Article 1767 with Antonieta Jarantilla's stated as eight thousand pesos (P8,000.
th Antonieta Jarantilla's stated as eight thousand pesos (P8,000.00) and
[G.R. No. 154486. December 1, 2010.]
FEDERICO JARANTILLA, JR., petitioner, vs. ANTONIETA JARANTILLA,
BUENAVENTURA REMOTIGUE, SUBSTITUTED BY CYNTHIA REMOTIGUE,
DOROTEO JARANTILLA and TOMAS JARANTILLA, respondents.
DECISION
LEONARDO-DE CASTRO, J p:
This petition for review on certiorari 1 seeks to modify the Decision 2 of the
Court of Appeals dated July 30, 2002 in CA-G.R. CV No. 40887, which set
aside the Decision 3 dated December 18, 1992 of the Regional Trial Court
(RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.
The pertinent facts are as follows:
The spouses Andres Jarantilla and Felisa Jaleco were survived by eight
children: Federico, Delfin, Benjamin, Conchita, Rosita, Pacita, Rafael and
Antonieta. 4 Petitioner Federico Jarantilla, Jr. is the grandchild of the late
Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda
Jamili. 5 Petitioner also has two other brothers: Doroteo and Tomas
Jarantilla.
Petitioner was one of the defendants in the complaint before the RTC while
Antonieta Jarantilla, his aunt, was the plaintiff therein. His co-respondents
before he joined his aunt Antonieta in her complaint, were his late aunt
Conchita Jarantilla's husband Buenaventura Remotigue, who died during
the pendency of the case, his cousin Cynthia Remotigue, the adopted
daughter of Conchita Jarantilla and Buenaventura Remotigue, and his
brothers Doroteo and Tomas Jarantilla. 6
In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves
the real properties of their deceased parents. 7 With the exception of the
real property adjudicated to Pacita Jarantilla, the heirs also agreed to allot
the produce of the said real properties for the years 1947-1949 for the studies
of Rafael and Antonieta Jarantilla. 8
In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo
entered into an agreement with the spouses Buenaventura Remotigue and
Conchita Jarantilla to provide mutual assistance to each other by way of
financial support to any commercial and agricultural activity on a joint
business arrangement. This business relationship proved to be successful as
they were able to establish a manufacturing and trading business, acquire
real properties, and construct buildings, among other things. 9 This
partnership ended in 1973 when the parties, in an "Agreement," 10
voluntarily agreed to completely dissolve their "joint business
relationship/arrangement." 11
On April 29, 1957, the spouses Buenaventura and Conchita Remotigue
executed a document wherein they acknowledged that while registered
only in Buenaventura Remotigue's name, they were not the only owners of
the capital of the businesses Manila Athletic Supply (712 Raon Street,
Manila), Remotigue Trading (Calle Real, Iloilo City) and Remotigue Trading
(Cotabato City). In this same "Acknowledgement of Participating Capital,"
they stated the participating capital of their co-owners as of the year 1952,
WHEREFORE, premises above-considered, the Court renders judgment in
Federico Jarantilla, Jr.'s as five thousand pesos (P5,000.00). 12
The present case stems from the amended complaint 13 dated April 22,
1987 filed by Antonieta Jarantilla against Buenaventura Remotigue,
Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and Tomas
Jarantilla, for the accounting of the assets and income of the co-ownership,
for its partition and the delivery of her share corresponding to eight percent
(8%), and for damages. Antonieta claimed that in 1946, she had entered
into an agreement with Conchita and Buenaventura Remotigue, Rafael
Jarantilla, and Rosita and Vivencio Deocampo to engage in business.
Antonieta alleged that the initial contribution of property and money came
from the heirs' inheritance, and her subsequent annual investment of seven
thousand five hundred pesos (P7,500.00) as additional capital came from
the proceeds of her farm. Antonieta also alleged that from 1946-1969, she
had helped in the management of the business they co-owned without
receiving any salary. Her salary was supposedly rolled back into the business
as additional investments in her behalf. Antonieta further claimed co-
ownership of certain properties 14 (the subject real properties) in the name
of the defendants since the only way the defendants could have
purchased these properties were through the partnership as they had no
other source of income.
The respondents, including petitioner herein, in their Answer, 15 denied
having formed a partnership with Antonieta in 1946. They claimed that she
was in no position to do so as she was still in school at that time. In fact, the
proceeds of the lands they partitioned were devoted to her studies. They
also averred that while she may have helped in the businesses that her
older sister Conchita had formed with Buenaventura Remotigue, she was
paid her due salary. They did not deny the existence and validity of the
"Acknowledgement of Participating Capital" and in fact used this as
evidence to support their claim that Antonieta's 8% share was limited to the
businesses enumerated therein. With regard to Antonieta's claim in their
other corporations and businesses, the respondents said these should also
be limited to the number of her shares as specified in the respective articles
of incorporation. The respondents denied using the partnership's income to
purchase the subject real properties and said that the certificates of title
should be binding on her. 16
During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr.,
who was one of the original defendants, entered into a compromise
agreement 17 with Antonieta Jarantilla wherein he supported Antonieta's
claims and asserted that he too was entitled to six percent (6%) of the
supposed partnership in the same manner as Antonieta was. He prayed for
a favorable judgment in this wise:
Defendant Federico Jarantilla, Jr., hereby joins in plaintiff's prayer for an
accounting from the other defendants, and the partition of the properties
of the co-ownership and the delivery to the plaintiff and to defendant
Federico Jarantilla, Jr. of their rightful share of the assets and properties in
the co-ownership.
The RTC, in an Order 19 dated March 25, 1992, approved the Joint Motion
to Approve Compromise Agreement 20 and on December 18, 1992,
decided in favor of Antonieta, to wit:
favor of the plaintiff Antonieta Jarantilla and against defendants Cynthia
Remotigue, Doroteo Jarantilla and Tomas Jarantilla ordering the latter:
1. to deliver to the plaintiff her 8% share or its equivalent amount on the real
properties covered by TCT Nos. 35655, 338398, 338399 & 335395, all of the
Registry of Deeds of Quezon City; TCT Nos. (18303)23341, 142882 &
490007(4615), all of the Registry of Deeds of Rizal; and TCT No. T-6309 of the
Registry of Deeds of Cotabato based on their present market value;
2. to deliver to the plaintiff her 8% share or its equivalent amount on the
Remotigue Agro-Industrial Corporation, Manila Athletic Supply, Inc., MAS
Rubber Products, Inc. and Buendia Recapping Corporation based on the
shares of stocks present book value;
3. to account for the assets and income of the co-ownership and deliver to
plaintiff her rightful share thereof equivalent to 8%;
4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as moral
damages;
5. to pay, jointly and severally, the sum of P50,000.00 as attorney's fees; and
6. to pay, jointly and severally, the costs of the suit. 21
Both the petitioner and the respondents appealed this decision to the Court
of Appeals. The petitioner claimed that the RTC "erred in not rendering a
complete judgment and ordering the partition of the co-ownership and
giving to [him] six per centum (6%) of the properties." 22
While the Court of Appeals agreed to some of the RTC's factual findings, it
also established that Antonieta Jarantilla was not part of the partnership
formed in 1946, and that her 8% share was limited to the businesses
enumerated in the Acknowledgement of Participating Capital. On July 30,
2002, the Court of Appeals rendered the herein challenged decision setting
aside the RTC's decision, as follows:
WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET
ASIDE and a new one is hereby entered ordering that:
(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8%
in the assets and profits of Manila Athletic Supply, Remotigue Trading in Iloilo
City and Remotigue Trading in Cotabato City;
(2) after accounting, defendant Federico Jarantilla, Jr. be given his share
of 6% of the assets and profits of the above-mentioned enterprises; and,
holding that caDTSE
(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations
to the extent stated in their Articles of Incorporation:
(a) Rural Bank of Barotac Nuevo, Inc.;
(b) MAS Rubber Products, Inc.;
1
(c) Manila Athletic Supply, Inc.; and
(d) B. Remotigue Agro-Industrial Development Corp.
(4) No costs. 23
The respondents, on August 20, 2002, filed a Motion for Partial
Reconsideration but the Court of Appeals denied this in a Resolution 24
dated March 21, 2003.
Antonieta Jarantilla filed before this Court her own petition for review on
certiorari 25 dated September 16, 2002, assailing the Court of Appeals'
decision on "similar grounds and similar assignments of errors as this present
case" 26 but it was dismissed on November 20, 2002 for failure to file the
appeal within the reglementary period of fifteen (15) days in accordance
with Section 2, Rule 45 of the Rules of Court. 27
Petitioner filed before us this petition for review on the sole ground that:
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT
PETITIONER FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%)
SHARE OF THE OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE OTHER
DEFENDANTS USING COMMON FUNDS FROM THE BUSINESSES WHERE HE HAD
OWNED SUCH SHARE. 28
Petitioner asserts that he was in a partnership with the Remotigue spouses,
the Deocampo spouses, Rosita Jarantilla, Rafael Jarantilla, Antonieta
Jarantilla and Quintin Vismanos, as evidenced by the Acknowledgement
of Participating Capital the Remotigue spouses executed in 1957. He
contends that from this partnership, several other corporations and
businesses were established and several real properties were acquired. In
this petition, he is essentially asking for his 6% share in the subject real
properties. He is relying on the Acknowledgement of Participating Capital,
on his own testimony, and Antonieta Jarantilla's testimony to support this
contention.
The core issue is whether or not the partnership subject of the
Acknowledgement of Participating Capital funded the subject real
properties. In other words, what is the petitioner's right over these real
properties?
It is a settled rule that in a petition for review on certiorari under Rule 45 of
the Rules of Civil Procedure, only questions of law may be raised by the
parties and passed upon by this Court. 29
A question of law arises when there is doubt as to what the law is on a
certain state of facts, while there is a question of fact when the doubt arises
as to the truth or falsity of the alleged facts. For a question to be one of law,
the same must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the
issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the
evidence presented, the question posed is one of fact. Thus, the test of
whether a question is one of law or of fact is not the appellation given to
such question by the party raising the same; rather, it is whether the
appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise it
is a question of fact. 30 TCDHaE
Since the Court of Appeals did not fully adopt the factual findings of the
RTC, this Court, in resolving the questions of law that are now in issue, shall
look into the facts only in so far as the two courts a quo differed in their
appreciation thereof.
The RTC found that an unregistered partnership existed since 1946 which
was affirmed in the 1957 document, the "Acknowledgement of
Participating Capital." The RTC used this as its basis for giving Antonieta
Jarantilla an 8% share in the three businesses listed therein and in the other
businesses and real properties of the respondents as they had supposedly
acquired these through funds from the partnership. 31
The Court of Appeals, on the other hand, agreed with the RTC as to
Antonieta's 8% share in the business enumerated in the Acknowledgement
of Participating Capital, but not as to her share in the other corporations
and real properties. The Court of Appeals ruled that Antonieta's claim of 8%
is based on the "Acknowledgement of Participating Capital," a duly
notarized document which was specific as to the subject of its coverage.
Hence, there was no reason to pattern her share in the other corporations
from her share in the partnership's businesses. The Court of Appeals also said
that her claim in the respondents' real properties was more "precarious" as
these were all covered by certificates of title which served as the best
evidence as to all the matters contained therein. 32 Since petitioner's claim
was essentially the same as Antonieta's, the Court of Appeals also ruled that
petitioner be given his 6% share in the same businesses listed in the
Acknowledgement of Participating Capital.
Factual findings of the trial court, when confirmed by the Court of Appeals,
are final and conclusive except in the following cases: (1) when the
inference made is manifestly mistaken, absurd or impossible; (2) when there
is a grave abuse of discretion; (3) when the finding is grounded entirely on
speculations, surmises or conjectures; (4) when the judgment of the Court
of Appeals is based on misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when the Court of Appeals, in making its findings,
went beyond the issues of the case and the same is contrary to the
admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion; and (10) when the findings
of fact of the Court of Appeals are premised on the absence of evidence
and are contradicted by the evidence on record. 33
In this case, we find no error in the ruling of the Court of Appeals.
Both the petitioner and Antonieta Jarantilla characterize their relationship
with the respondents as a co-ownership, but in the same breath, assert that
a verbal partnership was formed in 1946 and was affirmed in the 1957
Acknowledgement of Participating Capital.
There is a co-ownership when an undivided thing or right belongs to
different persons. 34 It is a partnership when two or more persons bind
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves. 35 The Court, in
Pascual v. The Commissioner of Internal Revenue, 36 quoted the concurring
opinion of Mr. Justice Angelo Bautista in Evangelista v. The Collector of
Internal Revenue 37 to further elucidate on the distinctions between a co-
ownership and a partnership, to wit:
I wish however to make the following observation: Article 1769 of the new
Civil Code lays down the rule for determining when a transaction should be
deemed a partnership or a co-ownership. Said article paragraphs 2 and 3,
provides;
(2) Co-ownership or co-possession does not itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived; CAIaDT
From the above it appears that the fact that those who agree to form a co-
ownership share or do not share any profits made by the use of the property
held in common does not convert their venture into a partnership. Or the
sharing of the gross returns does not of itself establish a partnership whether
or not the persons sharing therein have a joint or common right or interest
in the property. This only means that, aside from the circumstance of profit,
the presence of other elements constituting partnership is necessary, such
as the clear intent to form a partnership, the existence of a juridical
personality different from that of the individual partners, and the freedom
to transfer or assign any interest in the property by one with the consent of
the others.
It is evident that an isolated transaction whereby two or more persons
contribute funds to buy certain real estate for profit in the absence of other
circumstances showing a contrary intention cannot be considered a
partnership.
Persons who contribute property or funds for a common enterprise and
agree to share the gross returns of that enterprise in proportion to their
contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common
stock or capital, and no community of interest as principal proprietors in the
business itself which the proceeds derived.
A joint purchase of land, by two, does not constitute a co-partnership in
respect thereto; nor does an agreement to share the profits and losses on
the sale of land create a partnership; the parties are only tenants in
common.
Where plaintiff, his brother, and another agreed to become owners of a
single tract of realty, holding as tenants in common, and to divide the profits
of disposing of it, the brother and the other not being entitled to share in
plaintiff's commission, no partnership existed as between the three parties,
whatever their relation may have been as to third parties.
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. . . . .
2

The common ownership of property does not itself create a partnership
between the owners, though they may use it for the purpose of making
gains; and they may, without becoming partners, agree among themselves
as to the management, and use of such property and the application of
the proceeds therefrom. 38 (Citations omitted.)
Under Article 1767 of the Civil Code, there are two essential elements in a
contract of partnership: (a) an agreement to contribute money, property
or industry to a common fund; and (b) intent to divide the profits among
the contracting parties. The first element is undoubtedly present in the case
at bar, for, admittedly, all the parties in this case have agreed to, and did,
contribute money and property to a common fund. Hence, the issue
narrows down to their intent in acting as they did. 39 It is not denied that all
the parties in this case have agreed to contribute capital to a common
fund to be able to later on share its profits. They have admitted this fact,
agreed to its veracity, and even submitted one common documentary
evidence to prove such partnership the Acknowledgement of
Participating Capital. SDTIaE
As this case revolves around the legal effects of the Acknowledgement of
Participating Capital, it would be instructive to examine the pertinent
portions of this document:
ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL
KNOW ALL MEN BY THESE PRESENTS:
That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de
Remotigue, both of legal age, Filipinos and residents of Loyola Heights,
Quezon City, P.I. hereby state:
That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading
of Calle Real, Iloilo City and the Remotigue Trading, Cotabato Branch,
Cotabato, P.I., all dealing in athletic goods and equipments, and general
merchandise are recorded in their respective books with Buenaventura
Remotigue as the registered owner and are being operated by them as
such:
That they are not the only owners of the capital of the three establishments
and their participation in the capital of the three establishments together
with the other co-owners as of the year 1952 are stated as follows:
1. Buenaventura Remotigue (TWENTY-FIVE
P25,000.00
THOUSAND)
2. Conchita Jarantilla de Remotigue (TWENTY-FIVE
25,000.00
THOUSAND)
3. Vicencio Deocampo (FIFTEEN THOUSAND)
15,000.00
4. Rosita J. Deocampo (FIFTEEN THOUSAND)
15,000.00
5. Antonieta Jarantilla (EIGHT THOUSAND)
8,000.00
6. Rafael Jarantilla (SIX THOUSAND)
6,000.00
7. Federico Jarantilla, Jr. (FIVE THOUSAND)
5,000.00
8. Quintin Vismanos (TWO THOUSAND)
2,000.00
That aside from the persons mentioned in the next preceding paragraph,
no other person has any interest in the above-mentioned three
establishments.
IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this
29th day of April, 1957.
[Sgd.]
based on the concept of trust. He claims that since the subject real
BUENAVENTURA REMOTIGUE
[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE 40
The Acknowledgement of Participating Capital is a duly notarized
document voluntarily executed by Conchita Jarantilla-Remotigue and
Buenaventura Remotigue in 1957. Petitioner does not dispute its contents
and is actually relying on it to prove his participation in the partnership.
Article 1797 of the Civil Code provides: aEHASI
Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed capital,
he shall also receive a share in the profits in proportion to his capital.
(Emphases supplied.)
It is clear from the foregoing that a partner is entitled only to his share as
agreed upon, or in the absence of any such stipulations, then to his share
in proportion to his contribution to the partnership. The petitioner himself
claims his share to be 6%, as stated in the Acknowledgement of
Participating Capital. However, petitioner fails to realize that this document
specifically enumerated the businesses covered by the partnership: Manila
Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City. Since there was a clear agreement that the capital the
partners contributed went to the three businesses, then there is no reason
to deviate from such agreement and go beyond the stipulations in the
document. Therefore, the Court of Appeals did not err in limiting petitioner's
share to the assets of the businesses enumerated in the Acknowledgement
of Participating Capital.
In Villareal v. Ramirez, 41 the Court held that since a partnership is a
separate juridical entity, the shares to be paid out to the partners is
necessarily limited only to its total resources, to wit:
Since it is the partnership, as a separate and distinct entity, that must refund
the shares of the partners, the amount to be refunded is necessarily limited
to its total resources. In other words, it can only pay out what it has in its
coffers, which consists of all its assets. However, before the partners can be
paid their shares, the creditors of the partnership must first be
compensated. After all the creditors have been paid, whatever is left of the
partnership assets becomes available for the payment of the partners'
shares. 42
There is no evidence that the subject real properties were assets of the
partnership referred to in the Acknowledgement of Participating Capital.
The petitioner further asserts that he is entitled to respondents' properties
properties were purchased using funds of the partnership, wherein he has
a 6% share, then "law and equity mandates that he should be considered
as a co-owner of those properties in such proportion." 43 In Pigao v.
Rabanillo, 44 this Court explained the concept of trusts, to wit:
Express trusts are created by the intention of the trustor or of the parties,
while implied trusts come into being by operation of law, either through
implication of an intention to create a trust as a matter of law or through
the imposition of the trust irrespective of, and even contrary to, any such
intention. In turn, implied trusts are either resulting or constructive trusts.
Resulting trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or interest
and are presumed always to have been contemplated by the parties. They
arise from the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title
but is obligated in equity to hold his legal title for the benefit of another. 45
HTAIcD
On proving the existence of a trust, this Court held that:
Respondent has presented only bare assertions that a trust was created.
Noting the need to prove the existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party
asserting its existence, and such proof must be clear and satisfactorily show
the existence of the trust and its elements. While implied trusts may be
proved by oral evidence, the evidence must be trustworthy and received
by the courts with extreme caution, and should not be made to rest on
loose, equivocal or indefinite declarations. Trustworthy evidence is required
because oral evidence can easily be fabricated." 46
The petitioner has failed to prove that there exists a trust over the subject
real properties. Aside from his bare allegations, he has failed to show that
the respondents used the partnership's money to purchase the said
properties. Even assuming arguendo that some partnership income was
used to acquire these properties, the petitioner should have successfully
shown that these funds came from his share in the partnership profits. After
3
all, by his own admission, and as stated in the Acknowledgement of
Participating Capital, he owned a mere 6% equity in the partnership.
In essence, the petitioner is claiming his 6% share in the subject real
properties, by relying on his own self-serving testimony and the equally
biased testimony of Antonieta Jarantilla. Petitioner has not presented
evidence, other than these unsubstantiated testimonies, to prove that the
respondents did not have the means to fund their other businesses and real
properties without the partnership's income. On the other hand, the
respondents have not only, by testimonial evidence, proven their case
against the petitioner, but have also presented sufficient documentary
evidence to substantiate their claims, allegations and defenses. They
presented preponderant proof on how they acquired and funded such
properties in addition to tax receipts and tax declarations. 47 It has been
held that "while tax declarations and realty tax receipts do not conclusively
prove ownership, they may constitute strong evidence of ownership when
accompanied by possession for a period sufficient for prescription." 48
Moreover, it is a rule in this jurisdiction that testimonial evidence cannot
prevail over documentary evidence. 49 This Court had on several
occasions, expressed our disapproval on using mere self-serving testimonies
to support one's claim. In Ocampo v. Ocampo, 50 a case on partition of a
co-ownership, we held that:
Petitioners assert that their claim of co-ownership of the property was
sufficiently proved by their witnesses Luisa Ocampo-Llorin and Melita
Ocampo. We disagree. Their testimonies cannot prevail over the array of
documents presented by Belen. A claim of ownership cannot be based
simply on the testimonies of witnesses; much less on those of interested
parties, self-serving as they are. 51
It is true that a certificate of title is merely an evidence of ownership or title
over the particular property described therein. Registration in the Torrens
system does not create or vest title as registration is not a mode of acquiring
ownership; hence, this cannot deprive an aggrieved party of a remedy in
law. 52 However, petitioner asserts ownership over portions of the subject
real properties on the strength of his own admissions and on the testimony
of Antonieta Jarantilla. As held by this Court in Republic of the Philippines v.
Orfinada, Sr.: 53
Indeed, a Torrens title is generally conclusive evidence of ownership of the
land referred to therein, and a strong presumption exists that a Torrens title
was regularly issued and valid. A Torrens title is incontrovertible against any
informacion possessoria, of other title existing prior to the issuance thereof
not annotated on the Torrens title. Moreover, persons dealing with property
covered by a Torrens certificate of title are not required to go beyond what
appears on its face. 54
As we have settled that this action never really was for partition of a co-
ownership, to permit petitioner's claim on these properties is to allow a
collateral, indirect attack on respondents' admitted titles. In the words of
the Court of Appeals, "such evidence cannot overpower the
conclusiveness of these certificates of title, more so since plaintiff's
[petitioner's] claims amount to a collateral attack, which is prohibited under
Section 48 of Presidential Decree No. 1529, the Property Registration
Decree." 55 aAcDSC
SEC. 48. Certificate not subject to collateral attack. A certificate of title
shall not be subject to collateral attack. It cannot be altered, modified, or
cancelled except in a direct proceeding in accordance with law.
This Court has deemed an action or proceeding to be "an attack on a title
when its objective is to nullify the title, thereby challenging the judgment
pursuant to which the title was decreed." 56 In Aguilar v. Alfaro, 57 this Court
further distinguished between a direct and an indirect or collateral attack,
as follows:
A collateral attack transpires when, in another action to obtain a different
relief and as an incident to the present action, an attack is made against
the judgment granting the title. This manner of attack is to be distinguished
from a direct attack against a judgment granting the title, through an
action whose main objective is to annul, set aside, or enjoin the
enforcement of such judgment if not yet implemented, or to seek recovery
if the property titled under the judgment had been disposed of. . . . .
Petitioner's only piece of documentary evidence is the Acknowledgement
of Participating Capital, which as discussed above, failed to prove that the
real properties he is claiming co-ownership of were acquired out of the
proceeds of the businesses covered by such document. Therefore,
petitioner's theory has no factual or legal leg to stand on.
WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of
Appeals in CA-G.R. CV No. 40887, dated July 30, 2002 is AFFIRMED.
SO ORDERED.
[G.R. No. 142293. February 27, 2003.]
VICENTE SY, TRINIDAD PAULINO, 6B'S TRUCKING CORPORATION, and SBT 1
TRUCKING CORPORATION, petitioners, vs. HON. COURT OF APPEALS, and
JAIME SAHOT, respondents.
QUISUMBING, J p:
This petition for review seeks the reversal of the decision 2 of the Court of
Appeals dated February 29, 2000, in CA-G.R. SP No. 52671, affirming with
modification the decision 3 of the National Labor Relations Commission
promulgated on June 20, 1996 in NLRC NCR CA No. 010526-96. Petitioners
also pray for the reinstatement of the decision 4 of the Labor Arbiter in NLRC
NCR Case No. 00-09-06717-94.
Culled from the records are the following facts of this case:
Sometime in 1958, private respondent Jaime Sahot 5 started working as a
truck helper for petitioners' family-owned trucking business named Vicente
Sy Trucking. In 1965, he became a truck driver of the same family business,
renamed T. Paulino Trucking Service, later 6B's Trucking Corporation in 1985,
and thereafter known as SBT Trucking Corporation since 1994. Throughout
all these changes in names and for 36 years, private respondent
continuously served the trucking business of petitioners.
In April 1994, Sahot was already 59 years old. He had been incurring
absences as he was suffering from various ailments. Particularly causing him
pain was his left thigh, which greatly affected the performance of his task
as a driver. He inquired about his medical and retirement benefits with the
Social Security System (SSS) on April 25, 1994, but discovered that his
premium payments had not been remitted by his employer.
Sahot had filed a week-long leave sometime in May 1994. On May 27th, he
was medically examined and treated for EOR, presleyopia, hypertensive
retinopathy G II (Annexes "G-5" and "G-3", pp. 48, 104, respectively), 6 HPM,
UTI, Osteoarthritis (Annex "G-4", p. 105), 7 and heart enlargement (Annex G,
p. 107). 8 On said grounds, Belen Paulino of the SBT Trucking Service
management told him to file a formal request for extension of his leave. At
the end of his week-long absence, Sahot applied for extension of his leave
for the whole month of June, 1994. It was at this time when petitioners
allegedly threatened to terminate his employment should he refuse to go
back to work.
At this point, Sahot found himself in a dilemma. He was facing dismissal if he
refused to work. But he could not retire on pension because petitioners
never paid his correct SSS premiums. The fact remained he could no longer
work as his left thigh hurt abominably. Petitioners ended his dilemma. They
carried out their threat and dismissed him from work, effective June 30,
1994. He ended up sick, jobless and penniless.
On September 13, 1994, Sahot filed with the NLRC NCR Arbitration Branch,
a complaint for illegal dismissal, docketed as NLRC NCR Case No. 00-09-
06717-94. He prayed for the recovery of separation pay and attorneys fees
against Vicente Sy and Trinidad Paulino-Sy, Belen Paulino, Vicente Sy
Trucking, T. Paulino Trucking Service, 6B's Trucking and SBT Trucking, herein
petitioners.
For their part, petitioners admitted they had a trucking business in the 1950s
but denied employing helpers and drivers. They contend that private
respondent was not illegally dismissed as a driver because he was in fact
petitioners' industrial partner. They add that it was not until the year 1994,
when SBT Trucking Corporation was established, and only then did
respondent Sahot become an employee of the company, with a monthly
salary that reached P4,160.00 at the time of his separation. IcaHCS
Petitioners further claimed that sometime prior to June 1, 1994, Sahot went
on leave and was not able to report for work for almost seven days. On
June 1, 1994, Sahot asked permission to extend his leave of absence until
June 30, 1994. It appeared that from the expiration of his leave, private
respondent never reported back to work nor did he file an extension of his
leave. Instead, he filed the complaint for illegal dismissal against the
trucking company and its owners.
4
Petitioners add that due to Sahot's refusal to work after the expiration of his
authorized leave of absence, he should be deemed to have voluntarily
resigned from his work. They contended that Sahot had all the time to
extend his leave or at least inform petitioners of his health condition. Lastly,
they cited NLRC Case No. RE-4997-76, entitled "Manuelito Jimenez et al. vs.
T. Paulino Trucking Service," as a defense in view of the alleged similarity in
the factual milieu and issues of said case to that of Sahot's, hence they are
in pari materia and Sahot's complaint ought also to be dismissed.
The NLRC NCR Arbitration Branch, through Labor Arbiter Ariel Cadiente
Santos, ruled that there was no illegal dismissal in Sahot's case. Private
respondent had failed to report to work. Moreover, said the Labor Arbiter,
petitioners and private respondent were industrial partners before January
1994. The Labor Arbiter concluded by ordering petitioners to pay "financial
assistance" of P15,000 to Sahot for having served the company as a regular
employee since January 1994 only.
On appeal, the National Labor Relations Commission modified the
judgment of the Labor Arbiter. It declared that private respondent was an
employee, not an industrial partner, since the start. Private respondent
Sahot did not abandon his job but his employment was terminated on
account of his illness, pursuant to Article 284 9 of the Labor Code.
Accordingly, the NLRC ordered petitioners to pay private respondent
separation pay in the amount of P60,320.00, at the rate of P2,080.00 per
year for 29 years of service.
Petitioners assailed the decision of the NLRC before the Court of Appeals.
In its decision dated February 29, 2000, the appellate court affirmed with
modification the judgment of the NLRC. It held that private respondent was
indeed an employee of petitioners since 1958. It also increased the amount
of separation pay awarded to private respondent to P74,880, computed at
the rate of P2,080 per year for 36 years of service from 1958 to 1994. It
decreed:
WHEREFORE, the assailed decision is hereby AFFIRMED with MODIFICATION.
SB Trucking Corporation is hereby directed to pay complainant Jaime
Sahot the sum of SEVENTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY
(P74,880.00) PESOS as and for his separation pay. 10
Hence, the instant petition anchored on the following contentions:
I of petitioners. There was no written agreement, no proof that he received
RESPONDENT COURT OF APPEALS IN PROMULGATING THE QUESTION[ED]
DECISION AFFIRMING WITH MODIFICATION THE DECISION OF NATIONAL
LABOR RELATIONS COMMISSION DECIDED NOT IN ACCORD WITH LAW AND
PUT AT NAUGHT ARTICLE 402 OF THE CIVIL CODE. 11
II
RESPONDENT COURT OF APPEALS VIOLATED SUPREME COURT RULING THAT
THE NATIONAL LABOR RELATIONS COMMISSION IS BOUND BY THE FACTUAL
FINDINGS OF THE LABOR ARBITER AS THE LATTER WAS IN A BETTER POSITION
TO OBSERVE THE DEMEANOR AND DEPORTMENT OF THE WITNESSES IN THE
CASE OF ASSOCIATION OF INDEPENDENT UNIONS IN THE PHILIPPINES VERSUS
NATIONAL CAPITAL REGION (305 SCRA 233). 12
III
PRIVATE RESPONDENT WAS NOT DISMISS[ED] BY RESPONDENT SBT TRUCKING
CORPORATION. 13
Three issues are to be resolved: (1) Whether or not an employer-employee
relationship existed between petitioners and respondent Sahot; (2) Whether
or not there was valid dismissal; and (3) Whether or not respondent Sahot is
entitled to separation pay.
Crucial to the resolution of this case is the determination of the first issue.
Before a case for illegal dismissal can prosper, an employer-employee
relationship must first be established. 14
Petitioners invoke the decision of the Labor Arbiter Ariel Cadiente Santos
which found that respondent Sahot was not an employee but was in fact,
petitioners' industrial partner. 15 It is contended that it was the Labor Arbiter
who heard the case and had the opportunity to observe the demeanor
and deportment of the parties. The same conclusion, aver petitioners, is
supported by substantial evidence. 16 Moreover, it is argued that the
findings of fact of the Labor Arbiter was wrongly overturned by the NLRC
when the latter made the following pronouncement:
We agree with complainant that there was error committed by the Labor
Arbiter when he concluded that complainant was an industrial partner prior
to 1994. A computation of the age of complainant shows that he was only
twenty-three (23) years when he started working with respondent as truck
helper. How can we entertain in our mind that a twenty-three (23) year old
man, working as a truck helper, be considered an industrial partner. Hence
we rule that complainant was only an employee, not a partner of
respondents from the time complainant started working for respondent. 17
Because the Court of Appeals also found that an employer-employee
relationship existed, petitioners aver that the appellate court's decision
gives an "imprimatur" to the "illegal" finding and conclusion of the NLRC.
Private respondent, for his part, denies that he was ever an industrial partner
a share in petitioners' profits, nor was there anything to show he had any
participation with respect to the running of the business. 18
The elements to determine the existence of an employment relationship
are: (a) the selection and engagement of the employee; (b) the payment
of wages; (c) the power of dismissal; and (d) the employer's power to
control the employee's conduct. The most important element is the
employer's control of the employee's conduct, not only as to the result of
the work to be done, but also as to the means and methods to accomplish
it. 19
As found by the appellate court, petitioners owned and operated a
trucking business since the 1950s and by their own allegations, they
determined private respondent's wages and rest day. 20 Records of the
case show that private respondent actually engaged in work as an
employee. During the entire course of his employment he did not have the
freedom to determine where he would go, what he would do, and how he
would do it. He merely followed instructions of petitioners and was content
to do so, as long as he was paid his wages. Indeed, said the CA, private
respondent had worked as a truck helper and driver of petitioners not for
his own pleasure but under the latter's control.
Article 1767 21 of the Civil Code states that in 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. 22 Not one of these circumstances is present in this case. No
written agreement exists to prove the partnership between the parties.
Private respondent did not contribute money, property or industry for the
purpose of engaging in the supposed business. There is no proof that he
was receiving a share in the profits as a matter of course, during the period
when the trucking business was under operation. Neither is there any proof
that he had actively participated in the management, administration and
adoption of policies of the business. Thus, the NLRC and the CA did not err
in reversing the finding of the Labor Arbiter that private respondent was an
industrial partner from 1958 to 1994. DaCTcA
On this point, we affirm the findings of the appellate court and the NLRC.
Private respondent Jaime Sahot was not an industrial partner but an
employee of petitioners from 1958 to 1994. The existence of an employer-
employee relationship is ultimately a question of fact 23 and the findings
thereon by the NLRC, as affirmed by the Court of Appeals, deserve not only
respect but finality when supported by substantial evidence. Substantial
evidence is such amount of relevant evidence which a reasonable mind
might accept as adequate to justify a conclusion. 24
Time and again this Court has said that "if doubt exists between the
evidence presented by the employer and the employee, the scales of
justice must be tilted in favor of the latter." 25 Here, we entertain no doubt.
Private respondent since the beginning was an employee of, not an
industrial partner in, the trucking business.
Coming now to the second issue, was private respondent validly dismissed
by petitioners?
Petitioners contend that it was private respondent who refused to go back
to work. The decision of the Labor Arbiter pointed out that during the
conciliation proceedings, petitioners requested respondent Sahot to report
back for work. However, in the same proceedings, Sahot stated that he was
no longer fit to continue working, and instead he demanded separation
pay. Petitioners then retorted that if Sahot did not like to work as a driver
anymore, then he could be given a job that was less strenuous, such as
working as a checker. However, Sahot declined that suggestion. Based on
5
the foregoing recitals, petitioners assert that it is clear that Sahot was not
dismissed but it was of his own volition that he did not report for work
anymore.
In his decision, the Labor Arbiter concluded that:
While it may be true that respondents insisted that complainant continue
working with respondents despite his alleged illness, there is no direct
evidence that will prove that complainant's illness prevents or
incapacitates him from performing the function of a driver. The fact remains
that complainant suddenly stopped working due to boredom or otherwise
when he refused to work as a checker which certainly is a much less
strenuous job than a driver. 26
But dealing the Labor Arbiter a reversal on this score the NLRC, concurred
in by the Court of Appeals, held that:
While it was very obvious that complainant did not have any intention to
report back to work due to his illness which incapacitated him to perform
his job, such intention cannot be construed to be an abandonment.
Instead, the same should have been considered as one of those falling
under the just causes of terminating an employment. The insistence of
respondent in making complainant work did not change the scenario.
It is worthy to note that respondent is engaged in the trucking business
where physical strength is of utmost requirement (sic). Complainant started
working with respondent as truck helper at age twenty-three (23), then as
truck driver since 1965. Complainant was already fifty-nine (59) when the
complaint was filed and suffering from various illness triggered by his work
and age.
xxx xxx xxx 27
In termination cases, the burden is upon the employer to show by
substantial evidence that the termination was for lawful cause and validly
made. 28 Article 277(b) of the Labor Code puts the burden of proving that
the dismissal of an employee was for a valid or authorized cause on the
employer, without distinction whether the employer admits or does not
admit the dismissal. 29 For an employee's dismissal to be valid, (a) the
dismissal must be for a valid cause and (b) the employee must be afforded
due process. 30
Article 284 of the Labor Code authorizes an employer to terminate an
employee on the ground of disease, viz:
Art. 284. Disease as a ground for termination. An employer may terminate
the services of an employee who has been found to be suffering from any
disease and whose continued employment is prohibited by law or
prejudicial to his health as well as the health of his co-employees: . . .
However, in order to validly terminate employment on this ground, Book VI,
Rule I, Section 8 of the Omnibus Implementing Rules of the Labor Code
requires:
Sec. 8. Disease as a ground for dismissal. Where the employee suffers
from a disease and his continued employment is prohibited by law or
prejudicial to his health or to the health of his co-employees, the employer
shall not terminate his employment unless there is a certification by
competent public health authority that the disease is of such nature or at
such a stage that it cannot be cured within a period of six (6) months even
with proper medical treatment. If the disease or ailment can be cured
within the period, the employer shall not terminate the employee but shall
ask the employee to take a leave. The employer shall reinstate such
employee to his former position immediately upon the restoration of his
normal health. (Italics supplied).
As this Court stated in Triple Eight Integrated Services, Inc. vs. NLRC, 31 the
requirement for a medical certificate under Article 284 of the Labor Code
cannot be dispensed with; otherwise, it would sanction the unilateral and
arbitrary determination by the employer of the gravity or extent of the
employee's illness and thus defeat the public policy in the protection of
labor.
In the case at bar, the employer clearly did not comply with the medical
certificate requirement before Sahot's dismissal was effected. In the same
case of Sevillana vs. I. T. (International) Corp., we ruled:
Since the burden of proving the validity of the dismissal of the employee
rests on the employer, the latter should likewise bear the burden of showing
that the requisites for a valid dismissal due to a disease have been complied
with. In the absence of the required certification by a competent public
health authority, this Court has ruled against the validity of the employee's
dismissal. It is therefore incumbent upon the private respondents to prove
by the quantum of evidence required by law that petitioner was not
dismissed, or if dismissed, that the dismissal was not illegal; otherwise, the
dismissal would be unjustified. This Court will not sanction a dismissal
premised on mere conjectures and suspicions, the evidence must be
substantial and not arbitrary and must be founded on clearly established
facts sufficient to warrant his separation from work. 32
In addition, we must likewise determine if the procedural aspect of due
process had been complied with by the employer.
From the records, it clearly appears that procedural due process was not
observed in the separation of private respondent by the management of
the trucking company. The employer is required to furnish an employee with
two written notices before the latter is dismissed: (1) the notice to apprise
the employee of the particular acts or omissions for which his dismissal is
sought, which is the equivalent of a charge; and (2) the notice informing
the employee of his dismissal, to be issued after the employee has been
given reasonable opportunity to answer and to be heard on his defense.
33 These, the petitioners failed to do, even only for record purposes. What
management did was to threaten the employee with dismissal, then
actually implement the threat when the occasion presented itself because
of private respondent's painful left thigh.
All told, both the substantive and procedural aspects of due process were
violated. Clearly, therefore, Sahot's dismissal is tainted with invalidity.
On the last issue, as held by the Court of Appeals, respondent Jaime Sahot
is entitled to separation pay. The law is clear on the matter. An employee
who is terminated because of disease is entitled to "separation pay
equivalent to at least one month salary or to one-half month salary for every
year of service, whichever is greater . . . . 34 Following the formula set in Art.
284 of the Labor Code, his separation pay was computed by the appellate
court at P2,080 times 36 years (1958 to 1994) or P74,880. We agree with the
computation, after noting that his last monthly salary was P4,160.00 so that
one-half thereof is P2,080.00. Finding no reversible error nor grave abuse of
discretion on the part of appellate court, we are constrained to sustain its
decision. To avoid further delay in the payment due the separated worker,
whose claim was filed way back in 1994, this decision is immediately
executory. Otherwise, six percent (6%) interest per annum should be
charged thereon, for any delay, pursuant to provisions of the Civil Code.
CcSEIH
WHEREFORE, the petition is DENIED and the decision of the Court of Appeals
dated February 29, 2000 is AFFIRMED. Petitioners must pay private
respondent Jaime Sahot his separation pay for 36 years of service at the
rate of one-half monthly pay for every year of service, amounting to
P74,880.00, with interest of six per centum (6%) per annum from finality of
this decision until fully paid.
Costs against petitioners.
SO ORDERED.
[G.R. No. 134559. December 9, 1999.]
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES,
respondents.
PANGANIBAN, J p:
Courts may not extricate parties from the necessary consequences of their
acts. That the terms of a contract turn out to be financially
disadvantageous to them will not relieve them of their obligations therein.
The lack of an inventory of real property will not ipso facto release the
contracting partners from their respective obligations to each other arising
from acts executed in accordance with their agreement. cdphil
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision 1 of the Court of Appeals 2 (CA) in CA-GR CV No. 42378 and its
June 25, 1998 Resolution denying reconsideration. The assailed Decision
6
affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil
Case No. R-21208, which disposed as follows:
"WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiff's
complaint. The counterclaims of the defendant are likewise ordered
dismissed. No pronouncement as to costs." 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a
"joint venture agreement" with Respondent Manuel Torres for the
development of a parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the said parcel of land in
favor of respondent, who then had it registered in his name. By mortgaging
the property, respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the
development of the subdivision. 4 All three of them also agreed to share
the proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of "respondent's lack
of funds or means and skills." They add that respondent used the loan not
for the development of the subdivision, but in furtherance of his own
company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement
the Agreement. With the said amount, he was able to effect the survey and
the subdivision of the lots. He secured the Lapu Lapu City Council's
approval of the subdivision project which he advertised in a local
newspaper. He also caused the construction of roads, curbs and gutters.
Likewise, he entered into a contract with an engineering firm for the
building of sixty low-cost housing units and actually even set up a model
house on one of the subdivision lots. He did all of these for a total expense
of P85,000. Cdpr
Respondent claimed that the subdivision project failed, however, because
petitioners and their relatives had separately caused the annotations of
adverse claims on the title to the land, which eventually scared away
prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa against respondent
and his wife, who were however acquitted. Thereafter, they filed the
present civil case which, upon respondent's motion, was later dismissed by
the trial court in an Order dated September 6, 1982. On appeal, however,
the appellate court remanded the case for further proceedings. Thereafter,
the RTC issued its assailed Decision, which, as earlier stated, was affirmed
by the CA.
Hence, this Petition. 6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership in the
same proportion as their share in the profits stipulated in the contract.
Disagreeing with the trial court's pronouncement that losses as well as profits
in a joint venture should be distributed equally, 7 the CA invoked Article
1797 of the Civil Code which provides:
"Article 1797 The losses and profits shall be distributed in conformity with
the agreement. If only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in the same
proportion."
The CA elucidated further:
"In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed capital,
he shall also receive a share in the profits in proportion to his capital." prcd
The Issue
Petitioners impute to the Court of Appeals the following error:
". . . [The] Court of Appeals erred in concluding that the transaction . . .
between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769, and
other related provisions of the Civil Code of the Philippines." 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They
contend that the Joint Venture Agreement and the earlier Deed of Sale,
both of which were the bases of the appellate court's finding of a
partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project.
Because the agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they pray that respondent
pay them damages equivalent to 60 percent of the value of the property.
9 PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the
The pertinent portions of the Joint Venture Agreement read as follows:
"KNOW ALL MEN BY THESE PRESENTS:
"This AGREEMENT, is made and entered into at Cebu City, Philippines, this
5th day of March, 1969, by and between MR. MANUEL R. TORRES, . . . the
FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING,
. . . the SECOND PARTY:
WITNESSETH:
"That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a total area of 17,009 square meters, to be
sub-divided by the FIRST PARTY;
"Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of:
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the
execution of this contract for the property entrusted by the SECOND PARTY,
for sub-division projects and development purposes;
"NOW THEREFORE, for and in consideration of the above covenants and
promises herein contained the respective parties hereto do hereby
stipulate and agree as follows: cdphil
"ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED
THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square
meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.
"SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
currency, for their personal obligations and this particular amount will serve
as an advance payment from the FIRST PARTY for the property mentioned
to be sub-divided and to be deducted from the sales.
"THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the
interest and the principal amount involving the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division
project is terminated and ready for sale to any interested parties, and the
amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will
be deducted accordingly.
"FOURTH: That all general expense[s] and all cost[s] involved in the sub-
division project should be paid by the FIRST PARTY, exclusively and all the
expenses will not be deducted from the sales after the development of the
sub-division project.
"FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
FIRST PARTY, and additional profits or whatever income deriving from the
sales will be divided equally according to the . . . percentage [agreed
upon] by both parties.
7

