co. Inc., but also it managers J.M. Menzi and P.C. Schlobohm,
wherein he knowingly make various false and malicious allegations against the defendants; that since that time the said
Menzi & Co., Inc., has been collecting the accounts receivable and disposing of the stocks on hand, and there is still on
hand old stock of approximately P25,000, which it has been unable to dispose of up to this time; that as soon as possible
a final liquidation and amounting of the net profits of the business covered by said agreement for the last four months
thereof will be made and the share thereof appertaining to the plaintiff will be paid to him; that the plaintiff has been
informed from time to time as to the status of the disposition of such properties, and he and his auditors have fully
examined the books and records of said business in relation thereto.
SECOND CAUSE OF ACTION
As a second cause of action plaintiff alleged:
I. That the plaintiff hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That the examination made by the plaintiff's auditors of some of the books of the partnership that were furnished by the
defendants disclosed the fact that said defendants had charged to "purchases" of the business, undue interest, the
amount of which the plaintiff is unable to determine, as he has never had at his disposal the books and vouchers
necessary for that purpose, and especially, owning to the fact that the partnership constituted between the plaintiff and the
defendant Menzi & Co., Inc., never kept its own cash book, but that its funds were maliciously included in the private
funds of the defendant entity, neither was there a separate BANK ACCOUNT of the partnership, such account being
included in the defendant's bank account.

III. That from the examination of the partnership books as aforesaid, the plaintiff estimates that the partnership between
himself and the defendant Menzi & Co., Inc., has been defrauded by the defendants by way of interest in an amount of
approximately P184,432.51, of which 35 per cent, or P64,551.38, belongs to the plaintiff exclusively.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants jointly and severally to pay him the sum of
P64,551.38, or any amount which may finally appear to be due and owing from the defendants to the plaintiff upon this ground, with
legal interest from the filing of the original complaint until payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That under the contract of employment, Exhibit A, of the amended complaint, the defendant, Menzi & Co., Inc., only
undertook and agreed to facilitate financial aid in carrying on the said fertilizer business, as it had been doing before the
plaintiff was employed under the said agreement; that the said defendant, Menzi & Co., Inc., in the course of the said
business of its fertilizer department, opened letters of credit through the banks of Manila, accepted and paid drafts drawn
upon it under said letters of credit, and obtained loans and advances of moneys for the purchase of materials to be used
in mixing and manufacturing its fertilizers and in paying the expenses of said business; that such drafts and loans
naturally provided for interest at the banking rate from the dates thereof until paid, as is the case in all, such business
enterprises, and that such payments of interest as were actually made on such drafts, loans and advances during the
period of the said employment agreement constituted legitimate expenses of said business under said agreement.
THIRD CAUSE OF ACTION
As third cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That under the terms of the contract Exhibit A, neither the defendants J.M. Menzi and P.C. Schlobohm, nor the
defendant Menzi & Co., Inc., had a right to collect for itself or themselves any amount whatsoever by way of salary for
services rendered to the partnership between the plaintiff and the defendant, inasmuch as such services were
compensated with the 65% of the net profits of the business constituting their share.
III. That the plaintiff has, on his on account and with his own money, paid all the employees he has placed in the service of
the partnership, having expended for their account, during the period of the contract, over P88,000, without ever having
made any claim upon the defendants for this sum because it was included in the compensation of 35 per cent which he
was to receive in accordance with the contract Exhibit A.
IV. That the defendants J.M. Menzi and P.C. Schlobohm, not satisfied with collecting undue and excessive salaries for
themselves, have made the partnership, or the fertilizer business, pay the salaries of a number of the employees of the
defendant Menzi & Co., Inc.
V. That under this item of undue salaries the defendants have appropriated P43,920 of the partnership funds, of which 35
per cent, or P15,372 belongs exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to render judgment ordering the defendants to pay jointly and severally to the plaintiff the
amount of P15,372, with legal interest from the date of the filing of the original complaint until the date of payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4 of the special defense the first cause
of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., through its manager, exclusively managed and conducted its said fertilizer
business, in which the plaintiff was to receive 35 percent of the net profits as compensation for this services, as
hereinbefore alleged, from on or about January 1, 1923, when its other departments had special experienced Europeans
in charge thereof, who received not only salaries but also a percentage of the net profits of such departments; that its said
fertilizer business, after its manager took charge of it, became very successful, and owing to the large volume of business
transacted, said business required great deal of time and attention, and actually consumed at least one-half of the time of
the manager and certain employees of Menzi & Co., Inc., in carrying it on; that the said Menzi & Co., furnished office
space, stationery and other incidentals, for said business, and had its employees perform the duties of cashiers,

accountants, clerks, messengers, etc., for the same, and for that reason the said Menzi & Co., Inc., charged each year,
from and after 1922, as expenses of said business, which pertained to the fertilizer department, as certain amount as
salaries and wages to cover the proportional part of the overhead expenses of Menzi & Co., Inc.; that the same method is
followed in each of the several departments of the business of Menzi & Co., Inc., that each and every year from and after
1922, a just proportion of said overhead expenses were charged to said fertilizer departments and entered on the books
thereof, with the knowledge and consent of the plaintiff, and included in the auditors' reports, which were examined,
accepted and approved by him, and he is now estopped from saying that such expenses were not legitimate and just
expenses of said business.
FOURTH CAUSE OF ACTION
As fourth cause of action, the plaintiff alleged:
I. That he hereby reproduces paragraph I, II, III, IV, and V of the first cause of action.
II. That the defendant Menzi & Co., Inc., through the defendant J. M. Menzi and P. C. Schlobohm, has paid, with the funds
of the partnership between the defendant entity and the plaintiff, the income tax due from said defendant entity for the
fertilizer business, thereby defrauding the partnership in the amount of P10,361.72 of which 35 per cent belongs
exclusively to the plaintiff, amounting to P3,626.60.
III. That the plaintiff has, during the period of the contract, paid with his own money the income tax corresponding to his
share which consists in 35 per cent of the profits of the fertilizer business, expending about P5,000 without ever having
made any claim for reimbursement against the partnership, inasmuch as it has always been understood among the
partners that each of them would pay his own income tax.
Wherefore, the plaintiff prays the court to order the defendants jointly and severally to pay the plaintiff the sum of P3,362.60, with
legal interest from the date of the filing of the original complaint until its payment.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That under the Income Tax Law Menzi & Co., Inc., was obliged to and did make return to the Government of the
Philippine Islands each year during the period of the agreement, Exhibit A, of the income of its whole business, including
its fertilizer department; that the proportional share of such income taxes found to be due on the business of the fertilizer
department was charged as a proper and legitimate expense of that department, in the same manner as was done in the
other departments of its business; that inasmuch as the agreement with the plaintiff was an employment agreement, he
was required to make his own return under the Income Tax Law and to pay his own income taxes, instead of having them
paid at the source, as might be done under the law, so that he would be entitled to the personal exemptions allowed by
the law; that the income taxes paid by the said Menzi & Co., Inc., pertaining to the business, were duly entered on the
books of that department, and included in the auditors' reports hereinbefore referred to, which reports were examined,
accepted and approved by the plaintiff, with full knowledge of their contents, and he is now estopped from saying that
such taxes are not a legitimate expense of said business.
FIFTH CAUSE OF ACTION
As fifth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That the plaintiff has discovered that the defendants Menzi & Co., Inc., had been receiving, during the period of the
contract Exhibit A, from foreign firms selling fertilizing material, a secret commission equivalent to 5 per cent of the total
value of the purchases of fertilizing material made by the partnership constituted between the plaintiff and the defendant
Menzi Co., Inc., and that said 5 per cent commission was not entered by the defendants in the books of the business, to
the credit and benefit of the partnership constituted between the plaintiff and the defendant, but to the credit of the
defendant Menzi Co., Inc., which appropriated it to itself.
III. That the exact amount, or even the approximate amount of the fraud thus suffered by the plaintiff cannot be
determined, because the entries referring to these items do not appear in the partnership books, although the plaintiff
believes and alleges that they do appear in the private books of the defendant Menzi & Co., Inc., which the latter has
refused to furnish, notwithstanding the demands made therefore by the auditors and the lawyers of the plaintiff.

IV. That taking as basis the amount of the purchases of some fertilizing material made by the partnership during the first
four years of the contract Exhibit A, the plaintiff estimates that this 5 per cent commission collected by the defendant
Menzi Co., Inc., to the damage and prejudice of the plaintiff, amounts to P127,375.77 of which 35 per cent belongs
exclusively to the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants to pay jointly and severally to the plaintiff the amount of P44,581.52,
or the exact amount owed upon this ground, after both parties have adduced their evidence upon the point.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraph 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That the defendant, Menzi & Co., Inc., did have during the period of said agreement, Exhibit A, and has now what is
called a "Propaganda Agency Agreement" which the Deutsches Kalesyndikat, G.M.B., of Berlin, which is a manufacturer
of potash, by virtue of which said Menzi & Co., Inc., was to receive for its propaganda work in advertising and bringing
about sales of its potash a commission of 5 per cent on all orders of potash received by it from the Philippine Islands; that
during the period of said agreement, Exhibit A, orders were sent to said concern for potash, through C. Andre & Co., of
Hamburg, as the agent of the said Menzi & Co., Inc., upon which the said Menzi & Co., Inc., received a 5 per cent
commission, amounting in all to P2,222.32 for the propaganda work which it did for said firm in the Philippine Islands; that
said commissioners were not in any sense discounts on the purchase price of said potash, and have no relation to the
fertilizer business of which the plaintiff was to receive a share of the net profits for his services, and consequently were not
credited to that department;
3. That in going over the books of Menzi Co., Inc., it has been found that there are only two items of commissions, which
were received from the United Supply Co., of San Francisco, in the total of sum $66.51, which through oversight, were not
credited on the books of the fertilizer department of Menzi & Co., Inc., but due allowance has now been given to the
department for such item.
SIXTH CAUSE OF ACTION
As sixth cause of action, plaintiff alleged:
I. That hereby reproduces paragraphs I, II, III, IV and V, of the first cause of action.
II. That the defendant Menzi Co., Inc., in collusion with and through the defendants J.M. Menzi and P.C. Schlobohm and
their assistants, has tampered with the books of the business making fictitious transfers in favor of the defendant Menzi &
Co., Inc., of merchandise belonging to the partnership, purchased with the latter's money, and deposited in its
warehouses, and then sold by Menzi & Co., Inc., to third persons, thereby appropriating to itself the profits obtained from
such resale.
III. That it is impossible to ascertain the amount of the fraud suffered by the plaintiff in this respect as the real amount
obtained from such sales can only be ascertained from the examination of the private books of the defendant entity, which
the latter has refused to permit notwithstanding the demand made for the purpose by the auditors and the lawyers of the
plaintiff, and no basis of computation can be established, even approximately, to ascertain the extent of the fraud
sustained by the plaintiff in this respect, by merely examining the partnership books.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement as to all
the profits received from the sale to third persons of the fertilizers pertaining to the partnership, and the profits they have
appropriated, ordering them jointly and severally to pay 35 per cent of the net amount, with legal interest from the filing of the
original complaint until the payment thereof.
Defendant alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer:
2. That under the express terms of the employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., had the right
to import into the Philippine Islands in the course of its fertilizer business and sell fro its exclusive account and benefit
simple fertilizer ingredients; that the only materials imported by it and sold during the period of said agreement were
simple fertilizer ingredients, which had nothing whatever to do with the business of mixed fertilizers, of which the plaintiff
was to receive a share of the net profits as a part of his compensation.

SEVENTH CAUSE OF ACTION

As seventh cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That during the existence of the contract Exhibit A, the defendant Menzi & Co., Inc., for the account of the partnership
constituted between itself and the plaintiff, and with the latter's money, purchased from a several foreign firms various
simple fertilizing material for the use of the partnership.
III. That in the paid invoices for such purchases there are charged, besides the cost price of the merchandise, other
amounts for freight, insurance, duty, etc., some of which were not entirely thus spent and were later credited by the selling
firms to the defendant Menzi & Co., Inc.
IV. That said defendant Menzi & Co., Inc., through and in collusion with the defendants J.M. Menzi and P.C. Schlobohm
upon receipt of the credit notes remitted by the selling firms of fertilizing material, for rebates upon freight, insurance, duty,
etc., charged in the invoice but not all expended, did not enter them upon the books to the credit of the partnership
constituted between the defendant and the plaintiff, but entered or had them entered to the credit on Menzi & Co., Inc.,
thereby defrauding the plaintiff of 35 per cent of the value of such reductions.
V. That the total amount, or even the approximate amount of this fraud cannot be ascertained without an examination of
the private books of Menzi & Co., Inc., which the latter has refused to permit notwithstanding the demand to this effect
made upon them by the auditors and the lawyers of the plaintiff.
Wherefore, the plaintiff prays the court to order the defendants J.M. Menzi and P.C. Schlobohm, to make a sworn statement as to
the total amount of such rebates, and to sentence the defendants to pay the plaintiff jointly and severally 35 per cent of the net
amount.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer:
2. That during the period of said employment agreement, Exhibit A, the defendant, Menzi & Co., Inc., received from its
agent, C. Andre & Co., of Hamburg, certain credits pertaining to the fertilizer business in the profits of which the plaintiff
was interested, by way of refunds of German Export Taxes, in the total sum of P1,402.54; that all of department as
received, but it has just recently been discovered that through error an additional sum of P216.22 was credited to said
department, which does not pertain to said business in the profits of which the plaintiff is interested.
EIGHT CAUSE OF ACTION
A eighth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV and V of the first cause of action.
II. That on or about April 21, 1927, that is, before the expiration of the contract Exhibit A of the complaint, the defendant
Menzi & Co., Inc., acting as manager of the fertilizer business constituted between said defendant and the plaintiff,
entered into a contract with the Compaia General de Tabacos de Filipinas for the sale of said entity of three thousand
tons of fertilizers of the trade mark "Corona No. 1", at the rate of P111 per ton, f. o. b. Bais, Oriental Negros, to be
delivered, as they were delivered, according to information received by the plaintiff, during the months of November and
December, 1927, and January, February, March, and April, 1928.
III. That both the contract mentioned above and the benefits derived therefrom, which the plaintiff estimates at P90,000,
Philippine currency, belongs to the fertilizer business constituted between the plaintiff and the defendant, of which 35 per
cent, or P31,500, belongs to said plaintiff.
IV. That notwithstanding the expiration of the partnership contract Exhibit A, on April 27, 1927, the defendants have not
rendered a true accounting of the profits obtained by the business during the last four months thereof, as the purposed
balance submitted to the plaintiff was incorrect with regard to the inventory of merchandise, transportation equipment, and
the value of the trade marks, for which reason such proposed balance did not represent the true status of the business of
the partnership on April 30, 1927.