"SIXTH: That the intended sub-division project of the property involved will
start the work and all improvements upon the adjacent lots will be
negotiated in both parties['] favor and all sales shall [be] decided by both
parties. cdtai
"SEVENTH: That the SECOND PARTIES, should be given an option to get back
the property mentioned provided the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY,
will be paid in full to the FIRST PARTY, including all necessary improvements
spent by the FIRST PARTY, and the FIRST PARTY will be given a grace period
to turnover the property mentioned above.
"That this AGREEMENT shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein
stated." 10
A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
"ART. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves."
Under the above-quoted Agreement, petitioners would contribute
property to the partnership in the form of land which was to be developed
into a subdivision; while respondent would give, in addition to his industry,
the amount needed for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to
form a partnership. 11
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the name of
the respondent. On the other hand, respondent caused the subject land
to be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the roads, the curbs
and the gutters of the subdivision and entered into a contract to construct
low-cost housing units on the property. llcd
Respondent's actions clearly belie petitioners' contention that he made no
contribution to the partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to
what has been expressly stipulated, but also to all necessary consequences
thereof, as follows:
"ART. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law."
It is undisputed that petitioners are educated and are thus presumed to
have understood the terms of the contract they voluntarily signed. If it was
not in consonance with their expectations, they should have objected to it
and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual stipulations
may turn out to be financially disadvantageous will not relieve parties
thereto of their obligations. They cannot now disavow the relationship
formed from such agreement due to their supposed misunderstanding of
its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article
1773 of the Civil Code, which provides:
"ART. 1773. A contract of partnership is void, whenever immovable property
is contributed thereto, if an inventory of said property is not made, signed
by the parties, and attached to the public instrument."
They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons.
Thus, the eminent Arturo M. Tolentino states that under the aforecited
provision which is a complement of Article 1771, 12 "the execution of a
public instrument would be useless if there is no inventory of the property
contributed, because without its designation and description, they cannot
be subject to inscription in the Registry of Property, and their contribution
cannot prejudice third persons. This will result in fraud to those who contract
with the partnership in the belief [in] the efficacy of the guaranty in which
the immovables may consist. Thus, the contract is declared void by the law
when no such inventory is made." The case at bar does not involve third
parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis
for their claim that respondent should pay them 60 percent of the value of
the property. 13 They cannot in one breath deny the contract and in
another recognize it, depending on what momentarily suits their purpose.
Parties cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice. llcd
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which
the parties' rights and obligations to each other may be inferred and
enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under
Article 1422 14 of the Civil Code, because it is the direct result of an earlier
illegal contract, which was for the sale of the land without valid
consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits from the subdivision
project. Its first stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent. Consideration, more
properly denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another. 15
In this case, the cause of the contract of sale consisted not in the stated
peso value of the land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used. As explained by the
trial court, "the land was in effect given to the partnership as [petitioner's]
participation therein. . . . There was therefore a consideration for the sale,
the [petitioners] acting in the expectation that, should the venture come
into fruition, they [would] get sixty percent of the net profits."
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages equivalent to 60 percent of the value of the property, which was
their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners' acts
were not the cause of the failure of the project. 16 But it also ruled that
neither was respondent responsible therefor. 17 In imputing the blame solely
to him, petitioners failed to give any reason why we should disregard the
factual findings of the appellate court relieving him of fault. Verily, factual
issues cannot be resolved in a petition for review under Rule 45, as in this
case. Petitioners have not alleged, not to say shown, that their Petition
constitutes one of the exceptions to this doctrine. 18 Accordingly, we find
no reversible error in the CA's ruling that petitioners are not entitled to
damages. cdtai
WHEREFORE, the Petition is hereby DENIED and the challenged Decision
AFFIRMED. Costs against petitioners.
SO ORDERED.
8
[G.R. No. 136448. November 3, 1999.]
LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES, INC.,
respondent.
PANGANIBAN, J p:
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. cda
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; cdphil
2. That defendants are jointly liable to plaintiff for the following amounts,
subject to the modifications as hereinafter made by reason of the special
and unique facts and circumstances and the proceedings that transpired
during the trial of this case;
a. P532,045.00 representing [the] unpaid purchase price of the fishing nets
covered by the Agreement plus P68,000.00 representing the unpaid price
of the floats not covered by said Agreement;
b. 12% interest per annum counted from date of plaintiff's invoices and
computed on their respective amounts as follows:
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 attorney's fees, plus P8,500.00 representing P500.00
per appearance in court;
d. P65,000.00 representing P5,000.00 monthly rental for storage charges on
the nets counted from September 20, 1990 (date of attachment) to
September 12, 1991 (date of auction sale); cdasia
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 of P900,000.00 as this amount replaced the attached nets and
floats. Considering, however, that the total judgment obligation as
computed above would amount to only P840,216.92, it would be
inequitable, unfair and unjust to award the excess to the defendants who
are not entitled to damages and who did not put up a single centavo to
raise the amount of P900,000.00 aside from the fact that they are not the
owners of the nets and floats. For this reason, the defendants are hereby
relieved from any and all liabilities arising from the monetary judgment
obligation enumerated above and for plaintiff to retain possession and
ownership of the nets and floats and for the reimbursement of the
P900,000.00 deposited by it with the Clerk of Court.
SO ORDERED."
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. LLpr
Instead of answering the Complaint, Chua filed a Manifestation admitting
his liability and requesting a reasonable time within which to pay. He also
turned over to respondent some of the nets which were in his possession.
Peter Yao filed an Answer, after which he was deemed to have waived his
right to cross-examine witnesses and to present evidence on his behalf,
because of his failure to appear in subsequent hearings. Lim Tong Lim, on
the other hand, filed an Answer with Counterclaim and Crossclaim and
moved for the lifting of the Writ of Attachment. 6 The trial court maintained
the Writ, and upon motion of private respondent, ordered the sale of the
fishing nets at a public auction. Philippine Fishing Gear Industries won the
bidding and deposited with the said court the sales proceeds of P900,000.
7
On November 18, 1992, the trial court rendered its Decision, ruling that
Philippine Fishing Gear Industries was entitled to the Writ of Attachment and
that Chua, Yao and Lim, as general partners, were jointly liable to pay
respondent. 8
The trial court ruled that a partnership among Lim, Chua and Yao existed
based (1) on the testimonies of the witnesses presented and (2) on a
Compromise Agreement executed by the three 9 in Civil Case No. 1492-
MN which Chua and Yao had brought against Lim in the RTC of Malabon,
Branch 72, for (a) a declaration of nullity of commercial documents; (b) a
reformation of contracts; (c) a declaration of ownership of fishing boats; (d)
an injunction and (e) damages. 10 The Compromise Agreement provided:
"a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4)
vessels sold in the amount of P5,750,000.00 including the fishing net. This
P5,750,000.00 shall be applied as full payment for P3,250,000.00 in favor of
JL Holdings Corporation and/or Lim Tong Lim;
"b) If the four (4) vessel[s] and the fishing net will be sold at a higher price
than P5,750,000.00 whatever will be the excess will be divided into 3: 1/3 Lim
Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;
"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
9

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 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 . . . . Obviously, the ultimate undertaking of the
defendants was to divide the profits among themselves which is what a
partnership essentially is . . . . By a contract of partnership, two or more
persons bind themselves to contribute money, property or industry to a
common fund with the intention of dividing the profits among themselves
(Article 1767, New Civil Code)." 13 cdtai
Hence, petitioner brought this recourse before this Court. 14
The Issues
In his Petition and Memorandum, Lim asks this Court to reverse the assailed
Decision on the following grounds:
"I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE
AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A
SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG THEM.
"II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING FOR
OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS FROM
PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN IMPUTING
LIABILITY TO PETITIONER LIM AS WELL.
"III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT
OF PETITIONER LIM'S GOODS."
In determining whether petitioner may be held liable for the fishing nets and
floats 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. cdasia
This Court's 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 of
P37,500 plus 25 percent of the gross catch of the boat.
We are not persuaded by the arguments of petitioner. The facts as found
by the two lower courts clearly showed that there existed a partnership
among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which
provides:
"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." llcd
Specifically, both lower courts ruled that a partnership among the three
existed based on the following factual findings: 15
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yao's
partner;
(2) That after convening for a few times, Lim Chua, and Yao verbally agreed
to acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum
of P3.35 million;
(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim
Tong Lim, to finance the venture.
(4) That they bought the boats from CMF Fishing Corporation, which
executed a Deed of Sale over these two (2) boats in favor of Petitioner Lim
Tong Lim only to serve as security for the loan extended by Jesus Lim;
(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping,
repairing, dry docking and other expenses for the boats would be
shouldered by Chua and Yao;
(6) That because of the "unavailability of funds," Jesus Lim again extended
a loan to the partnership in the amount of P1 million secured by a check,
because of which, Yao and Chua entrusted the ownership papers of two
other boats, Chua's FB Lady Anne Mel and Yao's FB Tracy to Lim Tong Lim.
cdtai
(7) That in pursuance of the business agreement, Peter Yao and Antonio
Chua bought nets from Respondent Philippine Fishing Gear, in behalf of
"Ocean Quest Fishing Corporation," their purported business name.
(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a)
declaration of nullity of commercial documents; (b) reformation of
contracts; (c) declaration of ownership of fishing boats; (4) injunction; and
(e) damages.
(9) That the case was amicably settled through a Compromise Agreement
executed between the parties-litigants the terms of which are already
enumerated above.
From the factual findings of both lower courts, it is clear that Chua, Yao and
Lim had decided to engage in a fishing business, which they started by
buying boats worth P3.35 million, financed by a loan secured from Jesus Lim
who was petitioner's brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of
the sale of the boats, and to divide equally among them the excess or loss.
These boats, the purchase and the repair of which were financed with
borrowed money, fell under the term "common fund" under Article 1767.
The contribution to such fund need not be cash or fixed assets; it could be
an intangible like credit or industry. That the parties agreed that any loss or
profit from the sale and operation of the boats would be divided equally
among them also shows that they had indeed formed a partnership.
Moreover, it is clear that the partnership extended not only to the purchase
of the boat, but also to that of the nets and the floats. The fishing nets and
the floats, both essential to fishing, were obviously acquired in furtherance
of their business. It would have been inconceivable for Lim to involve himself
so much in buying the boat but not in the acquisition of the aforesaid
equipment, without which the business could not have proceeded. cdtai
Given the preceding facts, it is clear that there was, among petitioner,
Chua and Yao, a partnership engaged in the fishing business. They
purchased the boats, which constituted the main assets of the partnership,
and they agreed that the proceeds from the sales and operations thereof
would be divided among them.
We stress that under Rule 45, a petition for review like the present case
should involve only questions of law. Thus, the foregoing factual findings of
the RTC and the CA are binding on this Court, absent any cogent proof
that the present action is embraced by one of the exceptions to the rule.
16 In assailing the factual findings of the two lower courts, petitioner
effectively goes beyond the bounds of a petition for review under Rule 45.
Compromise Agreement
Not the Sole Basis of Partnership
Petitioner argues that the appellate court's sole basis for assuming the
existence of a partnership was the Compromise Agreement. He also claims
that the settlement was entered into only to end the dispute among them,
but not to adjudicate their preexisting rights and obligations. His arguments
10
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 petitioner's
argument that the existence of a partnership was based only on the
Compromise Agreement. LLphil
Petitioner Was a Partner,
Not a Lessor
We are not convinced by petitioner's argument that he was merely the
lessor of the boats to Chua and Yao, not a partner in the fishing venture. His
argument allegedly finds support in the Contract of Lease and the
registration papers showing that he was the owner of the boats, including
F/B Lourdes where the nets were found.
His allegation defies logic. In effect, he would like this Court to believe that
he consented to the sale of his own boats to pay a debt of Chua and Yao,
with the excess of the proceeds to be divided among the three of them.
No lessor would do what petitioner did. Indeed, his consent to the sale
proved that there was a preexisting partnership among all three.
Verily, as found by the lower courts, petitioner entered into a business
agreement with Chua and Yao, in which debts were undertaken in order
to finance the acquisition and the upgrading of the vessels which would be
used in their fishing business. The sale of the boats, as well as the division
among the three of the balance remaining after the payment of their loans,
proves beyond cavil that F/B Lourdes, though registered in his name, was
not his own property but an asset of the partnership. It is not uncommon to
register the properties acquired from a loan in the name of the person the
lender trusts, who in this case is the petitioner himself. After all, he is the
brother of the creditor, Jesus Lim. prLL
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
"A litigation is not a game of technicalities in which one, more deeply
schooled and skilled in the subtle art of movement and position, entraps
and destroys the other. It is, rather, a contest in which each contending
party fully and fairly lays before the court the facts in issue and then,
brushing aside as wholly trivial and indecisive all imperfections of form and
technicalities of procedure, asks that justice be done upon the merits.
Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great
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.
11
[G.R. No. 112675. January 25, 1999.]
AFISCO INSURANCE CORPORATION; CCC INSURANCE CORPORATION;
CHARTER INSURANCE CO., INC.; CIBELES INSURANCE CORPORATION;
COMMONWEALTH INSURANCE COMPANY; CONSOLIDATED INSURANCE CO.,
INC.; DEVELOPMENT INSURANCE & SURETY CORPORATION; DOMESTIC
INSURANCE COMPANY OF THE PHILIPPINES; EASTERN ASSURANCE COMPANY
& SURETY CORP.; EMPIRE INSURANCE COMPANY; EQUITABLE INSURANCE
CORPORATION; FEDERAL INSURANCE CORPORATION INC.; FGU INSURANCE
CORPORATION; FIDELITY & SURETY COMPANY OF THE PHILS., INC.; FILIPINO
MERCHANTS' INSURANCE CO., INC.; GOVERNMENT SERVICE INSURANCE
SYSTEM; MALAYAN INSURANCE CO., INC.; MALAYAN ZURICH INSURANCE
CO., INC.; MERCANTILE INSURANCE CO., INC.; METROPOLITAN INSURANCE
COMPANY; METRO-TAISHO INSURANCE CORPORATION; NEW ZEALAND
INSURANCE CO., LTD.; PAN-MALAYAN INSURANCE CORPORATION;
PARAMOUNT INSURANCE CORPORATION; PEOPLE'S TRANS-EAST ASIA
INSURANCE CORPORATION; PERLA COMPANIA DE SEGUROS, INC.;
PHILIPPINE BRITISH ASSURANCE CO., INC.; PHILIPPINE FIRST INSURANCE CO.,
INC.; PIONEER INSURANCE & SURETY CORP.; PIONEER INTERCONTINENTAL
INSURANCE CORPORATION; PROVIDENT INSURANCE COMPANY OF THE
PHILIPPINES; PYRAMID INSURANCE CO., INC.; RELIANCE SURETY & INSURANCE
COMPANY; RIZAL SURETY & INSURANCE COMPANY; SANPIRO INSURANCE
CORPORATION; SEABOARD-EASTERN INSURANCE CO., INC.; SOLID
GUARANTY, INC.; SOUTH SEA SURETY & INSURANCE CO., INC.; STATE
BONDING & INSURANCE CO., INC.; SUMMA INSURANCE CORPORATION;
TABACALERA INSURANCE CO., INC. all assessed as "POOL OF MACHINERY
INSURERS," petitioners, vs. COURT OF APPEALS, COURT OF TAX APPEALS and
COMMISSIONER OF INTERNAL REVENUE, respondents.
PANGANIBAN, J p:
Pursuant to "reinsurance treaties," a number of local insurance firms formed
themselves into a "pool" in order to facilitate the handling of business
contracted with a nonresident foreign reinsurance company. May the
"clearing house" or "insurance pool" so formed be deemed a partnership or
an association that is taxable as a corporation under the National Internal
Revenue Code (NIRC)? Should the pool's remittances to the member
companies and to the said foreign firm be taxable as dividends? Under the
facts of this case, has the government's right to assess and collect said tax
prescribed? cdasia
The Case
These are the main questions raised in the Petition for Review on Certiorari
before us, assailing the October 11, 1993 Decision 1 of the Court of Appeals
2 in CA-GR SP 29502, which dismissed petitioners' appeal of the October 19,
1992 Decision 3 of the Court of Tax Appeals 4 (CTA) which had previously
sustained petitioners' liability for deficiency income tax, interest and
withholding tax. The Court of Appeals ruled:
"WHEREFORE, the petition is DISMISSED, with costs against petitioners." 5
The petition also challenges the November 15, 1993 Court of Appeals (CA)
Resolution 6 denying reconsideration.
14% interest from
The Facts 1/25/76 to 1/25/79 137,019.14
The antecedent facts, 7 as found by the Court of Appeals, are as follows:
Compromise
"The petitioners are 41 non-life insurance corporations, organized and
existing under the laws of the Philippines. Upon issuance by them of penalty-non-filing of return 300.00
Erection, Machinery Breakdown, Boiler Explosion and Contractors' All Risk
insurance policies, the petitioners on August 1, 1965 entered into a Quota late payment 300.00
Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the
Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich), a
non-resident foreign insurance corporation. The reinsurance treaties
required petitioners to form a [p]ool. Accordingly, a pool composed of the TOTAL AMOUNT DUE & P1,768,799.39
petitioners was formed on the same day.
COLLECTIBLE ===========
"On April 14, 1976, the pool of machinery insurers submitted a financial Dividend paid to Pool Members P655,636.00
statement and filed an "Information Return of Organization Exempt from
Income Tax" for the year ending in 1975, on the basis of which it was ===========
assessed by the Commissioner of Internal Revenue deficiency corporate
taxes in the amount of P1,843,273.60, and withholding taxes in the amount 10% withholding tax at
of P1,768,799.39 and P89,438.68 on dividends paid to Munich and to the source due thereon P65,563.60
petitioners, respectively. These assessments were protested by the
petitioners through its auditors Sycip, Gorres, Velayo and Co. Add: 25% surcharge 16,390.90
"On January 27, 1986, the Commissioner of Internal Revenue denied the 14% interest from
protest and ordered the petitioners, assessed as "Pool of Machinery 1/25/76 to 1/25/79 6,884.18
Insurers," to pay deficiency income tax, interest, and with[h]olding tax,
itemized as follows: Compromise
Net income per information return P3,737,370.00 penalty-non-filing of return 300.00
=========== late payment 300.00
Income tax due thereon P1,298,080.00
Add: 14% Int. fr. 4/15/76 TOTAL AMOUNT DUE & P89,438.68
to 4/15/79 545,193.60 COLLECTIBLE ==========" 8
The CA ruled in the main that the pool of machinery insurers was a
partnership taxable as a corporation, and that the latter's collection of
premiums on behalf of its members, the ceding companies, was taxable
TOTAL AMOUNT DUE & P1,843,273.60 income. It added that prescription did not bar the Bureau of Internal
Revenue (BIR) from collecting the taxes due, because "the taxpayer
COLLECTIBLE =========== cannot be located at the address given in the information return filed."
Dividend paid to Munich Hence, this Petition for Review before us. 9
Reinsurance Company P3,728,412.00 The Issues
Before this Court, petitioners raise the following issues:
===========
"1. Whether or not the Clearing House, acting as a mere agent and
35% withholding tax at source due thereon P1,304,944.20 performing strictly administrative functions, and which did not insure or
assume any risk in its own name, was a partnership or association subject to
Add: 25% surcharge 326,236.05 tax as a corporation;
12
"2. Whether or not the remittances to petitioners and MUNICHRE of their
respective shares of reinsurance premiums, pertaining to their individual
and separate contracts of reinsurance, were "dividends" subject to tax; and
"3. Whether or not the respondent Commissioner's right to assess the
Clearing House had already prescribed." 10
The Court's Ruling
The petition is devoid of merit. We sustain the ruling of the Court of Appeals
that the pool is taxable as a corporation, and that the government's right
to assess and collect the taxes had not prescribed.
First Issue:
Pool Taxable as a Corporation
Petitioners contend that the Court of Appeals erred in finding that the pool
or clearing house was an informal partnership, which was taxable as a
corporation under the NIRC. They point out that the reinsurance policies
were written by them "individually and separately," and that their liability
was limited to the extent of their allocated share in the original risks thus
reinsured. 11 Hence, the pool did not act or earn income as a reinsurer. 12
Its role was limited to its principal function of "allocating and distributing the
risk(s) arising from the original insurance among the signatories to the treaty
or the members of the pool based on their ability to absorb the risk(s)
ceded[;] as well as the performance of incidental functions, such as
records, maintenance, collection and custody of funds, etc." 13
Petitioners belie the existence of a partnership in this case, because (1)
they, the reinsurers, did not share the same risk or solidary liability; 14 (2)
there was no common fund; 15 (3) the executive board of the pool did not
exercise control and management of its funds, unlike the board of directors
of a corporation; 16 and (4) the pool or clearing house "was not and could
not possibly have engaged in the business of reinsurance from which it
could have derived income for itself." 17
The Court is not persuaded. The opinion or ruling of the Commission of
Internal Revenue, the agency tasked with the enforcement of tax laws, is
accorded much weight and even finality, when there is no showing that it
is patently wrong, 18 particularly in this case where the findings and
conclusions of the internal revenue commissioner were subsequently
affirmed by the CTA, a specialized body created for the exclusive purpose
of reviewing tax cases, and the Court of Appeals. 19 Indeed,
"[I]t has been the long standing policy and practice of this Court to respect
the conclusions of quasi-judicial agencies, such as the Court of Tax Appeals
which, by the nature of its functions, is dedicated exclusively to the study
and consideration of tax problems and has necessarily developed an
expertise on the subject, unless there has been an abuse or improvident
exercise of its authority." 20
This Court rules that the Court of Appeals, in affirming the CTA which had
previously sustained the internal revenue commissioner, committed no
reversible error. Section 24 of the NIRC,as worded in the year ending 1975,
provides:
"SEC. 24. Rate of tax on corporations. (a) Tax on domestic corporations.
A tax is hereby imposed upon the taxable net income received during
each taxable year from all sources by every corporation organized in, or
existing under the laws of the Philippines, no matter how created or
organized, but not including duly registered general co-partnership
(compaias colectivas), general professional partnerships, private
educational institutions, and building and loan associations . . . ."
Ineludibly, the Philippine legislature included in the concept of corporations
those entities that resembled them such as unregistered partnerships and
associations. Parenthetically, the NLRC's inclusion of such entities in the tax
on corporations was made even clearer by the Tax Reform Act of 1997, 21
which amended the Tax Code.Pertinent provisions of the new law read as
follows:
"SEC. 27. Rates of Income Tax on Domestic Corporations.
(A) In General. Except as otherwise provided in this Code, an income tax
of thirty-five percent (35%) is hereby imposed upon the taxable income
derived during each taxable year from all sources within and without the
Philippines by every corporation, as defined in Section 22 (B) of this Code,
and taxable under this Title as a corporation . . . ."
"SEC. 22. Definition. When used in this Title:
xxx xxx xxx
(B) The term 'corporation' shall include partnerships, no matter how created
or organized, joint-stock companies, joint accounts (cuentas en
participacion), associations, or insurance companies, but does not include
general professional partnerships [or] a joint venture or consortium formed
for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an
operating or consortium agreement under a service contract without the
Government. 'General professional partnerships' are partnerships formed
by persons for the sole purpose of exercising their common profession, no
part of the income of which is derived from engaging in any trade or
business. LLphil
xxx xxx xxx."
Thus, the Court in Evangelista v. Collector of Internal Revenue 22 held that
Section 24 covered these unregistered partnerships and even associations
or joint accounts, which had no legal personalities apart from their
individual members. 23 The Court of Appeals astutely applied Evangelista:
24
". . . Accordingly, a pool of individual real property owners dealing in real
estate business was considered a corporation for purposes of the tax in Sec.
24 of the Tax Code in Evangelista v. Collector of Internal Revenue, supra.
The Supreme Court said:
'The term 'partnership' includes a syndicate, group, pool, joint venture or
other unincorporated organization, through or by means of which any
business, financial operation, or venture is carried on . . . (8 Merten's Law of
Federal Income Taxation, p. 562 Note 63)'"
Article 1767 of the Civil Code recognizes the creation of a contract of
partnership when "two or more persons bind themselves to contribute
money, property, or industry to a common fund, with the intention of
dividing the profits among themselves." 25 Its requisites are: "(1) mutual
contribution to a common stock, and (2) a joint interest in the profits." 26 In
other words, a partnership is formed when persons contract "to devote to a
common purpose either money, property, or labor with the intention of
dividing the profits between themselves." 27 Meanwhile, an association
implies associates who enter into a "joint enterprise . . . for the transaction
of business." 28
In the case before us, the ceding companies entered into a Pool
Agreement 29 or an association 30 that would handle all the insurance
businesses covered under their quota-share reinsurance treaty 31 and
surplus reinsurance treaty 32 with Munich. The following unmistakably
indicates a partnership or an association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and other valuables
that are deposited in the name and credit of the pool. 33 This common
fund pays for the administration and operation expenses of the pool. 34
(2) The pool functions through an executive board, which resembles the
board of directors of a corporation, composed of one representative for
each of the ceding companies. 35
(3) True, the pool itself is not a reinsurer and does not issue any insurance
policy; however, its work is indispensable, beneficial and economically
useful to the business of the ceding companies and Munich, because
without it they would not have received their premiums. The ceding
companies share "in the business ceded to the pool" and in the "expenses"
according to a "Rules of Distribution" annexed to the Pool Agreement. 36
Profit motive or business is, therefore, the primordial reason for the pool's
formation. As aptly found by the CTA:
". . . The fact that the pool does not retain any profit or income does not
obliterate an antecedent fact, that of the pool being used in the
transaction of business for profit. It is apparent, and petitioners admit, that
their association or coaction was indispensable [to] the transaction of the
business. . . If together they have conducted business, profit must have
been the object as, indeed, profit was earned. Though the profit was
apportioned among the members, this is only a matter of consequence, as
it implies that profit actually resulted." 37
The petitioners' reliance on Pascual v. Commissioner 38 is misplaced,
because the facts obtaining therein are not on all fours with the present
13
case. In Pascual, there was no unregistered partnership, but merely a co-
ownership which took up only two isolated transactions. 39 The Court of
Appeals did not err in applying Evangelista, which involved a partnership
that engaged in a series of transactions spanning more than ten years, as
in the case before us.
Second Issues:
Pool's Remittances Are Taxable
Petitioners further contend that the remittances of the pool to the ceding
companies and Munich are not dividends subject to tax. They insist that
taxing such remittances contravene Sections 24 (b) (I) and 263 of the 1977
NIRC and "would be tantamount to an illegal double taxation, as it would
result in taxing the same premium income twice in the hands of the same
taxpayer." 40 Moreover, petitioners argue that since Munich was not a
signatory to the Pool Agreement, the remittances it received from the pool
cannot be deemed dividends. 41 They add that even if such remittances
were treated as dividends, they would have been exempt under the
previously mentioned sections of the 1977 NIRC,42 as well as Article 7 of
paragraph 1 43 and Article 5 of paragraph 5 44 of the RP-West German Tax
Treaty. 45
Petitioners are clutching at straws. Double taxation means taxing the same
property twice when it should be taxed only once. That is, ". . . taxing the
same person twice by the same jurisdiction for the same thing." 46 In the
instant case, the pool is a taxable entity distinct from the individual
corporate entities of the ceding companies. The tax on its income is
obviously different from the tax on the dividends received by the said
companies. Clearly, there is no double taxation here.
The tax exemptions claimed by petitioners cannot be granted, since their
entitlement thereto remains unproven and unsubstantiated. It is axiomatic
in the law of taxation that taxes are the lifeblood of the nation. Hence,
"exemptions therefrom are highly disfavored in law and he who claims tax
exemption must be able to justify his claim or right." 47 Petitioners have
failed to discharge this burden of proof. The sections of the 1977 NIRC which
they cite are inapplicable, because these were not yet in effect when the
income was earned and when the subject information return for the year
ending 1975 was filed.
Referring to the 1975 version of the counterpart sections of the NIRC,the
Court still cannot justify the exemptions claimed. Section 255 provides that
no tax shall ". . . be paid upon reinsurance by any company that has
already paid the tax . . . ." This cannot be applied to the present case
because, as previously discussed, the pool is a taxable entity distinct from
the ceding companies; therefore, the latter cannot individually claim the
income tax paid by the former as their own.
On the other hand, Section 24 (b) (1) 48 pertains to tax on foreign
corporations; hence, it cannot be claimed by the ceding companies which
are domestic corporations. Nor can Munich, a foreign corporation, be
granted exemption based solely on this provision of the Tax Code,because
the same subsection specifically taxes dividends, the type of remittances
forwarded to it by the pool. Although not a signatory to the Pool
Agreement, Munich is patently an associate of the ceding companies in
the entity formed, pursuant to their reinsurance treaties which required the
creation of said pool.
Under its pool arrangement with the ceding companies, Munich shared in
their income and loss. This is manifest from a reading of Articles 3 49 and 10
50 of the Quota-Share Reinsurance Treaty and Articles 3 51 and 10 52 of the
Surplus Reinsurance Treaty. The foregoing interpretation of Section 24 (b) (1)
is in line with the doctrine that a tax exemption must be construed strictissimi
juris, and the statutory exemption claimed must be expressed in a language
too plain to be mistaken. 53
Finally, the petitioners' claim that Munich is tax-exempt based on the RP-
West German Tax Treaty is likewise unpersuasive, because the internal
revenue commissioner assessed the pool for corporate taxes on the basis
of the information return it had submitted for the year ending 1975, a
taxable year when said treaty was not yet in effect. 54 Although petitioners
omitted in their pleadings the date of effectivity of the treaty, the Court
takes judicial notice that it took effect only later, on December 14, 1984. 55
Third Issue:
Prescription
Petitioners also argue that the government's right to assess and collect the
subject tax had prescribed. They claim that the subject information return
was filed by the pool on April 14, 1976. On the basis of this return, the BIR
telephoned petitioners on November 11, 1981, to give them notice of its
letter of assessment dated March 27, 1981. Thus, the petitioners contend
that the five-year statute of limitations then provided in the NIRC had
already lapsed, and that the internal revenue commissioner was already
barred by prescription from making an assessment. 56
We cannot sustain the petitioners. The CA and the CTA categorically found
that the prescriptive period was tolled under then Section 333 of the
NIRC,57 because " the taxpayer cannot be located at the address given in
the information return filed and for which reason there was delay in sending
the assessment." 58 Indeed, whether the government's right to collect and
assess the tax has prescribed involves facts which have been ruled upon by
the lower courts. It is axiomatic that in the absence of a clear showing of
palpable error or grave abuse of discretion, as in this case, this Court must
not overturn the factual findings of the CA and the CTA.
Furthermore, petitioners admitted in their Motion for Reconsideration before
the Court of Appeals that the pool changed its address, for they stated that
the pool's information return filed in 1980 indicated therein its "present
address." The Court finds that this falls short of the requirement of Section
333 of the NIRC for the suspension of the prescriptive period. The law clearly
states that the said period will be suspended only "if the taxpayer informs
the Commissioner of Internal Revenue of any change in the address."
WHEREFORE, the petition is DENIED. The Resolutions of the Court of Appeals
dated October 11, 1993 and November 15, 1993 are hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
[G.R. No. 148187. April 16, 2008.]
PHILEX MINING CORPORATION, petitioner, vs. COMMISSIONER OF INTERNAL
REVENUE, respondent.
DECISION
YNARES-SANTIAGO, J p:
This is a petition for review on certiorari of the June 30, 2000 Decision 1 of
the Court of Appeals in CA-G.R. SP No. 49385, which affirmed the Decision
2 of the Court of Tax Appeals in C.T.A. Case No. 5200. Also assailed is the
April 3, 2001 Resolution 3 denying the motion for reconsideration.
The facts of the case are as follows:
On April 16, 1971, petitioner Philex Mining Corporation (Philex Mining),
entered into an agreement 4 with Baguio Gold Mining Company ("Baguio
Gold") for the former to manage and operate the latter's mining claim,
known as the Sto. Nio mine, located in Atok and Tublay, Benguet Province.
The parties' agreement was denominated as "Power of Attorney" and
provided for the following terms:
4. Within three (3) years from date thereof, the PRINCIPAL (Baguio Gold)
shall make available to the MANAGERS (Philex Mining) up to ELEVEN
MILLION PESOS (P11,000,000.00), in such amounts as from time to time may
be required by the MANAGERS within the said 3-year period, for use in the
MANAGEMENT of the STO. NINO MINE. The said ELEVEN MILLION PESOS
(P11,000,000.00) shall be deemed, for internal audit purposes, as the owner's
account in the Sto. Nino PROJECT. Any part of any income of the PRINCIPAL
from the STO. NINO MINE, which is left with the Sto. Nino PROJECT, shall be
added to such owner's account. HCDAac
5. Whenever the MANAGERS shall deem it necessary and convenient in
connection with the MANAGEMENT of the STO. NINO MINE, they may
transfer their own funds or property to the Sto. Nino PROJECT, in
accordance with the following arrangements:
(a) The properties shall be appraised and, together with the cash, shall be
carried by the Sto. Nino PROJECT as a special fund to be known as the
MANAGERS' account.
(b) The total of the MANAGERS' account shall not exceed P11,000,000.00,
except with prior approval of the PRINCIPAL; provided, however, that if the
compensation of the MANAGERS as herein provided cannot be paid in
cash from the Sto. Nino PROJECT, the amount not so paid in cash shall be
added to the MANAGERS' account. ECaTDc
14
(c) The cash and property shall not thereafter be withdrawn from the Sto.
Nino PROJECT until termination of this Agency.
(d) The MANAGERS' account shall not accrue interest. Since it is the desire
of the PRINCIPAL to extend to the MANAGERS the benefit of subsequent
appreciation of property, upon a projected termination of this Agency, the
ratio which the MANAGERS' account has to the owner's account will be
determined, and the corresponding proportion of the entire assets of the
STO. NINO MINE, excluding the claims, shall be transferred to the
MANAGERS, except that such transferred assets shall not include mine
development, roads, buildings, and similar property which will be valueless,
or of slight value, to the MANAGERS. The MANAGERS can, on the other
hand, require at their option that property originally transferred by them to
the Sto. Nino PROJECT be re-transferred to them. Until such assets are
transferred to the MANAGERS, this Agency shall remain subsisting.
xxx xxx xxx
12. The compensation of the MANAGER shall be fifty per cent (50%) of the
net profit of the Sto. Nino PROJECT before income tax. It is understood that
the MANAGERS shall pay income tax on their compensation, while the
PRINCIPAL shall pay income tax on the net profit of the Sto. Nino PROJECT
after deduction therefrom of the MANAGERS' compensation.
xxx xxx xxx
16. The PRINCIPAL has current pecuniary obligation in favor of the
MANAGERS and, in the future, may incur other obligations in favor of the
MANAGERS. This Power of Attorney has been executed as security for the
payment and satisfaction of all such obligations of the PRINCIPAL in favor
of the MANAGERS and as a means to fulfill the same. Therefore, this Agency
shall be irrevocable while any obligation of the PRINCIPAL in favor of the
MANAGERS is outstanding, inclusive of the MANAGERS' account. After all
obligations of the PRINCIPAL in favor of the MANAGERS have been paid
and satisfied in full, this Agency shall be revocable by the PRINCIPAL upon
36-month notice to the MANAGERS. CHaDIT
17. Notwithstanding any agreement or understanding between the
PRINCIPAL and the MANAGERS to the contrary, the MANAGERS may
withdraw from this Agency by giving 6-month notice to the PRINCIPAL. The
MANAGERS shall not in any manner be held liable to the PRINCIPAL by
reason alone of such withdrawal. Paragraph 5(d) hereof shall be operative
in case of the MANAGERS' withdrawal.
xxx xxx xxx 5
In the course of managing and operating the project, Philex Mining made
advances of cash and property in accordance with paragraph 5 of the
agreement. However, the mine suffered continuing losses over the years
which resulted to petitioner's withdrawal as manager of the mine on
January 28, 1982 and in the eventual cessation of mine operations on
February 20, 1982. 6
Thereafter, on September 27, 1982, the parties executed a "Compromise
with Dation in Payment" 7 wherein Baguio Gold admitted an indebtedness
to petitioner in the amount of P179,394,000.00 and agreed to pay the same
in three segments by first assigning Baguio Gold's tangible assets to
petitioner, transferring to the latter Baguio Gold's equitable title in its
Philodrill assets and finally settling the remaining liability through properties
that Baguio Gold may acquire in the future. TDcAaH
On December 31, 1982, the parties executed an "Amendment to
Compromise with Dation in Payment" 8 where the parties determined that
Baguio Gold's indebtedness to petitioner actually amounted to
P259,137,245.00, which sum included liabilities of Baguio Gold to other
creditors that petitioner had assumed as guarantor. These liabilities
pertained to long-term loans amounting to US$11,000,000.00 contracted by
Baguio Gold from the Bank of America NT & SA and Citibank N.A. This time,
Baguio Gold undertook to pay petitioner in two segments by first assigning
its tangible assets for P127,838,051.00 and then transferring its equitable title
in its Philodrill assets for P16,302,426.00. The parties then ascertained that
Baguio Gold had a remaining outstanding indebtedness to petitioner in the
amount of P114,996,768.00.
Subsequently, petitioner wrote off in its 1982 books of account the
remaining outstanding indebtedness of Baguio Gold by charging
P112,136,000.00 to allowances and reserves that were set up in 1981 and
P2,860,768.00 to the 1982 operations. DEScaT
In its 1982 annual income tax return, petitioner deducted from its gross
income the amount of P112,136,000.00 as "loss on settlement of receivables
from Baguio Gold against reserves and allowances." 9 However, the Bureau
of Internal Revenue (BIR) disallowed the amount as deduction for bad debt
and assessed petitioner a deficiency income tax of P62,811,161.39.
Petitioner protested before the BIR arguing that the deduction must be
allowed since all requisites for a bad debt deduction were satisfied, to wit:
(a) there was a valid and existing debt; (b) the debt was ascertained to be
worthless; and (c) it was charged off within the taxable year when it was
determined to be worthless.
Petitioner emphasized that the debt arose out of a valid management
contract it entered into with Baguio Gold. The bad debt deduction
represented advances made by petitioner which, pursuant to the
management contract, formed part of Baguio Gold's "pecuniary
obligations" to petitioner. It also included payments made by petitioner as
guarantor of Baguio Gold's long-term loans which legally entitled petitioner
to be subrogated to the rights of the original creditor. IaHDcT
Petitioner also asserted that due to Baguio Gold's irreversible losses, it
became evident that it would not be able to recover the advances and
payments it had made in behalf of Baguio Gold. For a debt to be
considered worthless, petitioner claimed that it was neither required to
institute a judicial action for collection against the debtor nor to sell or
dispose of collateral assets in satisfaction of the debt. It is enough that a
taxpayer exerted diligent efforts to enforce collection and exhausted all
reasonable means to collect.
On October 28, 1994, the BIR denied petitioner's protest for lack of legal and
factual basis. It held that the alleged debt was not ascertained to be
worthless since Baguio Gold remained existing and had not filed a petition
for bankruptcy; and that the deduction did not consist of a valid and
subsisting debt considering that, under the management contract,
petitioner was to be paid fifty percent (50%) of the project's net profit. 10
Petitioner appealed before the Court of Tax Appeals (CTA) which rendered
judgment, as follows:
WHEREFORE, in view of the foregoing, the instant Petition for Review is
hereby DENIED for lack of merit. The assessment in question, viz: FAS-1-82-
88-003067 for deficiency income tax in the amount of P62,811,161.39 is
hereby AFFIRMED.
ACCORDINGLY, petitioner Philex Mining Corporation is hereby ORDERED to
PAY respondent Commissioner of Internal Revenue the amount of
P62,811,161.39, plus 20% delinquency interest due computed from February
10, 1995, which is the date after the 20-day grace period given by the
respondent within which petitioner has to pay the deficiency amount . . .
up to actual date of payment.
SO ORDERED. 11
The CTA rejected petitioner's assertion that the advances it made for the
Sto. Nino mine were in the nature of a loan. It instead characterized the
advances as petitioner's investment in a partnership with Baguio Gold for
the development and exploitation of the Sto. Nino mine. The CTA held that
the "Power of Attorney" executed by petitioner and Baguio Gold was
actually a partnership agreement. Since the advanced amount partook of
the nature of an investment, it could not be deducted as a bad debt from
petitioner's gross income. HcaDIA
The CTA likewise held that the amount paid by petitioner for the long-term
loan obligations of Baguio Gold could not be allowed as a bad debt
deduction. At the time the payments were made, Baguio Gold was not in
default since its loans were not yet due and demandable. What petitioner
did was to pre-pay the loans as evidenced by the notice sent by Bank of
America showing that it was merely demanding payment of the installment
and interests due. Moreover, Citibank imposed and collected a "pre-
termination penalty" for the pre-payment.
The Court of Appeals affirmed the decision of the CTA. 12 Hence, upon
denial of its motion for reconsideration, 13 petitioner took this recourse
under Rule 45 of the Rules of Court, alleging that:
I.
The Court of Appeals erred in construing that the advances made by Philex
in the management of the Sto. Nino Mine pursuant to the Power of Attorney
partook of the nature of an investment rather than a loan.
II.
The Court of Appeals erred in ruling that the 50%-50% sharing in the net
profits of the Sto. Nino Mine indicates that Philex is a partner of Baguio Gold
in the development of the Sto. Nino Mine notwithstanding the clear
absence of any intent on the part of Philex and Baguio Gold to form a
partnership.
III.
15
The Court of Appeals erred in relying only on the Power of Attorney and in
completely disregarding the Compromise Agreement and the Amended
Compromise Agreement when it construed the nature of the advances
made by Philex.
IV.
The Court of Appeals erred in refusing to delve upon the issue of the
propriety of the bad debts write-off. 14
Petitioner insists that in determining the nature of its business relationship
with Baguio Gold, we should not only rely on the "Power of Attorney", but
also on the subsequent "Compromise with Dation in Payment" and
"Amended Compromise with Dation in Payment" that the parties executed
in 1982. These documents, allegedly evinced the parties' intent to treat the
advances and payments as a loan and establish a creditor-debtor
relationship between them.
The petition lacks merit.
The lower courts correctly held that the "Power of Attorney" is the instrument
that is material in determining the true nature of the business relationship
between petitioner and Baguio Gold. Before resort may be had to the two
compromise agreements, the parties' contractual intent must first be
discovered from the expressed language of the primary contract under
which the parties' business relations were founded. It should be noted that
the compromise agreements were mere collateral documents executed
by the parties pursuant to the termination of their business relationship
created under the "Power of Attorney". On the other hand, it is the latter
which established the juridical relation of the parties and defined the
parameters of their dealings with one another.
The execution of the two compromise agreements can hardly be
considered as a subsequent or contemporaneous act that is reflective of
the parties' true intent. The compromise agreements were executed eleven
years after the "Power of Attorney" and merely laid out a plan or procedure
by which petitioner could recover the advances and payments it made
under the "Power of Attorney". The parties entered into the compromise
agreements as a consequence of the dissolution of their business
relationship. It did not define that relationship or indicate its real character.
An examination of the "Power of Attorney" reveals that a partnership or joint
venture was indeed intended by the parties. Under a contract of
partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the
profits among themselves. 15 While a corporation, like petitioner, cannot
generally enter into a contract of partnership unless authorized by law or its
charter, it has been held that it may enter into a joint venture which is akin
to a particular partnership:
The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. . . . 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. . . . 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.
. . . 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. . . . It
would seem therefore that under Philippine law, a joint venture is a form of
partnership and should be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two
business forms, and has held that although a corporation cannot enter into
a partnership contract, it may however engage in a joint venture with
others. . . . (Citations omitted) 16
Perusal of the agreement denominated as the "Power of Attorney"
indicates that the parties had intended to create a partnership and
establish a common fund for the purpose. They also had a joint interest in
the profits of the business as shown by a 50-50 sharing in the income of the
mine.
Under the "Power of Attorney", petitioner and Baguio Gold undertook to
contribute money, property and industry to the common fund known as the
Sto. Nio mine. 17 In this regard, we note that there is a substantive
equivalence in the respective contributions of the parties to the
development and operation of the mine. Pursuant to paragraphs 4 and 5
of the agreement, petitioner and Baguio Gold were to contribute equally
to the joint venture assets under their respective accounts. Baguio Gold
would contribute P11M under its owner's account plus any of its income that
is left in the project, in addition to its actual mining claim. Meanwhile,
petitioner's contribution would consist of its expertise in the management
and operation of mines, as well as the manager's account which is
comprised of P11M in funds and property and petitioner's "compensation"
as manager that cannot be paid in cash.
However, petitioner asserts that it could not have entered into a partnership
agreement with Baguio Gold because it did not "bind" itself to contribute
money or property to the project; that under paragraph 5 of the
agreement, it was only optional for petitioner to transfer funds or property
to the Sto. Nio project "(w)henever the MANAGERS shall deem it necessary
and convenient in connection with the MANAGEMENT of the STO. NIO
MINE."
The wording of the parties' agreement as to petitioner's contribution to the
common fund does not detract from the fact that petitioner transferred its
funds and property to the project as specified in paragraph 5, thus
rendering effective the other stipulations of the contract, particularly
paragraph 5 (c) which prohibits petitioner from withdrawing the advances
until termination of the parties' business relations. As can be seen, petitioner
became bound by its contributions once the transfers were made. The
contributions acquired an obligatory nature as soon as petitioner had
chosen to exercise its option under paragraph 5.
There is no merit to petitioner's claim that the prohibition in paragraph 5 (c)
against withdrawal of advances should not be taken as an indication that
it had entered into a partnership with Baguio Gold; that the stipulation only
showed that what the parties entered into was actually a contract of
agency coupled with an interest which is not revocable at will and not a
partnership.
In an agency coupled with interest, it is the agency that cannot be revoked
or withdrawn by the principal due to an interest of a third party that
depends upon it, or the mutual interest of both principal and agent. 19 In
this case, the non-revocation or non-withdrawal under paragraph 5 (c)
applies to the advances made by petitioner who is supposedly the agent
and not the principal under the contract. Thus, it cannot be inferred from
the stipulation that the parties' relation under the agreement is one of
agency coupled with an interest and not a partnership.
Neither can paragraph 16 of the agreement be taken as an indication that
the relationship of the parties was one of agency and not a partnership.
Although the said provision states that "this Agency shall be irrevocable
while any obligation of the PRINCIPAL in favor of the MANAGERS is
outstanding, inclusive of the MANAGERS' account", it does not necessarily
follow that the parties entered into an agency contract coupled with an
interest that cannot be withdrawn by Baguio Gold.
It should be stressed that the main object of the "Power of Attorney" was
not to confer a power in favor of petitioner to contract with third persons
on behalf of Baguio Gold but to create a business relationship between
petitioner and Baguio Gold, in which the former was to manage and
operate the latter's mine through the parties' mutual contribution of
material resources and industry. The essence of an agency, even one that
is coupled with interest, is the agent's ability to represent his principal and
bring about business relations between the latter and third persons. 20
Where representation for and in behalf of the principal is merely incidental
or necessary for the proper discharge of one's paramount undertaking
under a contract, the latter may not necessarily be a contract of agency,
but some other agreement depending on the ultimate undertaking of the
parties. 21
In this case, the totality of the circumstances and the stipulations in the
parties' agreement indubitably lead to the conclusion that a partnership
was formed between petitioner and Baguio Gold.
First, it does not appear that Baguio Gold was unconditionally obligated to
return the advances made by petitioner under the agreement. Paragraph
5 (d) thereof provides that upon termination of the parties' business
relations, "the ratio which the MANAGER'S account has to the owner's
account will be determined, and the corresponding proportion of the entire
assets of the STO. NINO MINE, excluding the claims" shall be transferred to
petitioner. 22 As pointed out by the Court of Tax Appeals, petitioner was
merely entitled to a proportionate return of the mine's assets upon
dissolution of the parties' business relations. There was nothing in the
agreement that would require Baguio Gold to make payments of the
advances to petitioner as would be recognized as an item of obligation or
"accounts payable" for Baguio Gold.
Thus, the tax court correctly concluded that the agreement provided for a
distribution of assets of the Sto. Nio mine upon termination, a provision that
is more consistent with a partnership than a creditor-debtor relationship. It
16
should be pointed out that in a contract of loan, a person who receives a
loan or money or any fungible thing acquires ownership thereof and is
bound to pay the creditor an equal amount of the same kind and quality.
23 In this case, however, there was no stipulation for Baguio Gold to actually
repay petitioner the cash and property that it had advanced, but only the
return of an amount pegged at a ratio which the manager's account had
to the owner's account.
In this connection, we find no contractual basis for the execution of the two
compromise agreements in which Baguio Gold recognized a debt in favor
of petitioner, which supposedly arose from the termination of their business
relations over the Sto. Nio mine. The "Power of Attorney" clearly provides
that petitioner would only be entitled to the return of a proportionate share
of the mine assets to be computed at a ratio that the manager's account
had to the owner's account. Except to provide a basis for claiming the
advances as a bad debt deduction, there is no reason for Baguio Gold to
hold itself liable to petitioner under the compromise agreements, for any
amount over and above the proportion agreed upon in the "Power of
Attorney".
Next, the tax court correctly observed that it was unlikely for a business
corporation to lend hundreds of millions of pesos to another corporation
with neither security, or collateral, nor a specific deed evidencing the terms
and conditions of such loans. The parties also did not provide a specific
maturity date for the advances to become due and demandable, and the
manner of payment was unclear. All these point to the inevitable
conclusion that the advances were not loans but capital contributions to a
partnership.
The strongest indication that petitioner was a partner in the Sto Nio mine is
the fact that it would receive 50% of the net profits as "compensation" under
paragraph 12 of the agreement. The entirety of the parties' contractual
stipulations simply leads to no other conclusion than that petitioner's
"compensation" is actually its share in the income of the joint venture.
Article 1769 (4) of the Civil Code explicitly provides that the "receipt by a
person of a share in the profits of a business is prima facie evidence that he
is a partner in the business." Petitioner asserts, however, that no such
inference can be drawn against it since its share in the profits of the Sto Nio
project was in the nature of compensation or "wages of an employee",
under the exception provided in Article 1769 (4) (b). 24
On this score, the tax court correctly noted that petitioner was not an
employee of Baguio Gold who will be paid "wages" pursuant to an
employer-employee relationship. To begin with, petitioner was the
manager of the project and had put substantial sums into the venture in
order to ensure its viability and profitability. By pegging its compensation to
profits, petitioner also stood not to be remunerated in case the mine had
no income. It is hard to believe that petitioner would take the risk of not
being paid at all for its services, if it were truly just an ordinary employee.
Consequently, we find that petitioner's "compensation" under paragraph
12 of the agreement actually constitutes its share in the net profits of the
partnership. Indeed, petitioner would not be entitled to an equal share in
the income of the mine if it were just an employee of Baguio Gold. 25 It is
not surprising that petitioner was to receive a 50% share in the net profits,
considering that the "Power of Attorney" also provided for an almost equal
contribution of the parties to the St. Nio mine. The "compensation" agreed
upon only serves to reinforce the notion that the parties' relations were
indeed of partners and not employer-employee.
All told, the lower courts did not err in treating petitioner's advances as
investments in a partnership known as the Sto. Nio mine. The advances
were not "debts" of Baguio Gold to petitioner inasmuch as the latter was
under no unconditional obligation to return the same to the former under
the "Power of Attorney". As for the amounts that petitioner paid as
guarantor to Baguio Gold's creditors, we find no reason to depart from the
tax court's factual finding that Baguio Gold's debts were not yet due and
demandable at the time that petitioner paid the same. Verily, petitioner
pre-paid Baguio Gold's outstanding loans to its bank creditors and this
conclusion is supported by the evidence on record.
In sum, petitioner cannot claim the advances as a bad debt deduction
from its gross income. Deductions for income tax purposes partake of the
nature of tax exemptions and are strictly construed against the taxpayer,
who must prove by convincing evidence that he is entitled to the
deduction claimed. 27 In this case, petitioner failed to substantiate its
assertion that the advances were subsisting debts of Baguio Gold that
could be deducted from its gross income. Consequently, it could not claim
the advances as a valid bad debt deduction.
WHEREFORE, the petition is DENIED. The decision of the Court of Appeals in
CA-G.R. SP No. 49385 dated June 30, 2000, which affirmed the decision of
the Court of Tax Appeals in C.T.A. Case No. 5200 is AFFIRMED. Petitioner
Philex Mining Corporation is ORDERED to PAY the deficiency tax on its 1982
income in the amount of P62,811,161.31, with 20% delinquency interest
computed from February 10, 1995, which is the due date given for the
payment of the deficiency income tax, up to the actual date of payment.
SO ORDERED.
17
Article 1768
[G.R. No. 127347. November 25, 1999.]
ALFREDO N. AGUILA, JR., petitioner, vs. HONORABLE COURT OF APPEALS and
FELICIDAD S. VDA. DE ABROGAR, respondents.
MENDOZA, J p:
This is a petition for review on certiorari of the decision 1 of the Court of
Appeals, dated November 29, 1990, which reversed the decision of the
Regional Trial Court, Branch 273, Marikina, Metro Manila, dated April 11,
1995. The trial court dismissed the petition for declaration of nullity of a deed
of sale filed by private respondent Felicidad S. Vda. de Abrogar against
petitioner Alfredo N. Aguila, Jr. cdrep
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged
in lending activities. Private respondent and her late husband, Ruben M.
Abrogar, were the registered owners of a house and lot, covered by
Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April
18, 1991, private respondent, with the consent of her late husband, and
A.C. Aguila & Sons, Co., represented by petitioner, entered into a
Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-
described property from the FIRST PARTY [Felicidad S. Vda. de Abrogar],
and pursuant to this agreement, a Deed of Absolute Sale shall be executed
by the FIRST PARTY conveying the property to the SECOND PARTY for and in
consideration of the sum of Two Hundred Thousand Pesos (P200,000.00),
Philippine Currency;
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to
repurchase the said property within a period of ninety (90) days from the
execution of this memorandum of agreement effective April 18, 1991, for
the amount of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00);
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase
the said property within a period of ninety (90) days, the FIRST PARTY is
obliged to deliver peacefully the possession of the property to the SECOND
PARTY within fifteen (15) days after the expiration of the said 90 day grace
period;
(4) During the said grace period, the FIRST PARTY obliges herself not to file
any lis pendens or whatever claims on the property nor shall be cause the
annotation of say claim at the back of the title to the said property;
(5) With the execution of the deed of absolute sale, the FIRST PARTY
warrants her ownership of the property and shall defend the rights of the
SECOND PARTY against any party whom may have any interests over the
property;
(6) All expenses for documentation and other incidental expenses shall be
for the account of the FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver peaceful possession of the property
to the SECOND PARTY after the expiration of the 15-day grace period given
in paragraph 3 above, the FIRST PARTY shall pay an amount equivalent to
Five Percent of the principal amount of TWO HUNDRED PESOS (P200.00) or
P10,000.00 per month of delay as and for rentals and liquidated damages;
(8) Should the FIRST PARTY fail to exercise her option to repurchase the
property within ninety (90) days period above-mentioned, this
memorandum of agreement shall be deemed cancelled and the Deed of
Absolute Sale, executed by the parties shall be the final contract
considered as entered between the parties and the SECOND PARTY shall
proceed to transfer ownership of the property above described to its name
free from lines and encumbrances. 2
On the same day, April 18, 1991, the parties likewise executed a deed of
absolute sale, 3 dated June 11, 1991, wherein private respondent, with the
consent of her late husband, sold the subject property to A.C. Aguila &
Sons, Co., represented by petitioner, for P200,000.00. In a special power of
attorney dated the same day, April 18, 1991, private respondent authorized
petitioner to cause the cancellation of TCT No. 195101 and the issuance of
a new certificate of title in the name of A.C. Aguila and Sons, Co., in the
event she failed to redeem the subject property as provided in the
Memorandum of Agreement. 4
Private respondent failed to redeem the property within the 90-day period
as provided in the Memorandum of Agreement. Hence, pursuant to the
special power of attorney mentioned above, petitioner caused the
cancellation of TCT No. 195101 and the issuance of a new certificate of title
in the name of A.C. Aguila and Sons, Co. 5
Private respondent then received a letter dated August 10, 1991 from Atty.
Lamberto C. Nanquil, counsel for A.C. Aguila & Sons, Co., demanding that
she vacate the premises within 15 days after receipt of the letter and
surrender its possession peacefully to A.C. Aguila & Sons, Co. Otherwise, the
latter would bring the appropriate action in court. 6
Upon the refusal of private respondent to vacate the subject premises, A.C.
Aguila & Sons, Co. filed an ejectment case against her in the Metropolitan
Trial Court, Branch 76, Marikina, Metro Manila. In a decision, dated April 3,
1992, the Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co.
on the ground that private respondent did not redeem the subject property
before the expiration of the 90-day period provided in the Memorandum
of Agreement. Private respondent appealed first to the Regional Trial Court,
Branch 163, Pasig, Metro Manila, then to the Court of Appeals, and later to
this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed
of sale with the Regional Trial Court, Branch 273, Marikina, Metro Manila on
December 4, 1993. She alleged that the signature of her husband on the
deed of sale was a forgery because he was already dead when the deed
was supposed to have been executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint
for falsification against petitioner with the Office of the Prosecutor of
Quezon City which was dismissed in a resolution, dated February 14, 1994.
prcd
On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:
Plaintiff's claim therefore that the Deed of Absolute Sale is a forgery
because they could not personally appear before Notary Public Lamberto
C. Nanquil on June 11, 1991 because her husband, Ruben Abrogar, died
on May 8, 1991 or one month and 2 days before the execution of the Deed
of Absolute Sale, while the plaintiff was still in the Quezon City Medical
Center recuperating from wounds which she suffered at the same vehicular
accident on May 8, 1991, cannot be sustained. The Court is convinced that
the three required documents, to wit: the Memorandum of Agreement, the
Special Power of Attorney, and the Deed of Absolute Sale were all signed
by the parties on the same date on April 18, 1991. It is a common and
accepted business practice of those engaged in money lending to
prepare an undated absolute deed of sale in loans of money secured by
real estate for various reasons, foremost of which is the evasion of taxes and
surcharges. The plaintiff never questioned receiving the sum of P200,000.00
representing her loan from the defendant. Common sense dictates that an
established lending and realty firm like the Aguila & Sons, Co. would not
part with P200,000.00 to the Abrogar spouses, who are virtual strangers to it,
without the simultaneous accomplishment and signing of all the required
documents, more particularly the Deed of Absolute Sale, to protect its
interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered, the case in caption is hereby
ORDERED DISMISSED, with costs against the plaintiff.
On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction between plaintiff-
appellant and defendant-appellee is indubitably an equitable mortgage.
Article 1602 of the New Civil Code finds strong application in the case at
bar in the light of the following circumstances.
First: The purchase price for the alleged sale with right to repurchase is
unusually inadequate. The property is a two hundred forty (240) sq.m. lot.
On said lot, the residential house of plaintiff-appellant stands. The property
is inside a subdivision/village. The property is situated in Marikina which is
already part of Metro Manila. The alleged sale took place in 1991 when the
value of the land had considerably increased.
18
For this property, defendant-appellee pays only a measly P200,000.00 or
P833.33 per square meter for both the land and for the house.
Second: The disputed Memorandum of Agreement specifically provides
that plaintiff-appellant is obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen (15) days after the expiration
of the said ninety (90) day grace period. Otherwise stated, plaintiff-
appellant is to retain physical possession of the thing allegedly sold.
In fact, plaintiff-appellant retained possession of the property "sold" as if
they were still the absolute owners. There was no provision for maintenance
or expenses, much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant herein, continued to pay
taxes on the property "sold". It is well-known that payment of taxes
accompanied by actual possession of the land covered by the tax
declaration, constitute evidence of great weight that a person under
whose name the real taxes were declared has a claim of right over the
land.
It is well-settled that the presence of even one of the circumstances in
Article 1602 of the New Civil Code is sufficient to declare a contract of sale
with right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was paid a price which is
unusually inadequate, has retained possession of the subject property and
has continued paying the realty taxes over the subject property,
(circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the New
Civil Code), it must be conclusively presumed that the transaction the
parties actually entered into is an equitable mortgage, not a sale with right
to repurchase. The factors cited are in support to the finding that the Deed
of Sale/Memorandum of Agreement with right to repurchase is in actuality
an equitable mortgage.
Moreover, it is undisputed that the deed of sale with right of repurchase was
executed by reason of the loan extended by defendant-appellee to
plaintiff-appellant. The amount of loan being the same with the amount of
the purchase price.
xxx xxx xxx
Since the real intention of the party is to secure the payment of debt, now
deemed to be repurchase price: the transaction shall then be considered
to be an equitable mortgage.
Being a mortgage, the transaction entered into by the parties is in the
nature of a pactum commissorium which is clearly prohibited by Article
2088 of the New Civil Code. Article 2088 of the New Civil Code reads:
ART. 2088. The creditor cannot appropriate the things given by way of
pledge or mortgage, or dispose of them. Any stipulation to the contrary is
null and void.
The aforequoted provision furnishes the two elements for pactum
commissorium to exist: (1) that there should be a pledge or mortgage
wherein a property is pledged or mortgaged by way of security for the
payment of principal obligation; and (2) that there should be a stipulation
for an automatic appropriation by the creditor of the thing pledged and
mortgaged in the event of non-payment of the principal obligation within