V. That the proposed balance submitted to the plaintiff with reference to the partnership operations during the last four
months of its existence, was likewise incorrect, inasmuch as it did not include the profit realized or to be realized from the
contract entered into with the Compaia General de Tabacos de Filipinas, notwithstanding the fact that this contract was
negotiated during the existence of the partnership, and while the defendant Menzi & Co., Inc., was the manager thereof.
VI. That the defendant entity now contends that the contract entered into with the Compaia General de Tabacos de
Filipinas belongs to it exclusively, and refuses to give the plaintiff his share consisting in 35 per cent of the profits
produced thereby.
Wherefore, the plaintiff prays the honorable court to order the defendants to render a true and detailed account of the business
during the last four months of the existence of the partnership, i. e., from January 1, 1927 to April 27, 1927, and to sentence them
likewise to pay the plaintiff 35 per cent of the net profits.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That the said order for 3,000 tons of mixed fertilizer, received by Menzi & Co., Inc., from the Compaia General de
Tabacos Filipinas on April 21, 1927, was taken by it in the regular course of its fertilizer business, and was to be
manufactured and delivered in December, 1927, and up to April, 1928; that the employment agreement of the plaintiff
expired by its own terms on April 27, 1927, and he has not been in any way in the service of the defendant, Menzi & Co.,
Inc., since that time, and he cannot possibly have any interest in the fertilizers manufactured and delivered by the said
Menzi & Co., Inc., after the expiration of his contract for any service rendered to it.
NINTH CAUSE OF ACTION
As ninth cause of action, plaintiff alleged:
I. That he hereby reproduces paragraphs I, II, III, IV, and V of the first cause of action.
II. That during the period of the contract Exhibit A, the partnership constituted thereby registered in the Bureau of
Commerce and Industry the trade marks "CORONA NO. 1", CORONA NO. 2", "ARADO", and "HOZ", the plaintiff and the
defendant having by their efforts succeeded in making them favorably known in the market.
III. That the plaintiff and the defendant, laboring jointly, have succeeded in making the fertilizing business a prosperous
concern to such an extent that the profits obtained from the business during the five years it has existed, amount to
approximately P1,000,000, Philippine currency.
IV. That the value of the good will and the trade marks of a business of this nature amounts to at least P1,000,000, of
which sum 35 per cent belongs to the plaintiff, or, P350,000.
V. That at the time of the expiration of the contract Exhibit A, the defendant entity, notwithstanding and in spite of the
plaintiff's insistent opposition, has assumed the charge of liquidating the fertilizing business, without having rendered a
monthly account of the state of the liquidation, as required by law, thereby causing the plaintiff damages.
VI. That the damages sustained by the plaintiff, as well as the amount of his share in the remaining property of the
plaintiff, and may only be truly and correctly ascertained by compelling the defendants J. M. Menzi and P. C. Schlobohm
to declare under oath and explain to the court in detail the sums obtained from the sale of the remaining merchandise,
after the expiration of the partnership contract.
VII. That after the contract Exhibit A had expired, the defendant continued to use for its own benefit the good-will and trade
marks belonging to the partnership, as well as its transportation equipment and other machinery, thereby indicating its
intention to retain such good-will, trade marks, transportation equipment and machinery, for the manufacture of fertilizers,
by virtue of which the defendant is bound to pay the plaintiff 35 per cent of the value of said property.
VIII. That the true value of the transportation equipment and machinery employed in the preparation of the fertilizers
amounts of P20,000, 35 per cent of which amount to P7,000.
IX. That the plaintiff has repeatedly demanded that the defendant entity render a true and detailed account of the state of
the liquidation of the partnership business, but said defendants has ignored such demands, so that the plaintiff does not,
and this date, know whether the liquidation of the business has been finished, or what the status of it is at present.

Wherefore, the plaintiff prays the Honorable Court:

1. To order the defendants J.M. Menzi and P.C. Schlobohm to render a true and detailed account of the status of business
in liquidation, that is, from April 28, 1927, until it is finished, ordering all the defendants to pay the plaintiff jointly and
severally 35 per cent of the net amount.
2. To order the defendants to pay the plaintiff jointly and severally the amount of P350,000, which is 35 per cent of the
value of the goodwill and the trade marks of the fertilizer business;
3. To order the defendants to pay the plaintiff jointly and severally the amount of P7,000 which is 35 per cent of the value
of the transportation equipment and machinery of the business; and
4. To order the defendants to pay the costs of this trial, and further, to grant any other remedy that this Honorable Court
may deem just and equitable.
Defendants alleged:
1. That they repeat and make a part of this special defense paragraphs 1, 2, 3 and 4, of the special defense to the first
cause of action in this amended answer;
2. That the good-will, if any, of said fertilizer business of the defendant, Menzi & Co., Inc., pertains exclusively to it, and
the plaintiff can have no interest therein of any nature under his said employment agreement; that the trade-marks
mentioned by the plaintiff in his amended complaint, as a part of such good-will, belonged to and have been used by the
said Menzi & Co., Inc., in its fertilizer business from and since its organization, and the plaintiff can have no rights to or
interest therein under his said employment agreement; that the transportation equipment pertains to the fertilizer
department of Menzi & Co., Inc., and whenever it has been used by the said Menzi & Co., Inc., in its own business, due
and reasonable compensation for its use has been allowed to said business; that the machinery pertaining to the said
fertilizer business was destroyed by fire in October, 1926, and the value thereof in the sum of P20,000 was collected from
the Insurance Company, and the plaintiff has been given credit for 35 per cent of that amount; that the present machinery
used by Menzi & Co., Inc., was constructed by it, and the costs thereof was not charged to the fertilizer department, and
the plaintiff has no right to have it taken into consideration in arriving at the net profits due to him under his said
employment agreement.
The dispositive part of the decision of the trial court is as follows:
Wherefore, let judgment be entered:
(a) Holding that the contract entered into by the parties, evidenced by Exhibit A, as a contract of general regular
commercial partnership, wherein Menzi & Co., Inc., was the capitalist, and the plaintiff, the industrial partner;
(b) Holding the plaintiff, by the mere fact of having signed and approved the balance sheets, Exhibits C to C-8, is not
estopped from questioning the statements of the accounts therein contained;
(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay the plaintiff the sum of P 60,385.67 with legal
interest from the date of the filing of the original complaint until paid;
(d) Dismissing the third cause of action;
(e) Ordering Menzi & Co., Inc., upon the fourth cause of action, to pay the plaintiff the sum of P3,821.41, with legal
interest from the date of the filing of the original until paid;
(f ) Dismissing the fifth cause of action;
(g) Dismissing the sixth cause of action;
(h) Dismissing the seventh cause of action;
(i) Ordering the defendant Menzi & Co., Inc., upon the eighth cause of action, to pay the plaintiff the sum of P6,578.38
with legal interest from January 1, 1929, the date of the liquidation of the fertilizer business, until paid;

(j ) Ordering Menzi & Co., Inc., upon the ninth cause of action to pay the plaintiff the sum of P196,709.20 with legal
interest from the date of the filing of the original complaint until paid;
(k) Ordering the said defendant corporation, in view of the plaintiff's share of the profits of the business accruing from
January 1, 1927 to December 31, 1928, to pay the plaintiff 35 per cent of the net balance shown in Exhibits 51 and 51-A,
after deducting the item of P2,410 for income tax, and any other sum charged for interest under the entry "Purchases";
(l) Ordering the defendant corporation, in connection with the final liquidation set in Exhibit 52 and 52-A, to pay the plaintiff
the sum of P17,463.54 with legal interest from January 1, 1929, until fully paid;
(m) Dismissing the case with reference to the other defendants, J. M. Menzi and P. C. Schlobohm; and
(n) Menzi & Co., Inc., shall pay the costs of the trial.
The appellant makes the following assignment of error:
I. The trial court erred in finding and holding that the contract Exhibit A constitutes a regular collective commercial
copartnership between the defendant corporation, Menzi & Co., Inc., and the plaintiff, Francisco Bastida, and not a
contract of employment.
II. The trial court erred in finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged to the fertilizer
business in question the sum of P10,918.33 as income taxes partners' balances, foreign drafts, local drafts, and on other
credit balances in the sum of P172,530.49, and that 35 per cent thereof, or the sum of P60,358.67, with legal interest
thereon from the date of filing his complaint, corresponds to the plaintiff.
III. The trial court erred finding and holding that the defendant, Menzi & Co., Inc., had wrongfully charged to the fertilizer
business in question the sum of P10,918.33 as income taxes for the years 1923, 1924, 1925 and 1926, and that the
plaintiff is entitled to 35 per cent thereof, or the sum of P3,821.41, with legal interest thereon from the date of filing his
complaint, and in disallowing the item of P2,410 charged as income tax in the liquidation in Exhibits 51 and 51 A for the
period from January 1 to April 27, 1927.
IV. The trial court erred in refusing to find and hold under the evidence in this case that the contract, Exhibit A was daring
the whole period thereof considered by the parties and performed by them as a contract of employment in relation to the
fertilizer business of the defendant, and that the accounts of said business were kept by the defendant, Menzi & Co., Inc.,
on that theory with the knowledge and consent of the plaintiff, and that at the end of each year for five years a balance
sheet and profit and loss statement of said business were prepared from the books of account of said business on the
same theory and submitted to the plaintiff, and that each year said balance sheet and profit and loss statement were
examined, approved and signed by said contract in accordance therewith with full knowledge of the manner in which said
business was conducted and the charges for interest and income taxes made against the same and that by reason of
such facts, the plaintiff is now estopped from raising any question as to the nature of said contract or the propriety of such
charges.
V. The trial court erred in finding and holding that the plaintiff, Francisco Bastida, is entitled to 35 per cent of the net profits
in the sum of P18,795.38 received by the defendant, Menzi & Co., Inc., from its contract with the Compaia General de
Tabacos de Filipinas, or the sum of P6.578.38, with legal interest thereon from January 1, 1929, the date upon which the
liquidation of said business was terminated.
VI. The trial court erred in finding and holding that the value of the good-will of the fertilizer business in question was
P562,312, and that the plaintiff, Francisco Bastida, was entitled to 35 per cent of such valuation, or the sum of
P196,709.20, with legal interest thereon from the date of filing his complaint.
VII. The trial court erred in rendering judgment in favor of the plaintiff and against defendant, Menzi & Co., Inc., (a) on the
second cause of action, for the sum of P60,385.67, with legal interest thereon from the date of filing the complaint; (b) on
the fourth cause of action, for the sum of P3,821.41, with legal interest thereon from the date of filing the complaint; (c) on
the eight cause of action, for the sum of P6,578.38, with legal interest thereon from January 1, 1929; and (d) on the ninth
cause of action, for the sum of P196,709.20, with legal interest thereon from the date of filing the original complaint; and
(e) for the costs of the action, and in not approving the final liquidation of said business, Exhibits 51 and 51-A and 52 and
52-A, as true and correct, and entering judgment against said defendant only for the amounts admitted therein as due the
plaintiff with legal interest, with the costs against the plaintiff.
VIII. The trial court erred in overruling the defendants' motion for a new trial.

It appears from the evidence that the defendants corporation was organized in 1921 for purpose of importing and selling general
merchandise, including fertilizers and fertilizer ingredients. It appears through John Bordman and the Menzi-Bordman Co. the goodwill, trade-marks, business, and other assets of the old German firm of Behn, Meyer & Co., Ltd., including its fertilizer business with
its stocks and trade-marks. Behn, Meyer & Co., Ltd., had owned and carried on this fertilizer business from 1910 until that firm was
taken over the Alien Property Custodian in 1917. Among the trade-marks thus acquired by the appellant were those known as the
"ARADO", "HOZ", and "CORONA". They were registered in the Bureau of Commerce and Industry in the name of Menzi & Co. The
trade marks "ARADO" and "HOZ" had been used by Behn, Meyer & Co., Ltd., in the sale of its mixed fertilizers, and the trade mark
"CORONA" had been used in its other business. The "HOZ" trade-mark was used by John Bordman and the Menzi-Bordman Co. in
the continuation of the fertilizer business that had belonged to Behn, Meyer & Co., Ltd.
The business of Menzi & Co., Inc., was divided into several different departments, each of which was in charge of a manager, who
received a fixed salary and a percentage of the profits. The corporation had to borrow money or obtain credits from time to time and
to pay interest thereon. The amount paid for interest was charged against the department concerned, and the interest charges were
taken into account in determining the net profits of each department. The practice of the corporation was to debit or credit each
department with interest at the bank rate on its daily balance. The fertilizer business of Menzi & Co., Inc., was carried on in
accordance with this practice under the "Sundries Department" until July, 1923, and after that as a separate department.
In November, 1921, the plaintiff, who had had some experience in mixing and selling fertilizer, went to see Toehl, the manager of the
sundries department of Menzi & Co., Inc., and told him that he had a written contract with the Philippine Sugar Centrals Agency for
1,250 tons of mixed fertilizers, and that he could obtain other contracts, including one from the Calamba Sugar Estates for 450 tons,
but the he did not have the money to buy the ingredients to fill the order and carry on the on the business. He offered to assign to
Menzi & Co., Inc., his contract with the Philippine Sugar Centrals Agency and to supervise the mixing of the fertilizer and to obtain
other orders for fifty per cent of the net profits that Menzi & Co., might derive therefrom. J.M. Menzi, the general manager of Menzi &
Co., accepted plaintiff's offer. Plaintiff assigned to Menzi & Co., Inc., his contract with the Sugar Centrals Agency, and the defendant
corporation proceeded to fill the order. Plaintiff supervised the mixing of the fertilizer.
On January 10, 1922 the defendant corporation at plaintiff's request gave him the following letter, Exhibit B:
MANILA, 10 de enero de 1922
Sr. FRANCISCO BASTIDA
Manila
MUY SR. NUESTRO: Interin formalizamos el contrato que, en principio, tenemos convenido para la explotacion del negocio de
abono y fertilizantes, por la presente venimos en confirmar su derecho de 50 por ciento de las untilidades que se deriven del
contrato obtenido por Vd. de la Philippine Sugar Centrals (por 1250 tonel.) y del contrato con la Calamba Sugar Estates, asi como
de cuantos contratos se cierren con definitiva de nuestro contrato mutuo, lo que formalizacion definitiva de nuestro contrato mutuo,
lo que hacemos para garantia y seguridad de Vd.
MENZI & CO.,
Por (Fdo.) W. TOEHL
Menzi & Co., Inc., continued to carry on its fertilizer business under this arrangement with the plaintiff. It ordered ingredients from
the United States and other countries, and the interest on the drafts for the purchase of these materials was changed to the
business as a part of the cost of the materials. The mixed fertilizers were sold by Menzi & Co., Inc., between January 19 and April 1,
1922 under its "CORONA" brand. Menzi & Co., Inc., had only one bank account for its whole business. The fertilizer business had
no separate capital. A fertilizer account was opened in the general ledger, and interest at the rate charged by the Bank of the
Philippine Islands was debited or credited to that account on the daily balances of the fertilizer business. This was in accordance
with appellant's established practice, to which the plaintiff assented.
On or about April 24, 1922 the net profits of the business carried on under the oral agreement were determined by Menzi & Co., Inc.,
after deducting interest charges, proportional part of warehouse rent and salaries and wages, and the other expenses of said
business, and the plaintiff was paid some twenty thousand pesos in full satisfaction of his share of the profits.
Pursuant to the aforementioned verbal agreement, confirmed by the letter, Exhibit B, the defendant corporation April 27, 1922
entered a written contract with the plaintiff, marked Exhibit A, which is the basis of the present action.
The fertilizer business was carried on by Menzi & Co., Inc., after the execution of Exhibit A in practically the same manner as it was
prior thereto. The intervention of the plaintiff was limited to supervising the mixing of the fertilizers in Menzi & Co.'s, Inc., bodegas.
The trade-marks used in the sale of the fertilizer were registered in the Bureau of Commerce & Industry in the name of Menzi & Co.,
Inc., and the fees were paid by that company. They were not changed to the fertilizer business, in which the plaintiff was interested.
Only the fees for registering the formulas in the Bureau of Science were charged to the fertilizer business, and the total amount
thereof was credited to this business in the final liquidation on April 27, 1927.