the stipulated period.
In this case, defendant-appellee in reality extended a P200,000.00 loan to
plaintiff-appellant secured by a mortgage on the property of plaintiff-
appellant. The loan was payable within ninety (90) days, the period within
which plaintiff-appellant can repurchase the property. Plaintiff-appellant
will pay P230,000.00 and not P200,000.00, the P30,000.00 excess is the
interest for the loan extended. Failure of plaintiff-appellee to pay the
P230,000.00 within the ninety (90) days period, the property shall
automatically belong to defendant-appellee by virtue of the deed of sale
executed.
Clearly, the agreement entered into by the parties is in the nature of
pactum commissorium. Therefore, the deed of sale should be declared
void as we hereby so declare to be invalid, for being violative of law. dctai
xxx xxx xxx
WHEREFORE, foregoing considered, the appealed decision is hereby
REVERSED and SET ASIDE. The questioned Deed of Sale and the
cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant and
the issuance of TCT No. 267073 issued in favor of defendant-appellee
pursuant to the questioned Deed of Sale is hereby declared VOID and is
hereby ANNULLED. Transfer Certificate of Title No. 195101 of the Registry of
Marikina is hereby ordered REINSTATED. The loan in the amount of
P230,000.00 shall be paid within ninety (90) days from the finality of this
decision. In case of failure to pay the amount of P230,000.00 from the period
therein stated, the property shall be sold at public auction to satisfy the
mortgage debt and costs and if there is an excess, the same is to be given
to the owner.
Petitioner now contends that: (1) he is not the real party in interest but A.C.
Aguila & Co., against which this case should have been brought; (2) the
judgment in the ejectment case is a bar to the filing of the complaint for
declaration of nullity of a deed of sale in this case; and (3) the contract
between A.C. Aguila & Sons, Co. and private respondent is a pacto de
retro sale and not an equitable mortgage as held by the appellate court.
cdll
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this
case was filed, provided that "every action must be prosecuted and
defended in the name of the real party in interest." A real party in interest is
one who would be benefited or injured by the judgment, or who is entitled
to the avails of the suit. 7 This ruling is now embodied in Rule 3, 2 of the
1997 Revised Rules of Civil Procedure. Any decision rendered against a
person who is not a real party in interest in the case cannot be executed. 8
Hence, a complaint filed against such a person should be dismissed for
failure to state a cause of action. 9
Under Art. 1768 of the Civil Code, a partnership "has a juridical personality
separate and distinct from that of each of the partners." The partners
cannot be held liable for the obligations of the partnership unless it is shown
that the legal fiction of a different juridical personality is being used for
fraudulent, unfair, or illegal purposes. 10 In this case, private respondent has
not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is
being used for fraudulent, unfair, or illegal purposes. Moreover, the title to
the subject property is in the name of A.C. Aguila & Sons, Co. and the
Memorandum of Agreement was executed between private respondent,
with the consent of her late husband, and A.C. Aguila & Sons, Co.,
represented by petitioner. Hence, it is the partnership, not its officers or
agents, which should be impleaded in any litigation involving property
registered in its name. A violation of this rule will result in the dismissal of the
complaint. 11 We cannot understand why both the Regional Trial Court and
the Court of Appeals sidestepped this issue when it was squarely raised
before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom
this action should be prosecuted makes it unnecessary to discuss the other
issues raised by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and
the complaint against petitioner is DISMISSED. cdll
SO ORDERED.
[G.R. No. 144214. July 14, 2003.]
LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE,
petitioners, vs. DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ
JR. and CARMELITA C. RAMIREZ, respondents.
PANGANIBAN, J p:
A share in a partnership can be returned only after the completion of the
latter's dissolution, liquidation and winding up of the business.
The Case
The Petition for Review on Certiorari before us challenges the March 23,
2000 Decision 1 and the July 26, 2000 Resolution 2 of the Court of Appeals 3
(CA) in CA-GR CV No. 41026. The assailed Decision disposed as follows:
"WHEREFORE, foregoing premises considered, the Decision dated July 21,
1992 rendered by the Regional Trial Court, Branch 148, Makati City is hereby
SET ASIDE and NULLIFIED and in lieu thereof a new decision is rendered
ordering the [petitioners] jointly and severally to pay and reimburse to
19
[respondents] the amount of P253,114.00. No pronouncement as to costs."
4 further averred that they had not received any regular report or
Reconsideration was denied in the impugned Resolution.
The Facts
On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose
formed a partnership with a capital of P750,000 for the operation of a
restaurant and catering business under the name "Aquarius Food House
and Catering Services." 5 Villareal was appointed general manager and
Carmelito Jose, operations manager.
Respondent Donaldo Efren C. Ramirez joined as a partner in the business
on September 5, 1984. His capital contribution of P250,000 was paid by his
parents, Respondents Cesar and Carmelita Ramirez. 6
After Jesus Jose withdrew from the partnership in January 1987, his capital
contribution of P250,000 was refunded to him in cash by agreement of the
partners. 7
In the same month, without prior knowledge of respondents, petitioners
closed down the restaurant, allegedly because of increased rental. The
restaurant furniture and equipment were deposited in the respondents'
house for storage. 8
On March 1, 1987, respondent spouses wrote petitioners, saying that they
were no longer interested in continuing their partnership or in reopening the
restaurant, and that they were accepting the latter's offer to return their
capital contribution. 9
On October 13, 1987, Carmelita Ramirez wrote another letter informing
petitioners of the deterioration of the restaurant furniture and equipment
stored in their house. She also reiterated the request for the return of their
one-third share in the equity of the partnership. The repeated oral and
written requests were, however, left unheeded. 10
Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents
subsequently filed a Complaint 11 dated November 10, 1987, for the
collection of a sum of money from petitioners.
In their Answer, petitioners contended that respondents had expressed a
desire to withdraw from the partnership and had called for its dissolution
under Articles 1830 and 1831 of the Civil Code; that respondents had been
paid, upon the turnover to them of furniture and equipment worth over
P400,000; and that the latter had no right to demand a return of their equity
because their share, together with the rest of the capital of the partnership,
had been spent as a result of irreversible business losses. 12
In their Reply, respondents alleged that they did not know of any loan
encumbrance on the restaurant. According to them, if such allegation
were true, then the loans incurred by petitioners should be regarded as
purely personal and, as such, not chargeable to the partnership. The former
accounting from the latter, who had solely managed the business.
Respondents also alleged that they expected the equipment and the
furniture stored in their house to be removed by petitioners as soon as the
latter found a better location for the restaurant. 13
Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose
of Restaurant Furniture and Equipment 14 on July 8, 1988. The furniture and
the equipment stored in their house were inventoried and appraised at
P29,000. 15 The display freezer was sold for P5,000 and the proceeds were
paid to them. 16
After trial, the RTC 17 ruled that the parties had voluntarily entered into a
partnership, which could be dissolved at any time. Petitioners clearly
intended to dissolve it when they stopped operating the restaurant. Hence,
the trial court, in its July 21, 1992 Decision, held them liable as follows: 18
"WHEREFORE, judgment is hereby rendered in favor of [respondents] and
against the [petitioners] ordering the [petitioners] to pay jointly and
severally the following:
(a) Actual damages in the amount of P250,000.00
(b) Attorney's fee in the amount of P30,000.00
(c) Costs of suit."
The CA Ruling
The CA held that, although respondents had no right to demand the return
of their capital contribution, the partnership was nonetheless dissolved
when petitioners lost interest in continuing the restaurant business with them.
Because petitioners never gave a proper accounting of the partnership
accounts for liquidation purposes, and because no sufficient evidence was
presented to show financial losses, the CA computed their liability as
follows:
"Consequently, since what has been proven is only the outstanding
obligation of the partnership in the amount of P240,658.00, although
contracted by the partnership before [respondents'] have joined the
partnership but in accordance with Article 1826 of the New Civil Code, they
are liable which must have to be deducted from the remaining
capitalization of the said partnership which is in the amount of P1,000,000.00
resulting in the amount of P759,342.00, and in order to get the share of
[respondents], this amount of P759,342.00 must be divided into three (3)
shares or in the amount of P253,114.00 for each share and which is the only
amount which [petitioner] will return to [respondents'] representing the
contribution to the partnership minus the outstanding debt thereof." 19
Hence, this Petition. 20
Issues
In their Memorandum, 21 petitioners submit the following issues for our
consideration:
"9.1. Whether the Honorable Court of Appeals' decision ordering the
distribution of the capital contribution, instead of the net capital after the
dissolution and liquidation of a partnership, thereby treating the capital
contribution like a loan, is in accordance with law and jurisprudence;
"9.2. Whether the Honorable Court of Appeals' decision ordering the
petitioners to jointly and severally pay and reimburse the amount of
[P]253,114.00 is supported by the evidence on record; and
"9.3. Whether the Honorable Court of Appeals was correct in making [n]o
pronouncement as to costs." 22
On closer scrutiny, the issues are as follows: (1) whether petitioners are liable
to respondents for the latter's share in the partnership; (2) whether the CA's
computation of P253,114 as respondents' share is correct; and (3) whether
the CA was likewise correct in not assessing costs.
This Court's Ruling
The Petition has merit.
First Issue:
Share in Partnership
Both the trial and the appellate courts found that a partnership had indeed
existed, and that it was dissolved on March 1, 1987. They found that the
dissolution took place when respondents informed petitioners of the
intention to discontinue it because of the former's dissatisfaction with, and
loss of trust in, the latter's management of the partnership affairs. These
findings were amply supported by the evidence on record. Respondents
consequently demanded from petitioners the return of their one-third
equity in the partnership.
We hold that respondents have no right to demand from petitioners the
return of their equity share. Except as managers of the partnership,
petitioners did not personally hold its equity or assets. "The partnership has a
juridical personality separate and distinct from that of each of the partners."
23 Since the capital was contributed to the partnership, not to petitioners,
it is the partnership that must refund the equity of the retiring partners. 24
Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund
the shares of the partners, the amount to be refunded is necessarily limited
to its total resources. In other words, it can only pay out what it has in its
coffers, which consists of all its assets. However, before the partners can be
paid their shares, the creditors of the partnership must first be
compensated. 25 After all the creditors have been paid, whatever is left of
the partnership assets becomes available for the payment of the partners'
shares.
20
Evidently, in the present case, the exact amount of refund equivalent to
respondents' one-third share in the partnership cannot be determined until
all the partnership assets will have been liquidated in other words, sold
and converted to cash and all partnership creditors, if any, paid. The
CA's computation of the amount to be refunded to respondents as their
share was thus erroneous.
First, it seems that the appellate court was under the misapprehension that
the total capital contribution was equivalent to the gross assets to be
distributed to the partners at the time of the dissolution of the partnership.
We cannot sustain the underlying idea that the capital contribution at the
beginning of the partnership remains intact, unimpaired and available for
distribution or return to the partners. Such idea is speculative, conjectural
and totally without factual or legal support.
Generally, in the pursuit of a partnership business, its capital is either
increased by profits earned or decreased by losses sustained. It does not
remain static and unaffected by the changing fortunes of the business. In
the present case, the financial statements presented before the trial court
showed that the business had made meager profits. 26 However, notable
therefrom is the omission of any provision for the depreciation 27 of the
furniture and the equipment. The amortization of the goodwill 28 (initially
valued at P500,000) is not reflected either. Properly taking these non-cash
items into account will show that the partnership was actually sustaining
substantial losses, which consequently decreased the capital of the
partnership. Both the trial and the appellate courts in fact recognized the
decrease of the partnership assets to almost nil, but the latter failed to
recognize the consequent corresponding decrease of the capital.
Second, the CA's finding that the partnership had an outstanding
obligation in the amount of P240,658 was not supported by evidence. We
sustain the contrary finding of the RTC, which had rejected the contention
that the obligation belonged to the partnership for the following reason:
". . . [E]vidence on record failed to show the exact loan owed by the
partnership to its creditors. The balance sheet (Exh. '4') does not reveal the
total loan. The Agreement (Exh. 'A') par. 6 shows an outstanding obligation
of P240,055.00 which the partnership owes to different creditors, while the
Certification issued by Mercator Finance (Exh. '8') shows that it was Sps.
Diogenes P. Villareal and Luzviminda J. Villareal, the former being the
nominal party defendant in the instant case, who obtained a loan of
P355,000.00 on Oct. 1983, when the original partnership was not yet
formed."
Third, the CA failed to reduce the capitalization by P250,000, which was the
amount paid by the partnership to Jesus Jose when he withdrew from the
partnership.
Because of the above-mentioned transactions, the partnership capital was
actually reduced. When petitioners and respondents ventured into business
together, they should have prepared for the fact that their investment
would either grow or shrink. In the present case, the investment of
respondents substantially dwindled. The original amount of P250,000 which
they had invested could no longer be returned to them, because one third SO ORDERED.
of the partnership properties at the time of dissolution did not amount to
that much.
It is a long established doctrine that the law does not relieve parties from
the effects of unwise, foolish or disastrous contracts they have entered into
with all the required formalities and with full awareness of what they were
doing. Courts have no power to relieve them from obligations they have
voluntarily assumed, simply because their contracts turn out to be disastrous
deals or unwise investments. 29
Petitioners further argue that respondents acted negligently by permitting
the partnership assets in their custody to deteriorate to the point of being
almost worthless. Supposedly, the latter should have liquidated these sole
tangible assets of the partnership and considered the proceeds as
payment of their net capital. Hence, petitioners argue that the turnover of
the remaining partnership assets to respondents was precisely the manner
of liquidating the partnership and fully settling the latter's share in the
partnership.
We disagree. The delivery of the store furniture and equipment to private
respondents was for the purpose of storage. They were unaware that the
restaurant would no longer be reopened by petitioners. Hence, the former
cannot be faulted for not disposing of the stored items to recover their
capital investment.
Third Issue:
Costs
Section 1, Rule 142, provides:
"SECTION 1. Costs ordinarily follow results of suit. Unless otherwise provided
in these rules, costs shall be allowed to the prevailing party as a matter of
course, but the court shall have power, for special reasons, to adjudge that
either party shall pay the costs of an action, or that the same be divided,
as may be equitable. No costs shall be allowed against the Republic of the
Philippines unless otherwise provided by law."
Although, as a rule, costs are adjudged against the losing party, courts
have discretion, "for special reasons," to decree otherwise. When a lower
court is reversed, the higher court normally does not award costs, because
the losing party relied on the lower court's judgment which is presumed to
have been issued in good faith, even if found later on to be erroneous.
Unless shown to be patently capricious, the award shall not be disturbed by
a reviewing tribunal.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and
Resolution SET ASIDE. This disposition is without prejudice to proper
proceedings for the accounting, the liquidation and the distribution of the
remaining partnership assets, if any. No pronouncement as to costs. HDIaST
21
Article 1769
[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.
DECISION
AQUINO, J p:
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 on
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 "distributive dividend" taxable in full (not a mere
capital gain of which 1/2 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 seg'un la doctrina m s generalizada est : por raz"n
del origen, en que la sociedad presupone necesariamente la convencion,
mientras que la comunidad puede existir y existe ordinariamente sin ella; y
por raz"n del fin u objecto, en que el objeto de la sociedad es obtener
lucro, mientras que el de la indivision es s'olo 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 positivo 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 o 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 Espaol, 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. Cdpr
The instant case is distinguishable from the cases where the parties
engaged in joint ventures for profit. Thus, in Ona vs. 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.
[G.R. No. L-24020-21. July 29, 1968.]
FLORENCIO REYES and ANGEL REYES, petitioners, vs. COMMISSIONER OF
INTERNAL REVENUE and HON. COURT OF TAX APPEALS, respondents.
FERNANDO, J p:
Petitioners in this case were assessed by respondent Commissioner of
Internal Revenue the sum of P46,647.00 as income tax, surcharge and
compromise for the years 1951 to 1954, an assessment subsequently
reduced to P37,528.00. This assessment sought to be reconsidered
unsuccessfully was the subject of an appeal to respondent Court of Tax
Appeals. Thereafter, another assessment was made against petitioners, this
time for back income taxes plus surcharge and compromise in the total sum
of P25,973.75, covering the years 1955 and 1956. There being a failure on
their part to have such assessments reconsidered, the matter was likewise
taken to the respondent Court of Tax Appeals. The two cases 1 involving as
they did identical issues and ultimately traceable to facts similar in
character were heard jointly with only one decision being rendered.
22
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 was 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 derived from the building
after deducting the expenses of operation and maintenance. The gross
income from rentals of the building amounted to about P90,000.00
annually."
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 partnership "no matter how created or organized, . . .," 7 and
applying the leading case of Evangelista v. Collector of Internal Revenue,
8 sustained the action of respondent Commissioner of Internal Revenue, but
reduced the tax liability of petitioners, as previously noted.
Petitioners maintain the view that the Evangelista ruling does not apply; for
them, the situation is dissimilar. Consequently, they allege that the reliance
by respondent Court of Tax Appeals was unwarranted and the decision
should be set aside. If their interpretation of the authoritative doctrine
therein set forth commands assent, then clearly what respondent Court of
Tax Appeals did fails to find shelter in the law. That is the crux of the matter.
A perusal of the Evangelista decision is therefore unavoidable.
As noted in the opinion of the Court, penned by the present Chief Justice,
the issue was whether petitioners are subject to the tax on corporations
provided for in section 24 of Commonwealth Act No. 466, otherwise known
as the National Internal Revenue Code, . . ." 9 After referring to another
section of the National Internal Revenue Code, which explicitly provides
that the term corporation "includes partnerships" and then to Article 1767 of
the Civil Code of the Philippines, defining what a contract of partnership is,
the opinion goes on to state that "the essential elements of a partnership
are two, namely: (a) an agreement to contribute money, property or
industry to a common fund; and (b) intent to divide the profits among the
contracting parties. The first element is undoubtedly present in the case at
bar, for, admittedly, petitioners have agreed to, and did, contribute money
and property to a common fund. Hence, the issue narrows down to their
intent in acting as they did. Upon consideration of all the facts and
circumstances surrounding the case, we are fully satisfied that their purpose
was to engage in real estate transactions for monetary gain and then
divide the same among themselves, . . ." 10
In support of the above conclusion, reference was made to the following
circumstances, namely, the common fund being created purposely not
something already found in existence, the investment of the same not
merely in one transaction but in a series of transactions; the lots thus
acquired not being devoted to residential purposes or to other personal
uses of petitioners in that case; such properties having been under the
management of one person with full power to lease, to collect rents, to issue
receipts, to bring suits, to sign letters and contracts and to endorse notes
and checks; the above conditions having existed for more than 10 years
since the acquisition of the above properties; and no testimony having
been introduced as to the purpose "in creating the set up already adverted
to, or on the causes for its continued existence." 11 The conclusion that
emerged had all the imprint of inevitability. Thus: "Although, taken singly,
they might not suffice to establish the intent necessary to constitute a
partnership, the collective effect of these circumstances is such as to leave
no room for doubt on the existence of said intent in petitioners herein."
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 other, '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'." 15 The opinion went on to summarize
the matter aptly: "For purposes of the tax on corporations, our National
Internal Revenue Code, include these partnerships with the exception
only of duly registered general co-partnerships within the purview of the
term 'corporation'. It is, therefore, clear to our mind that petitioners herein
constitute a partnership, insofar as said Code is concerned, and are subject
to the income tax for corporations." 16
In the light of the above, it cannot be said that the respondent Court of Tax
Appeals decided the matter incorrectly. There is no warrant for the assertion
that it failed to apply the settled law to uncontroverted facts. Its decision
cannot be successfully assailed. Moreover, an observation made in
Alhambra Cigar & Cigarette Manufacturing Co. v. Commissioner of Internal
Revenue, 17 is well-worth recalling. Thus: "Nor as a matter of principle is it
advisable for this Court to set aside the conclusion reached by an agency
such as the Court of Tax Appeals which is, by the very nature of its function,
dedicated exclusively to the study and consideration of tax problems and
has necessarily developed an expertise on the subject, unless, as did not
23
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.
[G.R. No. 35840. March 31, 1933.]
FRANCISCO BASTIDA, plaintiff-appellee, vs. MENZI & CO., INC., J. M. MENZI
and P. C. SCHLOBOHM, defendants. MENZI & CO., INC., appellant.
VICKERS, J p:
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 vouchers;
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 where 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 the
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 partner ship 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 prays the court:
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
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
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 sales 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 Compaa, de Manila, como Primera
Parte, y D. Francisco Bastida, tambin de Manila, como Segunda Parte,
bajo las siguientes
"CONDICIONES
"1.a El objeto de este contrato es la explotacion del negocio de Abonos e
Fertilizantes Preparados, para diversas aplicaciones agrcolas;
24
"2.a La duracion de este contrato sera de cinco aos, a contar desde la
fecha de su firma;
"3.a La Primera Parte se compromete a facilitar la ayuda financiera
necesaria para el negocio;
"4.a La Segunda Parte se compromete a poner su entero tiempo y toda su
experiencia a la disposicion del negocio;
"5.a La Segunda Parte no podra, directa o indirectamente, dedicarse por
s sola ni en sociedad con otras personas, o de manera alguna no sea con
la Primera Parte, al negocio 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.a La Primera Parte no podra dedicarse, por s 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 Filipinas;
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 materias fertilizantes
simples importados de los Estados Unidos o del Extranjero;
"7.a 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.a La Primera Parte facilitara a la Segunda, mensualmente, la cantidad
de P300 (trescientos pesos), a cuenta de su parte de beneficios;
"9.a Durante el ao 1923 la Primera Parte concedera a la Segunda permiso
para que ste se ausente de Filipinas por un perodo de tiempo que no
exceda de un ao, sin menoscabo para los derechos de la Segunda Parte
con arreglo a este contrato.
"En testimonio de lo cual firmanos 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 fertilizers 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 & Co., 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, 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 where 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 its managers J. M. Menzi and P. C.
25
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 accounting 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 "purchase" 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, owing to the fact that the partnership constituted
between the plaintiff and the defendant Menzi & Co., Inc., never kept its
own cash book, but that it 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 own 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 to 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 per cent of the net profits as compensation for his
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., Inc., 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 paragraphs I, II, III, IV, and V of the first cause
of action.
II. That the defendant Menzi & Co., Inc., through the defendants 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 P3,626.60, 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
26
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 requested 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 of the fertilizer
department and charged to that 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 he hereby reproduces paragraphs I, II, III, IV, and V of the first cause
of action.
II. That the plaintiff has discovered that the defendant 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 therefor 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 paragraphs 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" with the Deutsches Kalesyndikat, G. M. B., of Berlin, which is a
manufacturer of potash, by virtue of which the 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 commissions were not in any sense discounts of
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 sum of $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 that department for such item.
SIXTH CAUSE OF ACTION
As sixth 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 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 an 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.
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 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 for 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 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 of 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 to the plaintiff jointly
and severally 35 per cent of the net amount.
Defendants alleged:
27
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 said credits were duly noted
on the books of the fertilizer 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.
EIGHTH CAUSE OF ACTION
As eight 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 Compaa General de
Tabacos de Filipinas for the sale to 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 proposed 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 Compaa 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 Compaa 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 Compaa General de Tabacos de 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 business, after its expiration, are
wholly unknown to 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 to P20,000, 35 per
cent of which amounts 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 defendant has ignored such demands, so
that the plaintiff does not, at 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 the 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 the 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
28
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 therefor 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, is a contract of general regular commercial partnership, wherein
Menzi & Co., Inc., was the capitalist, and the plaintiff, the industrial partner;
"(b) Holding that 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 accounts therein contained;
"(c) Ordering Menzi & Co., Inc., upon the second ground of action, to pay
the plaintiff the sum of P60,385.67 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 complaint 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 out in Exhibits 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 assignments 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 P60,385.67, with legal interest thereon from
the date of filing his complaint, corresponds to the plaintiff.
"III. 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 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 during 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 plaintiff and he was paid the
amount due him under 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
Compaa 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 the 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 eighth 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 defendant corporation was
organized in 1921 for the purpose of importing and selling general
merchandise, including fertilizers and fertilizer ingredients. It acquired
through John Bordman and the Menzi-Bordman Co. the good-will, 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 by 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 that he did not have the money to
buy the ingredients to fill the order and carry 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
29
orders for fifty per cent of the net profits that Menzi & Co., Inc., 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: Interim 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 utilidades que se deriven del contrato obtenido por Vd. de la
Philippine Sugar Centrals (por 1250 tonel.) y del contrato con la Calamba
Sugar Estates, as como de cuantos contratos se cierren con compradores
de abonos preparados antes de la formalizacion definitiva de nuestro
contrato mutuo, lo que hacemos para garanta 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 charged 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 on April 27, 1922 entered into 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 charged 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 of tobacco that it might need for its
fertilizer business either in the Philippine Islands or for export to other
countries. This contract is referred to in the record as the "Vastago
Contract". Menzi & Co., Inc., advanced the plaintiff large sums of money
for buying and installing machinery, 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
established between Menzi & Co. and the plaintiff by the contract, Exhibit
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, and pay the debts of the business. The accountants 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 the 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 assignments 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
A, was not that of partners, but that of employer and employee, whereby
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
30
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 advance
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 is 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 shall 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 expense rejected by the trial judge, they were in
our opinion proper charges and erroneously disallowed, and this would be
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:
"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 of 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 of 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 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 same 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
trademarks 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 trademarks 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, s 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
31
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 or June 17, 1927, without a special finding as to costs.
[G.R. No. 126881. October 3, 2000.]
HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and BENGUET
LUMBER COMPANY, represented by its President TAN ENG LAY, respondents.
DE LEON, JR., J p:
In this petition for review on certiorari, petitioners pray for the reversal of the
Decision 1 dated March 13, 1996 of the former Fifth Division 2 of the Court
of Appeals in CA-G.R. CV No. 47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed decision is hereby set aside,
and the complaint dismissed.
The facts are: THacES
Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo,
the common-law spouse of the decedent, joined by their children Teresita,
Nena, Clarita, Carlos, Corazon and Elpidio, collectively known as herein
petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's brother
TAN ENG LAY on February 19, 1990. The complaint, 3 docketed as Civil Case
No. 1983-R in the Regional Trial Court of Baguio City was for accounting,
liquidation and winding up of the alleged partnership formed after World
War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991, the
petitioners filed an amended complaint 4 impleading private respondent
herein BENGUET LUMBER COMPANY, as represented by Tan Eng Lay. The
amended complaint was admitted by the trial court in its Order dated May
3, 1991. 5
The amended complaint principally alleged that after the second World
War, Tan Eng Kee and Tan Eng Lay, pooling their resources and industry
together, entered into a partnership engaged in the business of selling
lumber and hardware and construction supplies. They named their
enterprise "Benguet Lumber" which they jointly managed until Tan Eng Kee's
death. Petitioners herein averred that the business prospered due to the
hard work and thrift of the alleged partners. However, they claimed that in
1981, Tan Eng Lay and his children caused the conversion of the partnership
"Benguet Lumber" into a corporation called "Benguet Lumber Company."
The incorporation was purportedly a ruse to deprive Tan Eng Kee and his
heirs of their rightful participation in the profits of the business. Petitioners
prayed for accounting of the partnership assets, and the dissolution,
winding up and liquidation thereof, and the equal division of the net assets
of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment
6 on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which is akin to a
particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint
adventurers and/or partners in a business venture and/or particular
partnership called Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned
over to Benguet Lumber Co. Inc. and as such the heirs or legal
representatives of the deceased Tan Eng Kee have a legal right to share in
said assets;
d) Declaring that all the rights and obligations of Tan Eng Kee as joint
adventurer and/or as partner in a particular partnership have descended
to the plaintiffs who are his legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the President and/or
General Manager of Benguet Lumber Company Inc. to render an
accounting of all the assets of Benguet Lumber Company, Inc. so the
plaintiffs know their proper share in the business;
f) Ordering the appointment of a receiver to preserve and/or administer
the assets of Benguet Lumber Company, Inc. until such time that said
corporation is finally liquidated are directed to submit the name of any
person they want to be appointed as receiver failing in which this Court will
appoint the Branch Clerk of Court or another one who is qualified to act as
such.
g) Denying the award of damages to the plaintiffs for lack of proof except
the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals which, on
March 13, 1996, rendered the assailed decision reversing the judgment of
the trial court. Petitioners' motion for reconsideration 7 was denied by the
Court of Appeals in a Resolution 8 dated October 11, 1996.
Hence, the present petition. HTCESI
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856
against Tan Eng Lay and Wilborn Tan for the use of allegedly falsified
documents in a judicial proceeding. Petitioners complained that Exhibits "4"
to "4-U" offered by the defendants before the trial court, consisting of
payrolls indicating that Tan Eng Kee was a mere employee of Benguet
Lumber, were fake, based on the discrepancy in the signatures of Tan Eng
Kee. They also filed Criminal Cases Nos. 78857-78870 against Gloria, Julia,
Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March
20, 1999, the Municipal Trial Court of Baguio City, Branch 1, wherein the
charges were filed, rendered judgment 9 dismissing the cases for
insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN
ENG LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO
FIRM LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE
OF PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND
LOSSES; AND (E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE
PARTNERSHIP (PAGE 13, DECISION).
II
THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-
SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER
WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN
EMPLOYEE THEREOF.
III
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH
PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE
THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE
SECURITIES AND EXCHANGE COMMISSION:
a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING
AT THE BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE
EMPLOYEES OF BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE
EMPLOYEES THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE
PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS
TO THE SUPPLIERS (PAGE 18, DECISION).
IV
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE:
ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT
32
KNOWN IN BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A
PARTNERSHIP (PAGE 16-17, DECISION).
V (10) when the findings of fact of the Court of Appeals are premised on the
THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS
NO PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN
ENG LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS
DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO
SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17,
DECISION).
As a premise, we reiterate the oft-repeated rule that findings of facts of the
Court of Appeals will not be disturbed on appeal if such are supported by
the evidence. 10 Our jurisdiction, it must be emphasized, does not include
review of factual issues. Thus:
Filing of petition with Supreme Court. A party desiring to appeal by
certiorari from a judgment or final order or resolution of the Court of
Appeals, the Sandiganbayan, the Regional Trial Court or other courts
whenever authorized by law, may file with the Supreme Court a verified
petition for review on certiorari. The petition shall raise only questions of law
which must be distinctly set forth. 11 [italics supplied]
Admitted exceptions have been recognized, though, and when present,
may compel us to analyze the evidentiary basis on which the lower court
rendered judgment. Review of factual issues is therefore warranted:
(1) when the factual findings of the Court of Appeals and the trial court are
contradictory;
(2) when the findings are grounded entirely on speculation, surmises, or
conjectures;
(3) when the inference made by the Court of Appeals from its findings of
fact is manifestly mistaken, absurd, or impossible;
(4) when there is grave abuse of discretion in the appreciation of facts;
(5) when the appellate court, in making its findings, goes beyond the issues
of the case, and such findings are contrary to the admissions of both
appellant and appellee;
(6) when the judgment of the Court of Appeals is premised on a
misapprehension of facts;
(7) when the Court of Appeals fails to notice certain relevant facts which, if
properly considered, will justify a different conclusion;
(8) when the findings of fact are themselves conflicting;
(9) when the findings of fact are conclusions without citation of the specific
evidence on which they are based; and
absence of evidence but such findings are contradicted by the evidence
on record. 12
In reversing the trial court, the Court of Appeals ruled, to wit:
We note that the Court a quo over extended the issue because while the
plaintiffs mentioned only the existence of a partnership, the Court in turn
went beyond that by justifying the existence of a joint venture.
When mention is made of a joint venture, it would presuppose parity of
standing between the parties, equal proprietary interest and the exercise
by the parties equally of the conduct of the business, thus:
xxx xxx xxx
a compound. The execution of a public instrument, on the other hand, was
We have the admission that the father of the plaintiffs was not a partner of
the Benguet Lumber before the war. The appellees however argued that
(Rollo, p. 104; Brief, p. 6) this is because during the war, the entire stocks of
the pre-war Benguet Lumber were confiscated if not burned by the
Japanese. After the war, because of the absence of capital to start a
lumber and hardware business, Lay and Kee pooled the proceeds of their
individual businesses earned from buying and selling military supplies, so
that the common fund would be enough to form a partnership, both in the
lumber and hardware business. That Lay and Kee actually established the
Benguet Lumber in Baguio City, was even testified to by witnesses. Because
of the pooling of resources, the post-war Benguet Lumber was eventually
established. That the father of the plaintiffs and Lay were partners, is obvious
from the fact that: (1) they conducted the affairs of the business during
Kee's lifetime, jointly, (2) they were the ones giving orders to the employees,
(3) they were the ones preparing orders from the suppliers, (4) their families
stayed together at the Benguet Lumber compound, and (5) all their
children were employed in the business in different capacities.
xxx xxx xxx
It is obvious that there was no partnership whatsoever. Except for a firm
name, there was no firm account, no firm letterheads submitted as
evidence, no certificate of partnership, no agreement as to profits and
losses, and no time fixed for the duration of the partnership. There was even
no attempt to submit an accounting corresponding to the period after the
war until Kee's death in 1984. It had no business book, no written account
nor any memorandum for that matter and no license mentioning the
existence of a partnership [citation omitted].
Also, the exhibits support the establishment of only a proprietorship. The
certification dated March 4, 1971, Exhibit "2", mentioned co-defendant Lay
as the only registered owner of the Benguet Lumber and Hardware. His
application for registration, effective 1954, in fact mentioned that his
business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the
Benguet Lumber Company, on the basis of his SSS coverage effective 1958,
Exhibit "3". In the Payrolls, Exhibits "4" to "4-U", inclusive, for the years 1982 to
1983, Kee was similarly listed only as an employee; precisely, he was on the
payroll listing. In the Termination Notice, Exhibit "5", Lay was mentioned also
as the proprietor.
xxx xxx xxx
We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may
be constituted in any form, but when an immovable is constituted, the
execution of a public instrument becomes necessary. This is equally true if
the capitalization exceeds P3,000.00, in which case a public instrument is
also necessary, and which is to be recorded with the Securities and
Exchange Commission. In this case at bar, we can easily assume that the
business establishment, which from the language of the appellees,
prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00, in
addition to the accumulation of real properties and to the fact that it is now
never established by the appellees.
And then in 1981, the business was incorporated and the incorporators
were only Lay and the members of his family. There is no proof either that
the capital assets of the partnership, assuming them to be in existence,
were maliciously assigned or transferred by Lay, supposedly to the
corporation and since then have been treated as a part of the latter's
capital assets, contrary to the allegations in pars. 6, 7 and 8 of the
complaint.
These are not evidences supporting the existence of a partnership:
1) That Kee was living in a bunk house just across the lumber store, and then
in a room in the bunk house in Trinidad, but within the compound of the
lumber establishment, as testified to by Tandoc; 2) that both Lay and Kee
were seated on a table and were "commanding people" as testified to by
the son, Elpidio Tan; 3) that both were supervising the laborers, as testified
to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told
by Kee that the proceeds of the 80 pieces of the G.I. sheets were added to
the business. DTaSIc
Partnership presupposes the following elements [citation omitted]: 1) a
contract, either oral or written. However, if it involves real property or where
the capital is P3,000.00 or more, the execution of a contract is necessary; 2)
the capacity of the parties to execute the contract; 3) money property or
industry contribution; 4) community of funds and interest, mentioning
equality of the partners or one having a proportionate share in the benefits;
and 5) intention to divide the profits, being the true test of the partnership.
The intention to join in the business venture for the purpose of obtaining
profits thereafter to be divided, must be established. We cannot see these
elements from the testimonial evidence of the appellees.
As can be seen, the appellate court disputed and differed from the trial
court which had adjudged that TAN ENG KEE and TAN ENG LAY had
33
allegedly entered into a joint venture. In this connection, we have held that
whether a partnership exists is a factual matter; consequently, since the
appeal is brought to us under Rule 45, we cannot entertain inquiries relative
to the correctness of the assessment of the evidence by the court a quo.
13 Inasmuch as the Court of Appeals and the trial court had reached
conflicting conclusions, perforce we must examine the record to determine
if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were
partners in Benguet Lumber. A contract of partnership is defined by law as
one where:
. . . two or more persons bind themselves to contribute money, property, or
industry to a common fund, with the intention of dividing the profits among
themselves.
Two or more persons may also form a partnership for the exercise of a
profession. 14
Thus, in order to constitute a partnership, it must be established that (1) two
or more persons bound themselves to contribute money, property, or
industry to a common fund, and (2) they intend to divide the profits among
themselves. 15 The agreement need not be formally reduced into writing,
since statute allows the oral constitution of a partnership, save in two
instances: (1) when immovable property or real rights are contributed, 16
and (2) when the partnership has a capital of three thousand pesos or
more. 17 In both cases, a public instrument is required. 18 An inventory to
be signed by the parties and attached to the public instrument is also
indispensable to the validity of the partnership whenever immovable
property is contributed to the partnership. 19
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered
into a joint venture, which it said is akin to a particular partnership. 20 A
particular partnership is distinguished from a joint adventure, to wit:
(a) A joint adventure (an American concept similar to our joint accounts) is
a sort of informal partnership, with no firm name and no legal personality.
In a joint account, the participating merchants can transact business under
their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE
TRANSACTION, although the business of pursuing to a successful termination
may continue for a number of years; a partnership generally relates to a
continuing business of various transactions of a certain kind. 21
A joint venture "presupposes generally a parity of standing between the
joint co-ventures or partners, in which each party has an equal proprietary
interest in the capital or property contributed, and where each party
exercises equal rights in the conduct of the business." 22 Nonetheless, in
Aurbach, et. al. v. Sanitary Wares Manufacturing Corporation, et. al., 23 we
expressed the view that a joint venture may be likened to a particular
partnership, thus:
The legal concept of a joint venture is of common law origin. It has no
precise legal definition, but it has been generally understood to mean an
organization formed for some temporary purpose. (Gates v. Megargel, 266
Fed. 811 [1920]) It is hardly distinguishable from the partnership, since their
elements are similar community of interest in the business, sharing of
profits and losses, and a mutual right of control. (Blackner v. McDermott,
176 F. 2d. 498, [1949]; Carboneau v. Peterson, 95 P.2d., 1043 [1939]; Buckley
v. Chadwick, 45 Cal. 2d. 183, 288 P.2d. 12 289 P.2d. 242 [1955]). The main
distinction cited by most opinions in common law jurisdiction is that the
partnership contemplates a general business with some degree of
continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann. 116 Cal. App.
170, 2 P. 2d. 500 [1931]; Harmon v. Martin, 395 Ill. 595, 71 NE 2d. 74 [1947];
Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership may
be particular or universal, and a particular partnership may have for its
object a specific undertaking. (Art. 1783, Civil Code). It would seem
therefore that under Philippine law, a joint venture is a form of partnership
and should thus be governed by the law of partnerships. The Supreme Court
has however recognized a distinction between these two business forms,
and has held that although a corporation cannot enter into a partnership
contract, it may however engage in a joint venture with others. (At p. 12,
Tuazon v. Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos,
Comments, Notes and Selected Cases, Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of
partnership itself, or the articles of partnership but there is none. The alleged
partnership, though, was never formally organized. In addition, petitioners
point out that the New Civil Code was not yet in effect when the
partnership was allegedly formed sometime in 1945, although the contrary
may well be argued that nothing prevented the parties from complying
with the provisions of the New Civil Code when it took effect on August 30,
1950. But all that is in the past. The net effect, however, is that we are asked
to determine whether a partnership existed based purely on circumstantial
evidence. A review of the record persuades us that the Court of Appeals
correctly reversed the decision of the trial court. The evidence presented
by petitioners falls short of the quantum of proof required to establish a
partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside
from Tan Eng Lay, could have expounded on the precise nature of the
business relationship between them. In the absence of evidence, we
cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of establishing
a partnership. The testimonies to that effect of petitioners' witnesses is
directly controverted by Tan Eng Lay. It should be noted that it is not with
the number of witnesses wherein preponderance lies; 24 the quality of their
testimonies is to be considered. None of petitioners' witnesses could suitably
account for the beginnings of Benguet Lumber Company, except perhaps
for Dionisio Peralta whose deceased wife was related to Matilde Abubo. 25
He stated that when he met Tan Eng Kee after the liberation, the latter
asked the former to accompany him to get 80 pieces of G.I. sheets
supposedly owned by both brothers. 26 Tan Eng Lay, however, denied
knowledge of this meeting or of the conversation between Peralta and his
brother. 27 Tan Eng Lay consistently testified that he had his business and his
brother had his, that it was only later on that his said brother, Tan Eng Kee,
came to work for him. Be that as it may, co-ownership or co-possession
(specifically here, of the G.I. sheets) is not an indicium of the existence of a
partnership. 28
Besides, it is indeed odd, if not unnatural, that despite the forty years the
partnership was allegedly in existence, Tan Eng Kee never asked for an
accounting. The essence of a partnership is that the partners share in the
profits and losses. 29 Each has the right to demand an accounting as long
as the partnership exists. 30 We have allowed a scenario wherein "[i]f
excellent relations exist among the partners at the start of the business and
all the partners are more interested in seeing the firm grow rather than get
immediate returns, a deferment of sharing in the profits is perfectly
plausible." 31 But in the situation in the case at bar, the deferment, if any,
had gone on too long to be plausible. A person is presumed to take
ordinary care of his concerns. 32 As we explained in another case:
In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In
the second place, she did not furnish any help or intervention in the
management of the theatre. In the third place, it does not appear that she
has even demanded from defendant any accounting of the expenses and
earnings of the business. Were she really a partner, her first concern should
have been to find out how the business was progressing, whether the
expenses were legitimate, whether the earnings were correct, etc. She was
absolutely silent with respect to any of the acts that a partner should have
done; all that she did was to receive her share of P3,000.00 a month, which
cannot be interpreted in any manner than a payment for the use of the
premises which she had leased from the owners. Clearly, plaintiff had
always acted in accordance with the original letter of defendant of June
17, 1945 (Exh. "A"), which shows that both parties considered this offer as the
real contract between them. 33 [italics supplied]
A demand for periodic accounting is evidence of a partnership. 34 During
his lifetime, Tan Eng Kee appeared never to have made any such demand
for accounting from his brother, Tang Eng Lay.
This brings us to the matter of Exhibits "4" to "4-U" for private respondents,
consisting of payrolls purporting to show that Tan Eng Kee was an ordinary
employee of Benguet Lumber, as it was then called. The authenticity of
these documents was questioned by petitioners, to the extent that they
filed criminal charges against Tan Eng Lay and his wife and children. As
aforesaid, the criminal cases were dismissed for insufficiency of evidence.
Exhibits "4" to "4-U" in fact shows that Tan Eng Kee received sums as wages
of an employee. In connection therewith, Article 1769 of the Civil Code
provides:
In determining whether a partnership exists, these rules shall apply:
34
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits
made by the use of the property;
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima
facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installment or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
In the light of the aforequoted legal provision, we conclude that Tan Eng
Kee was only an employee, not a partner. Even if the payrolls as evidence
were discarded, petitioners would still be back to square one, so to speak,
since they did not present and offer evidence that would show that Tan
Eng Kee received amounts of money allegedly representing his share in the
profits of the enterprise. Petitioners failed to show how much their father,
Tan Eng Kee, received, if any, as his share in the profits of Benguet Lumber
Company for any particular period. Hence, they failed to prove that Tan
Eng Kee and Tan Eng Lay intended to divide the profits of the business
between themselves, which is one of the essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged
existence of a partnership from this set of circumstances: that Tan Eng Lay
and Tan Eng Kee were commanding the employees; that both were
supervising the employees; that both were the ones who determined the
price at which the stocks were to be sold; and that both placed orders to
the suppliers of the Benguet Lumber Company. They also point out that the
families of the brothers Tan Eng Kee and Tan Eng Lay lived at the Benguet
Lumber Company compound, a privilege not extended to its ordinary
employees.
However, private respondent counters that: TCacIA
Petitioners seem to have missed the point in asserting that the above WHEREFORE, the petition is hereby denied, and the appealed decision of
enumerated powers and privileges granted in favor of Tan Eng Kee, were the Court of Appeals is hereby AFFIRMED in toto. No pronouncement as to
indicative of his being a partner in Benguet Lumber for the following costs.
reasons:
SO ORDERED.
(i) even a mere supervisor in a company, factory or store gives orders and
directions to his subordinates. So long, therefore, that an employee's
position is higher in rank, it is not unusual that he orders around those lower
[G.R. No. 127405. September 20, 2001]
in rank.
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS
(ii) even a messenger or other trusted employee, over whom confidence is
and NENITA A. ANAY, respondents.
reposed by the owner, can order materials from suppliers for and in behalf
of Benguet Lumber. Furthermore, even a partner does not necessarily have RESOLUTION
to perform this particular task. It is, thus, not an indication that Tan Eng Kee
was a partner.
YNARES-SANTIAGO, J.:
(iii) although Tan Eng Kee, together with his family, lived in the lumber The inherent powers of a Court to amend and control its processes and
compound and this privilege was not accorded to other employees, the orders so as to make them conformable to law and justice includes the right
undisputed fact remains that Tan Eng Kee is the brother of Tan Eng Lay.
to reverse itself, especially when in its honest opinion it has committed an
Naturally, close personal relations existed between them. Whatever error or mistake in judgment, and that to adhere to its decision will cause
privileges Tan Eng Lay gave his brother, and which were not given the other injustice to a party litigant.[1]
employees, only proves the kindness and generosity of Tan Eng Lay towards
a blood relative.
On November 14, 2001, petitioners Marjorie Tocao and William T. Belo filed
a Motion for Reconsideration of our Decision dated October 4, 2000. They
(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng maintain that there was no partnership bettween petitioner Belo, on the
Lay in connection with the pricing of stocks, this does not adequately prove
one hand, and respondent Nenita A. Anay, on the other hand; and that
the existence of a partnership relation between them. Even highly
the latter being merely an employee of petitioner Tocao.
confidential employees and the owners of a company sometimes argue
with respect to certain matters which, in no way indicates that they are After a careful review of the evidence presented, we are convinced that,
partners as to each other. 35
indeed, petitioner Belo acted merely as guarantor of Geminesse Enterprise.
This was categorically affirmed by respondents own witness, Elizabeth
In the instant case, we find private respondent's arguments to be well- Bantilan, during her cross-examination. Furthermore, Bantilan testified that
taken. Where circumstances taken singly may be inadequate to prove the it was Peter Lo who was the companys financier. Thus:
intent to form a partnership, nevertheless, the collective effect of these
circumstances may be such as to support a finding of the existence of the Q You mentioned a while ago the name William Belo. Now, what is the role
parties' intent. 36 Yet, in the case at bench, even the aforesaid of William Belo with Geminesse Enterprise?
circumstances when taken together are not persuasive indicia of a
partnership. They only tend to show that Tan Eng Kee was involved in the
A William Belo is the friend of Marjorie Tocao and he was the guarantor of
operations of Benguet Lumber, but in what capacity is unclear. We cannot the company.
discount the likelihood that as a member of the family, he occupied a niche
above the rank-and-file employees. He would have enjoyed liberties Q What do you mean by guarantor?
otherwise unavailable were he not kin, such as his residence in the Benguet
Lumber Company compound. He would have moral, if not actual, A He guarantees the stocks that she owes somebody who is Peter Lo and
superiority over his fellow employees, thereby entitling him to exercise he acts as guarantor for us. We can borrow money from him.
powers of supervision. It may even be that among his duties is to place
orders with suppliers. Again, the circumstances proffered by petitioners do
Q You mentioned a certain Peter Lo. Who is this Peter Lo?
not provide a logical nexus to the conclusion desired; these are not
inconsistent with the powers and duties of a manager, even in a business A Peter Lo is based in Singapore.
organized and run as informally as Benguet Lumber Company.
Q What is the role of Peter Lo in the Geminesse Enterprise?
There being no partnership, it follows that there is no dissolution, winding up
or liquidation to speak of. Hence, the petition must fail. A He is the one fixing our orders that open the L/C.
35