On May 3, 1924 the plaintiff made a contract with Menzi & Co., Inc., to furnish it all the stems and scraps to tobacco that it might
need for its fertilizer business either in the Philippine Islands or for export to other countries. This contract is rendered to in the
record as the "Vastago Contract". Menzi & Co., Inc., advanced the plaintiff, paying the salaries of his employees, and other
expenses in performing his contract.
White, Page & Co., certified public accountants, audited the books of Menzi & Co., Inc., every month, and at the end of each year
they prepared a balance sheet and a profit and loss statement of the fertilizer business. These statements were delivered to the
plaintiff for examination, and after he had had an opportunity of verifying them he approved them without objection and returned
them to Menzi & Co., Inc.
Plaintiff collected from Menzi Co., Inc., as his share or 35 per cent of the net profits of the fertilizer business the following amounts:
1922 . . . . . . . . . . . . . . . . . . . . .

P1,874.73

1923 . . . . . . . . . . . . . . . . . . . . .

30,212.62

1924 . . . . . . . . . . . . . . . . . . . . .

101,081.56

1925 . . . . . . . . . . . . . . . . . . . . .

35,665.03

1926 . . . . . . . . . . . . . . . . . . . . .

27,649.98

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

P196,483.92

To this amount must be added plaintiff's share of the net profits from January 1 to April 27, 1927, amounting to P34,766.87, making
a total of P231,250.79.
Prior to the expiration of the contract, Exhibit A, the manager of Menzi & Co. Inc., notified the plaintiff that the contract for his
services would not be renewed.
When plaintiff's contract expired on April 27, 1927, the fertilizer department of Menzi & Co., Inc., had on hand materials and
ingredients and two Ford trucks of the book value of approximately P75,000, and accounts receivable amounting to P103,000.
There were claims outstanding and bills to pay. Before the net profits could be finally determined, it was necessary to dispose of the
materials and equipment, collect the outstanding accounts for Menzi & Co., Inc., prepared a balance sheet and a profit and loss
statement for the period from January 1 to April 27, 1927 as a basis of settlement, but the plaintiff refused to accept it, and filed the
present action.
Menzi & Co., Inc., then proceeded to liquidate fertilizer business in question. In October, 1927 it proposed to the plaintiff that the old
and damaged stocks on hand having a book value of P40,000, which the defendant corporation had been unable to dispose of, be
sold at public or private sale, or divided between the parties. The plaintiff refused to agree to this. The defendant corporation then
applied to the trial court for an order for the sale of the remaining property at public auction, but apparently the court did not act on
the petition.
The old stocks were taken over by Menzi & Co., Inc., and the final liquidation of the fertilizer business was completed in December,
1928 and a final balance sheet and a profit and loss statement were submitted to the plaintiff during the trial. During the liquidation
the books of Menzi & Co., Inc., for the whole period of the contract in question were reaudited by White, Page & Co.., certain errors
of bookkeeping were discovered by them. After making the corrections they found the balance due the plaintiff to be P21,633.20.
Plaintiff employed a certified public accountant, Vernon Thompson, to examine the books and vouchers of Menzi & Co. Thompson
assumed the plaintiff and Menzi & Co., Inc., to be partners, and that Menzi & Co., Inc., was obliged to furnish free of charge all the
capital the partnership should need. He naturally reached very different conclusions from those of the auditors of Menzi Co., Inc.
We come now to a consideration of appellant's assignment of error. After considering the evidence and the arguments of counsel,
we are unanimously of the opinion that under the facts of this case the relationship established between Menzi & Co. and by the
plaintiff was to receive 35 per cent of the net profits of the fertilizer business of Menzi & Co., Inc., in compensation for his services of
supervising the mixing of the fertilizers. Neither the provisions of the contract nor the conduct of the parties prior or subsequent to its
execution justified the finding that it was a contract of copartnership. Exhibit A, as appears from the statement of facts, was in effect
a continuation of the verbal agreement between the parties, whereby the plaintiff worked for the defendant corporation for one-half
of the net profits derived by the corporation from certain fertilizer contracts. Plaintiff was paid his share of the profits from those
transactions after Menzi & Co., Inc., had deducted the same items of expense which he now protests. Plaintiff never made any
objection to defendant's manner of keeping the accounts or to the charges. The business was continued in the same manner under
the written agreement, Exhibit A, and for four years the plaintiff never made any objection. On the contrary he approved and signed

every year the balance sheet and the profit and loss statement. It was only when plaintiff's contract was about to expire and the
defendant corporation had notified him that it would not renew it that the plaintiff began to make objections.
The trial court relied on article 116 of the Code of Commerce, which provides that articles of association by which two or more
persons obligate themselves to place in a common fund any property, industry, or any of these things, in order to obtain profit, shall
be commercial, no matter what its class may be, provided it has been established in accordance with the provisions of this Code;
but in the case at bar there was no common fund, that is, a fund belonging to the parties as joint owners or partners. The business
belonged to Menzi & Co., Inc. The plaintiff was working for Menzi & Co., Inc. Instead of receiving a fixed salary or a fixed salary and
a small percentage of the net profits, he was to receive 35 per cent of the net profits as compensation for his services. Menzi & Co.,
Inc., was to advanced him P300 a month on account of his participation in the profits. It will be noted that no provision was made for
reimbursing Menzi & Co., Inc., in case there should be no net profits at the end of the year. It is now well settled that the old rule that
sharing profits as profits made one a partner is overthrown. (Mechem, second edition, p. 89.)
It is nowhere stated in Exhibit A that the parties were establishing a partnership or intended to become partners. Great stress in laid
by the trial judge and plaintiff's attorneys on the fact that in the sixth paragraph of Exhibit A the phrase "en sociedad con" is used in
providing that defendant corporation not engage in the business of prepared fertilizers except in association with the plaintiff (en
sociedad con). The fact is that en sociedad con as there used merely means en reunion con or in association with, and does not
carry the meaning of "in partnership with".
The trial judge found that the defendant corporation had not always regarded the contract in question as an employment agreement,
because in its answer to the original complaint it stated that before the expiration of Exhibit A it notified the plaintiff that it would not
continue associated with him in said business. The trial judge concluded that the phrase "associated with", used by the defendant
corporation, indicated that it regarded the contract, Exhibit A, as an agreement of copartnership.
In the first place, the complaint and answer having been superseded by the amended complaint and the answer thereto, and the
answer to the original complaint not having been presented in evidence as an exhibit, the trial court was not authorized to take it into
account. "Where amended pleadings have been filed, allegations in the original pleadings are held admissible, but in such case the
original pleadings can have no effect, unless formally offered in evidence." (Jones on Evidence, sec. 273; Lucido vs. Calupitan, 27
Phil., 148.)
In the second place, although the word "associated" may be related etymologically to the Spanish word "socio", meaning partner, it
does not in its common acceptation imply any partnership relation.
The 7th, 8th, and 9th paragraphs of Exhibit A, whereby the defendant corporation obligated itself to pay to the plaintiff 35 per cent of
the net profits of the fertilizer business, to advance to him P300 a month on account of his share of the profits, and to grant him
permission during 1923 to absent himself from the Philippines for not more than one year are utterly incompatible with the claim that
it was the intention of the parties to form a copartnership. Various other reasons for holding that the parties were not partners are
advanced in appellant's brief. We do not deem it necessary to discuss them here. We merely wish to add that in the Vastago
contract, Exhibit A, the plaintiff clearly recognized Menzi & Co., Inc., as the owners of the fertilizer business in question.
As to the various items of the expense rejected by the trial judge, they were in our opinion proper charges and erroneously
disallowed, and this would true even if the parties had been partners. Although Menzi & Co., Inc., agreed to furnish the necessary
financial aid for the fertilizer business, it did not obligate itself to contribute any fixed sum as capital or to defray at its own expense
the cost of securing the necessary credit. Some of the contentions of the plaintiff and his expert witness Thompson are so obviously
without merit as not to merit serious consideration. For instance, they objected to the interest charges on draft for materials
purchased abroad. Their contention is that the corporation should have furnished the money to purchase these materials for cash,
overlooking the fact that the interest was added to the cost price, and that the plaintiff was not prejudiced by the practice complained
of. It was also urged, and this seems to us the height of absurdity, that the defendant corporation should have furnished free of
charge such financial assistance as would have made it unnecessary to discount customers' notes, thereby enabling the business to
reap the interest. In other words, the defendant corporation should have enabled the fertilizer department to do business on a credit
instead of a cash basis.
The charges now complained of, as we have already stated, are the same as those made under the verbal agreement, upon the
termination of which the parties made a settlement; the charges in question were acquiesced in by the plaintiff for years, and it is
now too late for him to contest them. The decision of this court in the case of Kriedt vs. E.C. McCullough & Co. (37 Phil., 474), is in
point. A portion of the syllabus of that case reads as follows:
1. CONTRACTS; INTERPRETATION; CONTEMPORANEOUS ACTS OF PARTIES. Acts done by the parties to a
contract in the course of its performance are admissible in evidence upon the question of its meaning, as being their own
contemporaneous interpretation of its terms.
2. ID, ID; ACTION OF PARTIES UNDER PRIOR CONTRACT. In an action upon a contract containing a provision a
doubtful application it appeared that under a similar prior contract the parties had, upon the termination of said contract,
adjusted their rights and made a settlement in which the doubtful clause had been given effect in conformity with the

interpretation placed thereon by one of the parties. Held: That this action of the parties under the prior contract could
properly be considered upon the question of the interpretation of the same clause in the later contract.
3. ID.; ID.; ACQUIESCENCE. Where one of the parties to a contract acquiesces in the interpretation placed by the
other upon a provision of doubtful application, the party so acquiescing is bound by such interpretation.
4. ID.; ID.; ILLUSTRATION. One of the parties to a contract, being aware at the time of the execution thereof that the
other placed a certain interpretation upon a provision of doubtful application, nevertheless proceeded, without raising any
question upon the point, to perform the services which he was bound to render under the contract. Upon the termination
of the contract by mutual consent a question was raised as to the proper interpretation of the doubtful provision. Held:
That the party raising such question had acquiesced in the interpretation placed upon the contract by the other party and
was bound thereby.
The trial court held that the plaintiff was entitled to P6,578.38 or 35 per cent of the net profits derived by Menzi & Co., Inc., from its
contract for fertilizers with the Tabacalera. This finding in our opinion is not justified by the evidence. This contract was obtained by
Menzi & Co., Inc., shortly before plaintiff's contract with the defendant corporation expired. Plaintiff tried to get the Tabacalera
contract for himself. When this contract was filled, plaintiff had ceased to work for Menzi & Co., Inc., and he has no right to
participate in the profits derived therefrom.
Appellant's sixth assignment of error is that the trial court erred in finding the value of the good-will of the fertilizer business in
question to be P562,312, and that the plaintiff was entitled to 35 per cent thereof or P196,709.20. In reaching this conclusion the trial
court unfortunately relied on the opinion of the accountant, Vernon Thompson, who assumed, erroneously as we have seen, that the
plaintiff and Menzi & Co., Inc., were partners; but even if they had been partners there would have been no good-will to dispose of.
The defendant corporation had a fertilizer business before it entered into any agreement with the plaintiff; plaintiff's agreement was
for a fixed period, five years, and during that time the business was carried on in the name of Menzi & Co., Inc., and in Menzi &
Co.'s warehouses and after the expiration of plaintiff's contract Menzi & Co., Inc., continued its fertilizer business, as it had a perfect
right to do. There was really nothing to which any good-will could attach. Plaintiff maintains, however, that the trade-marks used in
the fertilizer business during the time that he was connected with it acquired great value, and that they have been appropriated by
the appellant to its own use. That seems to be the only basis of the alleged good-will, to which a fabulous valuation was given. As
we have seen, the trade- marks were not new. They had been used by Behn, Meyer & Co. in its business for other goods and one of
them for fertilizer. They belonged to Menzi & Co., Inc., and were registered in its name; only the expense of registering the formulas
in the Bureau of Science was charged to the business in which the plaintiff was interested. These trade-marks remained the
exclusive property of Menzi & Co., and the plaintiff had no interest therein on the expiration of his contract.
The balance due the plaintiff, as appears from Exhibit 52, is P21,633.20. We are satisfied by the evidence that said balance is
correct.
For the foregoing reasons, the decision appealed from is modified and the defendant corporation is sentenced to pay the plaintiff
twenty-one thousand, six hundred and thirty-three pesos and twenty centavos (P21,633.20), with legal interest thereon from the
date of the filing of the complaint on June 17, 1927, without a special finding as to costs.

EN BANC
G.R. No. L-39607

February 6, 1934

ENCARNACION MAGALONA, ET AL., plaintiffs-appellees,

vs.
JUAN PESAYCO, defendant-appellant.
Manuel Polido and Pedro V. Jimenez for appellant.
Lutero and Lutero and Ramon Maza for appellee.
GODDARD, J.:
In the month of September, 1930, the plaintiffs, Encarnacion Magalona, Juan Sermeno, and the defendant, Juan Pesayco, formed a
partnership for the purpose of catching "semillas de bagus o aua" in the sea and rivers within the jurisdiction of the municipality of
San Jose, Antique Province, for the year 1931. It was agreed that the defendant should put in a bid for this privilege and that the
partners should each supply one third of the capital in case the defendant was awarded the desired privilege. The defendant, having
had experience in this line, was to be the manager in case his bid was accepted. The defendant offered the sum of P5,550.09 for
the year ending December 31, 1931. As a deposit of
one-fourth of the amount of the bid was required each of the partners put up one third of this amount. This bid, being the highest,
was accepted by the municipality and the privilege was awarded to the defendant. The latter entered upon his duties under the
contract and gave an account of two sales of "semillas de bagus", to Tiburcio Lutero as representative of the plaintiff Magalona. As
the defendant, on April 21, 1931, had on hand only P410 he wired, Exhibit A, Lutero for sufficient money to complete the payment of
the first quarter which was to be paid within the first twenty days of the second quarter of the year 1931. This telegram reads as
follows: "Hemos conseguido plazo hasta esta tarde tenemos aqui cuatrocientos diez gira telegraficamente restante." Lutero
immediately sent P1,000 to the municipal treasurer of San Jose, Antique (Exhibit D).
The defendant managed the business from January 1,1931, and with the exception of the two sales above-mentioned, never gave
any account of his catches or sales to his partners, the plaintiffs. In view of this the herein complaint was filed April 21, 1931, in
which it was prayed that a receiver be appointed by the court to take charge of the funds of the partnership and the management of
its affairs; that the defendant be ordered to render an account of his management and to pay to the plaintiff their participation in the
profits thereof; that the defendant be required to turn over to the receiver all of the funds of the partnership and that the defendant
be condemned to pay the costs.
The plaintiffs put up a bond of P5,000 and a receiver was appointed who also put up a bond for the same amount.
The receiver took over the management and took possession of all the devices and implements used in the catching of "semillas de
bagus".
At the trial it was proven that before April 20, 1931, the defendant obtained and sold a total of 975,000 "semillas de bagus" the
market value of which was P3 per thousand. The defendant made no report of this nor did he pay the plaintiffs any part of the
P2,925 realized by him on the sales thereof. This was not denied.
In his two counter-complaints the defendant prays that he be awarded damages in the sum of P34,700. He denies that there was a
partnership and depends principally upon the fact that the partnership agreement was not in writing.
The partnership was conclusively proven by the oral testimony of the plaintiffs and other witnesses, two of whom were Attorneys
Lutero and Maza. The defense made no objection to the questions asked with regard to the forming of this partnership. This court
has held that if a party permits a contract, which the law provides shall be in writing, to be proved, without objection as to the form of
the proof, it is just as binding as if the statute had been complied with.
However, we cannot agree with the appellant that one of the requisites of a partnership agreement such as the one under
consideration, is that it should be in writing.
Article 1667 of the Civil Code provides that "Civil partnerships may be established in any form whatever, unless real property or real
rights are contributed to the same, in which case a public instrument shall be necessary."
Articles of partnership are not required to be in writing except in the cases mentioned in article 1667, Civil Code, which
controls article 1280 of the same Code. (Fernandez vs. Dela Rosa, 1 Phil., 671.)

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

EN BANC
G.R. No. L-24193

June 28, 1968

MAURICIO AGAD, plaintiff-appellant,

vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.
Angeles, Maskarino and Associates for plaintiff-appellant.
Victorio S. Advincula for defendants-appellees.
CONCEPCION, C.J.:
In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance of Davao, we are called
upon to determine the applicability of Article 1773 of our Civil Code to the contract of partnership on which the complaint herein is
based.
Alleging that he and defendant Severino Mabato are pursuant to a public instrument dated August 29, 1952, copy of which is
attached to the complaint as Annex "A" partners in a fishpond business, to the capital of which Agad contributed P1,000, with the
right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly
rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato had failed and refused to
render accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on
June 9, 1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering the dissolution of the
partnership, as well as the winding up of its affairs by a receiver to be appointed therefor.
In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said partnership, upon the
ground that the contract therefor had not been perfected, despite the execution of Annex "A", because Agad had allegedly failed to
give his P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be
declared void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as well as attorney's fees.
Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action and that the lower
court had no jurisdiction over the subject matter of the case, because it involves principally the determination of rights over public
lands. After due hearing, the court issued the order appealed from, granting the motion to dismiss the complaint for failure to state a
cause of action. This conclusion was predicated upon the theory that the contract of partnership, Annex "A", is null and void,
pursuant to Art. 1773 of our Civil Code, because an inventory of the fishpond referred in said instrument had not been attached
thereto. A reconsideration of this order having been denied, Agad brought the matter to us for review by record on appeal.
Articles 1771 and 1773 of said Code provide:
Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.
Art. 1773. A contract of partnership is void, whenever immovable property is contributed thereto, if inventory of said
property is not made, signed by the parties; and attached to the public instrument.
The issue before us hinges on whether or not "immovable property or real rights" have been contributed to the partnership under
consideration. Mabato alleged and the lower court held that the answer should be in the affirmative, because "it is really
inconceivable how a partnership engaged in the fishpond business could exist without said fishpond property (being) contributed to
the partnership." It should be noted, however, that, as stated in Annex "A" the partnership was established "to operate a fishpond",
not to "engage in a fishpond business". Moreover, none of the partners contributed either a fishpond or a real right to any fishpond.
Their contributions were limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:

That the capital of the said partnership is Two Thousand (P2,000.00) Pesos Philippine Currency, of which One Thousand
(P1,000.00) pesos has been contributed by Severino Mabato and One Thousand (P1,000.00) Pesos has been contributed
by Mauricio Agad.
xxx

xxx

xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said fishpond nor a real right
thereto was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto could
become part of its assets.
WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be, as it is
hereby set aside and the case remanded to the lower court for further proceedings, with the costs of this instance against
defendant-appellee, Severino Mabato. It is so ordered.

EN BANC
G.R. No. L-12541

August 28, 1959

ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants,

vs.
YANG CHIAO SENG, defendant-appellee.
Augusto Francisco and Julian T. Ocampo for appellee.LABRADOR, J.:
Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding, dismissing plaintiff's complaint
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 former 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 two years and six 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; (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; (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 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.
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").
In June , 1946, they executed a supplementary agreement, extending the partnership for a period of three 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 one 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. The last contract was executed between the owners and Mrs. Yulo on April 5, 1948. 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 view of the above notice,
Mrs. Yulo and her husband brought a civil action to the Court of First Instance of Manila on July 3, 1949 to declare the lease of the
premises. On February 9, 1950, the Municipal Court of Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang.
The judgment was appealed. In the Court of First Instance, the two 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 Court of
Appeals, 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 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 Court of Appeals in two 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 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 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 the Court of Appeals,
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.

EN BANC
G.R. No. L-4935

May 28, 1954

J. M. TUASON & CO., INC., represented by it Managing PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
Araneta and Araneta for appellee.
Jose A. Buendia for appellant.
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 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-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
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.)
Our conclusion therefore is that specification of error II, III, and IV are without merit..
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 fact also appears admitted in defendant's
answer to the third amended complaint.
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 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.
Error No. VIII is but a consequence of the other errors alleged and needs for further consideration.
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 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.
Wherefore, the judgment appealed from is affirmed, with costs against the plaintiff.

EN BANC
G.R. No. L-21906

December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.
Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.
Ruiz Law Offices for defendant-appellant.
CASTRO, J.:
This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of May 21, 1956, all of the Court of First
Instance of Davao, in civil case 629. The basic action is for specific performance, and damages resulting from an alleged breach of
contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio of Malalag (now the Municipality
of Malalag), Municipality of Padada, Davao. No action was taken thereon by the authorities concerned. During the Japanese
occupation, he filed another fishpond application for the same area, but because of the conditions then prevailing, it was not acted

upon either. On December 12, 1945 he filed a third fishpond application for the same area, which, after a survey, was found to
contain 178.76 hectares. Upon investigation conducted by a representative of the Bureau of Forestry, it was discovered that the
area applied for was still needed for firewood production. Hence on May 13, 1946 this third application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. While this motion was pending
resolution, he was advised by the district forester of Davao City that no further action would be taken on his motion, unless he filed a
new application for the area concerned. So he filed on May 27, 1947 his fishpond application 1717.
Meanwhile, several applications were submitted by other persons for portions of the area covered by Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of land found inside the area applied for
by Casteel; he was later granted fishpond permit F-289-C covering 9.3 hectares certified as available for fishpond purposes by the
Bureau of Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the land applied for by Casteel. Alejandro
Cacam's fishpond application 1276, filed on December 26, 1946, was given due course on December 9, 1947 with the issuance to
him of fishpond permit F-539-C to develop 30 hectares of land comprising a portion of the area applied for by Casteel, upon
certification of the Bureau of Forestry that the area was likewise available for fishpond purposes. On November 17, 1948 Felipe
Deluao filed his own fishpond application for the area covered by Casteel's application.
Because of the threat poised upon his position by the above applicants who entered upon and spread themselves within the area,
Casteel realized the urgent necessity of expanding his occupation thereof by constructing dikes and cultivating marketable fishes, in
order to prevent old and new squatters from usurping the land. But lacking financial resources at that time, he sought financial aid
from his uncle Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the needed
improvements on the fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already occupied by rival applicants, Casteel immediately
filed the corresponding protests. Consequently, two administrative cases ensued involving the area in question, to wit: DANR Case
353, entitled "Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio,
applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-protestant
versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro Cacam, Permittees-Respondents."
However, despite the finding made in the investigation of the above administrative cases that Casteel had already introduced
improvements on portions of the area applied for by him in the form of dikes, fishpond gates, clearings, etc., the Director of Fisheries
nevertheless rejected Casteel's application on October 25, 1949, required him to remove all the improvements which he had
introduced on the land, and ordered that the land be leased through public auction. Failing to secure a favorable resolution of his
motion for reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture and Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our discussion of the appellant's third
assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor Casteel as party of the
second part, executed a contract denominated a "contract of service" the salient provisions of which are as follows:
That the Party of the First Part in consideration of the mutual covenants and agreements made herein to the Party of the
Second Part, hereby enter into a contract of service, whereby the Party of the First Part hires and employs the Party of the
Second Part on the following terms and conditions, to wit:
That the Party of the First Part will finance as she has hereby financed the sum of TWENTY SEVEN THOUSAND PESOS
(P27,000.00), Philippine Currency, to the Party of the Second Part who renders only his services for the construction and
improvements of a fishpond at Barrio Malalag, Municipality of Padada, Province of Davao, Philippines;
That the Party of the Second Part will be the Manager and sole buyer of all the produce of the fish that will be produced
from said fishpond;
That the Party of the First Part will be the administrator of the same she having financed the construction and
improvement of said fishpond;
That this contract was the result of a verbal agreement entered into between the Parties sometime in the month of
November, 1947, with all the above-mentioned conditions enumerated; ...

On the same date the above contract was entered into, Inocencia Deluao executed a special power of attorney in favor of Jesus
Donesa, extending to the latter the authority "To represent me in the administration of the fishpond at Malalag, Municipality of
Padada, Province of Davao, Philippines, which has been applied for fishpond permit by Nicanor Casteel, but rejected by the Bureau
of Fisheries, and to supervise, demand, receive, and collect the value of the fish that is being periodically realized from it...."
On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on November 17, 1948. Unfazed by
this rejection, Deluao reiterated his claim over the same area in the two administrative cases (DANR Cases 353 and 353-B) and
asked for reinvestigation of the application of Nicanor Casteel over the subject fishpond. However, by letter dated March 15, 1950
sent to the Secretary of Commerce and Agriculture and Natural Resources (now Secretary of Agriculture and Natural Resources),
Deluao withdrew his petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in DANR Case 353, the dispositive
portion of which reads as follows:
In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor Casteel should be, as hereby
it is, reinstated and given due course for the area indicated in the sketch drawn at the back of the last page hereof; and
Fp. A. No. 762 of Victorio D. Carpio shall remain rejected.
On the same date, the same official issued a decision in DANR Case 353-B, the dispositive portion stating as follows:
WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-539-C of Alejandro Cacam,
should be, as they are hereby cancelled and revoked; Nicanor Casteel is required to pay the improvements introduced
thereon by said permittees in accordance with the terms and dispositions contained elsewhere in this decision....
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the fishpond, and ejected the
latter's representative (encargado), Jesus Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and Nicanor Casteel, Felipe Deluao
and Inocencia Deluao on April 3, 1951 filed an action in the Court of First Instance of Davao for specific performance and damages
against Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate his contract), praying inter alia, (a) that
Casteel be ordered to respect and abide by the terms and conditions of said contract and that Inocencia Deluao be allowed to
continue administering the said fishpond and collecting the proceeds from the sale of the fishes caught from time to time; and (b)
that the defendants be ordered to pay jointly and severally to plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary injunction, praying among other things, that
during the pendency of the case and upon their filling the requisite bond as may be fixed by the court, a preliminary injunction be
issued to restrain Casteel from doing the acts complained of, and that after trial the said injunction be made permanent. The lower
court on April 26, 1951 granted the motion, and, two days later, it issued a preliminary mandatory injunction addressed to Casteel,
the dispositive portion of which reads as follows:
POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado y todos usu abogados,
agentes, mandatarios y demas personas que obren en su ayuda, desista de impedir a la demandante Inocencia R.
Deluao que continue administrando personalmente la pesqueria objeto de esta causa y que la misma continue recibiendo
los productos de la venta de los pescados provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho
demandado Nicanor Casteel a desahuciar mediante fuerza al encargado de los demandantes llamado Jesus Donesa de
la pesqueria objeto de la demanda de autos.
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he was the owner, lawful applicant
and occupant of the fishpond in question. This motion, opposed by the plaintiffs on June 15, 1951, was denied by the lower court in
its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952, denying the material
averments of the plaintiffs' complaint. A reply to the defendants' amended answer was filed by the plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4, 1951 the plaintiffs opposed his
motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs' complaint failed to state a claim
upon which relief may be granted. The motion, opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the
lower court in its order of October 22, 1951. The defendants' motion for reconsideration filed on October 31, 1951 suffered the same
fate when it was likewise denied by the lower court in its order of November 12, 1951.

After the issues were joined, the case was set for trial. Then came a series of postponements. The lower court (Branch I, presided
by Judge Enrique A. Fernandez) finally issued on March 21, 1956 an order in open court, reading as follows: .
Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of this case is hereby transferred to
May 2 and 3, 1956 at 8:30 o'clock in the morning.
This case was filed on April 3, 1951 and under any circumstance this Court will not entertain any other transfer of hearing
of this case and if the parties will not be ready on that day set for hearing, the court will take the necessary steps for the
final determination of this case. (emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956, issued by the office of the Clerk of
Court (thru the special deputy Clerk of Court) of the Court of First Instance of Davao, setting the hearing of the case for May 2 and
3, 1956 before Judge Amador Gomez of Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion for postponement.
Acting on this motion, the lower court (Branch II, presided by Judge Gomez) issued an order dated April 27, 1956, quoted as follows:
This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The motion is filed by the counsel
for the defendants and has the conformity of the counsel for the plaintiffs.
An examination of the records of this case shows that this case was initiated as early as April 1951 and that the same has
been under advisement of the Honorable Enrique A. Fernandez, Presiding Judge of Branch No. I, since September 24,
1953, and that various incidents have already been considered and resolved by Judge Fernandez on various occasions.
The last order issued by Judge Fernandez on this case was issued on March 21, 1956, wherein he definitely states that
the Court will not entertain any further postponement of the hearing of this case.
CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and termination of any incident
referring to this case should be referred back to Branch I, so that the same may be disposed of therein. (emphasis
supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge Fernandez presiding), when
informed about the defendants' motion for postponement filed on April 26, 1956, issued an order reiterating its previous order
handed down in open court on March 21, 1956 and directing the plaintiffs to introduce their evidence ex parte, there being no
appearance on the part of the defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was rendered on May
4, 1956 the dispositive portion of which reads as follows:
EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del demandado Nicanor Casteel:
(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;
(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad () del "fishpond" en
cuestion con todas las mejoras existentes dentro de la misma;
(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente en concepto de danos a contar
de la fecha de la expiracion de los 30 dias de la promulgacion de esta decision hasta que entregue la posesion y
administracion de la porcion del "fishpond" en conflicto;
(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los pescado beneficiados, mas los
intereses legales de la fecha de la incoacion de la demanda de autos hasta el completo pago de la obligacion principal;
(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos incurridos por aquella durante la
pendencia de esta causa;
(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma de P2,000.00;
(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en cuanto se refiere al demandado
Juan Depra;
(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas;
(i) Con las costas contra del demandado, Casteel.