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.
[G.R. No. L-12541. March 30, 1960.]
ROSARIO U. YULO, assisted by her husband Jose C. Yulo, plaintiffs and
appellants, vs. YANG CHIAO SENG, defendant and appellee.
LABRADOR, J p:
This concerns a "Petition to Reopen Case," dated December 14, 1959,
presented by attorneys for plaintiffs-appellants, alleging that the
relationship between Rosario U. Yulo, plaintiff-appellant and Yang Chiao
Seng, defendant-appellee, as lessor and lessee, has already been definitely
decided by the Court of Appeals in the case of Sta. Marina, et al., and
Rosario U. Yulo and Yang Chiao Seng, C. A. G. R. No. 8143- R. We have gone
out of our way to review our conclusion that no relation of partnership
existed between said parties because we had denied the motion for
reconsideration of plaintiff-appellant questioning the conclusion of this
Court without explanation.
The claim of plaintiff-appellant Rosario U. Yulo is that the relationship
between her and defendant-appellee Yang Chiao Seng as partners had
already been passed upon by the Court of Appeals in the above-indicated
decision. The portion of the decision of the Court of Appeals is contained
on page 8 of the motion for reconsideration in which it held that articles of
partnership of Young & Co., Ltd. show that the parties to this case are
partners in the construction of the Astor Theatre. It is to be noted, however,
that the decision of the Court of Appeals was one in which Emilia and Maria
Carrion Sta. Marina are plaintiffs and the defendants are Rosario Yulo and
Yang Chiao Seng; the action was one to eject the defendants from the
land occupied by them; the issue was the reasonable value for the use and
occupation of the land. The Court of Appeals said that the plaintiffs in that
case had claimed that the reasonable value was P3,000, while the
defendants claimed that it was only P1,000, and the Court of Appeals held
that in view of the partnership papers P3,000 represent the share of Rosario
U. Yulo in the profits of the partnership and not the reasonable rent of the
property.
It is evident that no res judicata can be claimed for the previous judgment
of the Court of Appeals. In the first place, the parties in that case were Emilia
and Maria Carrion Sta. Marina and the defendants, Rosario U. Yulo and
Yang Chiao Seng; in the second place, the issue decided by the Court of
Appeals was the rental value of the property in question; that the cause of
action was for ejectment of Rosario U. Yulo and Yang Chiao Seng. In the
case at bar, the action is between Rosario U. Yulo as plaintiff and Yang
Chiao Seng as defendant; the issue is whether or not the plaintiff is partner
in the cinematograph business, as claimed by plaintiff, or said plaintiff is
merely a sublessee, as claimed by the defendant. There is, therefore, no
identity of parties nor identity of issue, nor identity of cause of action. We
call attention to the very citation contained in appellant's motion for
reconsideration, which reads as follows:
"Parties to a judgment are not bound by it, in a subsequent controversy
between each other, unless they were adversary parties in the original
action. There must have been an issue or controversy between them. The
reason for this rule obviously is the same as that which underlies the whole
doctrine of res judicata, namely, that a person should not be bound by a
judgment except to the extent that he, or someone representing him, had
an adequate opportunity not only to litigate the matters adjudicated, but
to litigate them against the party (or his predecessor in interest) who seeks
to use the judgment against him." (Sec. 422, 1 Freeman on Judgments, 5th
ed., p. 918).
Without going further, we are fully satisfied of the correctness of our
conclusion that the relationship between plaintiff-appellant Rosario U. Yulo
and Yang Chiao Seng is merely that of sublessor and sublessee, and not
that of partners. The motion to reopen the case is hereby denied and
considering that judgment had become final since October 29, 1959, order
is hereby given to remand the record to the court below.
[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.
CONCEPCION, J p:
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 petitioners 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 P59,140.00
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 for 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 P18,000.00; this property has an assessed value of P8,255.00 as
of 1948;
36