The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack of knowledge of the order of the
court a quo setting the case for trial. The petition, however, was denied by the lower court in its order of May 21, 1956, the pertinent
portion of which reads as follows:
The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case has been transferred or not,
but to inquire from the presiding Judge, particularly because his motion asking the transfer of this case was not set for
hearing and was not also acted upon.
Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as follows:
Upon petition of the plaintiff without any objection on the part of the defendants, the hearing of this case is
hereby transferred to May 2 and 3, 1956, at 8:30 o'clock in the morning.
This case was filed on April 3, 1951, and under any circumstance this Court will not entertain any other transfer
of the hearing of this case, and if the parties will not be ready on the day set for hearing, the Court will take
necessary steps for the final disposition of this case.
In view of the order above-quoted, the Court will not accede to any transfer of this case and the duty of Atty. Ruiz is no
other than to be present in the Sala of this Court and to call the attention of the same to the existence of his motion for
transfer.
Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken, the same is hereby denied.
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to us for final determination on
the ground that it involves only questions of law.
Casteel raises the following issues:
(1) Whether the lower court committed gross abuse of discretion when it ordered reception of the appellees' evidence in
the absence of the appellant at the trial on May 2, 1956, thus depriving the appellant of his day in court and of his property
without due process of law;
(2) Whether the lower court committed grave abuse of discretion when it denied the verified petition for relief from
judgment filed by the appellant on May 11, 1956 in accordance with Rule 38, Rules of Court; and
(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary injunction against defendantappellant, and in not dismissing appellees' complaint.
1. The first and second issues must be resolved against the appellant.
The record indisputably shows that in the order given in open court on March 21, 1956, the lower court set the case for hearing on
May 2 and 3, 1956 at 8:30 o'clock in the morning and empathically stated that, since the case had been pending since April 3, 1951,
it would not entertain any further motion for transfer of the scheduled hearing.
An order given in open court is presumed received by the parties on the very date and time of promulgation, 1 and amounts to a legal
notification for all legal purposes.2 The order of March 21, 1956, given in open court, was a valid notice to the parties, and the notice
of hearing dated April 21, 1956 or one month thereafter, was a superfluity. Moreover, as between the order of March 21, 1956, duly
promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by a "special deputy clerk of court" setting
the hearing in another branch of the same court, the former's order was the one legally binding. This is because the incidents of
postponements and adjournments are controlled by the court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec.
3, Rule 22) of the Rules of Court.
Much less had the clerk of court the authority to interfere with the order of the court or to transfer the cage from one sala to another
without authority or order from the court where the case originated and was being tried. He had neither the duty nor prerogative to
re-assign the trial of the case to a different branch of the same court. His duty as such clerk of court, in so far as the incident in
question was concerned, was simply to prepare the trial calendar. And this duty devolved upon the clerk of court and not upon the
"special deputy clerk of court" who purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of the appellees' counsel. The postponement of hearings
does not depend upon agreement of the parties, but upon the court's discretion.3

The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom had ever withdrawn as counsel.
Notice to Atty. Ruiz of the order dated March 21, 1956 intransferably setting the case for hearing for May 2 and 3, 1956, was
sufficient notice to all the appellant's eleven other counsel of record. This is a well-settled rule in our jurisdiction. 4
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to appear before Judge
Fernandez on the scheduled dates of hearing Parties and their lawyers have no right to presume that their motions for
postponement will be granted.5 For indeed, the appellant and his 12 lawyers cannot pretend ignorance of the recorded fact that
since September 24, 1953 until the trial held on May 2, 1956, the case was under the advisement of Judge Fernandez who presided
over Branch I. There was, therefore, no necessity to "re-assign" the same to Branch II because Judge Fernandez had exclusive
control of said case, unless he was legally inhibited to try the case and he was not.
There is truth in the appellant's contention that it is the duty of the clerk of court not of the Court to prepare the trial calendar.
But the assignment or reassignment of cases already pending in one sala to another sala, and the setting of the date of trial after
the trial calendar has been prepared, fall within the exclusive control of the presiding judge.
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of the clerk of court of the Court of First
Instance of Davao was located directly below Branch I. If the appellant and his counsel had exercised due diligence, there was no
impediment to their going upstairs to the second storey of the Court of First Instance building in Davao on May 2, 1956 and checking
if the case was scheduled for hearing in the said sala. The appellant after all admits that on May 2, 1956 his counsel went to the
office of the clerk of court.
The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct. But he was properly accorded this
right. He was notified in open court on March 21, 1956 that the case was definitely and intransferably set for hearing on May 2 and
3, 1956 before Branch I. He cannot argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely
notice of the denial of his motion for postponement. In the cited case the motion for postponement was the first one filed by the
defendant; in the case at bar, there had already been a series of postponements. Unlike the case at bar, the Siochi case was not
intransferably set for hearing. Finally, whereas the cited case did not spend for a long time, the case at bar was only finally and
intransferably set for hearing on March 21, 1956 after almost five years had elapsed from the filing of the complaint on April 3,
1951.
The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare for trial is unacceptable
because between March 21, 1956 and May 2, 1956, they had one month and ten days to do so. In effect, the appellant had waived
his right to appear at the trial and therefore he cannot be heard to complain that he has been deprived of his property without due
process of law.7 Verily, the constitutional requirements of due process have been fulfilled in this case: the lower court is a competent
court; it lawfully acquired jurisdiction over the person of the defendant (appellant) and the subject matter of the action; the defendant
(appellant) was given an opportunity to be heard; and judgment was rendered upon lawful hearing. 8
2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex parte of a writ of preliminary
injunction against him, and in not dismissing the appellee's complaint. We find this contention meritorious.
Apparently, the court a quo relied on exhibit A the so-called "contract of service" and the appellees' contention that it created a
contract of co-ownership and partnership between Inocencia Deluao and the appellant over the fishpond in question.
Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed to know the law. It must be
assumed, conformably to such rule, that the parties entered into the so-called "contract of service" cognizant of the mandatory and
prohibitory laws governing the filing of applications for fishpond permits. And since they were aware of the said laws, it must likewise
be assumed in fairness to the parties that they did not intend to violate them. This view must perforce negate the appellees'
allegation that exhibit A created a contract of co-ownership between the parties over the disputed fishpond. Were we to admit the
establishment of a co-ownership violative of the prohibitory laws which will hereafter be discussed, we shall be compelled to declare
altogether the nullity of the contract. This would certainly not serve the cause of equity and justice, considering that rights and
obligations have already arisen between the parties. We shall therefore construe the contract as one of partnership, divided into two
parts namely, a contract of partnership to exploit the fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a
contract of partnership to divide the fishpond between them after such award. The first is valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called "contract of service" on
November 25, 1949, there were two pending applications over the fishpond. One was Casteel's which was appealed by him to the
Secretary of Agriculture and Natural Resources after it was disallowed by the Director of Fisheries on October 25, 1949. The other
was Felipe Deluao's application over the same area which was likewise rejected by the Director of Fisheries on November 29, 1949,
refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture and Natural
Resources. Clearly, although the fishpond was then in the possession of Casteel, neither he nor, Felipe Deluao was the holder of a
fishpond permit over the area. But be that as it may, they were not however precluded from exploiting the fishpond pending
resolution of Casteel's appeal or the approval of Deluao's application over the same area whichever event happened first. No law,
rule or regulation prohibited them from doing so. Thus, rather than let the fishpond remain idle they cultivated it.

The evidence preponderates in favor of the view that the initial intention of the parties was not to form a co-ownership but to
establish a partnership Inocencia Deluao as capitalist partner and Casteel as industrial partner the ultimate undertaking of
which was to divide into two equal parts such portion of the fishpond as might have been developed by the amount extended by the
plaintiffs-appellees, with the further provision that Casteel should reimburse the expenses incurred by the appellees over one-half of
the fishpond that would pertain to him. This can be gleaned, among others, from the letter of Casteel to Felipe Deluao on November
15, 1949, which states, inter alia:
... [W]ith respect to your allowing me to use your money, same will redound to your benefit because you are the ones
interested in half of the work we have done so far, besides I did not insist on our being partners in my fishpond permit, but
it was you "Tatay" Eping the one who wanted that we be partners and it so happened that we became partners because I
am poor, but in the midst of my poverty it never occurred to me to be unfair to you. Therefore so that each of us may be
secured, let us have a document prepared to the effect that we are partners in the fishpond that we caused to be made
here in Balasinon, but it does not mean that you will treat me as one of your "Bantay" (caretaker) on wage basis but not
earning wages at all, while the truth is that we are partners. In the event that you are not amenable to my proposition and
consider me as "Bantay" (caretaker) instead, do not blame me if I withdraw all my cases and be left without even a little
and you likewise.
(emphasis supplied)9
Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their partnership, the appellee Inocencia
Deluao and the appellant executed exhibit A which, although denominated a "contract of service," was actually the memorandum of
their partnership agreement. That it was not a contract of the services of the appellant, was admitted by the appellees themselves in
their letter10 to Casteel dated December 19, 1949 wherein they stated that they did not employ him in his (Casteel's) claim but
because he used their money in developing and improving the fishpond, his right must be divided between them. Of course,
although exhibit A did not specify any wage or share appertaining to the appellant as industrial partner, he was so entitled this
being one of the conditions he specified for the execution of the document of partnership.11
Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond. In a letter,12dated March 24,
1950, the appellant suggested that they divide the fishpond and the remaining capital, and offered to pay the Deluaos a yearly
installment of P3,000 presumably as reimbursement for the expenses of the appellees for the development and improvement of
the one-half that would pertain to the appellant. Two days later, the appellee Felipe Deluao replied, 13expressing his concurrence in
the appellant's suggestion and advising the latter to ask for a reconsideration of the order of the Director of Fisheries disapproving
his (appellant's) application, so that if a favorable decision was secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to maintain his petition for the
reinvestigation of Casteel's application. Thus by letter14 dated March 15, 1950 addressed to the Secretary of Agriculture and Natural
Resources, he withdrew his petition on the alleged ground that he was no longer interested in the area, but stated however that he
wanted his interest to be protected and his capital to be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the decisions both dated September 15, 1950 were issued
by the Secretary of Agriculture and Natural Resources in DANR Cases 353 and 353-B. This development, by itself, brought about
the dissolution of the partnership. Moreover, subsequent events likewise reveal the intent of both parties to terminate the partnership
because each refused to share the fishpond with the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership, "... any event which makes it
unlawful for the business of the partnership to be carried on or for the members to carry it on in partnership." The approval of the
appellant's fishpond application by the decisions in DANR Cases 353 and 353-B brought to the fore several provisions of law which
made the continuation of the partnership unlawful and therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from transferring or subletting the
fishpond granted to him, without the previous consent or approval of the Secretary of Agriculture and Natural Resources. 15 To the
same effect is Condition No. 3 of the fishpond permit which states that "The permittee shall not transfer or sublet all or any area
herein granted or any rights acquired therein without the previous consent and approval of this Office." Parenthetically, we must
observe that in DANR Case 353-B, the permit granted to one of the parties therein, Leoncio Aradillos, was cancelled not solely for
the reason that his permit covered a portion of the area included in the appellant's prior fishpond application, but also because, upon
investigation, it was ascertained thru the admission of Aradillos himself that due to lack of capital, he allowed one Lino Estepa to
develop with the latter's capital the area covered by his fishpond permit F-289-C with the understanding that he (Aradillos) would be
given a share in the produce thereof.16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that
The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary of Agriculture and
Commerce, and the violation of this condition shall avoid the contract; Provided, That assignment, encumbrance, or
subletting for purposes of speculation shall not be permitted in any case:Provided, further, That nothing contained in this
section shall be understood or construed to permit the assignment, encumbrance, or subletting of lands leased under this

Act, or under any previous Act, to persons, corporations, or associations which under this Act, are not authorized to lease
public lands.
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural Resources issued in August 1937,
prohibits a transfer or sublease unless first approved by the Director of Lands and under such terms and conditions as he may
prescribe. Thus, it states:
When a transfer or sub-lease of area and improvement may be allowed. If the permittee or lessee had, unless
otherwise specifically provided, held the permit or lease and actually operated and made improvements on the area for at
least one year, he/she may request permission to sub-lease or transfer the area and improvements under certain
conditions.
(a) Transfer subject to approval. A sub-lease or transfer shall only be valid when first approved by the Director under
such terms and conditions as may be prescribed, otherwise it shall be null and void. A transfer not previously approved or
reported shall be considered sufficient cause for the cancellation of the permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as provided in subsection (r) of Sec. 33 of this Order.
Since the partnership had for its object the division into two equal parts of the fishpond between the appellees and the appellant
after it shall have been awarded to the latter, and therefore it envisaged the unauthorized transfer of one-half thereof to parties other
than the applicant Casteel, it was dissolved by the approval of his application and the award to him of the fishpond. The approval
was an event which made it unlawful for the business of the partnership to be carried on or for the members to carry it on in
partnership.
The appellees, however, argue that in approving the appellant's application, the Secretary of Agriculture and Natural Resources
likewise recognized and/or confirmed their property right to one-half of the fishpond by virtue of the contract of service, exhibit A. But
the untenability of this argument would readily surface if one were to consider that the Secretary of Agriculture and Natural
Resources did not do so for the simple reason that he does not possess the authority to violate the aforementioned prohibitory laws
nor to exempt anyone from their operation.
However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the foregoing prohibitory laws, was
not enough to cause the dissolution ipso facto of their partnership, succeeding events reveal the intent of both parties to terminate
the partnership by refusing to share the fishpond with the other.
On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to divide the fishpond so that he could
administer his own share, such division to be subject to the approval of the Secretary of Agriculture and Natural Resources. By letter
dated December 29, 1950,18 the appellee Felipe Deluao demurred to Casteel's proposition because there were allegedly no
appropriate grounds to support the same and, moreover, the conflict over the fishpond had not been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the former expressed his determination
to administer the fishpond himself because the decision of the Government was in his favor and the only reason why administration
had been granted to the Deluaos was because he was indebted to them. In the same letter, the appellant forbade Felipe Deluao
from sending the couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote a letter20 dated January
5, 1951 in which he reiterated his refusal to grant the administration of the fishpond to the appellant, stating as a ground his belief
"that only the competent agencies of the government are in a better position to render any equitable arrangement relative to the
present case; hence, any action we may privately take may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not to share the fishpond with
each other in direct violation of the undertaking for which they have established their partnership each must be deemed to
have expressly withdrawn from the partnership, thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code which
provides, inter alia, that dissolution is caused "by the express will of any partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and administrative powers with regard
to the survey, classification, lease, sale or any other form of concession or disposition and management of the lands of the public
domain, and, more specifically, with regard to the grant or withholding of licenses, permits, leases and contracts over portions of the
public domain to be utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and reiterated
in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that
... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources) by law regarding the
disposition of public lands such as granting of licenses, permits, leases, and contracts, or approving, rejecting, reinstating,
or cancelling applications, or deciding conflicting applications, are all executive and administrative in nature. It is a wellrecognized principle that purely administrative and discretionary functions may not be interfered with by the courts (Coloso
v. Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general, courts have no supervising power over the
proceedings and action of the administrative departments of the government. This is generally true with respect to acts

involving the exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-559) Findings of fact by an
administrative board or official, following a hearing, are binding upon the courts and will not be disturbed except where the
board or official has gone beyond his statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and
without regard to his duty or with grave abuse of discretion... (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the appellant's fishpond application 1717
and awarded to him the possession of the area in question. In view of the finality of the Secretary's decision in DANR Cases 353
and 353-B, and considering the absence of any proof that the said official exceeded his statutory authority, exercised
unconstitutional powers, or acted with arbitrariness and in disregard of his duty, or with grave abuse of discretion, we can do no less
than respect and maintain unfettered his official acts in the premises. It is a salutary rule that the judicial department should not
dictate to the executive department what to do with regard to the administration and disposition of the public domain which the law
has entrusted to its care and administration. Indeed, courts cannot superimpose their discretion on that of the land department and
compel the latter to do an act which involves the exercise of judgment and discretion.22
Therefore, with the view that we take of this case, and even assuming that the injunction was properly issued because present all
the requisite grounds for its issuance, its continuation, and, worse, its declaration as permanent, was improper in the face of the
knowledge later acquired by the lower court that it was the appellant's application over the fishpond which was given due course.
After the Secretary of Agriculture and Natural Resources approved the appellant's application, he became to all intents and
purposes the legal permittee of the area with the corresponding right to possess, occupy and enjoy the same. Consequently, the
lower court erred in issuing the preliminary mandatory injunction. We cannot overemphasize that an injunction should not be granted
to take property out of the possession and control of one party and place it in the hands of another whose title has not been clearly
established by law.23
However, pursuant to our holding that there was a partnership between the parties for the exploitation of the fishpond before it was
awarded to Casteel, this case should be remanded to the lower court for the reception of evidence relative to an accounting from
November 25, 1949 to September 15, 1950, in order for the court to determine (a) the profits realized by the partnership, (b) the
share (in the profits) of Casteel as industrial partner, (e) the share (in the profits) of Deluao as capitalist partner, and (d) whether the
amounts totalling about P27,000 advanced by Deluao to Casteel for the development and improvement of the fishpond have already
been liquidated. Besides, since the appellee Inocencia Deluao continued in possession and enjoyment of the fishpond even after it
was awarded to Casteel, she did so no longer in the concept of a capitalist partner but merely as creditor of the appellant, and
therefore, she must likewise submit in the lower court an accounting of the proceeds of the sales of all the fishes harvested from the
fishpond from September 16, 1950 until Casteel shall have been finally given the possession and enjoyment of the same. In the
event that the appellee Deluao has received more than her lawful credit of P27,000 (or whatever amounts have been advanced to
Casteel), plus 6% interest thereon per annum, then she should reimburse the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered: (1) dissolving the injunction
issued against the appellant, (2) placing the latter back in possession of the fishpond in litigation, and (3) remanding this case to the
court of origin for the reception of evidence relative to the accounting that the parties must perforce render in the premises, at the
termination of which the court shall render judgment accordingly. The appellant's counterclaim is dismissed. No pronouncement as
to costs.

THIRD DIVISION

G.R. No. 109248 July 3, 1995

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

VITUG, J.:
The instant petition seeks a review of the decision rendered by the Court of Appeals, dated 26 February 1993, in CA-G.R. SP No.
24638 and No. 24648 affirming in toto that of the Securities and Exchange Commission ("SEC") in SEC AC 254.

The antecedents of the controversy, summarized by respondent Commission and quoted at length by the appellate court in its
decision, are hereunder restated.
The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the Mercantile Registry on 4
January 1937 and reconstituted with the Securities and Exchange Commission on 4 August 1948. The SEC records show
that there were several subsequent amendments to the articles of partnership on 18 September 1958, to change the firm
[name] to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO, DEL ROSARIO, BITO &
MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA; on 4 December 1972 to SALCEDO, DEL
ROSARIO, BITO, MISA & LOZADA; on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to
BITO, MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and Mariano M. Lozada
associated themselves together, as senior partners with respondents-appellees Gregorio F. Ortega, Tomas O. del Castillo,
Jr., and Benjamin Bacorro, as junior partners.
On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:
I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective at the end of this
month.
"I trust that the accountants will be instructed to make the proper liquidation of my participation in the
firm."
On the same day, petitioner-appellant wrote respondents-appellees another letter stating:
"Further to my letter to you today, I would like to have a meeting with all of you with regard to the
mechanics of liquidation, and more particularly, my interest in the two floors of this building. I would
like to have this resolved soon because it has to do with my own plans."
On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter stating:
"The partnership has ceased to be mutually satisfactory because of the working conditions of our
employees including the assistant attorneys. All my efforts to ameliorate the below subsistence level
of the pay scale of our employees have been thwarted by the other partners. Not only have they
refused to give meaningful increases to the employees, even attorneys, are dressed down publicly in
a loud voice in a manner that deprived them of their self-respect. The result of such policies is the
formation of the union, including the assistant attorneys."
On 30 June 1988, petitioner filed with this Commission's Securities Investigation and Clearing Department (SICD) a
petition for dissolution and liquidation of partnership, docketed as SEC Case No. 3384 praying that the Commission:
"1. Decree the formal dissolution and order the immediate liquidation of (the partnership of) Bito, Misa
& Lozada;
"2. Order the respondents to deliver or pay for petitioner's share in the partnership assets plus the
profits, rent or interest attributable to the use of his right in the assets of the dissolved partnership;
"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in any of their
correspondence, checks and pleadings and to pay petitioners damages for the use thereof despite
the dissolution of the partnership in the amount of at least P50,000.00;
"4. Order respondents jointly and severally to pay petitioner attorney's fees and expense of litigation
in such amounts as maybe proven during the trial and which the Commission may deem just and
equitable under the premises but in no case less than ten (10%) per cent of the value of the shares of
petitioner or P100,000.00;
"5. Order the respondents to pay petitioner moral damages with the amount of P500,000.00 and
exemplary damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the Commission may deem just and
equitable under the premises."
On 13 July 1988, respondents-appellees filed their opposition to the petition.
On 13 July 1988, petitioner filed his Reply to the Opposition.
On 31 March 1989, the hearing officer rendered a decision ruling that:
"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not dissolve the said law
partnership. Accordingly, the petitioner and respondents are hereby enjoined to abide by the
provisions of the Agreement relative to the matter governing the liquidation of the shares of any
retiring or withdrawing partner in the partnership interest." 1
On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the withdrawal of Attorney Joaquin L. Misa
had dissolved the partnership of "Bito, Misa & Lozada." The Commission ruled that, being a partnership at will, the law firm could be
dissolved by any partner at anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner can
be forced to continue in the partnership against his will. In its decision, dated 17 January 1990, the SEC held:
WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby REVERSED insofar as it concludes
that the partnership of Bito, Misa & Lozada has not been dissolved. The case is hereby REMANDED to the Hearing
Officer for determination of the respective rights and obligations of the parties. 2
The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an appointment of a receiver to
take over the assets of the dissolved partnership and to take charge of the winding up of its affairs. On 4 April 1991, respondent
SEC issued an order denying reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of the
case to the Hearing Officer.
The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and CA-G.R. SP No. 24648).
During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney Mariano Lozada both died on,
respectively, 05 September 1991 and 21 December 1991. The death of the two partners, as well as the admission of new partners,
in the law firm prompted Attorney Misa to renew his application for receivership (in CA G.R. SP No. 24648). He expressed concern
over the need to preserve and care for the partnership assets. The other partners opposed the prayer.
The Court of Appeals, finding no reversible error on the part of respondent Commission, AFFIRMED in toto the SEC decision and
order appealed from. In fine, the appellate court held, per its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the
partnership had changed the relation of the parties and inevitably caused the dissolution of the partnership; (b) that such withdrawal
was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's interest or participation in the partnership
which could be computed and paid in the manner stipulated in the partnership agreement; (d) that the case should be remanded to
the SEC Hearing Officer for the corresponding determination of the value of Attorney Misa's share in the partnership assets; and (e)
that the appointment of a receiver was unnecessary as no sufficient proof had been shown to indicate that the partnership assets
were in any such danger of being lost, removed or materially impaired.
In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the following issues:
1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa & Lozada (now Bito, Lozada,
Ortega & Castillo) is a partnership at will;
2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private respondent dissolved the
partnership regardless of his good or bad faith; and
3. Whether or not the Court of Appeals has erred in holding that private respondent's demand for the dissolution of the
partnership so that he can get a physical partition of partnership was not made in bad faith;
to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa & Lozada," and now "Bito, Lozada,
Ortega and Castillo," is indeed such a partnership need not be unduly belabored. We quote, with approval, like did the appellate
court, the findings and disquisition of respondent SEC on this matter; viz:
The partnership agreement (amended articles of 19 August 1948) does not provide for a specified period or undertaking.
The "DURATION" clause simply states:
"5. DURATION. The partnership shall continue so long as mutually satisfactory and upon the death or
legal incapacity of one of the partners, shall be continued by the surviving partners."
The hearing officer however opined that the partnership is one for a specific undertaking and hence not a partnership at
will, citing paragraph 2 of the Amended Articles of Partnership (19 August 1948):
"2. Purpose. The purpose for which the partnership is formed, is to act as legal adviser and
representative of any individual, firm and corporation engaged in commercial, industrial or other lawful
businesses and occupations; to counsel and advise such persons and entities with respect to their
legal and other affairs; and to appear for and represent their principals and client in all courts of
justice and government departments and offices in the Philippines, and elsewhere when legally
authorized to do so."
The "purpose" of the partnership is not the specific undertaking referred to in the law. Otherwise, all partnerships, which
necessarily must have a purpose, would all be considered as partnerships for a definite undertaking. There would
therefore be no need to provide for articles on partnership at will as none would so exist. Apparently what the law
contemplates, is a specific undertaking or "project" which has a definite or definable period of completion. 3
The birth and life of a partnership at will is predicated on the mutual desire and consent of the partners. The right to choose with
whom a person wishes to associate himself is the very foundation and essence of that partnership. Its continued existence is, in
turn, dependent on the constancy of that mutual resolve, along with each partner's capability to give it, and the absence of a cause
for dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure, dictate a dissolution of the
partnership at will. He must, however, act in good faith, not that the attendance of bad faith can prevent the dissolution of the
partnership 4 but that it can result in a liability for damages. 5
In passing, neither would the presence of a period for its specific duration or the statement of a particular purpose for its creation
prevent the dissolution of any partnership by an act or will of a partner. 6 Among partners, 7 mutual agency arises and the doctrine
of delectus personae allows them to have the power, although not necessarily the right, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for damages.
The dissolution of a partnership is the change in the relation of the parties caused by any partner ceasing to be associated in the
carrying on, as might be distinguished from the winding up of, the business. 8 Upon its dissolution, the partnership continues and its
legal personality is retained until the complete winding up of its business culminating in its termination. 9
The liquidation of the assets of the partnership following its dissolution is governed by various provisions of the Civil
Code; 10 however, an agreement of the partners, like any other contract, is binding among them and normally takes precedence to
the extent applicable over the Code's general provisions. We here take note of paragraph 8 of the "Amendment to Articles of
Partnership" reading thusly:
. . . In the event of the death or retirement of any partner, his interest in the partnership shall be liquidated and paid in
accordance with the existing agreements and his partnership participation shall revert to the Senior Partners for allocation
as the Senior Partners may determine; provided, however, that with respect to the two (2) floors of office condominium
which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap Building, 140 Alfaro Street,
Salcedo Village, Makati, Metro Manila, their true value at the time of such death or retirement shall be determined by two
(2) independent appraisers, one to be appointed (by the partnership and the other by the) retiring partner or the heirs of a
deceased partner, as the case may be. In the event of any disagreement between the said appraisers a third appraiser
will be appointed by them whose decision shall be final. The share of the retiring or deceased partner in the
aforementioned two (2) floor office condominium shall be determined upon the basis of the valuation above mentioned
which shall be paid monthly within the first ten (10) days of every month in installments of not less than P20,000.00 for the
Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and P5,000.00 in the case of the new Junior
Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to mean the dissociation by a partner,
inclusive of resignation or withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court and respondent Commission on their common factual
finding, i.e., that Attorney Misa did not act in bad faith. Public respondents viewed his withdrawal to have been spurred by
"interpersonal conflict" among the partners. It would not be right, we agree, to let any of the partners remain in the partnership under
such an atmosphere of animosity; certainly, not against their will. 12Indeed, for as long as the reason for withdrawal of a partner is
not contrary to the dictates of justice and fairness, nor for the purpose of unduly visiting harm and damage upon the
partnership, bad faith cannot be said to characterize the act. Bad faith, in the context here used, is no different from its normal
concept of a conscious and intentional design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.
SO ORDERED.

SECOND DIVISION
[G.R. No. 30616 : December 10, 1990.]

192 SCRA 110

EUFRACIO D. ROJAS, Plaintiff-Appellant, vs. CONSTANCIO B. MAGLANA,Defendant-Appellee.

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,
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 well as his obligation to perform his duties as logging
superintendent.
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
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. 126).
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 the information furnished them by the
parties, which were compiled in three (3) volumes.
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).
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
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;
"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 Co-Partnership 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 partnership, upon the constitution of the second one,
which they unmistakably called an "Additional Agreement" (Exhibit "9-B") (Brief for Defendant-Appellee, pp. 2425). 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 PlaintiffAppellant, 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).
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 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.
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.
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 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 CoPartnership; 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.

EN BANC
[G.R. No. L-7991. May 21, 1956.]
PAUL MACDONALD, ET AL., Petitioners, vs. THE NATIONAL CITY BANK OF NEW YORK,Respondent.