"4. That on April 23, 1944 they purchased from the Insular Investments, Inc.,
a lot of 4,358 sq. m. including improvements thereon for P108,825.00. This
property has an assessed value of P4,983.00 as of 1943;
"5. That on April 28, 1944 they bought from Mrs. Valentin Afable a lot of 8,371
sq. m. including improvements thereon for P237,234.14. 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 tenant; 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 leased to various tenants;
"8. That from the month of March, 1945 up to and 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 in 1946, they realized a gross rental income in the sum of P24,786.30,
out of which amount was deducted 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 the assessments made by said officer,
as follows:
INCOME TAXES
1945...........................................................P614.84
1946...........................................................1,144.71
1947..............................................................910.34
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 P527.50
RESIDENCE TAXES OF CORPORATION
1945................................................................P38.75
1946..................................................................38.75
1947..................................................................38.75
1948..................................................................38.75
1949..................................................................38.75
______________
Total including surchage P193.75
TOTAL TAXES DUE P6,878.34
Said letter of demand and the 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 rendered 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 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 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, 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 P18,000.000. 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 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 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 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
37
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 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
copartner ships" 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 of 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 provision 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 designated 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
interinsurance 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 Merten's Law of Federal Income Taxation, p.
788; italics ours.)
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 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; italics 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; italics 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.
As regards the residence 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." (italics ours.)
Considering that the pertinent part of this provision is analogous to that of
sections 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 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. . . .." (Italics
ours.)
Wherefore, the appealed decision of the Court of Tax Appeals is hereby
affirmed with costs against the petitioners herein. It is so ordered.
[G.R. No. L-19342. May 25, 1972.]
LORENZO T. OA, and HEIRS OF JULIA BUNALES, 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.
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. 34-31, 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,
38
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:
"Year Investment Land Building
Account Account Account
1949 P 87,860 P 17,590.00
1950 P 24,657.65 128,566.72 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 1956 and the 'Compromise for non-filing,' the latter item obviously referring
Exhibit 17, pp. 50 and 86, BIR rec.). Petitioners protested against the to the compromise in lieu of the criminal liability for failure of petitioners to
assessment and asked for reconsideration of the ruling of respondent that file the corporate income tax returns for said years. (See Exh. 17, page 86,
they have formed an unregistered partnership. Finding no merit in BIR records)." (Pp. 1-3, Annex C to Petition).
petitioners' request, respondent denied it (See Exhibit 17, p. 86, BIR rec.).
(See Pp. 1-4, Memorandum for Respondent, June 12, 1961). Petitioners have assigned the following as alleged errors of the Tax Court:
"The original assessment was as follows: "I
"1955 "THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS
FORMED AN UNREGISTERED PARTNERSHIP;
"Net income as per investigation P40,209.89
"II
"THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS
Income tax due thereon 8,042.00 WERE CO-OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS
DERIVED FROM TRANSACTIONS THEREFROM (sic);
25% surcharge 2,010.50
"III
Compromise for non-filing 50.00
"THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE
LIABLE FOR CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN
UNREGISTERED PARTNERSHIP;
Total P10,102.50
"IV
==========
"ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED
"1956 PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT
"Net income as per investigation P69,245.23 THEY IN VESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON
AND THE LOANS RECEIVED USING THE INHERITED PROPERTIES AS
COLLATERALS;.
"V
Income tax due thereon 13,849.00 "ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE
COURT OF TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS
25% surcharge 3,462.25 PAID BY THE PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE
SHARES OF THE PROFITS ACCRUING FROM THE PROPERTIES OWNED IN
Compromise for non-filing 50.00 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
Total 17,361.25 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
(See Exhibit 13, page 50, BIR records) Internal Revenue Code? (2) Assuming they have formed an unregistered
partnership, should this not be only in the sense that they invested as a
"Upon further consideration of the case, the 25% surcharge was eliminated common fund the profits earned by the properties owned by them in
in line with the ruling of the Supreme Court in Collector v. Batangas common and the loans granted to them upon the security of the said
Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so that the questioned properties, with the result that as far as their respective shares in the
assessment refers solely to the income tax proper for the years 1955 and inheritance are concerned, the total income thereof should be considered
39
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 proceeds 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 tantamount 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 "[i]t 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 conformity 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 other, '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 as 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 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."
40

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 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 allege:
'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 Honor able 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 affirmed, with costs against petitioners.
[G.R. No. 172690. March 3, 2010.]
HEIRS OF JOSE LIM, represented by ELENITO LIM, petitioners, vs. JULIET VILLA
LIM, respondent.
DECISION
NACHURA, J p:
Before this Court is a Petition for Review on Certiorari 1 under Rule 45 of the
Rules of Civil Procedure, assailing the Court of Appeals (CA) Decision 2
dated June 29, 2005, which reversed and set aside the decision 3 of the
Regional Trial Court (RTC) of Lucena City, dated April 12, 2004.
The facts of the case are as follows:
Petitioners are the heirs of the late Jose Lim (Jose), namely: Jose's widow
Cresencia Palad (Cresencia); and their children Elenito, Evelia, Imelda,
Edelyna and Edison, all surnamed Lim (petitioners), represented by Elenito
Lim (Elenito). They filed a Complaint 4 for Partition, Accounting and
Damages against respondent Juliet Villa Lim (respondent), widow of the
late Elfledo Lim (Elfledo), who was the eldest son of Jose and Cresencia.
Petitioners alleged that Jose was the liaison officer of Interwood Sawmill in
Cagsiay, Mauban, Quezon. Sometime in 1980, Jose, together with his
friends Jimmy Yu (Jimmy) and Norberto Uy (Norberto), formed a partnership
to engage in the trucking business. Initially, with a contribution of P50,000.00
each, they purchased a truck to be used in the hauling and transport of
lumber of the sawmill. Jose managed the operations of this trucking
business until his death on August 15, 1981. Thereafter, Jose's heirs, including
Elfledo, and partners agreed to continue the business under the
management of Elfledo. The shares in the partnership profits and income
that formed part of the estate of Jose were held in trust by Elfledo, with
petitioners' authority for Elfledo to use, purchase or acquire properties using
said funds.
Petitioners also alleged that, at that time, Elfledo was a fresh commerce
graduate serving as his father's driver in the trucking business. He was never
a partner or an investor in the business and merely supervised the purchase
of additional trucks using the income from the trucking business of the
partners. By the time the partnership ceased, it had nine trucks, which were
all registered in Elfledo's name. Petitioners asseverated that it was also
through Elfledo's management of the partnership that he was able to
purchase numerous real properties by using the profits derived therefrom,
all of which were registered in his name and that of respondent. In addition
to the nine trucks, Elfledo also acquired five other motor vehicles. HCTAEc
On May 18, 1995, Elfledo died, leaving respondent as his sole surviving heir.
Petitioners claimed that respondent took over the administration of the
aforementioned properties, which belonged to the estate of Jose, without
their consent and approval. Claiming that they are co-owners of the
properties, petitioners required respondent to submit an accounting of all
income, profits and rentals received from the estate of Elfledo, and to
surrender the administration thereof. Respondent refused; thus, the filing of
this case.
Respondent traversed petitioners' allegations and claimed that Elfledo was
himself a partner of Norberto and Jimmy. Respondent also claimed that per
testimony of Cresencia, sometime in 1980, Jose gave Elfledo P50,000.00 as
the latter's capital in an informal partnership with Jimmy and Norberto.
When Elfledo and respondent got married in 1981, the partnership only had
one truck; but through the efforts of Elfledo, the business flourished. Other
than this trucking business, Elfledo, together with respondent, engaged in
other business ventures. Thus, they were able to buy real properties and to
put up their own car assembly and repair business. When Norberto was
ambushed and killed on July 16, 1993, the trucking business started to falter.
When Elfledo died on May 18, 1995 due to a heart attack, respondent
talked to Jimmy and to the heirs of Norberto, as she could no longer run the
business. Jimmy suggested that three out of the nine trucks be given to him
as his share, while the other three trucks be given to the heirs of Norberto.
However, Norberto's wife, Paquita Uy, was not interested in the vehicles.
Thus, she sold the same to respondent, who paid for them in installments.
Respondent also alleged that when Jose died in 1981, he left no known
assets, and the partnership with Jimmy and Norberto ceased upon his
demise. Respondent also stressed that Jose left no properties that Elfledo
could have held in trust. Respondent maintained that all the properties
involved in this case were purchased and acquired through her and her
41
husband's joint efforts and hard work, and without any participation or
contribution from petitioners or from Jose. Respondent submitted that these
are conjugal partnership properties; and thus, she had the right to refuse to
render an accounting for the income or profits of their own business.
Trial on the merits ensued. On April 12, 2004, the RTC rendered its decision
in favor of petitioners, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1.) Ordering the partition of the above-mentioned properties equally
between the plaintiffs and heirs of Jose Lim and the defendant Juliet Villa-
Lim; and
2) Ordering the defendant to submit an accounting of all incomes, profits
and rentals received by her from said properties.
SO ORDERED.
Aggrieved, respondent appealed to the CA.
On June 29, 2005, the CA reversed and set aside the RTC's decision,
dismissing petitioners' complaint for lack of merit. Undaunted, petitioners
filed their Motion for Reconsideration, 5 which the CA, however, denied in
its Resolution 6 dated May 8, 2006.
Hence, this Petition, raising the sole question, viz.:
IN THE APPRECIATION BY THE COURT OF THE EVIDENCE SUBMITTED BY THE
PARTIES, CAN THE TESTIMONY OF ONE OF THE PETITIONERS BE GIVEN GREATER
WEIGHT THAN THAT BY A FORMER PARTNER ON THE ISSUE OF THE IDENTITY OF
THE OTHER PARTNERS IN THE PARTNERSHIP? 7
In essence, petitioners argue that according to the testimony of Jimmy, the
sole surviving partner, Elfledo was not a partner; and that he and Norberto
entered into a partnership with Jose. Thus, the CA erred in not giving that
testimony greater weight than that of Cresencia, who was merely the
spouse of Jose and not a party to the partnership. 8
Respondent counters that the issue raised by petitioners is not proper in a
petition for review on certiorari under Rule 45 of the Rules of Civil Procedure,
as it would entail the review, evaluation, calibration, and re-weighing of the
factual findings of the CA. Moreover, respondent invokes the rationale of
the CA decision that, in light of the admissions of Cresencia and Edison and
the testimony of respondent, the testimony of Jimmy was effectively
refuted; accordingly, the CA's reversal of the RTC's findings was fully justified.
9 cEaCTS
We resolve first the procedural matter regarding the propriety of the instant
Petition.
Verily, the evaluation and calibration of the evidence necessarily involves
consideration of factual issues an exercise that is not appropriate for a
petition for review on certiorari under Rule 45. This rule provides that the
parties may raise only questions of law, because the Supreme Court is not
a trier of facts. Generally, we are not duty-bound to analyze again and
weigh the evidence introduced in and considered by the tribunals below.
10 When supported by substantial evidence, the findings of fact of the CA
are conclusive and binding on the parties and are not reviewable by this
Court, unless the case falls under any of the following recognized
exceptions:
(1) When the conclusion is a finding grounded entirely on speculation,
surmises and conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion;
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both
appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are conclusions without citation of specific
evidence on which they are based;
(9) When the facts set forth in the petition as well as in the petitioners' main
and reply briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the
supposed absence of evidence and contradicted by the evidence on
record. 11
We note, however, that the findings of fact of the RTC are contrary to those
of the CA. Thus, our review of such findings is warranted.
On the merits of the case, we find that the instant Petition is bereft of merit.
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses among them. A contract of partnership is defined by the Civil Code
as one where two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the
profits among themselves. 12 aHIEcS
Undoubtedly, the best evidence would have been the contract of
partnership or the articles of partnership. Unfortunately, there is none in this
case, because the alleged partnership was never formally organized.
Nonetheless, we are asked to determine who between Jose and Elfledo
was the "partner" in the trucking business.
A careful review of the records persuades us to affirm the CA decision. The
evidence presented by petitioners falls short of the quantum of proof
required to establish that: (1) Jose was the partner and not Elfledo; and (2)
all the properties acquired by Elfledo and respondent form part of the
estate of Jose, having been derived from the alleged partnership.
Petitioners heavily rely on Jimmy's testimony. But that testimony is just one
piece of evidence against respondent. It must be considered and weighed
along with petitioners' other evidence vis--vis respondent's contrary
evidence. In civil cases, the party having the burden of proof must establish
his case by a preponderance of evidence. "Preponderance of evidence"
is the weight, credit, and value of the aggregate evidence on either side
and is usually considered synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence." "Preponderance of
evidence" is a phrase that, in the last analysis, means probability of the truth.
It is evidence that is more convincing to the court as worthy of belief than
that which is offered in opposition thereto. 13 Rule 133, Section 1 of the Rules
of Court provides the guidelines in determining preponderance of
evidence, thus:
SECTION I. Preponderance of evidence, how determined. In civil cases,
the party having burden of proof must establish his case by a
preponderance of evidence. In determining where the preponderance or
superior weight of evidence on the issues involved lies, the court may
consider all the facts and circumstances of the case, the witnesses' manner
of testifying, their intelligence, their means and opportunity of knowing the
facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or
want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number
of witnesses, though the preponderance is not necessarily with the greater
number.
At this juncture, our ruling in Heirs of Tan Eng Kee v. Court of Appeals 14 is
enlightening. Therein, we cited Article 1769 of the Civil Code, which
provides:
Art. 1769. In determining whether a partnership exists, these rules shall apply:
(1) Except as provided by Article 1825, persons who are not partners as to
each other are not partners as to third persons;
(2) Co-ownership or co-possession does not of itself establish a partnership,
whether such co-owners or co-possessors do or do not share any profits
made by the use of the property; CHDAEc
(3) The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is a prima
facie evidence that he is a partner in the business, but no such inference
shall be drawn if such profits were received in payment:
(a) As a debt by installments or otherwise;
(b) As wages of an employee or rent to a landlord;
(c) As an annuity to a widow or representative of a deceased partner;
(d) As interest on a loan, though the amount of payment vary with the
profits of the business;
(e) As the consideration for the sale of a goodwill of a business or other
property by installments or otherwise.
42
Applying the legal provision to the facts of this case, the following In sum, we find no cogent reason to disturb the findings and the ruling of
circumstances tend to prove that Elfledo was himself the partner of Jimmy the CA as they are amply supported by the law and by the evidence on
and Norberto: 1) Cresencia testified that Jose gave Elfledo P50,000.00, as record.
share in the partnership, on a date that coincided with the payment of the
initial capital in the partnership; 15 (2) Elfledo ran the affairs of the WHEREFORE, the instant Petition is DENIED. The assailed Court of Appeals
partnership, wielding absolute control, power and authority, without any Decision dated June 29, 2005 is AFFIRMED. Costs against petitioners.
intervention or opposition whatsoever from any of petitioners herein; 16 (3)
all of the properties, particularly the nine trucks of the partnership, were SO ORDERED.
registered in the name of Elfledo; (4) Jimmy testified that Elfledo did not
receive wages or salaries from the partnership, indicating that what he
actually received were shares of the profits of the business; 17 and (5) none
of the petitioners, as heirs of Jose, the alleged partner, demanded periodic
accounting from Elfledo during his lifetime. As repeatedly stressed in Heirs
of Tan Eng Kee, 18 a demand for periodic accounting is evidence of a
partnership.
Furthermore, petitioners failed to adduce any evidence to show that the
real and personal properties acquired and registered in the names of
Elfledo and respondent formed part of the estate of Jose, having been
derived from Jose's alleged partnership with Jimmy and Norberto. They
failed to refute respondent's claim that Elfledo and respondent engaged in
other businesses. Edison even admitted that Elfledo also sold Interwood
lumber as a sideline. 19 Petitioners could not offer any credible evidence
other than their bare assertions. Thus, we apply the basic rule of evidence
that between documentary and oral evidence, the former carries more
weight. 20
Finally, we agree with the judicious findings of the CA, to wit:
The above testimonies prove that Elfledo was not just a hired help but one
of the partners in the trucking business, active and visible in the running of
its affairs from day one until this ceased operations upon his demise. The
extent of his control, administration and management of the partnership
and its business, the fact that its properties were placed in his name, and
that he was not paid salary or other compensation by the partners, are
indicative of the fact that Elfledo was a partner and a controlling one at
that. It is apparent that the other partners only contributed in the initial
capital but had no say thereafter on how the business was ran. Evidently it
was through Elfredo's efforts and hard work that the partnership was able
to acquire more trucks and otherwise prosper. Even the appellant
participated in the affairs of the partnership by acting as the bookkeeper
sans salary. TAIaHE

It is notable too that Jose Lim died when the partnership was barely a year
old, and the partnership and its business not only continued but also
flourished. If it were true that it was Jose Lim and not Elfledo who was the
partner, then upon his death the partnership should have been dissolved
and its assets liquidated. On the contrary, these were not done but instead
its operation continued under the helm of Elfledo and without any
participation from the heirs of Jose Lim.

Whatever properties appellant and her husband had acquired, this was
through their own concerted efforts and hard work. Elfledo did not limit
himself to the business of their partnership but engaged in other lines of
businesses as well.