DECISION
PARAS, J.:
This is an appeal by certiorari from the decision of the Court of Appeals from which we are reproducing the following
basic findings of fact:chanroblesvirtuallawlibrary
STASIKINOCEY is a partnership doing business at No. 58, Aurora Boulevard, San Juan, Rizal, and formed by Alan W.
Gorcey, Louis F. da Costa, Jr., William Kusik and Emma Badong Gavino. This partnership was denied registration in
the Securities and Exchange Commission, and while it is confusing to see in this case that the CARDINAL RATTAN,
sometimes called the CARDINAL RATTAN FACTORY, is treated as a copartnership, of which Defendants Gorcey and
da Costa are considered general partners, we are satisfied that, as alleged in various instruments appearing of
record, said Cardinal Rattan is merely the business name or style used by the partnership Stasikinocey.
Prior to June 3, 1949, Defendant Stasikinocey had an overdraft account with The National City Bank of New York, a
foreign banking association duly licensed to do business in the Philippines. On June 3, 1949, the overdraft showed a
balance of P6,134.92 against the Defendant Stasikinocey or the Cardinal Rattan (Exhibit D), which account, due to
the failure of the partnership to make the required payment, was converted into an ordinary loan for which the
corresponding promissory joint note non-negotiable was executed on June 3, 1949, by Louis F. da Costa for and in
the name of the Cardinal Rattan, Louis F. da Costa and Alan Gorcey (Exhibit D). This promissory note was secured
on June 7, 1949, by a chattel mortgage executed by Louis F. da Costa, Jr., General Partner for and in the name of
Stasikinocey, alleged to be a duly registered Philippine partnership, doing business under the name and style of
Cardinal Rattan, with principal office at 69 Riverside, San Juan, Rizal (Exhibit A). The chattels mortgaged were the
following motor vehicles:chanroblesvirtuallawlibrary
(a) Fargo truck with motor No. T-118-202839, Serial No. 81410206 and with plate No. T-7333 (1949);
(b) Plymouth Sedan automobile motor No. T-5638876, Serial No. 11872718 and with plate No. 10372; chan
roblesvirtualawlibraryand
(c) Fargo Pick-Up FKI-16, with motor No. T-112800032,
Serial No. 8869225 and with plate No. T-7222 (1949).
The mortgage deed was fully registered by the mortgagee on June 11, 1949, in the Office of the Register of Deeds
for the province of Rizal, at Pasig, (Exhibit A), and among other provisions it contained the
following:chanroblesvirtuallawlibrary
(a) That the mortgagor shall not sell or otherwise dispose of the said chattels without the mortgagees written
consent; chan roblesvirtualawlibraryand
(b) That the mortgagee may foreclose the mortgage at any time, after breach of any condition thereof, the
mortgagor waiving the 30- day notice of foreclosure.
On June 7, 1949, the same day of the execution of the chattel mortgage aforementioned, Gorcey and Da Costa
executed an agreement purporting to convey and transfer all their rights, title and participation
in Defendant partnership to Shaeffer, allegedly in consideration of the cancellation of an indebtedness of P25,000
owed by them and Defendant partnership to the latter (Exhibit J), which transaction is said to be in violation of the
Bulk Sales Law (Act No. 3952 of the Philippine Legislature).
While the said loan was still unpaid and the chattel mortgage subsisting, Defendant partnership,
through Defendants Gorcey and Da Costa transferred to Defendant McDonald the Fargo truck and Plymouth sedan
on June 24, 1949 (Exhibit L). The Fargo pickup was also sold on June 28, 1949, by William Shaeffer to Paul
McDonald.
On or about July 19, 1944, Paul Mcdonald, notwithstanding Plaintifs existing mortgage lien, in turn transferred the
Fargo truck and the Plymouth sedan to Benjamin Gonzales.
The National City Bank of New York, Respondent herein, upon learning of the transfers made by the partnership
Stasikinocey to William Shaeffer, from the latter to Paul McDonald, and from Paul McDonald to Benjamin Gonzales,
of the vehicles previously pledged by Stasikinocey to theRespondent, filed an action against Stasikinocey and its
alleged partners Gorcey and Da Costa, as well as Paul McDonald and Benjamin Gonzales, to recover its credit and to
foreclose the corresponding chattel mortgage. McDonald and Gonzales were made Defendants because they
claimed to have a better right over the pledged vehicle.
After trial the Court of First Instance of Manila rendered judgment in favor of the Respondent, annulling the sale of
the vehicles in question to Benjamin Gonzales; chan roblesvirtualawlibrarysentencing Da Costa and Gorcey to pay
to the Respondent jointly and severally the sum of P6,134.92, with legal interest from the debt of the promissory
note involved; chan roblesvirtualawlibrarysentencing the Petitioner Gonzales to deliver the vehicles in question to
the Respondent for sale at public auction if Da Costa and Gorcey should fail to pay the money judgment; chan
roblesvirtualawlibraryand sentencing Da Costa, Gorcey and Shaeffers to pay to the Respondent jointly and severally
any deficiency that may remain unpaid should the proceeds of the sale not be sufficient; chan
roblesvirtualawlibraryand sentencing Gorcey, Da Costa, McDonald and Shaeffer to pay the costs. Only Paul

McDonald and Benjamin Gonzales appealed to the Court of Appeals which rendered a decision the dispositive part
of which reads as follows:chanroblesvirtuallawlibrary
WHEREFORE, the decision appealed from is hereby modified, relieving Appellant William Shaeffer of the obligation
of paying, jointly and severally, together with Alan W. Gorcey and Louis F. da Costa, Jr., any deficiency that may
remain unpaid after applying the proceeds of the sale of the said motor vehicles which shall be undertaken upon
the lapse of 90 days from the date this decision becomes final, if by then Defendants Louis F. da Costa, Jr., and Alan
W. Gorcey had not paid the amount of the judgment debt. With this modification the decision appealed from is in all
other respects affirmed, with costs against Appellants. This decision is without prejudice to whatever action Louis F.
da Costa, Jr., and Alan W. Gorcey may take against their co-partners in the Stasikinocey unregistered partnership.
This appeal by certiorari was taken by Paul McDonald and Benjamin Gonzales, Petitioners herein, who have
assigned the following errors:chanroblesvirtuallawlibrary
I
IN RULING THAT AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP WHICH HAS NO INDEPENDENT JURIDICAL
PERSONALITY CAN HAVE A DOMICILE SO THAT A CHATTEL MORTGAGE REGISTERED IN THAT DOMICILE WOULD
BIND THIRD PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE.
II
IN RULING THAT WHEN A CHATTEL MORTGAGE IS EXECUTED BY ONE OF THE MEMBERS OF AN UNREGISTERED
COMMERCIAL CO-PARTNERSHIP WITHOUT JURIDICAL PERSONALITY INDEPENDENT OF ITS MEMBERS, IT NEED NOT BE
REGISTERED IN THE ACTUAL RESIDENCE OF THE MEMBERS WHO EXECUTED SAME; chan roblesvirtualawlibraryAND,
AS A CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO THE ACTUAL RESIDENCE OF SAID
CHATTEL MORTGAGOR, DESPITEAPPELLANTS RAISING THAT QUESTION PROPERLY BEFORE IT AND REQUESTING A
RULING THEREON.
III
IN NOT RULING THAT, WHEN A CHATTEL MORTGAGOR EXECUTES AN AFFIDAVIT OF GOOD FAITH BEFORE A NOTARY
PUBLIC OUTSIDE OF THE TERRITORIAL JURISDICTION OF THE LATTER, THE AFFIDAVIT IS VOID AND THE CHATTEL
MORTGAGE IS NOT BINDING ON THIRD PERSONS WHO ARE INNOCENT PURCHASERS FOR VALUE; chan
roblesvirtualawlibraryAND, AS A CONSEQUENCE THEREOF, IN NOT MAKING ANY FINDING OF FACT AS TO WHERE
THE DEED WAS IN FACT EXECUTED, DESPITE APPELLANTS RAISING THAT QUESTION PROPERLY BEFORE IT AND
EXPRESSLY REQUESTING A RULING THEREON.
IV
IN RULING THAT A LETTER AUTHORIZING ONE MEMBER OF AN UNREGISTERED COMMERCIAL CO-PARTNERSHIP TO
MAKE ALL OFFICIAL AND BUSINESS ARRANGEMENTS .. WITH THE NATIONAL CITY BANK OF NEW YORK IN ORDER TO
SIMPLIFY ALL MATTERS RELATIVE TO LCS CABLE TRANSFERS, DRAFTS, OR OTHER BANKING MEDIUMS, WAS
SUFFICIENT AUTHORITY FOR THE SAID MEMBER TO EXECUTE A CHATTEL MORTGAGE IN ORDER TO GIVE THE BANK
SECURITY FOR A PRE-EXISTING OVERDRAFT, GRANTED WITHOUT SECURITY. WHICH THE BANK HAD CONVERTED
INTO A DEMAND LOAN UPON FAILURE TO PAY SAME AND BEFORE THE CHATTEL MORTGAGE WAS EXECUTED.
This is the first question propounded by the Petitioners:chanroblesvirtuallawlibrary Since an unregistered
commercial partnership unquestionably has no juridical personality, can it have a domicile so that the registration
of a chattel mortgage therein is notice to the world?.
While an unregistered commercial partnership has no juridical personality, nevertheless, where two or more
persons attempt to create a partnership failing to comply with all the legal formalities, the law considers them as
partners and the association is a partnership in so far as it is a favorable to third persons, by reason of the equitable
principle of estoppel. In Jo Chung Chang vs. Pacific Commercial Co., 45 Phil., 145, it was held that although the
partnership with the firm name of Teck Seing and Co. Ltd., could not be regarded as a partnership de jure, yet with
respect to third persons it will be considered a partnership with all the consequent obligations for the purpose of
enforcing the rights of such third persons. Da Costa and Gorcey cannot deny that they are partners of the
partnership Stasikinocey, because in all their transactions with theRespondent they represented themselves as
such. Petitioner McDonald cannot disclaim knowledge of the partnership Stasikinocey because he dealt with said
entity in purchasing two of the vehicles in question through Gorcey and Da Costa. As was held in Behn Meyer & Co.
vs. Rosatzin, 5 Phil., 660, where a partnership not duly organized has been recognized as such in its dealings with
certain persons, it shall be considered as partnership by estoppel and the persons dealing with it are estopped
from denying its partnership existence. The sale of the vehicles in question being void as to Petitioner McDonald,
the transfer from the latter to Petitioner Benjamin Gonzales is also void, as the buyer cannot have a better right
than the seller.
It results that if the law recognizes a defectively organized partnership as de facto as far as third persons are
concerned, for purposes of its de facto existence it should have such attribute of a partnership as domicile. In HungMan Yoc vs. Kieng-Chiong-Seng, 6 Phil., 498, it was held that although it has no legal standing, it is a partnership
de facto and the general provisions of the Code applicable to all partnerships apply to it. The registration of the
chattel mortgage in question with the Office of the Register of Deeds of Rizal, the residence or place of business of

the partnership Stasikinocey being San Juan, Rizal, was therefore in accordance with section 4 of the Chattel
Mortgage Law.
The second question propounded by the Petitioners is:chanroblesvirtuallawlibrary If not, is a chattel mortgage
executed by only one of the partners of an unregistered commercial partnership validly registered so as to
constitute notice to the world if it is not registered at the place where the aforesaid partner actually resides but
only in the place where the deed states that he resides, which is not his real residence? And the third question is
as follows:chanroblesvirtuallawlibrary If the actual residence of the chattel mortgagor not the residence stated
in the deed of chattel mortgage is controlling, may the Court of Appeals refuse to make a finding of fact as to
where the mortgagor resided despite yourPetitioners having properly raised that question before it and expressly
requested a ruling thereon?
These two questions have become academic by reason of the answer to the first question, namely, that as a de
facto partnership, Stasikinocey had its domicile in San Juan, Rizal.
The fourth question asked by the Petitioners is as follows:chanroblesvirtuallawlibrary Is a chattel mortgage
executed by only one of the partners of an unregistered commercial partnership valid as to third persons when
that partner executed the affidavit of good faith in Quezon City before a notary public whose appointment is only
for the City of Manila? If not, may the Court of Appeals refuse to make a finding of fact as to where the deed was
executed, despite your Petitioners having properly raised that issue before it and expressly requested a ruling
thereon?
It is noteworthy that the chattel mortgage in question is in the form required by law, and there is therefore the
presumption of its due execution which cannot be easily destroyed by the biased testimony of the one who
executed it. The interested version of Da Costa that the affidavit of good faith appearing in the chattel mortgage
was executed in Quezon City before a notary public for and in the City of Manila was correctly rejected by the trial
court and the Court of Appeals. Indeed, cumbersome legal formalities are imposed to prevent fraud. As aptly
pointed out in El Hogar Filipino vs. Olviga, 60 Phil., 17, If the biased and interested testimony of a grantor and the
vague and uncertain testimony of his son are deemed sufficient to overcome a public instrument drawn up with all
the formalities prescribed by the law then there will have been established a very dangerous doctrine which would
throw wide open the doors to fraud.
The last question raised by the Petitioners is as follows:chanroblesvirtuallawlibrary Does only one of several
partners of an unregistered commercial partnership have authority, by himself alone, to execute a valid chattel
mortgage over property owned by the unregistered commercial partnership in order to guarantee a pre-existing
overdraft previously granted, without guaranty, by the bank?
In view of the conclusion that Stasikinocey is a de facto partnership, and Da Costa appears as a co-manager in the
letter of Gorcey to the Respondent and in the promissory note executed by Da Costa, and that even the partners
considered him as such, as stated in the affidavit of April 21, 1948, to the effect that That we as the majority
partners hereby agree to appoint Louis da Costa co-managing partner of Alan W. Gorcey, duly approved managing
partner of the said firm, the partner who executed the chattel mortgage in question must be deemed to be so
fully authorized. Section 6 of the Chattel Mortgage Law provides that when a partnership is a party to the mortgage,
the affidavit may be made and subscribed by one member thereof. In this case the affidavit was executed and
subscribed by Da Costa, not only as a partner but as a managing partner.
There is no merit in Petitioners pretense that the motor vehicles in question are the common property of Da Costa
and Gorcey. Petitioners invoke article 24 of the Code of Commerce in arguing that an unregistered commercial
partnership has no juridical personality and cannot execute any act that would adversely affect innocent third
persons. Petitioners forget that theRespondent is a third person with respect to the partnership, and the chattel
mortgage executed by Da Costa cannot therefore be impugned by Gorcey on the ground that there is no
partnership between them and that the vehicles in question belonged to them in common. As a matter of fact,
the Respondent and the Petitioners are all third persons as regards the partnership Stasikinocey; chan
roblesvirtualawlibraryand even assuming that the Petitioners are purchasers in good faith and for value,
the Respondent having transacted with Stasikinocey earlier than the Petitioners, it should enjoy and be given
priority.
Wherefore, the appealed decision of the Court of Appeals is affirmed with costs against thePetitioners.

EN BANC
G.R. No. L-25532

February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.
Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete and Special Attorneys B.
Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.
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,
Commissioner of Internal Revenue, 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.
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:
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, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero o podran constituir
sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos a la tesis permisiva de los contratos de
sociedad particular entre esposos, ya que ningun precepto de nuestro Codigo los prohibe, y hay que estar a la norma
general segun la que toda persona es capaz para contratar mientras no sea declarado incapaz por la ley. La
jurisprudencia de la Direccion de los Registros fue favorable a esta misma tesis en su resolution de 3 de febrero de 1936,
mas parece cambiar de rumbo en la de 9 de marzo de 1943.
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.
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 partners-spouses 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, 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.

EN BANC
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.
Harvey & O'Brien for appellant.
DeWitt, Perkins & Brandy for appellee.
STREET, J.:
This action was institute in the Court of First Instance 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 four hundred forty-six 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 three 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 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 two 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 three 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, eight 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.
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 above-mentioned. 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. 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 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.
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 three associates in the San Juan deal, was the work of Elser accomplished entirely upon his own account.
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, 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 two-thirds shares of J. K. Pickering & Company, with the earnings thereon, as claimed in his complaint.
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:
As stated in cablegram I have arranged for P50,000 loan on Carriedo property. Will use part of the money for Ronquillo
buy (P60,000) 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 doubtedless
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 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 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.

THIRD DIVISION
[G.R. No. 136448. November 3, 1999]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

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;
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 have to be satisfied from
the amount ofP900,000.00 as this amount replaced the attached nets and floats. Considering, however, that the total judgment obligation as
computed above would amount to onlyP840,216.92, 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 ofP900,000.[7]
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries was entitled to the Writ of
Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay respondent. [8]
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the witnesses presented and (2)
on a Compromise Agreement executed by the three [9] in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of
fishing boats; (d) an injunction and (e) damages.[10]The Compromise Agreement provided:
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount of P5,750,000.00 including the fishing
net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong Lim;
b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the excess will be divided into
3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
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]
Hence, petitioner brought this recourse before this Court.[14]
The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following grounds:
I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT CHUA, YAO AND PETITIONER
LIM ENTERED INTO IN A SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR OCEAN QUEST FISHING CORPORATION WHEN
HE BOUGHT THE NETS FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO
PETITIONER LIM AS WELL.
III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER 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.
This Courts Ruling

The Petition is devoid of merit.

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

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner controverts the CA finding that a
partnership existed between him, Peter Yao and Antonio Chua. He asserts that the CA based its finding on the Compromise Agreement
alone. Furthermore, he disclaims any direct participation in the purchase of the nets, alleging that the negotiations were conducted by Chua and
Yao only, and that he has not even met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner,
of Chua and Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had merely leased to the two the main asset of the purported
partnership -- the fishing boat F/B Lourdes. The lease was for six months, with a monthly rental ofP37,500 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:
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.
Specifically, both lower courts ruled that a partnership among the three existed based on the following factual findings: [15]
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while Antonio Chua was already 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 , re-equipping, repairing, dry docking and other expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount of P1 million secured by a
check, because of which, Yao and Chua entrusted the ownership papers of two other boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim
Tong Lim.
(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim
for (a) declaration of nullity of commercial documents; (b) reformation of contracts; (c) declaration of ownership of fishing boats; (4) injunction;
and (e) damages.
(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants the terms of which are already
enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a fishing business, which they
started by buying boats worth P3.35 million, financed by a loan secured from Jesus Lim who was 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, 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

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.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his own boats to pay a debt
of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No lessor would do what petitioner did. Indeed, his
consent to the sale proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which debts were undertaken in
order to finance the acquisition and the upgrading of the vessels which would be used in their fishing business. The sale of the boats, as well as
the division among the three of the balance remaining after the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in
his name, was not his own property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the name
of the person the lender trusts, who in this case is the petitioner himself.After all, he is the brother of the creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did not incur, if the relationship
among the three of them was merely that of lessor-lessee, instead of partners.
Corporation by Estoppel

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

under the law on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held
liable as general partners.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped the benefits of the contract
entered into by persons with whom he previously had an existing relationship, he is deemed to be part of said association and is covered by the
scope of the doctrine of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor:[19]
A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of movement and position , entraps and
destroys the other.It is, rather, a contest in which each contending party fully and fairly lays before the court the facts in issue and then, brushing
aside as wholly trivial and indecisive all imperfections of form and technicalities of procedure, asks that justice be done upon the
merits. Lawsuits, unlike duels, are not to be won by a 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.
Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with the Court of Appeals that this
issue is now moot and academic. As previously discussed, F/B Lourdes was an asset of the partnership and that it was placed in the name of
petitioner, only to assure payment of the debt he and his partners owed. The nets and the floats were specifically manufactured and tailor-made
according to their own design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the
payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets remained with Respondent
Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.

EN BANC

G.R. No. L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and LEONARDA ATIENZA ABAD
SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondenT
MAKALINTAL, J.:
On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7, 1955 the Articles of Copartnership was amended as to include herein respondent, Estrella Abad Santos, as industrial partner, with herein petitioners
Domingo C. Evangelista, Jr., Leonardo Atienza Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in
that capacity, with a contribution of P17,500 each. The amended Articles provided, inter alia, that "the contribution of Estrella Abad
Santos consists of her industry being an industrial partner", and that the profits and losses "shall be divided and distributed among
the partners ... in the proportion of 70% for the first three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo
Atienza Abad Santos to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."
On December 17, 1963 herein respondent filed suit against the three other partners in the Court of First Instance of Manila, alleging
that the partnership, which was also made a party-defendant, had been paying dividends to the partners except to her; and that
notwithstanding her demands the defendants had refused and continued to refuse and let her examine the partnership books or to
give her information regarding the partnership affairs to pay her any share in the dividends declared by the partnership. She
therefore prayed that the defendants be ordered to render accounting to her of the partnership business and to pay her
corresponding share in the partnership profits after such accounting, plus attorney's fees and costs.
The defendants, in their answer, denied ever having declared dividends or distributed profits of the partnership; denied likewise that
the plaintiff ever demanded that she be allowed to examine the partnership books; and byway of affirmative defense alleged that the
amended Articles of Co-partnership did not express the true agreement of the parties, which was that the plaintiff was not an
industrial partner; that she did not in fact contribute industry to the partnership; and that her share of 30% was to be based on the
profits which might be realized by the partnership only until full payment of the loan which it had obtained in December, 1955 from
the Rehabilitation Finance Corporation in the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and
mortgaged her property as security.
The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee (respondent here) is an industrial
partner as claimed by her or merely a profit sharer entitled to 30% of the net profits that may be realized by the partnership from
June 7, 1955 until the mortgage loan from the Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants
(herein petitioners)." On that issue the Court of First Instance found for the plaintiff and rendered judgement "declaring her an
industrial partner of Evangelista & Co.; ordering the defendants to render an accounting of the business operations of the (said)
partnership ... from June 7, 1955; to pay the plaintiff such amounts as may be due as her share in the partnership profits and/or
dividends after such an accounting has been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the costs of
this suit."
The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a quo.
In the petition before Us the petitioners have assigned the following errors:

I. The Court of Appeals erred in the finding that the respondent is an industrial partner of Evangelista & Co.,
notwithstanding the admitted fact that since 1954 and until after promulgation of the decision of the appellate
court the said respondent was one of the judges of the City Court of Manila, and despite its findings that
respondent had been paid for services allegedly contributed by her to the partnership. In this connection the
Court of Appeals erred:
(A) In finding that the "amended Articles of Co-partnership," Exhibit "A" is conclusive
evidence that respondent was in fact made an industrial partner of Evangelista & Co.
(B) In not finding that a portion of respondent's testimony quoted in the decision proves that
said respondent did not bind herself to contribute her industry, and she could not, and in
fact did not, because she was one of the judges of the City Court of Manila since 1954.
(C) In finding that respondent did not in fact contribute her industry, despite the appellate
court's own finding that she has been paid for the services allegedly rendered by her, as
well as for the loans of money made by her to the partnership.
II. The lower court erred in not finding that in any event the respondent was lawfully excluded from, and
deprived of, her alleged share, interests and participation, as an alleged industrial partner, in the partnership
Evangelista & Co., and its profits or net income.
III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby respondent was
declared an industrial partner of the petitioner, and petitioners were ordered to render an accounting of the
business operation of the partnership from June 7, 1955, and to pay the respondent her alleged share in the net
profits of the partnership plus the sum of P2,000.00 as attorney's fees and the costs of the suit, instead of
dismissing respondent's complaint, with costs, against the respondent.
It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by the Court of Appeals. The
evidence presented by the parties as the trial in support of their respective positions on the issue of whether or not the respondent
was an industrial partner was thoroughly analyzed by the Court of Appeals on its decision, to the extent of
reproducing verbatim therein the lengthy testimony of the witnesses.
It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its jurisdiction being limited to reviewing
errors of law that might have been commited by the lower court. It should be observed, in this regard, that the Court of Appeals did
not hold that the Articles of Co-partnership, identified in the record as Exhibit "A", was conclusive evidence that the respondent was
an industrial partner of the said company, but considered it together with other factors, consisting of both testimonial and
documentary evidences, in arriving at the factual conclusion expressed in the decision.
The findings of the Court of Appeals on the various points raised in the first assignment of error are hereunder reproduced if only to
demonstrate that the same were made after a through analysis of then evidence, and hence are beyond this Court's power of
review.
The aforequoted findings of the lower Court are assailed under Appellants' first assigned error, wherein it is
pointed out that "Appellee's documentary evidence does not conclusively prove that appellee was in fact
admitted by appellants as industrial partner of Evangelista & Co." and that "The grounds relied upon by the
lower Court are untenable" (Pages 21 and 26, Appellant's Brief).
The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being that "In finding that the
appellee is an industrial partner of appellant Evangelista & Co., herein referred to as the partnership the
lower court relied mainly on the appellee's documentary evidence, entirely disregarding facts and
circumstances established by appellants" evidence which contradict the said finding' (Page 21, Appellants'
Brief). The lower court could not have done otherwise but rely on the exhibits just mentioned, first, because
appellants have admitted their genuineness and due execution, hence they were admitted without objection by
the lower court when appellee rested her case and, secondly the said exhibits indubitably show the appellee is
an industrial partner of appellant company. Appellants are virtually estopped from attempting to detract from the
probative force of the said exhibits because they all bear the imprint of their knowledge and consent, and there
is no credible showing that they ever protested against or opposed their contents prior of the filing of their
answer to appellee's complaint. As a matter of fact, all the appellant Evangelista, Jr., would have us believe

as against the cumulative force of appellee's aforesaid documentary evidence is the appellee's Exhibit "A",
as confirmed and corroborated by the other exhibits already mentioned, does not express the true intent and
agreement of the parties thereto, the real understanding between them being the appellee would be merely a
profit sharer entitled to 30% of the net profits that may be realized between the partners from June 7, 1955, until
the mortgage loan of P30,000.00 to be obtained from the RFC shall have been fully paid. This version, however,
is discredited not only by the aforesaid documentary evidence brought forward by the appellee, but also by the
fact that from June 7, 1955 up to the filing of their answer to the complaint on February 8, 1964 or a period of
over eight (8) years appellants did nothing to correct the alleged false agreement of the parties contained in
Exhibit "A". It is thus reasonable to suppose that, had appellee not filed the present action, appellants would not
have advanced this obvious afterthought that Exhibit "A" does not express the true intent and agreement of the
parties thereto.
At pages 32-33 of appellants' brief, they also make much of the argument that 'there is an overriding fact which
proves that the parties to the Amended Articles of Partnership, Exhibit "A", did not contemplate to make the
appellee Estrella Abad Santos, an industrial partner of Evangelista & Co. It is an admitted fact that since before
the execution of the amended articles of partnership, Exhibit "A", the appellee Estrella Abad Santos has been,
and up to the present time still is, one of the judges of the City Court of Manila, devoting all her time to the
performance of the duties of her public office. This fact proves beyond peradventure that it was never
contemplated between the parties, for she could not lawfully contribute her full time and industry which is the
obligation of an industrial partner pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the decision, and then concluded
as follows:
One cannot read appellee's testimony just quoted without gaining the very definite impression that, even as she
was and still is a Judge of the City Court of Manila, she has rendered services for appellants without which they
would not have had the wherewithal to operate the business for which appellant company was organized.
Article 1767 of the New Civil Code which provides that "By contract of partnership two or more persons bind
themselves, to contribute money, property, or industry to a common fund, with the intention of dividing the
profits among themselves, 'does not specify the kind of industry that a partner may thus contribute, hence the
said services may legitimately be considered as appellee's contribution to the common fund. Another article of
the same Code relied upon appellants reads:
'ART. 1789. An industrial partner cannot engage in business for himself, unless the
partnership expressly permits him to do so; and if he should do so, the capitalist partners
may either exclude him from the firm or avail themselves of the benefits which he may have
obtained in violation of this provision, with a right to damages in either case.'
It is not disputed that the provision against the industrial partner engaging in business for himself seeks to
prevent any conflict of interest between the industrial partner and the partnership, and to insure faithful
compliance by said partner with this prestation. There is no pretense, however, even on the part of the appellee
is engaged in any business antagonistic to that of appellant company, since being a Judge of one of the
branches of the City Court of Manila can hardly be characterized as a business. That appellee has faithfully
complied with her prestation with respect to appellants is clearly shown by the fact that it was only after filing of
the complaint in this case and the answer thereto appellants exercised their right of exclusion under the codal
art just mentioned by alleging in their Supplemental Answer dated June 29, 1964 or after around nine (9)
years from June 7, 1955 subsequent to the filing of defendants' answer to the complaint, defendants reached
an agreement whereby the herein plaintiff been excluded from, and deprived of, her alleged share, interests or
participation, as an alleged industrial partner, in the defendant partnership and/or in its net profits or income, on
the ground plaintiff has never contributed her industry to the partnership, instead she has been and still is a
judge of the City Court (formerly Municipal Court) of the City of Manila, devoting her time to performance of her
duties as such judge and enjoying the privilege and emoluments appertaining to the said office, aside from
teaching in law school in Manila, without the express consent of the herein defendants' (Record On Appeal, pp.
24-25). Having always knows as a appellee as a City judge even before she joined appellant company on June
7, 1955 as an industrial partner, why did it take appellants many yearn before excluding her from said company
as aforequoted allegations? And how can they reconcile such exclusive with their main theory that appellee has
never been such a partner because "The real agreement evidenced by Exhibit "A" was to grant the appellee a
share of 30% of the net profits which the appellant partnership may realize from June 7, 1955, until the

mortgage of P30,000.00 obtained from the Rehabilitation Finance Corporal shall have been fully paid."
(Appellants Brief, p. 38).
What has gone before persuades us to hold with the lower Court that appellee is an industrial partner of
appellant company, with the right to demand for a formal accounting and to receive her share in the net profit
that may result from such an accounting, which right appellants take exception under their second assigned
error. Our said holding is based on the following article of the New Civil Code:
'ART. 1899. Any partner shall have the right to a formal account as to partnership affairs:
(1) If he is wrongfully excluded from the partnership business or possession of its property by his co-partners;
(2) If the right exists under the terms of any agreement;
(3) As provided by article 1807;
(4) Whenever other circumstance render it just and reasonable.
We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to reviewing only errors of law,
accepting as conclusive the factual findings of the lower court upon its own assessment of the evidence.
The judgment appealed from is affirmed, with costs