43
Article 1773
[G.R. No. L-24193. June 28, 1968.]
MAURICIO AGAD, plaintiff-appellant, vs. SEVERINO MABATO & MABATO &
AGAD COMPANY, defendants-appellees.
CONCEPCION, J p:
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 the 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.
[G.R. No. 134559. December 9, 1999.]
ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA
BARING, petitioners, vs. COURT OF APPEALS and MANUEL TORRES,
respondents.
PANGANIBAN, J p:
Courts may not extricate parties from the necessary consequences of their
acts. That the terms of a contract turn out to be financially
disadvantageous to them will not relieve them of their obligations therein.
The lack of an inventory of real property will not ipso facto release the
contracting partners from their respective obligations to each other arising
from acts executed in accordance with their agreement. cdphil
The Case
The Petition for Review on Certiorari before us assails the March 5, 1998
Decision 1 of the Court of Appeals 2 (CA) in CA-GR CV No. 42378 and its
June 25, 1998 Resolution denying reconsideration. The assailed Decision
affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil
Case No. R-21208, which disposed as follows:
"WHEREFORE, for all the foregoing considerations, the Court, finding for the
defendant and against the plaintiffs, orders the dismissal of the plaintiff's
complaint. The counterclaims of the defendant are likewise ordered
dismissed. No pronouncement as to costs." 3
The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a
"joint venture agreement" with Respondent Manuel Torres for the
development of a parcel of land into a subdivision. Pursuant to the
contract, they executed a Deed of Sale covering the said parcel of land in
favor of respondent, who then had it registered in his name. By mortgaging
the property, respondent obtained from Equitable Bank a loan of P40,000
which, under the Joint Venture Agreement, was to be used for the
development of the subdivision. 4 All three of them also agreed to share
the proceeds from the sale of the subdivided lots.
The project did not push through, and the land was subsequently
foreclosed by the bank.
According to petitioners, the project failed because of "respondent's lack
of funds or means and skills." They add that respondent used the loan not
for the development of the subdivision, but in furtherance of his own
company, Universal Umbrella Company.
On the other hand, respondent alleged that he used the loan to implement
the Agreement. With the said amount, he was able to effect the survey and
the subdivision of the lots. He secured the Lapu Lapu City Council's
approval of the subdivision project which he advertised in a local
newspaper. He also caused the construction of roads, curbs and gutters.
Likewise, he entered into a contract with an engineering firm for the
building of sixty low-cost housing units and actually even set up a model
house on one of the subdivision lots. He did all of these for a total expense
of P85,000. Cdpr
Respondent claimed that the subdivision project failed, however, because
petitioners and their relatives had separately caused the annotations of
adverse claims on the title to the land, which eventually scared away
prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project. 5
Subsequently, petitioners filed a criminal case for estafa against respondent
and his wife, who were however acquitted. Thereafter, they filed the
present civil case which, upon respondent's motion, was later dismissed by
44
the trial court in an Order dated September 6, 1982. On appeal, however,
the appellate court remanded the case for further proceedings. Thereafter,
the RTC issued its assailed Decision, which, as earlier stated, was affirmed
by the CA.
Hence, this Petition. 6
Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that petitioners and
respondent had formed a partnership for the development of the
subdivision. Thus, they must bear the loss suffered by the partnership in the
same proportion as their share in the profits stipulated in the contract.
Disagreeing with the trial court's pronouncement that losses as well as profits
in a joint venture should be distributed equally, 7 the CA invoked Article
1797 of the Civil Code which provides:
"Article 1797 The losses and profits shall be distributed in conformity with
the agreement. If only the share of each partner in the profits has been
agreed upon, the share of each in the losses shall be in the same
proportion."
The CA elucidated further:
"In the absence of stipulation, the share of each partner in the profits and
losses shall be in proportion to what he may have contributed, but the
industrial partner shall not be liable for the losses. As for the profits, the
industrial partner shall receive such share as may be just and equitable
under the circumstances. If besides his services he has contributed capital,
he shall also receive a share in the profits in proportion to his capital." prcd
The Issue
Petitioners impute to the Court of Appeals the following error:
". . . [The] Court of Appeals erred in concluding that the transaction . . .
between the petitioners and respondent was that of a joint
venture/partnership, ignoring outright the provision of Article 1769, and
other related provisions of the Civil Code of the Philippines." 8
The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They
contend that the Joint Venture Agreement and the earlier Deed of Sale,
both of which were the bases of the appellate court's finding of a
partnership, were void.
In the same breath, however, they assert that under those very same
contracts, respondent is liable for his failure to implement the project.
Because the agreement entitled them to receive 60 percent of the
proceeds from the sale of the subdivision lots, they pray that respondent
pay them damages equivalent to 60 percent of the value of the property.
9 "FIFTH: That the sales of the sub-divided lots will be divided into SIXTY
The pertinent portions of the Joint Venture Agreement read as follows:
"KNOW ALL MEN BY THESE PRESENTS:
"This AGREEMENT, is made and entered into at Cebu City, Philippines, this
5th day of March, 1969, by and between MR. MANUEL R. TORRES, . . . the
FIRST PARTY, likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING,
. . . the SECOND PARTY:
WITNESSETH:
"That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368
covering TCT No. T-0184 with a total area of 17,009 square meters, to be
sub-divided by the FIRST PARTY;
"Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of:
TWENTY THOUSAND (P20,000.00) Pesos, Philippine Currency, upon the
execution of this contract for the property entrusted by the SECOND PARTY,
for sub-division projects and development purposes;
"NOW THEREFORE, for and in consideration of the above covenants and
promises herein contained the respective parties hereto do hereby
stipulate and agree as follows: cdphil
"ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated
March 5, 1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED
THIRTEEN & FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square
meters at ONE [PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of
the FIRST PARTY, but the SECOND PARTY did not actually receive the
payment.
"SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine
currency, for their personal obligations and this particular amount will serve
as an advance payment from the FIRST PARTY for the property mentioned
to be sub-divided and to be deducted from the sales.
"THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the
interest and the principal amount involving the amount of TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency, until the sub-division
project is terminated and ready for sale to any interested parties, and the
amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will
be deducted accordingly.
"FOURTH: That all general expense[s] and all cost[s] involved in the sub-
division project should be paid by the FIRST PARTY, exclusively and all the
expenses will not be deducted from the sales after the development of the
sub-division project.
PERCENTUM 60% for the SECOND PARTY and FORTY PERCENTUM 40% for the
FIRST PARTY, and additional profits or whatever income deriving from the
sales will be divided equally according to the . . . percentage [agreed
upon] by both parties.
"SIXTH: That the intended sub-division project of the property involved will
start the work and all improvements upon the adjacent lots will be
negotiated in both parties['] favor and all sales shall [be] decided by both
parties. cdtai
"SEVENTH: That the SECOND PARTIES, should be given an option to get back
the property mentioned provided the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency, borrowed by the SECOND PARTY,
will be paid in full to the FIRST PARTY, including all necessary improvements
spent by the FIRST PARTY, and the FIRST PARTY will be given a grace period
to turnover the property mentioned above.
"That this AGREEMENT shall be binding and obligatory to the parties who
executed same freely and voluntarily for the uses and purposes therein
stated." 10
A reading of the terms embodied in the Agreement indubitably shows the
existence of a partnership pursuant to Article 1767 of the Civil Code, which
provides:
"ART. 1767. By the contract of partnership two or more persons bind
themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves."
Under the above-quoted Agreement, petitioners would contribute
property to the partnership in the form of land which was to be developed
into a subdivision; while respondent would give, in addition to his industry,
the amount needed for general expenses and other costs. Furthermore, the
income from the said project would be divided according to the stipulated
percentage. Clearly, the contract manifested the intention of the parties to
form a partnership. 11
It should be stressed that the parties implemented the contract. Thus,
petitioners transferred the title to the land to facilitate its use in the name of
the respondent. On the other hand, respondent caused the subject land
to be mortgaged, the proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the roads, the curbs
and the gutters of the subdivision and entered into a contract to construct
low-cost housing units on the property. llcd
Respondent's actions clearly belie petitioners' contention that he made no
contribution to the partnership. Under Article 1767 of the Civil Code, a
partner may contribute not only money or property, but also industry.
45
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to
what has been expressly stipulated, but also to all necessary consequences
thereof, as follows:
"ART. 1315. Contracts are perfected by mere consent, and from that
moment the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law."
It is undisputed that petitioners are educated and are thus presumed to
have understood the terms of the contract they voluntarily signed. If it was
not in consonance with their expectations, they should have objected to it
and insisted on the provisions they wanted.
Courts are not authorized to extricate parties from the necessary
consequences of their acts, and the fact that the contractual stipulations
may turn out to be financially disadvantageous will not relieve parties
thereto of their obligations. They cannot now disavow the relationship
formed from such agreement due to their supposed misunderstanding of
its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void under Article
1773 of the Civil Code, which provides:
"ART. 1773. A contract of partnership is void, whenever immovable property
is contributed thereto, if an inventory of said property is not made, signed
by the parties, and attached to the public instrument."
They contend that since the parties did not make, sign or attach to the
public instrument an inventory of the real property contributed, the
partnership is void.
We clarify. First, Article 1773 was intended primarily to protect third persons.
Thus, the eminent Arturo M. Tolentino states that under the aforecited
provision which is a complement of Article 1771, 12 "the execution of a
public instrument would be useless if there is no inventory of the property
contributed, because without its designation and description, they cannot
be subject to inscription in the Registry of Property, and their contribution
cannot prejudice third persons. This will result in fraud to those who contract
with the partnership in the belief [in] the efficacy of the guaranty in which
the immovables may consist. Thus, the contract is declared void by the law
when no such inventory is made." The case at bar does not involve third
parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void contract as basis
for their claim that respondent should pay them 60 percent of the value of
the property. 13 They cannot in one breath deny the contract and in
another recognize it, depending on what momentarily suits their purpose.
Parties cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice. llcd
In short, the alleged nullity of the partnership will not prevent courts from
considering the Joint Venture Agreement an ordinary contract from which
the parties' rights and obligations to each other may be inferred and
enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is void under
Article 1422 14 of the Civil Code, because it is the direct result of an earlier
illegal contract, which was for the sale of the land without valid
consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the
consideration for the sale was the expectation of profits from the subdivision
project. Its first stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent. Consideration, more
properly denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another. 15
In this case, the cause of the contract of sale consisted not in the stated
peso value of the land, but in the expectation of profits from the subdivision
project, for which the land was intended to be used. As explained by the
trial court, "the land was in effect given to the partnership as [petitioner's]
participation therein. . . . There was therefore a consideration for the sale,
the [petitioners] acting in the expectation that, should the venture come
into fruition, they [would] get sixty percent of the net profits."
Liability of the Parties
Claiming that respondent was solely responsible for the failure of the
subdivision project, petitioners maintain that he should be made to pay
damages equivalent to 60 percent of the value of the property, which was
their share in the profits under the Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that petitioners' acts
were not the cause of the failure of the project. 16 But it also ruled that
neither was respondent responsible therefor. 17 In imputing the blame solely
to him, petitioners failed to give any reason why we should disregard the
factual findings of the appellate court relieving him of fault. Verily, factual
issues cannot be resolved in a petition for review under Rule 45, as in this
case. Petitioners have not alleged, not to say shown, that their Petition
constitutes one of the exceptions to this doctrine. 18 Accordingly, we find
no reversible error in the CA's ruling that petitioners are not entitled to
damages.
WHEREFORE, the Petition is hereby DENIED and the challenged Decision
AFFIRMED. Costs against petitioners.
SO ORDERED.
[G.R. Nos. 166299-300. December 13, 2005.]
AURELIO K. LITONJUA, JR., petitioner, vs. EDUARDO K. LITONJUA, SR., ROBERT
T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX, INC., DDM GARMENTS,
INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC., EDDIE K. LITONJUA
SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec),
LUNETA THEATER, INC., E & L REALTY, (formerly E & L INT'L SHIPPING CORP.),
FNP CO., INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC.,
GLOED LAND CORP., EQUITY TRADING CO., INC., 3D CORP., "L" DEV. CORP,
LCM THEATRICAL ENTERPRISES, INC., LITONJUA SHIPPING CO. INC., MACOIL
INC., ODEON REALTY CORP., SARATOGA REALTY, INC., ACT THEATER INC.
(formerly General Theatrical & Film Exchange, INC.), AVENUE REALTY, INC.,
AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF PHILIPPINES),
respondents.
GARCIA, J p:
In this petition for review under Rule 45 of the Rules of Court, petitioner
Aurelio K. Litonjua, Jr. seeks to nullify and set aside the Decision of the Court
of Appeals (CA) dated March 31, 2004 1 in consolidated cases C.A. G.R.
Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated
December 07, 2004, 2 denying petitioner's motion for reconsideration.
The recourse is cast against the following factual backdrop:
Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K.
Litonjua, Sr. (Eduardo) are brothers. The legal dispute between them started
when, on December 4, 2002, in the Regional Trial Court (RTC) at Pasig City,
Aurelio filed a suit against his brother Eduardo and herein respondent
Robert T. Yang (Yang) and several corporations for specific performance
and accounting. In his complaint, 3 docketed as Civil Case No. 69235 and
eventually raffled to Branch 68 of the court, 4 Aurelio alleged that, since
June 1973, he and Eduardo are into a joint venture/partnership
arrangement in the Odeon Theater business which had expanded thru
investment in Cineplex, Inc., LCM Theatrical Enterprises, Odeon Realty
Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc.,
owner of lands and buildings, among other corporations. Yang is described
in the complaint as petitioner's and Eduardo's partner in their Odeon
Theater investment. 5 The same complaint also contained the following
material averments:
3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint
venture/partnership for the continuation of their family business and
common family funds . . . .
3.01.1 This joint venture/[partnership] agreement was contained in a
memorandum addressed by Eduardo to his siblings, parents and other
relatives. Copy of this memorandum is attached hereto and made an
integral part as Annex "A" and the portion referring to [Aurelio] submarked
as Annex "A-1". AcSIDE
3.02 It was then agreed upon between [Aurelio] and Eduardo that in
consideration of [Aurelio's] retaining his share in the remaining family
46
businesses (mostly, movie theaters, shipping and land development) and
contributing his industry to the continued operation of these businesses,
[Aurelio] will be given P1 Million or 10% equity in all these businesses and
those to be subsequently acquired by them whichever is greater. . . .
4.01 . . . from 22 June 1973 to about August 2001, or [in] a span of 28 years,
[Aurelio] and Eduardo had accumulated in their joint venture/partnership
various assets including but not limited to the corporate defendants and
[their] respective assets.
4.02 In addition . . . the joint venture/partnership . . . had also acquired
[various other assets], but Eduardo caused to be registered in the names of
other parties . . . .
xxx xxx xxx
4.04 The substantial assets of most of the corporate defendants consist of
real properties . . . . A list of some of these real properties is attached hereto
and made an integral part as Annex "B".
xxx xxx xxx
5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo
became sour so that [Aurelio] requested for an accounting and liquidation
of his share in the joint venture/partnership [but these demands for
complete accounting and liquidation were not heeded].
xxx xxx xxx
5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo
and/or the corporate defendants as well as Bobby [Yang], are transferring
. . . various real properties of the corporations belonging to the joint
venture/partnership to other parties in fraud of [Aurelio]. In consequence,
[Aurelio] is therefore causing at this time the annotation on the titles of these
real properties . . . a notice of lis pendens . . . . (Emphasis in the original;
underscoring and words in bracket added.)
For ease of reference, Annex "A-1" of the complaint, which petitioner asserts
to have been meant for him by his brother Eduardo, pertinently reads:
10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:
You have now your own life to live after having been married. . . . .
I am trying my best to mold you the way I work so you can follow the pattern
. . . . You will be the only one left with the company, among us brothers and
I will ask you to stay as I want you to run this office every time I am away. I
want you to run it the way I am trying to run it because I will be all alone
and I will depend entirely to you (sic). My sons will not be ready to help me
yet until about maybe 15/20 years from now. Whatever is left in the
corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two
will gamble the whole thing of what I have and what you are entitled to. . .
. . It will be you and me alone on this. If ever I pass away, I want you to take
care of all of this. You keep my share for my two sons are ready take over
but give them the chance to run the company which I have built.
xxx xxx xxx
Because you will need a place to stay, I will arrange to give you first ONE
HUNDRED THOUSANDS PESOS: (P100,000.00) in cash or asset, like Lt. Artiaga
so you can live better there. The rest I will give you in form of stocks which
you can keep. This stock I assure you is good and saleable. I will also gladly
give you the share of Wack-Wack . . . and Valley Golf . . . because you have
been good. The rest will be in stocks from all the corporations which I repeat,
ten percent (10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as
defendants a quo, filed a joint ANSWER With Compulsory Counterclaim
denying under oath the material allegations of the complaint, more
particularly that portion thereof depicting petitioner and Eduardo as having
entered into a contract of partnership. As affirmative defenses, Eduardo, et
al., apart from raising a jurisdictional matter, alleged that the complaint
states no cause of action, since no cause of action may be derived from
the actionable document, i.e., Annex "A-1", being void under the terms of
Article 1767 in relation to Article 1773 of the Civil Code, infra. It is further
alleged that whatever undertaking Eduardo agreed to do, if any, under
Annex "A-1", are unenforceable under the provisions of the Statute of
Frauds. 7
For his part, Yang who was served with summons long after the other
defendants submitted their answer moved to dismiss on the ground, inter
alia, that, as to him, petitioner has no cause of action and the complaint
does not state any. 8 Petitioner opposed this motion to dismiss.
On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative
Defenses. 9 To this motion, petitioner interposed an Opposition with ex-Parte
Motion to Set the Case for Pre-trial. 10
Acting on the separate motions immediately adverted to above, the trial
court, in an Omnibus Order dated March 5, 2003, denied the affirmative
defenses and, except for Yang, set the case for pre-trial on April 10, 2003.
11
In another Omnibus Order of April 2, 2003, the same court denied the
motion of Eduardo, et al., for reconsideration 12 and Yang's motion to
dismiss. The following then transpired insofar as Yang is concerned:
1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right
to seek reconsideration of the April 2, 2003 Omnibus Order and to pursue
his failed motion to dismiss 13 to its full resolution.
2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of
April 2, 2003, but his motion was denied in an Order of July 4, 2003. 14
3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition
for certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP
No. 78774, 15 to nullify the separate orders of the trial court, the first denying
his motion to dismiss the basic complaint and, the second, denying his
motion for reconsideration.
Earlier, Eduardo and the corporate defendants, on the contention that
grave abuse of discretion and injudicious haste attended the issuance of
the trial court's aforementioned Omnibus Orders dated March 5, and April
2, 2003, sought relief from the CA via similar recourse. Their petition for
certiorari was docketed as CA G.R. SP No. 76987.
Per its resolution dated October 2, 2003, 16 the CA's 14th Division ordered
the consolidation of CA G.R. SP No. 78774 with CA G.R. SP No. 76987.
CIAcSa
Following the submission by the parties of their respective Memoranda of
Authorities, the appellate court came out with the herein assailed Decision
dated March 31, 2004, finding for Eduardo and Yang, as lead petitioners
therein, disposing as follows:
WHEREFORE, judgment is hereby rendered granting the issuance of the writ
of certiorari in these consolidated cases annulling, reversing and setting
aside the assailed orders of the court a quo dated March 5, 2003, April 2,
2003 and July 4, 2003 and the complaint filed by private respondent [now
petitioner Aurelio] against all the petitioners [now herein respondents
Eduardo, et al.] with the court a quo is hereby dismissed.
SO ORDERED. 17 (Emphasis in the original; words in bracket added.)
Explaining its case disposition, the appellate court stated, inter alia, that the
alleged partnership, as evidenced by the actionable documents, Annex
"A" and "A-1" attached to the complaint, and upon which petitioner solely
predicates his right/s allegedly violated by Eduardo, Yang and the
corporate defendants a quo is "void or legally inexistent".
In time, petitioner moved for reconsideration but his motion was denied by
the CA in its equally assailed Resolution of December 7, 2004. 18
Hence, petitioner's present recourse, on the contention that the CA erred:
A. When it ruled that there was no partnership created by the actionable
document because this was not a public instrument and immovable
properties were contributed to the partnership.
B. When it ruled that the actionable document did not create a
demandable right in favor of petitioner.
C. When it ruled that the complaint stated no cause of action against
[respondent] Robert Yang; and
47
D. When it ruled that petitioner has changed his theory on appeal when all
that Petitioner had done was to support his pleaded cause of action by
another legal perspective/argument.
The petition lacks merit.
Petitioner's demand, as defined in the petitory portion of his complaint in
the trial court, is for delivery or payment to him, as Eduardo's and Yang's
partner, of his partnership/joint venture share, after an accounting has
been duly conducted of what he deems to be partnership/joint venture
property. 19
A partnership exists when two or more persons agree to place their money,
effects, labor, and skill in lawful commerce or business, with the
understanding that there shall be a proportionate sharing of the profits and
losses between them. 20 A contract of partnership is defined by the Civil
Code as one where two or more persons bound themselves to contribute
money, property, or industry to a common fund with the intention of
dividing the profits among themselves. 21 A joint venture, on the other
hand, is hardly distinguishable from, and may be likened to, a partnership
since their elements are similar, i.e., community of interests in the business
and sharing of profits and losses. Being a form of partnership, a joint venture
is generally governed by the law on partnership. 22
The underlying issue that necessarily comes to mind in this proceedings is
whether or not petitioner and respondent Eduardo are partners in the
theatre, shipping and realty business, as one claims but which the other
denies. And the issue bearing on the first assigned error relates to the
question of what legal provision is applicable under the premises, petitioner
seeking, as it were, to enforce the actionable document Annex "A-1"
which he depicts in his complaint to be the contract of partnership/joint
venture between himself and Eduardo. Clearly, then, a look at the legal
provisions determinative of the existence, or defining the formal requisites,
of a partnership is indicated. Foremost of these are the following provisions
of the Civil Code:
Art. 1771. A partnership may be constituted in any form, except where
immovable property or real rights are contributed thereto, in which case a
public instrument shall be necessary. TCDcSE
Art. 1772. Every contract of partnership having a capital of three thousand
pesos or more, in money or property, shall appear in a public instrument,
which must be recorded in the Office of the Securities and Exchange
Commission.
Failure to comply with the requirement of the preceding paragraph shall
not affect the liability of the partnership and the members thereof to third
persons.
Art. 1773. A contract of partnership is void, whenever immovable property
is contributed thereto, if an inventory of said property is not made, signed
by the parties, and attached to the public instrument.
Annex "A-1", on its face, contains typewritten entries, personal in tone, but
is unsigned and undated. As an unsigned document, there can be no
quibbling that Annex "A-1" does not meet the public instrumentation
requirements exacted under Article 1771 of the Civil Code. Moreover,
being unsigned and doubtless referring to a partnership involving more
than P3,000.00 in money or property, Annex "A-1" cannot be presented for
notarization, let alone registered with the Securities and Exchange
Commission (SEC), as called for under the Article 1772 of the Code. And
inasmuch as the inventory requirement under the succeeding Article 1773
goes into the matter of validity when immovable property is contributed to
the partnership, the next logical point of inquiry turns on the nature of
petitioner's contribution, if any, to the supposed partnership.
The CA, addressing the foregoing query, correctly stated that petitioner's
contribution consisted of immovables and real rights. Wrote that court:
A further examination of the allegations in the complaint would show that
[petitioner's] contribution to the so-called "partnership/joint venture" was his
supposed share in the family business that is consisting of movie theaters,
shipping and land development under paragraph 3.02 of the complaint. In
other words, his contribution as a partner in the alleged partnership/joint
venture consisted of immovable properties and real rights. . . . . 23
Significantly enough, petitioner matter-of-factly concurred with the
appellate court's observation that, prescinding from what he himself
alleged in his basic complaint, his contribution to the partnership consisted
of his share in the Litonjua family businesses which owned variable
immovable properties. Petitioner's assertion in his motion for reconsideration
24 of the CA's decision, that "what was to be contributed to the business [of
the partnership] was [petitioner's] industry and his share in the family
[theatre and land development] business" leaves no room for speculation
as to what petitioner contributed to the perceived partnership.
Lest it be overlooked, the contract-validating inventory requirement under
Article 1773 of the Civil Code applies as long real property or real rights are
initially brought into the partnership. In short, it is really of no moment which
of the partners, or, in this case, who between petitioner and his brother
Eduardo, contributed immovables. In context, the more important
consideration is that real property was contributed, in which case an
inventory of the contributed property duly signed by the parties should be
attached to the public instrument, else there is legally no partnership to
speak of.
Petitioner, in an obvious bid to evade the application of Article 1773, argues
that the immovables in question were not contributed, but were acquired
after the formation of the supposed partnership. Needless to stress, the
Court cannot accord cogency to this specious argument. For, as earlier
stated, petitioner himself admitted contributing his share in the supposed
shipping, movie theatres and realty development family businesses which
already owned immovables even before Annex "A-1" was allegedly
executed. IATHaS
Considering thus the value and nature of petitioner's alleged contribution
to the purported partnership, the Court, even if so disposed, cannot
plausibly extend Annex "A-1" the legal effects that petitioner so desires and
pleads to be given. Annex "A-1", in fine, cannot support the existence of the
partnership sued upon and sought to be enforced. The legal and factual
milieu of the case calls for this disposition. A partnership may be constituted
in any form, save when immovable property or real rights are contributed
thereto or when the partnership has a capital of at least P3,000.00, in which
case a public instrument shall be necessary. 25 And if only to stress what has
repeatedly been articulated, an inventory to be signed by the parties and
attached to the public instrument is also indispensable to the validity of the
partnership whenever immovable property is contributed to it.
Given the foregoing perspective, what the appellate court wrote in its
assailed Decision 26 about the probative value and legal effect of Annex
"A-1" commends itself for concurrence:
Considering that the allegations in the complaint showed that [petitioner]
contributed immovable properties to the alleged partnership, the
"Memorandum" (Annex "A" of the complaint) which purports to establish the
said "partnership/joint venture" is NOT a public instrument and there was NO
inventory of the immovable property duly signed by the parties. As such,
the said "Memorandum" . . . is null and void for purposes of establishing the
existence of a valid contract of partnership. Indeed, because of the failure
to comply with the essential formalities of a valid contract, the purported
"partnership/joint venture" is legally inexistent and it produces no effect
whatsoever. Necessarily, a void or legally inexistent contract cannot be the
source of any contractual or legal right. Accordingly, the allegations in the
complaint, including the actionable document attached thereto, clearly
demonstrates that [petitioner] has NO valid contractual or legal right which
could be violated by the [individual respondents] herein. As a
consequence, [petitioner's] complaint does NOT state a valid cause of
action because NOT all the essential elements of a cause of action are
present. (Underscoring and words in bracket added.)
Likewise well-taken are the following complementary excerpts from the
CA's equally assailed Resolution of December 7, 2004 27 denying
petitioner's motion for reconsideration:
Further, We conclude that despite glaring defects in the allegations in the
complaint as well as the actionable document attached thereto (Rollo, p.
191), the [trial] court did not appreciate and apply the legal provisions
which were brought to its attention by herein [respondents] in the their
pleadings. In our evaluation of [petitioner's] complaint, the latter alleged
inter alia to have contributed immovable properties to the alleged
partnership but the actionable document is not a public document and
there was no inventory of immovable properties signed by the parties. Both
the allegations in the complaint and the actionable documents
considered, it is crystal clear that [petitioner] has no valid or legal right
which could be violated by [respondents]. (Words in bracket added.)
48
Under the second assigned error, it is petitioner's posture that Annex "A-1",
assuming its inefficacy or nullity as a partnership document, nevertheless
created demandable rights in his favor. As petitioner succinctly puts it in this
petition:
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be
a partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307).
44. It may not be a contract of loan, or a mortgage or whatever, but surely
the contract does create rights and obligations of the parties and which
rights and obligations may be enforceable and demandable. Just because
the relationship created by the agreement cannot be specifically labeled
or pigeonholed into a category of nominate contract does not mean it is
void or unenforceable. aESHDA
Petitioner has thus thrusted the notion of an innominate contract on this
Court and earlier on the CA after he experienced a reversal of fortune
thereat as an afterthought. The appellate court, however, cannot really
be faulted for not yielding to petitioner's dubious stratagem of altering his
theory of joint venture/partnership to an innominate contract. For, at
bottom, the appellate court's certiorari jurisdiction was circumscribed by
what was alleged to have been the order/s issued by the trial court in grave
abuse of discretion. As respondent Yang pointedly observed, 28 since the
parties' basic position had been well-defined, that of petitioner being that
the actionable document established a partnership/joint venture, it is on
those positions that the appellate court exercised its certiorari jurisdiction.
Petitioner's act of changing his original theory is an impermissible practice
and constitutes, as the CA aptly declared, an admission of the untenability
of such theory in the first place.
[Petitioner] is now humming a different tune . . . . In a sudden twist of stance,
he has now contended that the actionable instrument may be considered
an innominate contract. . . . Verily, this now changes [petitioner's] theory of
the case which is not only prohibited by the Rules but also is an implied
admission that the very theory he himself . . . has adopted, filed and
prosecuted before the respondent court is erroneous.
Be that as it may . . . . We hold that this new theory contravenes [petitioner's]
theory of the actionable document being a partnership document. If
anything, it is so obvious we do have to test the sufficiency of the cause of
action on the basis of partnership law . . . . 29 (Emphasis in the original; Words
in bracket added).
But even assuming in gratia argumenti that Annex "A-1" partakes of a
perfected innominate contract, petitioner's complaint would still be
dismissible as against Eduardo and, more so, against Yang. It cannot be
over-emphasized that petitioner points to Eduardo as the author of Annex
"A-1". Withal, even on this consideration alone, petitioner's claim against
Yang is doomed from the very start.
As it were, the only portion of Annex "A-1" which could perhaps be remotely
regarded as vesting petitioner with a right to demand from respondent
Eduardo the observance of a determinate conduct, reads:
. . . You will be the only one left with the company, among us brothers and
I will ask you to stay as I want you to run this office everytime I am away. I
want you to run it the way I am trying to run it because I will be alone and I
will depend entirely to you, My sons will not be ready to help me yet until
about maybe 15/20 years from now. Whatever is left in the corporation, I
will make sure that you get ONE MILLION PESOS (P1,000,000.00) or ten
percent (10%) equity, whichever is greater. (Underscoring added)
It is at once apparent that what respondent Eduardo imposed upon himself
under the above passage, if he indeed wrote Annex "A-1", is a promise
which is not to be performed within one year from "contract" execution on
June 22, 1973. Accordingly, the agreement embodied in Annex "A-1" is
covered by the Statute of Frauds and ergo unenforceable for non-
compliance therewith. 30 By force of the statute of frauds, an agreement
that by its terms is not to be performed within a year from the making
thereof shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing and subscribed by the party charged.
Corollarily, no action can be proved unless the requirement exacted by the
statute of frauds is complied with. 31
Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million
or 10% equity of the family businesses supposedly promised by Eduardo to
give in the near future. Any suggestion that the stated amount or the equity
component of the promise was intended to go to a common fund would
be to read something not written in Annex "A-1". Thus, even this angle alone
argues against the very idea of a partnership, the creation of which requires
two or more contracting minds mutually agreeing to contribute money,
property or industry to a common fund with the intention of dividing the
profits between or among themselves. 32
In sum then, the Court rules, as did the CA, that petitioner's complaint for
specific performance anchored on an actionable document of
partnership which is legally inexistent or void or, at best, unenforceable
does not state a cause of action as against respondent Eduardo and the
corporate defendants. And if no action can successfully be maintained
against respondent Eduardo because no valid partnership existed
between him and petitioner, the Court cannot see its way clear on how the
same action could plausibly prosper against Yang. Surely, Yang could not
have become a partner in, or could not have had any form of business
relationship with, an inexistent partnership.
As may be noted, petitioner has not, in his complaint, provide the logical
nexus that would tie Yang to him as his partner. In fact, attendant
circumstances would indicate the contrary. Consider:
1. Petitioner asserted in his complaint that his so-called joint
venture/partnership with Eduardo was "for the continuation of their family
business and common family funds which were theretofore being mainly
managed by Eduardo." 33 But Yang denies kinship with the Litonjua family
and petitioner has not disputed the disclaimer.
2. In some detail, petitioner mentioned what he had contributed to the joint
venture/partnership with Eduardo and what his share in the businesses will
be. No allegation is made whatsoever about what Yang contributed, if any,
let alone his proportional share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the CA, the actionable
document did not contain such provision, let alone mention the name of
Yang. How, indeed, could a person be considered a partner when the
document purporting to establish the partnership contract did not even
mention his name.
3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are
business partners in the [respondent] corporations," while "Bobby is his and
Eduardo's partner in their Odeon Theater investment' (par. 2.03). This means
that the partnership between petitioner and Eduardo came first; Yang
became their partner in their Odeon Theater investment thereafter. Several
paragraphs later, however, petitioner would contradict himself by alleging
that his "investment and that of Eduardo and Yang in the Odeon theater
business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six]
corporate respondents" This simply means that the "Odeon Theatre
business" came before the corporate respondents. Significantly enough,
petitioner refers to the corporate respondents as "progeny" of the Odeon
Theatre business. 34
Needless to stress, petitioner has not sufficiently established in his complaint
the legal vinculum whence he sourced his right to drag Yang into the fray.
The Court of Appeals, in its assailed decision, captured and formulated the
legal situation in the following wise:
[Respondent] Yang, . . . is impleaded because, as alleged in the complaint,
he is a "partner" of [Eduardo] and the [petitioner] in the Odeon Theater
Investment which expanded through reinvestments of profits and direct
investments in several corporations, thus:
xxx xxx xxx
Clearly, [petitioner's] claim against . . . Yang arose from his alleged
partnership with petitioner and the . . . respondent. However, there was NO
allegation in the complaint which directly alleged how the supposed
contractual relation was created between [petitioner] and . . . Yang. More
importantly, however, the foregoing ruling of this Court that the purported
partnership between [Eduardo] is void and legally inexistent directly affects
said claim against . . . Yang. Since [petitioner] is trying to establish his claim
against . . . Yang by linking him to the legally inexistent partnership . . . such
attempt had become futile because there was NOTHING that would
contractually connect [petitioner] and . . . Yang. To establish a valid cause
of action, the complaint should have a statement of fact upon which to
connect [respondent] Yang to the alleged partnership between
[petitioner] and respondent [Eduardo], including their alleged investment
in the Odeon Theater. A statement of facts on those matters is pivotal to
49
the complaint as they would constitute the ultimate facts necessary to
establish the elements of a cause of action against . . . Yang. 35
Pressing its point, the CA later stated in its resolution denying petitioner's
motion for reconsideration the following:
. . . Whatever the complaint calls it, it is the actionable document attached
to the complaint that is controlling. Suffice it to state, We have not ignored
the actionable document . . . As a matter of fact, We emphasized in our
decision . . . that insofar as [Yang] is concerned, he is not even mentioned
in the said actionable document. We are therefore puzzled how a person
not mentioned in a document purporting to establish a partnership could
be considered a partner. 36 (Words in bracket ours).
The last issue raised by petitioner, referring to whether or not he changed
his theory of the case, as peremptorily determined by the CA, has been
discussed at length earlier and need not detain us long. Suffice it to say that
after the CA has ruled that the alleged partnership is inexistent, petitioner
took a different tack. Thus, from a joint venture/partnership theory which he
adopted and consistently pursued in his complaint, petitioner embraced
the innominate contract theory. Illustrative of this shift is petitioner's
statement in par. #8 of his motion for reconsideration of the CA's decision
combined with what he said in par. # 43 of this petition, as follows:
8. Whether or not the actionable document creates a partnership, joint
venture, or whatever, is a legal matter. What is determinative for purposes
of sufficiency of the complainant's allegations, is whether the actionable
document bears out an actionable contract be it a partnership, a joint
venture or whatever or some innominate contract . . . It may be noted that
one kind of innominate contract is what is known as du ut facias (I give that
you may do). 37
43. Contrariwise, this actionable document, especially its above-quoted
provisions, established an actionable contract even though it may not be
a partnership. This actionable contract is what is known as an innominate
contract (Civil Code, Article 1307). 38
appellate court for reading, with myopic eyes, the actionable document
solely as establishing a partnership/joint venture. Verily, the cited
paragraphs are a study of a party hedging on whether or not to pursue the
original cause of action or altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a
partnership between [respondent] Eduardo, Sr. and [petitioner], no
immovables were contributed to this partnership. . . .
14. All told, the Decision takes off from a false premise that the actionable
document attached to the complaint does not establish a contractual
relationship between [petitioner] and . . . Eduardo, Sr. and Roberto T Yang
simply because his document does not create a partnership or a joint
venture. This is . . . a myopic reading of the actionable document.
Per the Court's own count, petitioner used in his complaint the mixed words
"joint venture/partnership" nineteen (19) times and the term "partner" four
(4) times. He made reference to the "law of joint venture/partnership [being
applicable] to the business relationship . . . between [him], Eduardo and
Bobby [Yang]" and to his "rights in all specific properties of their joint
venture/partnership". Given this consideration, petitioner's right of action
against respondents Eduardo and Yang doubtless pivots on the existence
of the partnership between the three of them, as purportedly evidenced
by the undated and unsigned Annex "A-1". A void Annex "A-1", as an
actionable document of partnership, would strip petitioner of a cause of
action under the premises. A complaint for delivery and accounting of
partnership property based on such void or legally non-existent actionable
document is dismissible for failure to state of action. So, in gist, said the Court
of Appeals. The Court agrees.
WHEREFORE, the instant petition is DENIED and the impugned Decision and
Resolution of the Court of Appeals AFFIRMED.

Springing surprises on the opposing party is offensive to the sporting idea of

fair play, justice and due process; hence, the proscription against a party
shifting from one theory at the trial court to a new and different theory in
the appellate court. 39 On the same rationale, an issue which was neither
averred in the complaint cannot be raised for the first time on appeal. 40 It
is not difficult, therefore, to agree with the CA when it made short shrift of
petitioner's innominate contract theory on the basis of the foregoing basic
reasons. cDIHES

Petitioner's protestation that his act of introducing the concept of

innominate contract was not a case of changing theories but of supporting
his pleaded cause of action that of the existence of a partnership by
another legal perspective/argument, strikes the Court as a strained attempt
to rationalize an untenable position. Paragraph 12 of his motion for
reconsideration of the CA's decision virtually relegates partnership as a fall-
back theory. Two paragraphs later, in the same notion, petitioner faults the
50
Article 1782
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. WILLIAM J. SUTER and
THE COURT OF TAX APPEALS, respondents.
REYES, J.B.L., J p:
A limited partnership, named "William J. Suter 'Marcoin' 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 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 contradistinguished 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 "Marcoin" 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
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 sil contrato de
sociedad universal, pero podrn constituir sociedad particular? Aunque el
punto ha sido muy debatido, no inclinamos a la tesis permisiva de los
contratos de sociedad particular entre esposos, ya que ningn precepto
de nuestro Codigo los prohibe, y hay que estar a la norma general segn
la que toda persona es capaz para contratar mientras no sea declarado,
incapaz por la ley. La jurisprudencia de la Direccin de los Registros fu
favorable a esta misma tesis en su resolucion 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. prLL
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 1896):
"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 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
51
Phil.), Inc., vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of The difference in tax rates between the income of the limited partnership
legal personality of the corporations involved therein are not applicable to being consolidated with, and when split from the income of the spouses, is
the present case. In the cited cases, the corporations were already subject not a justification for requiring consolidation; the revenue code, as it
to tax when the fiction of their corporate personality was pierced; in the presently stands, does not authorize it, and even bars it by requiring the
present case, to do so would exempt the limited partnership from income limited partnership to pay tax on its own income. cdrep
taxation but would throw the tax burden upon the partners-spouses in their
individual capacities. The corporations, in the cases cited, merely served as FOR THE FOREGOING REASONS, the decision under review is hereby
business conduits or alter egos of the stockholders, a factor that justified a affirmed. No costs.
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: of the appellant
Commissioner's stand results in equal treatment, taxwise, 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, pages 88-89).

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 paraphernal 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. 1 Appellant is, likewise,
mistaken in that it assumes that the conjugal partnerhip 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 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.

52
Article 1786
[G.R. No. 33580. February 6, 1931.]
MAXIMILIANO SANCHO, plaintiff-appellant, vs. SEVERIANO LIZARRAGA,
defendant-appellee.
ROMUALDEZ, J p:
The plaintiff brought an action for the rescission of a partnership contract
between himself and the defendant, entered into on October 15, 1920, the
reimbursement by the latter of his 50,000 peso investment therein, with
interest at 12 per cent per annum from October 15, 1920, with costs, and
any other just and equitable remedy against said defendant.
The defendant denies generally and specifically all the allegations of the
complaint which are incompatible with his special defenses, cross-
complaint and counterclaim, setting up the latter and asking for the
dissolution of the partnership, and the payment to him as its manager and
administrator of P500 monthly from October 15, 1920, until the final
dissolution, with interest, one-half of said amount to be charged to the
plaintiff. He also prays for any other just and equitable remedy.
The Court of First Instance of Manila, having heard the cause, and finding it
duly proved that the defendant had not contributed all the capital he had
bound himself to invest, and that the plaintiff had demanded that the
defendant liquidate the partnership, declared it dissolved on account of
the expiration of the period for which it was constituted, and ordered the
defendant, as managing partner, to proceed without delay to liquidate it,
submitting to the court the result of the liquidation together with the
accounts and vouchers within the period of thirty days from receipt of
notice of said judgment, without costs.
disapproved, the litigation involved in this action cannot be considered as
completely decided; and, as it was held in said case of Natividad vs.
Villarica, also with reference to an appeal taken from a decision ordering
the rendition of accounts following the dissolution of a partnership, the
appeal in the instant case must be deemed premature.
But even going into the merits of the case, the affirmation of the judgment
appealed from is inevitable. In view of the lower court's findings referred to
above, which we cannot revise because the parol evidence has not been
forwarded to this court, articles 1681 and 1682 of the Civil Code have been
properly applied. Owing to the defendant's failure to pay to the partnership
the whole amount which he bound himself to pay, he became indebted
to it for the remainder, with interest and any damages occasioned thereby,
but the plaintiff did not thereby acquire the right to demand rescission of
the partnership contract according to article 1124 of the Code. This article
cannot be applied to the case in question, because it refers to the
resolution of obligations in general, whereas articles 1681 and 1682
specifically refer to the contract of partnership in particular. And it is a well
known principle that special provisions prevail over general provisions.
By virtue of the foregoing, this appeal is hereby dismissed, leaving the
decision appealed from in full force, without special pronouncement of
costs.
So ordered.

The plaintiff appealed from said decision making the following assignments
of error:
"1. In holding that the plaintiff and appellant is not entitled to the rescission
of the partnership contract, Exhibit A, and that article 1124 of the Civil Code
is not applicable to the present case.
"2. In failing to order the defendant to return the sum of P50,000 to the
plaintiff with interest from October 15, 1920, until fully paid.
"3. In denying the motion for a new trial."

In the brief filed by counsel for the appellee, a preliminary question is raised
purporting to show that this appeal is premature and therefore will not lie.
The point is based on the contention that inasmuch as the liquidation
ordered by the trial court, and the consequent accounts, have not been
made and submitted, the case cannot be deemed terminated in said
court and its ruling is not yet appealable. In support of this contention
counsel cites section 123 of the Code of Civil Procedure, and the decision
of this court in the case of Natividad vs. Villarica (31 Phil., 172).

This contention is well founded. Until the accounts have been rendered as
ordered by the trial court, and until they have been either approved or
53
Article 1800
[G.R. No. 55397. February 29, 1988.]
TAI TONG CHUACHE & CO., petitioner, vs. THE INSURANCE COMMISSION and
TRAVELLERS MULTI-INDEMNITY CORPORATION, respondents.
GANCAYCO, J p:
This petition for review on certiorari seeks the reversal of the decision of the
Insurance Commission in IC Case #367 1 dismissing the complaint 2 for
recovery of the alleged unpaid balance of the proceeds of the Fire
Insurance Policies issued by herein respondent insurance company in favor
of petitioner-intervenor.
The facts of the case as found by respondent Insurance Commission are as
follows:
"Complainants acquired from a certain Rolando Gonzales a parcel of land
and a building located at San Rafael Village, Davao City. Complainants
assumed the mortgage of the building in favor of S.S.S., which building was
insured with respondent S.S.S. Accredited Group of Insurers for P25,000.00.
On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong
Chuache, Inc. in the amount of P100,000.00. To secure the payment of the
loan, a mortgage was executed over the land and the building in favor of
Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975, Arsenio
Chua, representative of Thai Tong Chuache & Co. insured the latter's
interest with Travellers Multi-Indemnity Corporation for P100,000.00
(P70,000.00 for the building and P30,000.00 for the contents thereof) (Exhibit
"A-a," contents thereof) (Exhibit "A-a").
On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F-02500
(Exhibit "A"), covering the building for P50,000.00 with respondent Zenith
Insurance Corporation. On July 16, 1975, another Fire Insurance Policy No.
8459 (Exhibit "B") was procured from respondent Philippine British Assurance
Company, covering the same building for P50,000,00 and the contents
thereof for P70,000.00.
On July 31, 1975, the building and the contents were totally razed by fire.
Adjustment Standard Corporation submitted a report as follow.
xxx xxx xxx
. . . Thus the apportioned share of each company is as follows:
Policy No. Company Risk Insures Pays
MIRO/ Zenith Building P50,000 P17,610.93
F-02500 Insurance
Corp.
F-84590 Phil. Household 70,000 24,655.31
British for the balance had been paid in the amount of P5,938.57 in full, based on
Assco. Co. the Adjustment Standards Corporation Report of September 22, 1975.
Inc. FFF & F5 50,000 39,186.10
Policy No. Company Risk Insures Pays Travellers Insurance, on its part, admitted the issuance of the Policy No. 599
FIC-15381 SSS Accredited DV and alleged as its special and affirmative defenses the following, to wit:
Group of Insurers that Fire Policy No. 599 DV, covering the furniture and building of
Building P25.000 P8,805.47 complainants was secured by a certain Arsenio Chua, mortgage creditor,
Totals P195,000 P90,257.81 for the purpose of protecting his mortgage credit against the complainants;
We are showing hereunder another apportionment of the loss which that the said policy was issued in the name of Azucena Palomo, only to
includes the Travellers Multi-indemnity policy for reference purposes. indicate that she owns the insured premises; that the policy contains an
endorsement in favor of Arsenio Chua as his mortgage interest may appear
Policy No. Company Risk Insures Pays to indicate that insured was Arsenio Chua and the complainants; that the
premiums due on said fire policy was paid by Arsenio Chua; that
MIRO/ Zenith respondent Travellers is not liable to pay complainants.
F-02500 Insurance
Corp. Building P50,000 11,877.14 On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention
claiming the proceeds of the fire Insurance Policy No. F-559 DV, issued by
F-84590 Phil. respondent Travellers Multi-Indemnity.
British
Assco. Co. I-Building 70,000 16,628.00 Travellers Insurance, in answer to the complaint in intervention, alleged that
II-Building the Intervenor is not entitled to indemnity under its Fire Insurance Policy for
FFF & P.E. 50,000 24,918.79 lack of insurable interest before the loss of the insured premises and that the
complainants, spouses Pedro and Azucena Palomo, had already paid in
PVC-15181 SSS Accredited full their mortgage indebtedness to the intervenor." 3
Group of
Insurers Building 25,000 5,938.50 As adverted to above respondent Insurance Commission dismissed spouses
Palomos' complaint on the ground that the insurance policy subject of the
F-599 DV Insurers I-Ref 30,000 14,467.31 complaint was taken out by Tai Tong Chuache & Company, petitioner
Multi II-Building 70.000 16.628.00 herein, for its own interest only as mortgagee of the insured property and
Totals P295,000 P90,257.81 thus complainant as mortgagors of the insured property have no right of
action against herein respondent. It likewise dismissed petitioner's
Based on the computation of the loss, including the Travellers Multi- complaint in intervention in the following words:
Indemnity, respondents, Zenith Insurance, Phil. British Assurance and S.S.S.
Accredited Group of Insurers, paid their corresponding shares of the loss. "We move on the issue of liability of respondent Travellers Multi-Indemnity to
Complainants were paid the following: P41,546.79 by Philippine British the Intervenor-mortgagee. The complainant testified that she was still
Assurance Co., P11,877.14 by Zenith Insurance Corporation, and P5,936.57 indebted to Intervenor in the amount of P100,000.00. Such allegation has
by S.S.S. Group of Accredited Insurers (Par. 6. Amended Complaint). not however, been sufficiently proven by documentary evidence. The
Demand was made from respondent Travellers Multi-Indemnity for its share certification (Exhibit `E-e') issued by the Court of First Instance of Davao,
in the loss but the same was refused. Hence, complainants demanded from Branch 11, indicate that the complainant was Antonio Lopez Chua and not
the other three (3) respondents the balance of each share in the loss based Tai Tong Chuache & Company." 4
on the computation of the Adjustment Standards Report excluding
Travellers Multi-Indemnity in the amount of P30,894.31 (P5,732.79 Zenith
Insurance: P22,294.62, Phil. British: and P2,866.90, SSS Accredited) but the
same was refused, hence, this action. From the above decision, only intervenor Tai Tong Chuache filed a motion
for reconsideration but it was likewise denied hence, the present petition.
In their answers, Philippine British Assurance and Zenith Insurance
Corporation admitted the material allegations in the complaint, but denied It is the contention of the petitioner that respondent Insurance Commission
liability on the ground that the claim of the complainants had already been decided an issue not raised in the pleadings of the parties in that it ruled
waived, extinguished or paid. Both companies set up counterclaim in the that a certain Arsenio Lopez Chua is the one entitled to the insurance
total amount of P91,546.79. proceeds and not Tai Tong Chuache & Company.
Instead of filing an answer, SSS Accredited Group of Insurers informed the This Court cannot fault petitioner for the above erroneous interpretation of
Commission in its letter of July 22, 1977 that the herein claim of complainants the decision appealed from considering the manner it was written. 5 As
54
correctly pointed out by respondent insurance commission in their
comment, the decision did not pronounce that it was Arsenio Lopez Chua
who has insurable interest over the insured property. Perusal of the decision
reveals however that it readily absolved respondent insurance company
from liability on the basis of the commissioner's conclusion that at the time
of the occurrence of the peril insured against petitioner as mortgagee had
no more insurable interest over the insured property. It was based on the
inference that the credit secured by the mortgaged property was already
paid by the Palomos before the said property was gutted down by fire. The
foregoing conclusion was arrived at on the basis of the certification issued
by the then Court of First Instance of Davao, Branch II that in a certain civil
action against the Palomos, Antonio Lopez Chua stands as the
complainant and not petitioner Tai Tong Chuache & Company.
We find the petition to be impressed with merit. It is a well known postulate
that the case of a party is constituted by his own affirmative allegations.
Under Section 1, Rule 131 6 each party must prove his own affirmative
allegations by the amount of evidence required by law which in civil cases
as in the present case is preponderance of evidence. The party, whether
plaintiff or defendant, who asserts the affirmative of the issue has the
burden of presenting at the trial such amount of evidence as required by
law to obtain a favorable judgment. 7 Thus, petitioner who is claiming a
right over the insurance must prove its case. Likewise, respondent insurance
company to avoid liability under the policy by setting up an affirmative
defense of lack of insurable interest on the part of the petitioner must prove
its own affirmative allegations.
It will be recalled that respondent insurance company did not assail the
validity of the insurance policy taken out by petitioner over the mortgaged
property. Neither did it deny that the said property was totally razed by fire
within the period covered by the insurance. Respondent, as mentioned
earlier advanced an affirmative defense of lack of insurable interest on the
part of the petitioner alleging that before the occurrence of the peril
insured against the Palomos had already paid their credit due the
petitioner. Respondent having admitted the material allegations in the
complaint, has the burden of proof to show that petitioner has no insurable
interest over the insured property at the time the contingency took place.
Upon that point, there is a failure of proof. Respondent, it will be noted,
exerted no effort to present any evidence to substantiate its claim, while
petitioner did. For said respondent's failure, the decision must be adverse to
it.
However, as adverted to earlier, respondent Insurance Commission
absolved respondent insurance company from liability on the basis of the
certification issued by the then Court of First Instance of Davao, Branch II,
that in a certain civil action against the Palomos, Arsenio Lopez Chua
stands as the complainant and not Tai Tong Chuache. From said evidence
respondent commission inferred that the credit extended by herein
petitioner to the Palomos secured by the insured property must have been
paid Such is a glaring error which this Court cannot sanction. Respondent
Commission's findings are based upon a mere inference.
The record of the case shows that the petitioner to support its claim for the
insurance proceeds offered as evidence the contract of mortgage (Exh. 1)
which has not been cancelled nor released. It has been held in a long line
of cases that when the creditor is in possession of the document of credit,
he need not prove non-payment for it is presumed. 8 The validity of the
insurance policy taken by petitioner was not assailed by private
respondent. Moreover, petitioner's claim that the loan extended to the
Palomos has not yet been paid was corroborated by Azucena Palomo who
testified that they are still indebted to herein petitioner. 9
Public respondent argues however, that if the civil case really stemmed
from the loan granted to Azucena Palomo by petitioner the same should
have been brought by Tai Tong Chuache or by its representative in its own
behalf. From the above premise respondent concluded that the obligation
secured by the insured property must have been paid.
The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10
respondent pointed out that the action must be brought in the name of the
real party in interest. We agree. However, it should be borne in mind that
petitioner being a partnership may sue and be sued in its name or by its
duly authorized representative. The fact that Arsenio Lopez Chua is the
representative of petitioner is not questioned. Petitioner's declaration that
Arsenio Lopez Chua acts as the managing partner of the partnership was
corroborated by respondent insurance company. 11 Thus Chua as the
managing partner of the partnership may execute all acts of administration
12 including the right to sue debtors of the partnership in case of their failure
to pay their obligations when it became due and demandable. Or at the
very least, Chua being a partner of petitioner Tai Tong Chuache &
Company is an agent of the partnership. Being an agent, it is understood
that he acted for and in behalf of the firm. 13 Public respondent's allegation
that the civil case filed by Arsenio Chua was in his capacity as personal
creditor of spouses Palomo has no basis.
The respondent insurance company having issued a policy in favor of
herein petitioner which policy was of legal force and effect at the time of
the fire, it is bound by its terms and conditions. Upon its failure to prove the
allegation of lack of insurable interest on the part of the petitioner,
respondent insurance company is and must be held liable.
IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET
ASIDE and ANOTHER judgment is rendered ordering private respondent
Travellers Multi-Indemnity Corporation to pay petitioner the face value of
Insurance Policy No. 599-DV in the amount of P100,000.00. Costs against
said private respondent.
SO ORDERED.
55
Article 1802
[G.R. No. 45624. April 25, 1939.]
GEORGE LITTON, petitioner-appellant, vs. HILL & CERON, ET AL., respondents-
appellees.
CONCEPCION, J p:
This is a petition to review on certiorari the decision of the Court of Appeals
in a case originating from the Court of First Instance of Manila wherein the
herein petitioner George Litton was the plaintiff and the respondents Hill &
Ceron, Robert Hill Carlos Ceron and Visayan Surety Insurance Corporation
were defendants. The facts are as follows: On February 14, 1934, the plaintiff
sold and delivered to Carlos Ceron, who is one of the managing partners
of Hill & Ceron, a certain number of mining claims, and by virtue of said
transaction, the defendant Carlos Ceron delivered to the plaintiff a
document reading as follows:
"Feb. 14, 1934
"Received from Mr. George Litton share certificates Nos. 4428, 4429 and
6699 for 5,000, 5,000 and 7,000 shares respectively total 17,000 shares of
Big Wedge Mining Company, which we have sold at P0.11 (eleven
centavos) per share or P1,870.00 less 1/2 per cent brokerage.
"HILL & CERON
"By: (Sgd.) CARLOS CERON"
Ceron paid to the plaintiff the sum of P1,150 leaving an unpaid balance of
P720, and unable to collect this sum either from Hill & Ceron or from its surety
Visayan Surety & Insurance Corporation, Litton filed a complaint in the
Court of First Instance of Manila against the said defendants for the
recovery of the said balance. The court, after trial, ordered Carlos Ceron
personally to pay the amount claimed and absolved the partnership Hill &
Ceron, Robert Hill and the Visayan Surety & Insurance Corporation. On
appeal to the Court of Appeals, the latter affirmed the decision of the court
on May 29, 1937, having reached the conclusion that Ceron did not intend
to represent and did not act for the firm Hill & Ceron in the transaction
involved in this litigation.
Accepting, as we cannot but accept, the conclusion arrived at by the
Court of Appeals as to the question of fact just mentioned, namely, that
Ceron individually entered into the transaction with the plaintiff, but in view,
however, of certain undisputed facts and of certain regulations and
provisions of the Code of Commerce, we reach the conclusion that the
transaction made by Ceron with the plaintiff should be understood in law
as effected by Hill & Ceron and binding upon it.
In the first place, it is an admitted fact by Robert Hill when he testified at the
trial that he and Ceron, during the partnership, bad the same power to buy
and sell; that in said partnership Hill as well as Ceron made the transaction
as partners in equal parts; that on the date of the transaction, February 14,
1934, the partnership between Hill and Ceron was in existence. After this
date, or on February 19th, Hill & Ceron sold shares of the Big Wedge; and
when the transaction was entered into with Litton, it was neither published
in the newspapers nor stated in the commercial registry that the partnership
Hill & Ceron had been dissolved.
Hill testified that a few days before February 14th he had a conversation
with the plaintiff in the course of which he-advised the latter not to deliver
shares for sale or on commission to Ceron because the partnership was
about to be dissolved; but what importance can be attached to said
advice if the partnership was not in fact dissolved on February 14th, the
date when the transaction with Ceron took place?
Under article 226 of the Code of Commerce, the dissolution of a
commercial association shall not cause any prejudice to third parties until it
has been recorded in the commercial registry. (See also Cardell vs. Maeru,
14 Phil., 368.) The Supreme Court of Spain held that the dissolution of a
partnership by the will of the partners which is not registered in the
commercial registry, does not prejudice third persons. (Opinion of March
23,1885.)
Aside from the aforecited legal provisions, the order of the Bureau of
Commerce of December 7, 1933, prohibits brokers from buying and selling
shares on their own account. Said order reads:
"The stock and/or bond broker is, therefore, merely an agent or an
intermediary, and as such, shall not be allowed . . .
"(c) To buy or to sell shares of stock or bonds on his own account for
purposes of speculation and/or for manipulating the market, irrespective of
whether the purchase or sale is made from or to a private individual, broker
or brokerage firm."
In its decision the Court of Appeals states:
"But there is stronger objection to the plaintiff's attempt to make the firm
responsible to him. According to the articles of copartnership of Hill &
Ceron,' filed in the Bureau of Commerce:
" 'Sixth. That the management of the business affairs of the copartnership
shall be entrusted to both copartners who shall jointly administered the
business affairs, transactions and activities of the copartnership, shall jointly
open a current account or any other kind of account in any bank or banks,
shall jointly sign all checks for the withdrawal of funds and shall jointly or
singly sign, in the latter case, with the consent of the other partner. . . "
"Under this stipulation, a written contract of the firm can only be signed by
one of the partners if the other partner consented. Without the consent of
one partner, the other cannot bind the firm by a written contract. Now,
assuming for the moment that Ceron attempted to represent the firm in this
contract with the plaintiff (the plaintiff conceded that the firm name was
not mentioned at that time), the latter has failed to prove that Hill had
consented to such contract."
It follows from the sixth paragraph of the article of partnership of Hill & Ceron
above quoted that the management of the business of the partnership has
been entrusted to both partners thereof, but we dissent from the view of
the Court of Appeals that for one of the partners to bind the partnership the
consent of the other is necessary. Third persons, like the plaintiff, are not
bound in entering into a contract with any of the two partners, to ascertain
made has the consent of the partner. The public need to make inquiries as
to the agreements had between the partners. Its knowledge is enough that
it is contracting with the partnership which is represented by one of the
managing partners.
"There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions." (Mills vs. Riggle, 112 Pac., 617.)
"The presumption is sufficient to permit third persons to hold the firm liable
on transactions entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority." (Le Roy vs.
Johnson, 7 U. S. [Law. ed.], 391.)
The second paragraph of the articles of partnership of Hill & Ceron reads in
part:
"Second: That the purpose or object for which this copartnership is
organized is to engage in the business of brokerage in general, such as
stock and bond brokers, real brokers, investment security brokers, shipping
brokers, and other activities pertaining to the business of brokers in general."
The kind of business in which the partnership Hill & Ceron is to engage being
thus determined, none of the two partners, under article 130 of the Code
of Commerce, may legally engage in the business of broKerage in general
as stock brokers, security brokers and other activities pertaining to the
business of the partnership. Ceron, therefore, could not have entered into
the contract of sale of shares with Litton as a private individual, but as a
managing partner of Hill & Ceron.
The respondent argues in its brief that even admitting that one of the
partners could not, in his individual capacity, engage in a transaction similar
to that in which the partnership is engaged without binding the latter,
nevertheless there is no law which prohibits a partner in the stock brokerage
business for engaging in other transactions different from those of the
partnership, as it happens in the present case, because the transaction
made by Ceron is a mere personal loan, and this argument, so it is said, is
corroborated by the Court of Appeals. We do not find this alleged
corroboration because the only finding of fact made by the Court of
Appeals is to the effect that the transaction made by Ceron with the
plaintiff was in his individual capacity.
The appealed decision is reversed and the defendants are ordered to pay
to the plaintiff, jointly and severally, the sum of P720, with legal interest, from
the date of the filing of the complaint, minus the commission of one-half
per cent (%) from the original price of P1,870, with the costs to the
respondents. So ordered.
Avancea, C.J., Villa-Real, Imperial, Diaz, Laurel and Moran, JJ., concur.
RESOLUTION
July 13, 1939
56
CONCEPCION, J .:
A motion has been presented in this case by Robert Hill, one of the
defendants sentenced in our decision to pay to the plaintiff the amount
claimed in his complaint. It is asked that we reconsider our decision, the
said defendant insisting that the appellant had not established that Carlos
Ceron, another of the defendants, had the consent of his copartner, the
movant, to enter with the appellant into the contract whose breach gave
rise to the complaint. It is argued that, it being stipulated in the articles of
partnership that Hill and Ceron, only partners of the firm Hill & Ceron, would,
as managers, have the management of the business of the partnership,
and that either may contract and sign for the partnership ,with the consent
of the other; the articles of partnership having been, so it is said, recorded
in the commercial registry, the appellant could not ignore the fact that the
consent of the movant was necessary for the validity of the contract which
he had with the other partner and defendant, Ceron, and there being no
evidence that said consent had been obtained, the complaint to compel
compliance with the said contract had to be, as it must be in fact, a
procedural failure.
Although this question has already been considered and settled in our
decision, we nevertheless take cognizance of the motion in order to
enlarge upon our views on the matter.
The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the other, undoubtedly creates an obligation between the two
partners, which consists in asking the other's consent before contracting for
the partnership. This obligation of course is not imposed upon a third person
who contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. A third person may and has
a right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership but, on the contrary, is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No.
18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to
contracts which have the force of law between the parties.
Wherefore, unless the contrary is shown, namely, that one of the partners
did not consent to his copartner entering into a contract with a third person,
and that the latter with knowledge thereof entered into said contract, the
aforesaid presumption with all its force and legal effects should be taken
into account.
There is nothing in the case at bar which destroys this presumption; the only
thing appearing in the findings of fact of the Court of Appeals is that the
plaintiff "has failed to prove that Hill had consented to such contract".
According to this, it seems that the Court of Appeals is of the opinion that
the two partners should give their consent to the contract and that the
plaintiff should prove it. The clause of the articles of partnership should not
be thus understood, for it means that one of the two partners should have
the consent of the other to contract for the partnership, which is different;
because it is possible that one of the partners may not see any prospect in
a transaction, but he may nevertheless consent to the realization thereof
by his copartner in reliance upon his skill and ability or otherwise. And here
we have to hold once again that it is not the plaintiff who, under the articles
of partnership, should obtain and prove the consent of Hill, but the latter's
partner, Ceron, should he file a complaint against the partnership for
compliance with the contract; but in the present case, it is a third person,
the plaintiff, who asks for it. While the said presumption stands, the plaintiff
has nothing to prove.
Passing now to another aspect of the case, had Ceron in any way stated
to the appellant at the time of the execution of the contract, or if it could
be inferred by his conduct, that he had the consent of Hill, and should it
turn out later that he did not have such consent, this alone would not annul
the contract judging from the provisions of article 130 of the Code of
Commerce reading as follows:
"No new obligation shall be contracted against the will of one of the
managing partners, should he have expressly stated it; but if, however, it
should be contracted it shall not be annulled for this reason, and shall have
its effects without prejudice to the liability of the partner or partners who
contracted it to reimburse the firm for any loss occasioned by reason
thereof." (Emphasis ours.)
Under the aforequoted provisions, when, not only without the consent but
against the will of any of the managing partners, a contract is entered into
with a third person who acts in good faith, and the transaction is of the kind
of business in which the partnership is engaged, as in the present case, said
contract shall not be annulled, without prejudice to the liability of the guilty
partner.
The reason or purpose behind these legal provisions is no other than to
protect a third person who contracts with one of the managing partners of
the partnership, thus avoiding fraud and deceit to which he may easily fall
a victim without this protection which the Code of Commerce wisely
provides.
If we are to interpret the articles of partnership in question by holding that it
is the obligation of the third person to inquire whether the managing
copartner of the one with whom 'he contracts has given his consent to said
contract, which is practically casting upon him the obligation to get such
consent, this interpretation would, in similar cases, separate to hinder
effectively the transactions, a thing not desirable and contrary to the nature
of business which requires promptness and dispatch on the basis of good
faith and honesty which are always presumed.
In view of the foregoing, and sustaining the other views expressed in the
decision, the motion is denied. So ordered.
57
Article 1809
[G.R. No. 70926. January 31, 1989.]
DAN FUE LEUNG, petitioner, vs. HON. INTERMEDIATE APPELLATE COURT and
LEUNG YIU, respondents.
GUTIERREZ, JR., J p:
The petitioner asks for the reversal of the decision of the then Intermediate
Appellate Court in AC-G.R. No. CV-00881 which affirmed the decision of
the then Court of First Instance of Manila, Branch II in Civil Case No. 116725
declaring private respondent Leung Yiu a partner of petitioner Dan Fue
Leung in the business of Sun Wah Panciteria and ordering the petitioner to
pay to the private respondent his share in the annual profits of the said
restaurant.
This case originated from a complaint filed by respondent Leung Yiu with
the then Court of First Instance of Manila, Branch II to recover the sum
equivalent to twenty-two percent (22%) of the annual profits derived from
the operation of Sun Wah Panciteria since October, 1955 from petitioner
Dan Fue Leung.
The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street,
Sta. Cruz, Manila, was established sometime in October, 1955. It was
registered as a single proprietorship and its licenses and permits were issued
to and in favor of petitioner Dan Fue Leung as the sole proprietor.
Respondent Leung Yiu adduced evidence during the trial of the case to
show that Sun Wah Panciteria was actually a partnership and that he was
one of the partners having contributed P4,000.00 to its initial establishment.
The private respondent's evidence is summarized as follows:
About the time the Sun Wah Panciteria started to become operational, the
private respondent gave P4,000.00 as his contribution to the partnership.
This is evidenced by a receipt identified as Exhibit "A" wherein the petitioner
acknowledged his acceptance of the P4,000.00 by affixing his signature
thereto. The receipt was written in Chinese characters so that the trial court
commissioned an interpreter in the person of Ms. Florence Yap to translate
its contents into English. Florence Yap issued a certification and testified that
the translation to the best of her knowledge and belief was correct. The
private respondent identified the signature on the receipt as that of the
petitioner (Exhibit A-3) because it was affixed by the latter in his (private
respondents's) presence. Witnesses So Sia and Antonio Ah Heng
corroborated the private respondent's testimony to the effect that they
were both present when the receipt (Exhibit "A") was signed by the
petitioner. So Sia further testified that he himself received from the petitioner
a similar receipt (Exhibit D) evidencing delivery of his own investment in
another amount of P4,000.00. An examination was conducted by the PC
Crime Laboratory on orders of the trial court granting the private
respondent's motion for examination of certain documentary exhibits. The
signatures in Exhibits "A" and "D" when compared to the signature of the
petitioner appearing in the pay envelopes of employees of the restaurant,
namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the
signatures in the two receipts were indeed the signatures of the petitioner.
llcd
Furthermore, the private respondent received from the petitioner the
amount of P12,000.00 covered by the latter's Equitable Banking
Corporation Check No. 13389470-B from the profits of the operation of the
restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings
Department of the China Banking Corporation testified that said check
(Exhibit B) was deposited by and duly credited to the private respondent's
savings account with the bank after it was cleared by the drawee bank,
the Equitable Banking Corporation. Another witness Elvira Rana of the
Equitable Banking Corporation testified that the check in question was in
fact and in truth drawn by the petitioner and debited against his own
account in said bank. This fact was clearly shown and indicated in the
petitioner's statement of account after the check (Exhibit B) was duly
cleared. Rana further testified that upon clearance of the check and
pursuant to normal banking procedure, said check was returned to the
petitioner as the maker thereof.
The petitioner denied having received from the private respondent the
amount of P4,000.00. He contested and impugned the genuineness of the
receipt (Exhibit D). His evidence is summarized as follows:
The petitioner did not receive any contribution at the time he started the
Sun Wah Panciteria. He used his savings from his salaries as an employee at
Camp Stotsenberg in Clark Field and later as waiter at the Toho Restaurant
amounting to a little more than P2,000.00 as capital in establishing Sun Wah
Panciteria. To bolster his contention that he was the sole owner of the
restaurant, the petitioner presented various government licenses and
permits showing the Sun Wah Panciteria was and still is a single
proprietorship solely owned and operated by himself alone. Fue Leung also
flatly denied having issued to the private respondent the receipt (Exhibit G)
and the Equitable Banking Corporation's Check No. 13389470 B in the
amount of P12,000.00 (Exhibit B).
As between the conflicting evidence of the parties, the trial court gave
credence to that of the plaintiff's. Hence, the court ruled in favor of the
private respondent. The dispositive portion of the decision reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendant, ordering the latter to deliver and pay to the former,
the sum equivalent to 22% of the annual profit derived from the operation
of Sun Wah Panciteria from October, 1955, until fully paid, and attorney's
fees in the amount of P5,000.00 and cost of suit." (p. 125, Rollo)
The private respondent filed a verified motion for reconsideration in the
nature of a motion for new trial and, as supplement to the said motion, he
requested that the decision rendered should include the net profit of the
Sun Wah Panciteria which was not specified in the decision, and allow
private respondent to adduce evidence so that the said decision will be
comprehensively adequate and thus put an end to further litigation. Cdpr
The motion was granted over the objections of the petitioner. After hearing,
the trial court rendered an amended decision, the dispositive portion of
which reads:
"FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration
filed by the plaintiff, which was granted earlier by the Court, is hereby
reiterated and the decision rendered by this Court on September 30, 1980,
is hereby amended. The dispositive portion of said decision should read
now as follows:
"WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and
against the defendant, ordering the latter to pay the former the sum
equivalent to 22% of the net profit of P8,000.00 per day from the time of
judicial demand, until fully paid, plus the sum of P5,000.00 as and for
attorney's fees and costs of suit." (p. 150, Rollo)
The petitioner appealed the trial court's amended decision to the then
Intermediate Appellate Court. The questioned decision was further
modified by the appellate court. The dispositive portion of the appellate
court's decision reads:
"WHEREFORE, the decision appealed from is modified, the dispositive
portion thereof reading as follows:
"1. Ordering the defendant to pay the plaintiff by way of temperate
damages 22% of the net profit of P2,000.00 a day from judicial demand to
May 15, 1971;
"2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day
from May 16, 1971 to August 30, 1975;
"3. And thereafter until fully paid the sum equivalent to 22% of the net profit
of P8,000.00 a day.
"Except as modified, the decision of the court a quo is affirmed in all other
respects. (p. 102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed
the lower court's decision. The dispositive portion of the resolution reads:
"WHEREFORE, the dispositive portion of the amended judgment of the court
a quo reading as follows:
WHEREFORE, judgment is rendered in favor of the plaintiff and against the
defendant, ordering the latter to pay to the former the sum equivalent to
22% of the net profit of P8,000.00 per day from the time of judicial demand,
until fully 'paid, plus the sum of P5,000.00 as and for attorney's fees and costs
of suit'.
58
is hereby retained in full and affirmed in toto it being understood that the
date of judicial demand is July 13, 1978." (pp. 105-106, Rollo).
In the same resolution, the motion for reconsideration filed by petitioner was
denied. llcd
Both the trial court and the appellate court found that the private
respondent is a partner of the petitioner in the setting up and operations of
the panciteria. While the dispositive portions merely ordered the payment
of the respondent's share, there is no question from the factual findings that
the respondent invested in the business as a partner. Hence, the two courts
declared that the private petitioner is entitled to a share of the annual
profits of the restaurant. The petitioner, however, claims that this factual
finding is erroneous. Thus, the petitioner argues: "The complaint avers that
private respondent extended 'financial assistance' to herein petitioner at
the time of the establishment of the Sun Wah Panciteria, in return of which
private respondent allegedly will receive a share in the profits of the
restaurant. The same complaint did not claim that private respondent is a
partner of the business. It was, therefore, a serious error for the lower court
and the Hon. Intermediate Appellate Court to grant a relief not called for
by the complaint. It was also error for the Hon. Intermediate Appellate Court
to interpret or construe 'financial assistance' to mean the contribution of
capital by a partner to a partnership;" (p. 75, Rollo)
The pertinent portions of the complaint state:
xxx xxx xxx
"2. That on or about the latter (sic) of September, 1955, defendant sought
the financial assistance of plaintiff in operating the defendant's eatery
known as Sun Wah Panciteria, located in the given address of defendant;
as a return for such financial assistance. plaintiff would be entitled to
twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria;
"3. That on October 1, 1955, plaintiff delivered to the defendant the sum of
four thousand pesos (P4,000.00), Philippine Currency, of which copy for the
receipt of such amount, duly acknowledged by the defendant is attached
hereto as Annex "A", and form an integral part hereof;" (p. 11, Rollo)
In essence, the private respondent alleged that when Sun Wah Panciteria
was established, he gave P4,000.00 to the petitioner with the understanding
that he would be entitled to twenty-two percent (22%) of the annual profit
derived from the operation of the said panciteria. These allegations, which
were proved, make the private respondent and the petitioner partners in
the establishment of Sun Wah Panciteria because Article 1767 of the Civil
Code provides that "By the contract of partnership two or more persons
bind themselves to contribute money, property or industry to a common
fund, with the intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one
wherein the private respondent asserted his rights as partner of the
petitioner in the establishment of the Sun Wah Panciteria, notwithstanding
the use of the term financial assistance therein. We agree with the
appellate court's observation to the effect that ". . . given its ordinary
meaning, financial assistance 'is the giving out of money to another without
the expectation of any returns therefrom'. It connotes an ex gratia dole out
in favor of someone driven into a state of destitution. But this circumstance
under which the P4,000.00 was given to the petitioner does not obtain in
this case." (p. 99, Rollo) The complaint explicitly stated that "as a return for
such financial assistance, plaintiff (private respondent) would be entitled to
twenty-two percentum (22%) of the annual profit derived from the
operation of the said panciteria." (p. 107, Rollo) The well-settled doctrine is
that the ". . . nature of the action filed in court is determined by the facts
alleged in the complaint as constituting the cause of action." (De Tavera v.
Philippine Tuberculosis Society, Inc., 113 SCRA 243; Alger Electric, Inc. v.
Court of Appeals, 135 SCRA 37).
The appellate court did not err in declaring that the main issue in the instant
case was whether or not the private respondent is a partner of the
petitioner in the establishment of Sun Wah Panciteria.
The petitioner also contends that the respondent court gravely erred in
giving probative value to the PC Crime Laboratory Report (Exhibit "J") on
the ground that the alleged standards or specimens used by the PC Crime
Laboratory in arriving at the conclusion were never testified to by any
witness nor has any witness identified the handwriting in the standards or
specimens belonging to the petitioner. The supposed standards or
specimens of handwriting were marked as Exhibits "H", "H-1" to "H-24" and
admitted as evidence for the private respondent over the vigorous
objection of the petitioner's counsel. LLphil
The records show that the PC Crime Laboratory upon orders of the lower
court examined the signatures in the two receipts issued separately by the
petitioner to the private respondent and So Sia (Exhibits "A" and "D") and
compared the signatures on them with the signatures of the petitioner on
the various pay envelopes (Exhibits "H", "H-1" to "H-24") of Antonio Ah Heng
and Maria Wong, employees of the restaurant. After the usual examination
conducted on the questioned documents, the PC Crime Laboratory
submitted its findings (Exhibit J) attesting that the signatures appearing in
both receipts (Exhibits "A" and "D") were the signatures of the petitioner.
The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-
24") were presented by the private respondent for marking as exhibits, the
petitioner did not interpose any objection. Neither did the petitioner file an
opposition to the motion of the private respondent to have these exhibits
together with the two receipts examined by the PC Crime Laboratory
despite due notice to him. Likewise, no explanation has been offered for his
silence nor was any hint of objection registered for that purpose.
Under these circumstances, we find no reason why Exhibit "J" should be
rejected or ignored. The records sufficiently establish that there was a
partnership.
The petitioner raises the issue of prescription. He argues: The Hon.
Respondent Intermediate Appellate Court gravely erred in not resolving the
issue of prescription in favor of petitioner. The alleged receipt is dated
October 1, 1955 and the complaint was filed only on July 13, 1978 or after
the lapse of twenty-two (22) years, nine (9) months and twelve (12) days.
From October 1, 1955 to duly 13, 1978, no written demands were ever made
by private respondent.
The petitioner's argument is based on Article 1144 of the Civil Code which
provides:
Art. 1144. The following actions must be brought within ten years from the
time the right of section accrues:
"(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment."
in relation to Article 1155 thereof which provides:
"Art. 1155. The prescription of actions is interrupted when they are filed
before the court, when there is a written extra-judicial demand by the
creditor, and when there is any written acknowledgment of the debt by the
debtor."
The argument is not well-taken.
The private respondent is a partner of the petitioner in Sun Wah Panciteria.
The requisites of a partnership which are 1) two or more persons bind
themselves to contribute money, property, or industry to a common fund;
and 2) intention on the part of the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil.
110) have been established. As stated by the respondent, a partner
shares not only in profits but also in the losses of the firm. If excellent relations
exist among the partners at the start of business and all the partners are
more interested in seeing the firm grow rather than get immediate returns,
a deferment of sharing in the profits is perfectly plausible. It would be
incorrect to state that if a partner does not assert his rights anytime within
ten years from the start of operations, such rights are irretrievably lost. The
private respondent's cause of action is premised upon the failure of the
petitioner to give him the agreed profits in the operation of Sun Wah
Panciteria. In effect the private respondent was asking for an accounting
of his interests in the partnership. LexLib
It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155
which is applicable. Article 1842 states:
"The right to an account of his interest shall accrue to any partner, or his
legal representative as against the winding up partners or the surviving
partners or the person or partnership continuing the business, at the date of
dissolution, in the absence or any agreement to the contrary."
Regarding the prescriptive period within which the private respondent may
demand an accounting, Articles 1806, 1807, and 1809 show that the right
59
to demand an accounting exists as long as the partnership exists.
Prescription begins to run only upon the dissolution of the partnership when
the final accounting is done.
Finally, the petitioner assails the appellate court's monetary awards in favor
of the private respondent for being excessive and unconscionable and
above the claim of private respondent as embodied in his complaint and
testimonial evidence presented by said private respondent to support his
claim in the complaint.
Apart from his own testimony and allegations, the private respondent
presented the cashier of Sun Wah Panciteria, a certain Mrs. Sarah L. Licup,
to testify on the income of the restaurant.
Mrs. Licup stated:
"ATTY. HIPOLITO (direct examination to Mrs. Licup).
"Q Mrs. Witness, yon stated that among your duties was that you were in
charge of the custody of the cashier's box, of the money, being the cashier,
is that correct?
"A Yes, sir.
"Q So that every time there is a customer who pays, you were the one who
accepted the money and you gave the change, if any, is that correct?
"A Yes.
"Q Now, after 11:30 (P.M.) which is the closing time as you said, what do you
do with the money?
"A We balance it with the manager, Mr. Dan Fue Leung.
"ATTY. HIPOLITO:
I see.
"Q So, in other words, after your job, you huddle or confer together?
"A Yes, count it all. I total it. We sum it up.
"Q Now, Mrs. Witness, in an average day, more or less, will you please tell us,
how much is the gross income of the restaurant?
"A For regular days, I received around P7,000.00 a day during my shift alone
and during pay days I receive more than P10,000.00. That is excluding the
catering outside the place.
"Q What about the catering service, will you please tell the Honorable Court
how many times a week were there catering services?
"A Sometimes three times a month; sometimes two times a month or more.
xxx xxx xxx
"Q Now more or less, do you know the cost of the catering service?
"A Yes, because I am the one who receives the payment also of the
catering.
"Q How much is that?
"A That ranges from two thousand to six thousand pesos, sir.
"Q Per service?
"A Per service, Per catering.
"Q So in other words, Mrs. witness, for your shift alone in a single day from
3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an income of
P7,000.00 in a regular day?
"A Yes.
"Q And ten thousand pesos during pay day?
"A Yes.(TSN, pp. 53 to 59, inclusive, November 15, 1978).
xxx xxx xxx
"COURT:
Any cross?
"ATTY. UY (counsel for defendant):
No cross-examination, Your Honor. (TSN. p. 65, November 15, 1978)." (Rollo,
pp. 127-128)
The statements of the cashier were not rebutted. Not only did the
petitioner's counsel waive the cross-examination on the matter of income
but he failed to comply with his promise to produce pertinent records.
When a subpoena duces tecum was issued to the petitioner for the
production of their records of sale, his counsel voluntarily offered to bring
them to court. He asked for sufficient time prompting the court to cancel
all hearings for January, 1981 and reset them to the later part of the
following month. The petitioner's counsel never produced any books,
prompting the trial court to state: Cdpr
"Counsel for the defendant admitted that the sales of Sun Wah were
registered or recorded in the daily sales book, ledgers, journals and for this
purpose, employed a bookkeeper. This inspired the Court to ask counsel for
the defendant to bring said records and counsel for the defendant
promised to bring those that were available. Seemingly, that was the
reason why this case dragged for quite sometime. To bemuddle the issue,
defendant instead of presenting the books where the same, etc. were
recorded, presented witnesses who claimed to have supplied chicken,
meat, shrimps, egg and other poultry products which, however, did not
show the gross sales nor does it prove that the same is the best evidence.
This Court gave warning to the defendant's counsel that if he failed to
produce the books, the same will be considered a waiver on the part of the
defendant to produce the said books inimitably showing decisive records
on the income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule
131). "Evidence willfully suppressed would be adverse if produced.' " (Rollo,
p. 145)
The records show that the trial court went out of its way to accord due
process to the petitioner.
"The defendant was given all the chance to present all conceivable
witnesses, after the plaintiff has rested his case on February 25, 1981,
however, after presenting several witnesses, counsel for defendant
promised that he will present the defendant as his last witness. Notably there
were several postponement asked by counsel for the defendant and the
last one was on October 1, 1981 when he asked that this case be
postponed for 45 days because said defendant was then in Hongkong and
he (defendant) will be back after said period. The Court acting with great
concern and understanding reset the hearing to November 17, 1981. On
said date, the counsel for the defendant who again failed to present the
defendant asked for another postponement, this time to November 24,
1981 in order to give said defendant another judicial magnanimity and
substantial due process. It was however a condition in the order granting
the postponement to said date that if the defendant cannot be presented,
counsel is deemed to have waived the presentation of said witness and will
submit his case for decision.
"On November 24, 1981, there being a typhoon prevailing in Manila said
date was declared a partial non-working holiday, so much so, the hearing
was reset to December 7 and 22, 1981. On December 7, 1981, on motion of
defendant's counsel, the same was again reset to December 22, 1981 as
previously scheduled which hearing was understood as intransferable in
character. Again on December 22, 1981, the defendant's counsel asked for
postponement on the ground that the defendant was sick. The Court, after
much tolerance and judicial magnanimity, denied said motion and
ordered that the case be submitted for resolution based on the evidence
on record and gave the parties 30 days from December 23, 1981, within
which to file their simultaneous memoranda." (Rollo, pp. 148-150)
The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in
front of the Republic Supermarket. It is near the corner of Claro M. Recto
Street. According to the trial court, it is in the heart of Chinatown where
people who buy and sell jewelries, businessmen, brokers, manager, bank
employees, and people from all walks of life converge and patronize Sun
Wah.
60
There is more than substantial evidence to support the factual findings of
the trial court and the appellate court. If the respondent court awarded
damages only from judicial demand in 1978 and not from the opening of
the restaurant in 1955, it is because of the petitioner's contentions that all
profits were being plowed back into the expansion of the business. There is
no basis in the records to sustain the petitioner's contention that the
damages awarded are excessive. Even if the Court is minded to modify the
factual findings of both the trial court and the appellate court, it cannot
refer to any portion of the records for such modification. There is no basis in
the records for this Court to change or set aside the factual findings of the
trial court and the appellate court. The petitioner was given every
opportunity to refute or rebut the respondent's submissions but, after
promising to do so, it deliberately failed to present its books and other
evidence.
The resolution of the Intermediate Appellate Court ordering the payment
of the petitioner's obligation shows that the same continues until fully paid.
The question now arises as to whether or not the payment of a share of
profits shall continue into the future with no fixed ending date. LLpr
Considering the facts of this case, the Court may decree a dissolution of
the partnership under Article 1831 of the Civil Code which, in part, provides:
"Art. 1831. On application by or for a partner the court shall decree a
dissolution whenever:
xxx xxx xxx
"(3) A partner has been guilty of such conduct as tends to affect
prejudicially the carrying on of the business;
"(4) A partner willfully or persistently commits a breach of the partnership
agreement, or otherwise so conducts himself in matters relating to the
partnership business that it is not reasonably practicable to carry on the
business in partnership with him;
xxx xxx xxx
"(6) Other circumstances render a dissolution equitable."
There shall be a liquidation and winding up of partnership affairs, return of
capital, and other incidents of dissolution because the continuation of the
partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The
decision of the respondent court is AFFIRMED with a MODIFICATION that as
indicated above, the partnership of the parties is ordered dissolved.
SO ORDERED.
[G.R. No. 126334. November 23, 2001.]
EMILIO EMNACE, petitioner, vs. COURT OF APPEALS, ESTATE OF VICENTE
TABANAO, SHERWIN TABANAO, VICENTE WILLIAM TABANAO, JANETTE
TABANAO DEPOSOY, VICENTA MAY TABANAO VARELA, ROSELA TABANAO
and VINCENT TABANAO, respondents.
YNARES-SANTIAGO, J p:
Petitioner Emilio Emnace, Vicente Tabanao and Jacinto Divinagracia were
partners in a business concern known as Ma. Nelma Fishing Industry.
Sometime in January of 1986, they decided to dissolve their partnership and
executed an agreement of partition and distribution of the partnership
properties among them, consequent to Jacinto Divinagracia's withdrawal
from the partnership. 1 Among the assets to be distributed were five (5)
fishing boats, six (6) vehicles, two (2) parcels of land located at Sto. Nio
and Talisay, Negros Occidental, and cash deposits in the local branches of
the Bank of the Philippine Islands and Prudential Bank.
Throughout the existence of the partnership, and even after Vicente
Tabanao's untimely demise in 1994, petitioner failed to submit to Tabanao's
heirs any statement of assets and liabilities of the partnership, and to render
an accounting of the partnership's finances. Petitioner also reneged on his
promise to turn over to Tabanao's heirs the deceased's 1/3 share in the total
assets of the partnership, amounting to P30,000,000.00, or the sum of
P10,000,000.00, despite formal demand for payment thereof. 2
Consequently, Tabanao's heirs, respondents herein, filed against petitioner
an action for accounting, payment of shares, division of assets and
damages. 3 In their complaint, respondents prayed as follows:
1. Defendant be ordered to render the proper accounting of all the assets
and liabilities of the partnership at bar; and
2. After due notice and hearing defendant be ordered to
pay/remit/deliver/surrender/yield to the plaintiffs the following:
A. No less than One Third (1/3) of the assets, properties, dividends, cash,
land(s), fishing vessels, trucks, motor vehicles, and other forms and
substance of treasures which belong and/or should belong, had accrued
and/or must accrue to the partnership;
B. No less than Two Hundred Thousand Pesos (P200,000.00) as moral
damages;
C. Attorney's fees equivalent to Thirty Percent (30%) of the entire
share/amount/award which the Honorable Court may resolve the plaintiffs
as entitled to plus P1,000.00 for every appearance in court. 4
Petitioner filed a motion to dismiss the complaint on the grounds of
improper venue, lack of jurisdiction over the nature of the action or suit, and
lack of capacity of the estate of Tabanao to sue. 5 On August 30, 1994, the
trial court denied the motion to dismiss. It held that venue was properly laid
because, while realties were involved, the action was directed against a
particular person on the basis of his personal liability; hence, the action is
not only a personal action but also an action in personam. As regards
petitioner's argument of lack of jurisdiction over the action because the
prescribed docket fee was not paid considering the huge amount involved
in the claim, the trial court noted that a request for accounting was made
in order that the exact value of the partnership may be ascertained and,
thus, the correct docket fee may be paid. Finally, the trial court held that
the heirs of Tabanao had a right to sue in their own names, in view of the
provision of Article 777 of the Civil Code, which states that the rights to the
succession are transmitted from the moment of the death of the decedent.
6
The following day, respondents filed an amended complaint, 7
incorporating the additional prayer that petitioner be ordered to "sell all
(the partnership's) assets and thereafter pay/remit/deliver/surrender/yield
to the plaintiffs" their corresponding share in the proceeds thereof. In due
time, petitioner filed a manifestation and motion to dismiss, 8 arguing that
the trial court did not acquire jurisdiction over the case due to the plaintiffs'
failure to pay the proper docket fees. Further, in a supplement to his motion
to dismiss, 9 petitioner also raised prescription as an additional ground
warranting the outright dismissal of the complaint.
On June 15, 1995, the trial court issued an Order, 10 denying the motion to
dismiss inasmuch as the grounds raised therein were basically the same as
the earlier motion to dismiss which has been denied. Anent the issue of
prescription, the trial court ruled that prescription begins to run only upon
the dissolution of the partnership when the final accounting is done. Hence,
prescription has not set in the absence of a final accounting. Moreover, an
action based on a written contract prescribes in ten years from the time the
right of action accrues.
Petitioner filed a petition for certiorari before the Court of Appeals, 11 raising
the following issues:
I. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in taking cognizance of a case despite the failure to
pay the required docket fee;
II. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in insisting to try the case which involve (sic) a parcel of
land situated outside of its territorial jurisdiction;
III. Whether or not respondent Judge acted without jurisdiction or with grave
abuse of discretion in allowing the estate of the deceased to appear as
party plaintiff, when there is no intestate case and filed by one who was
never appointed by the court as administratrix of the estates; and
IV. Whether or not respondent Judge acted without jurisdiction or with
grave abuse of discretion in not dismissing the case on the ground of
prescription.
61
On August 8, 1996, the Court of Appeals rendered the assailed decision, 12
dismissing the petition for certiorari, upon a finding that no grave abuse of
discretion amounting to lack or excess of jurisdiction was committed by the
trial court in issuing the questioned orders denying petitioner's motions to
dismiss.
Not satisfied, petitioner filed the instant petition for review, raising the same
issues resolved by the Court of Appeals, namely:
I. Failure to pay the proper docket fee;
II. Parcel of land subject of the case pending before the trial court is outside
the said court's territorial jurisdiction;
III. Lack of capacity to sue on the part of plaintiff heirs of Vicente Tabanao;
and
IV. Prescription of the plaintiff heirs' cause of action.
It can be readily seen that respondents' primary and ultimate objective in
instituting the action below was to recover the decedent's 1/3 share in the
partnership's assets. While they ask for an accounting of the partnership's
assets and finances, what they are actually asking is for the trial court to
compel petitioner to pay and turn over their share, or the equivalent value
thereof, from the proceeds of the sale of the partnership assets. They also
assert that until and unless a proper accounting is done, the exact value of
the partnership's assets, as well as their corresponding share therein, cannot
be ascertained. Consequently, they feel justified in not having paid the
commensurate docket fee as required by the Rules of Court.
We do not agree. The trial court does not have to employ guesswork in
ascertaining the estimated value of the partnership's assets, for respondents
themselves voluntarily pegged the worth thereof at Thirty Million Pesos
(P30,000,000.00). Hence, this case is one which is really not beyond
pecuniary estimation, but rather partakes of the nature of a simple
collection case where the value of the subject assets or amount
demanded is pecuniarily determinable. 13 While it is true that the exact
value of the partnership's total assets cannot be shown with certainty at the
time of filing, respondents can and must ascertain, through informed and
practical estimation, the amount they expect to collect from the
partnership, particularly from petitioner, in order to determine the proper
amount of docket and other fees. 14 It is thus imperative for respondents to
pay the corresponding docket fees in order that the trial court may acquire
jurisdiction over the action. 15
Nevertheless, unlike in the case of Manchester Development Corp. v. Court
of Appeals, 16 where there was clearly an effort to defraud the government
in avoiding to pay the correct docket fees, we see no attempt to cheat the
courts on the part of respondents. In fact, the lower courts have noted their
expressed desire to remit to the court "any payable balance or lien on
whatever award which the Honorable Court may grant them in this case
should there be any deficiency in the payment of the docket fees to be
computed by the Clerk of Court." 17 There is evident willingness to pay, and
the fact that the docket fee paid so far is inadequate is not an indication
that they are trying to avoid paying the required amount, but may simply
be due to an inability to pay at the time of filing. This consideration may
have moved the trial court and the Court of Appeals to declare that the
unpaid docket fees shall be considered a lien on the judgment award.
Petitioner, however, argues that the trial court and the Court of Appeals
erred in condoning the non-payment of the proper legal fees and in
allowing the same to become a lien on the monetary or property judgment
that may be rendered in favor of respondents. There is merit in petitioner's
assertion. The third paragraph of Section 16, Rule 141 of the Rules of Court
states that:
The legal fees shall be a lien on the monetary or property judgment in favor
of the pauper-litigant.
Respondents cannot invoke the above provision in their favor because it
specifically applies to pauper-litigants. Nowhere in the records does it
appear that respondents are litigating as paupers, and as such are
exempted from the payment of court fees. 18
The rule applicable to the case at bar is Section 5(a) of Rule 141 of the Rules
of Court, which defines the two kinds of claims as: (1) those which are
immediately ascertainable; and (2) those which cannot be immediately
ascertained as to the exact amount. This second class of claims, where the
exact amount still has to be finally determined be the courts based on
evidence presented, falls squarely under the third paragraph of said
Section 5(a), which provides:
In case the value of the property or estate or the sum claimed is less or more
in accordance with the appraisal of the court, the difference of fee shall
be refunded or paid as the case may be. (Italics ours)
In Pilipinas Shell Petroleum Corporation v. Court of Appeals, 19 this Court
pronounced that the above-quoted provision "clearly contemplates an
initial payment of the filing fees corresponding to the estimated amount of
the claim subject to adjustment as to what later may be proved." 20
Moreover, we reiterated therein the principle that the payment of filing fees
cannot be made contingent or dependent on the result of the case. Thus,
an initial payment of the docket fees based on an estimated amount must
be paid simultaneous with the filing of the complaint. Otherwise, the court
would stand to lose the filing fees should the judgment later turn out to be
adverse to any claim of the respondent heirs.
The matter of payment of docket fees is not a mere triviality. These fees are
necessary to defray court expenses in the handling of cases. Consequently,
in order to avoid tremendous losses to the judiciary, and to the government
as well, the payment of docket fees cannot be made dependent on the
outcome of the case, except when the claimant is a pauper-litigant.
Applied to the instant case, respondents have a specific claim 1/3 of the
value of all the partnership assets but they did not allege a specific
amount. They did, however, estimate the partnership's total assets to be
worth Thirty Million Pesos (P30,000,000.00), in a letter 21 addressed to
petitioner. Respondents cannot now say that they are unable to make an
estimate, for the said letter and the admissions therein form part of the
records of this case. They cannot avoid paying the initial docket fees by
conveniently omitting the said amount in their amended complaint. This
estimate can be made the basis for the initial docket fees that respondents
should pay. Even if it were later established that the amount proved was
less or more than the amount alleged or estimated, Rule 141, Section 5(a)
of the Rules of Court specifically provides that the court may refund the
excess or exact additional fees should the initial payment be insufficient. It
is clear that it is only the difference between the amount finally awarded
and the fees paid upon filing of this complaint that is subject to adjustment
and which may be subjected to a lien.
In the oft-quoted case of Sun Insurance Office, Ltd. v. Hon. Maximiano
Asuncion, 22 this Court held that when the specific claim "has been left for
the determination by the court, the additional filing fee therefor shall
constitute a lien on the judgment and it shall be the responsibility of the
Clerk of Court or his duly authorized deputy to enforce said lien and assess
and collect the additional fee." Clearly, the rules and jurisprudence
contemplate the initial payment of filing and docket fees based on the
estimated claims of the plaintiff, and it is only when there is a deficiency
that a lien may be constituted on the judgment award until such additional
fee is collected.
Based on the foregoing, the trial court erred in not dismissing the complaint
outright despite their failure to pay the proper docket fees. Nevertheless, as
in other procedural rules, it may be liberally construed in certain cases if
only to secure a just and speedy disposition of an action. While the rule is
that the payment of the docket fee in the proper amount should be
adhered to, there are certain exceptions which must be strictly construed.
23
In recent rulings, this Court has relaxed the strict adherence to the
Manchester doctrine, allowing the plaintiff to pay the proper docket fees
within a reasonable time before the expiration of the applicable
prescriptive or reglementary period. 24
In the recent case of National Steel Corp. v. Court of Appeals, 25 this Court
held that:
The court acquires jurisdiction over the action if the filing of the initiatory
pleading is accompanied by the payment of the requisite fees, or, if the
fees are not paid at the time of the filing of the pleading, as of the time of
full payment of the fees within such reasonable time as the court may grant,
unless, of course, prescription has set in the meantime.
It does not follow, however, that the trial court should have dismissed the
complaint for failure of private respondent to pay the correct amount of
docket fees. Although the payment of the proper docket fees is a
62
jurisdictional requirement, the trial court may allow the plaintiff in an action
to pay the same within a reasonable time before the expiration of the
applicable prescriptive or reglementary period. If the plaintiff fails to comply
within this requirement, the defendant should timely raise the issue of
jurisdiction or else he would be considered in estoppel. In the latter case,
the balance between the appropriate docket fees and the amount
actually paid by the plaintiff will be considered a lien or any award he may
obtain in his favor. (Italics ours)
Accordingly, the trial court in the case at bar should determine the proper
docket fee based on the estimated amount that respondents seek to
collect from petitioner, and direct them to pay the same within a
reasonable time, provided the applicable prescriptive or reglementary
period has not yet expired. Failure to comply therewith, and upon motion
by petitioner, the immediate dismissal of the complaint shall issue on
jurisdictional grounds.
On the matter of improper venue, we find no error on the part of the trial
court and the Court of Appeals in holding that the case below is a personal
action which, under the Rules, may be commenced and tried where the
defendant resides or may be found, or where the plaintiffs reside, at the
election of the latter. 26
Petitioner, however, insists that venue was improperly laid since the action
is a real action involving a parcel of land that is located outside the
territorial jurisdiction of the court a quo. This contention is not well-taken. The
records indubitably show that respondents are asking that the assets of the
partnership be accounted for, sold and distributed according to the
agreement of the partners. The fact that two of the assets of the partnership
are parcels of land does not materially change the nature of the action. It
is an action in personam because it is an action against a person, namely,
petitioner, on the basis of his personal liability. It is not an action in rem where
the action is against the thing itself instead of against the person. 27
Furthermore, there is no showing that the parcels of land involved in this
case are being disputed. In fact, it is only incidental that part of the assets
of the partnership under liquidation happen to be parcels of land.
The time-tested case of Claridades v. Mercader, et al., 28 settled this issue
thus:
The fact that plaintiff prays for the sale of the assets of the partnership,
including the fishpond in question, did not change the nature or character
of the action, such sale being merely a necessary incident of the liquidation
of the partnership, which should precede and/or is part of its process of
dissolution.
The action filed by respondents not only seeks redress against petitioner. It
also seeks the enforcement of, and petitioner's compliance with, the
contract that the partners executed to formalize the partnership's
dissolution, as well as to implement the liquidation and partition of the
partnership's assets. Clearly, it is a personal action that, in effect, claims a
debt from petitioner and seeks the performance of a personal duty on his
part. 29 In fine, respondents' complaint seeking the liquidation and partition
of the assets of the partnership with damages is a personal action which
may be filed in the proper court where any of the parties reside. 30 Besides,
venue has nothing to do with jurisdiction for venue touches more upon the
substance or merits of the case. 31 As it is, venue in this case was properly
laid and the trial court correctly ruled so.
On the third issue, petitioner asserts that the surviving spouse of Vicente
Tabanao has no legal capacity to sue since she was never appointed as
administratrix or executrix of his estate. Petitioner's objection in this regard is
misplaced. The surviving spouse does not need to be appointed as
executrix or administratrix of the estate before she can file the action. She
and her children are complainants in their own right as successors of
Vicente Tabanao. From the very moment of Vicente Tabanao's death, his
rights insofar as the partnership was concerned were transmitted to his heirs,
for rights to the succession are transmitted from the moment of death of the
decedent. 32
Whatever claims and rights Vicente Tabanao had against the partnership
and petitioner were transmitted to respondents by operation of law, more
particularly by succession, which is a mode of acquisition by virtue of which
the property, rights and obligations to the extent of the value of the
inheritance of a person are transmitted. 33 Moreover, respondents became
owners of their respective hereditary shares from the moment Vicente
Tabanao died. 34
A prior settlement of the estate, or even the appointment of Salvacion
Tabanao as executrix or administratrix, is not necessary for any of the heirs
to acquire legal capacity to sue. As successors who stepped into the shoes
of their decedent upon his death, they can commence any action
originally pertaining to the decedent. 35 From the moment of his death, his
rights as a partner and to demand fulfillment of petitioner's obligations as
outlined in their dissolution agreement were transmitted to respondents.
They, therefore, had the capacity to sue and seek the court's intervention
to compel petitioner to fulfill his obligations.
Finally, petitioner contends that the trial court should have dismissed the
complaint on the ground of prescription, arguing that respondents' action
prescribed four (4) years after it accrued in 1986. The trial court and the
Court of Appeals gave scant consideration to petitioner's hollow
arguments, and rightly so.
The three (3) final stages of a partnership are: (1) dissolution; (2) winding-up;
and (3) termination. 36 The partnership, although dissolved, continues to
exist and its legal personality is retained, at which time it completes the
winding up of its affairs, including the partitioning and distribution of the net
partnership assets to the partners. 37 For as long as the partnership exists,
any of the partners may demand an accounting of the partnership's
business. Prescription of the said right starts to run only upon the dissolution
of the partnership when the final accounting is done. 38
Contrary to petitioner's protestations that respondents' right to inquire into
the business affairs of the partnership accrued in 1986, prescribing four (4)
years thereafter, prescription had not even begun to run in the absence of
a final accounting. Article 1842 of the Civil Code provides:
The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners
or the person or partnership continuing the business, at the date of
dissolution, in the absence of any agreement to the contrary.
Applied in relation to Articles 1807 and 1809, which also deal with the duty
to account, the above-cited provision states that the right to demand an
accounting accrues at the date of dissolution in the absence of any
agreement to the contrary. When a final accounting is made, it is only then
that prescription begins to run. In the case at bar, no final accounting has
been made, and that is precisely what respondents are seeking in their
action before the trial court, since petitioner has failed or refused to render
an accounting of the partnership's business and assets. Hence, the said
action is not barred by prescription.
In fine, the trial court neither erred nor abused its discretion when it denied
petitioner's motions to dismiss. Likewise, the Court of Appeals did not
commit reversible error in upholding the trial court's orders. Precious time
has been lost just to settle this preliminary issue, with petitioner resurrecting
the very same arguments from the trial court all the way up to the Supreme
Court. The litigation of the merits and substantial issues of this controversy is
now long overdue and must proceed without further delay. HAaECD
WHEREFORE, in view of all the foregoing, the instant petition is DENIED for
lack of merit, and the case is REMANDED to the Regional Trial Court of Cadiz
City, Branch 60, which is ORDERED to determine the proper docket fee
based on the estimated amount that plaintiffs therein seek to collect, and
direct said plaintiffs to pay the same within a reasonable time, provided the
applicable prescriptive or reglementary period has not yet expired.
Thereafter, the trial court is ORDERED to conduct the appropriate
proceedings in Civil Case No. 416-C.
Costs against petitioner.
SO ORDERED.
63
Article 1815
[G.R. No. 19892. September 6, 1923.]
TECK SEING & CO., LTD., petitioner-appellee. SANTIAGO JO CHUNG CANG
ET AL., partners, vs. PACIFIC COMMERCIAL COMPANY ET AL., creditors-
appellants.
MALCOLM, J p:
Following the presentation of an application to be adjudged an insolvent
by the "Sociedad Mercantile, Teck Seing & Co., Ltd.," the creditor, the
Pacific Commercial Company, Pinol & Company, Riu Hermanos, and W. H.
Anderson & Company, filed a motion in which the Court was prayed to
enter an order: "(A) Declaring the individual partners as described in
paragraph 5 parties to this proceeding; (B) to require each of said partners
to file an inventory of his property in the manner required by section 51 of
Act No. 1956; and (C) that each of said partners be adjudicated insolvent
debtors in this proceeding." The trial judge first granted the motion, but,
subsequently, on opposition being renewed, denied it. it is from this last
order that an appeal was taken in accordance with section 82 of the
Insolvency Law.
There has been laid before us for consideration and decision a question of
some importance and of some intricacy. The issue in the case relates to a
determination of the nature of the mercantile establishment which
operated under the name into, and analyze, the document constituting
Teck Seing & Co., Ltd. It reads:
"ESCRITURA DE SOCIEDAD MERCANTILE LIMITADA
"Sepan todos por la presente:
"Que nosotros, Santiago Jo Chung Cang, mayor de edad, comerciante,
vecino y residente del municipio de Tabogon, Provincia de Cebu, Islas
Filipinas, Go Tayco, mayor de edad, comerciante, vecino y residente del
municipio de Cebu, Provincia de Cebu, Islas Filipinas, Yap Gueco, mayor
de edad, comerciante, vecino y residente del municipio y Provincia de
Cebu, Islas Filipinas, Lim Yogsing, mayor de edad, comerciante, vecino y
residente del municipio de Cebu, Provincia de Cebu, Islas Filipinas, y Jo
Ybec, mayor de edad, comerciante, vecino y residente del municipio de
Jagna, Provincia de Bohol, Islas Filipinas, hacemos constar por la presente,
que constituimos y formamos una sociedad Mercantile limitada, bajo la
leyes vigentes en las Islas Filipinas, y para ser registrada de acuerdo con los
reglamentos vigentes del Codigo de Comercio en Filipinas.
"Que la razon social se denominara "Teck Seing & Co., Ltd," y tendra su
domicilio principal en la Calle Magallanes No. 94, de la Ciudad de Cebu,
Provincia de Cebu, Islas Filipinas.
"Que el capital socia sera de treinta mil pesos (P30,000) moneda legal de
las Islas Filipinas, dividido en cinco acciones de a P6,000 como sigue:
Santiago Jo Chung Cang P6,000.00
Go TAYCO 6,000.00
Yap Guenco 6,000.00
Jo Ybec 6,000.00
Lim Yogsing 6,000.00
Total 30,000.00
"Que la duracion de la sociedad sera la de seis anos a contar de la fecha
de esta escritura, pudiendo prorrogarse este tiempo a discrecion unanime
de todos los accionistas.
"El objeto de la sociedad sera la compra y venta de mercaderias en
general.
"El administrator o administradores de la sociedad podran, previa
conformidad de los accionistas, establecer cuantas sucursales o
establecimietos considere necesarios para facilitar sus negocious y el
mayor desarrollo del comercio a que se dedica la sociedadm verificando
todas las operaciones que crean convenientes para el fomento de su
capital.
"Las ganacias perdiad que resultaren durante cada ano comercial, se
distribuiran proporcionalmente entre los accionistas, de acuerdo con el
capital apotado por cada uno de los mismos.
"Las ganancias que resultaren en cads ano comercial, si resultaren algunas
ganancias, no podran ser retiradas por los accionistas hasta dentro del
termino de tres anos a contar de la fecha del primer balance anual de
negocio, quendando por tanto estas ganancias en reserva, para ampliar
el capital aportado por los accionistas y ampliar portanto la esfera de
accion emprendida por la misma sociedad. Al pasar o expirar el termino
de tres anos, cada accionista podra retirar o depositar en poder de la
sociedad, las ganancias que le debieran corresponder durante dicho
termino de tres anos.
"Que los accionistas no podran extraer ni disponer en ningun tiempo
cualesquirea cantidad o cantidades de la sociedad, que haya sido
aportadoo por los mismo, para atender sus gastos particulares ni aun
pagando redito alguno sobre la cantidad que intenten disponer o extraer
de dicha sociedad.
"El accionista Sr. Lim Yogsing tendra a su cargo, en union del Sr. Vicente
Jocson Jo, la administracion de la Compania, quienes podran usar
indisstintamente la firma social, quedando por consiquiente authorizados
ambos para hacer en nombre de ella toda clase de operaciones,
negocios y especulaciones mercantiles, practicando judicial y
extrajudicialmente cuantos actos se requieran para el bien de la sociedad,
nombrar procuradores o abogados para reclamaciones y cobro de
creditors y proponer ante los tribunales las demandas, convenios,
transacciones y excepciones procedentes. En caso de ausencia,
enfermedad o cualquier otro impedimento del accionista administrador Sr.
Lim Yogsing, este podra conferir poder general o especial al accionista que
crea conveniente para que en union del administrador auxiliar Sr. Vicente
Jocson Jo, pudieran ambos administrar convenientemente los negocious
de la sociedad. Que los administradores podran tener los empleados
necesarios para el mejor manejo de los negocios de la sociedad, y fijaran
los sueldos que debieran percibir dichos empleados por servicios rendidos
a la sociedad.
"Que ambos administradores podran disponer de mil doscientos pesos
(1,200) moneda filipina, anualmente, para sus gastos particulares, siendo
dicha cantidad de P1,200 la que corresponde a cada uno de dichos
administradores, como emolumentos o salarios que se les asigna a cada
uno, por sus trabajos en la administracioon de la sociedad. Entendiendose,
que, los accionistas podran disponer cada fin de ano la gratificacion que
se concedera a cada administrador, si los negocios del ano fueran
boyantes y justifiquen la concesion de una grtificacion especial, aparte del
salario aqui dispuesto y especificado.
"Que pasado el termino de seis aos, y es de la conveniencia de los
accionistas la continuacion del negocio de esta sociedad, dicho termino
sera prorrogado por igual numero de anos, sin necesidad del otorgamiento
de ulteriores escrituras, quedando la presente en vigor hasta el termino
dispuesto por todos los accionistas.
"Que las diferencias que pudieran suscitarse entre los accionistas, bien sea
por razon de lo estipulado en esta escritura, ya por actos en el curso y
direccion de los negocios en ella comprendidos, se procurara arreglar
entre los mis-mos amistosa y extrajudicialmente, y si no se consiguiere un
arreglo de este modo, dichos accionistas nombraran un arbitro, cuya
resolucion estan todos obligados y por la presente se comprometen y se
obligan a acatarla en todas sus partes, renunciando ulteriores recursos.
"En cuyos terminos dejamos formalizada esta escritura de sociedad
Mercantile limitada, y prometemos cumplirla fiel y estrictamente segun los
pactos que hemos establecido.
"En testimonio de todo lo cual, firmamos en la Ciudad de Cebu, Provincia
de Cebu, Islas Filipinas, hoy 31 de octubre de mil novecientos diez y nueve.
(Fdos.)"LIM YOGSING
"JO YBEC POR HO SENG SIAN
"SANTIAGO JO CHUNG CANG
"GO TAYCO
"YAP GUECO
Firmed en presencia de:
(Fdos.)"ATALINO LEYSON
"JULIO DIAZ
"ESTADOS UNIDOS DE AMERICA
"ISLA FILIPINAS
"PROVINCIA DE CEBU
"En el Municipio de Cebu, de la Provincia antes mencionada, I. F.., hoy 31
de octubre de 1919, A. D., ante mi, Notario Publico que subscribe,
comparecieron personalmente Santiago Jo Ching Cang, go Tayco, Yapp
Guenco, Lim Yogsing y Ybec, representado este ultimo por Ho Seng Sian,
segun authorizacion hecha en telegrama de fecha 27 de septiembre de
1919 que se me ha presentado en este mismo acto, de quienes doy fe de
que les conozco por ser las mismas personas que otorgaron el preinserto
documento, ratificando ante mi su contenido y manifestando ser el mismo
un acto de su libre y voluntario otorgamiento. El Sr. Santiago Jo Chung me
exhibio su cedula personal expedida en Cebu, Cebu, I. F. el dia 19 de
septiembre de 1919 bajo el No. H77742, Go Tayco tambien me exhibio la
suya expedida en Cebu, Cebu, I. F., el dia 9 de octubre de 1919 bajo el No.
G2042490, Yap Guenco tambien me exhibio la suya expedida en Cebu,
Cebu, I. F. el dia 20 de enero de 1919 bajo el No. F1452296, Lim Yogsing
tambien me exhibio la suya expedia en Cebu, Cebu, I. F., el dia 26 de
febrero de 1919 bajo el No. F1455662, y Ho Seng Sian representante de Jo
Ybec, me exhibo su cedula personal expedida en Cebu, Cebu, I. F. el dia
64
4 de febrero expedida en Cebu, Cebu, I. F. el dia 4 de febrero de 1919 bajo
el No. F1453733.
"Ante mi,
(Fdo.)"F.V. ARIAS
"Notario publico
"Hasta el 1. o de enero de 1920
"Asiento No. 157
Pagina No. 95 de mi
Registro Notarial
Serie 1919
Libro 2. o.
"Presentado a las diez y cuarentay tres minutos de la manana de hoy,
segun el asiento No. 125, pagina 9 del Tomo 1. o del Libro Diario. Cebu, 11
de febrero de 1920.
(Fdo)"QUIRICO ABETO
"Registrador Mercantile Ex-officio
[SELLO]
"Inscrito el documento que precede al folio 84 hoja No. 188, inscripcion 1.
a del Tomo 3. o del Libro Registro de Sociedades Mercantiles. Cebu, 11 de
febrero de 1920. Honorarios treinta pesos con cincuenta centavos. Art.197,
Ley No. 2711, Codigo Administrativo.
(Fdo)"QUIRICO ABETO
"Registrador Mercantile Ex-Officio"
[SELLO]
Proceeding by process of elimination, it is self-evident that Teck Seing & Co.,
Ltd., is not a corporation. Neither is it contended by any one that Teck Seing
& Co., Ltd., is the accidental partnership denominated cuenta en
participacion (joint account association).
Counsel for the petitioner and appellee described his client in one place in
his opposition to the motion of the creditors, as "una verdadera sociedad
anonima" (a true sociedad anonima). The provisions of the Code of
Commerce relating to sociedades anonimas were, however, repealed by
section 191 of the Corporation Law (Act No. 1459), with the exceptions that
sociedades anomimas lawfully organized at the time of the passage of the
Corporation Law were recognized, which is not our case.
The document providing for the partnership contract purported to form
"una sociedad mercantile limitada," and counsel of the petitioner's first
contention was that Teck SEing & Co., Ltd. was not "sociedad regular
colectiva, ni siquiera comanditaria, sino una sociedad mercantile limitada."
Let us see if the partnership contract created a "sociedad en comandita,"
or, as it known in English, and will hereafter be spoken of, "a limited
partnership."
To establish a limited partnership there must be, at least one general partner
and the name of at least one of the general partners must appear in the
firm name. (Code of Commerce, Arts. 122 [2], 146, 148.) But neither of these
requirements have been fulfilled. The general rule is, that those who seek to
avail themselves of the protection of laws permitting the creation of limited
partnerships must show a substantially full compliance with such laws. A
limited partnership that has not complied with the law of its creation is not
considered a limited partnership at all, but a general partnership in which
all the members are liable. (Mechem, Elements of Partnership, p. 412;
Gilmore, Partnership, pp. 499,595; 20 R. C. L., 1064.)
The contention of the creditors and appellants is that the partnership
contract established a general partnership.
Article 125 of the Code of Commerce provides that the articles of general
copartnership must state the names, surnames, and domiciles of the
partners; the firm name; the names, and surnames of the partners to whom
the management of the firm and the use of its signature is intrusted; the
capital which each partner contributes in cash, credits, or the basis on
which their appraisement is to be made; the duration of the copartnership;
and the amounts which, in a proper case, are to be given to each
managing partner annually for his private expenses, while the succeeding
article of the Code provides that the general copartnership must transact
business under the name of all its members, of several of them, or of done
only. Turning to the document before us, it will be noted that all of the
requirements of the Code have been met, with the sole exception of the
relating to the sole exception of that relating to the composition of the firm
name. We leave consideration of this phase of the case for later discussion.
The remaining possibility is the revised contention of counsel for the
petitioners to the effect that Teck Seing & Co., Ltd. is "una sociedad
mercantile 'de facto' solamante" (only a de facto commercial association),
and that the decision of the Supreme Court in the case of Hung-Man-Yoc
vs. Kieng-Chiong-Seng [1906], is controlling. It was this argument which
convinced the trial judge, who gave effect to his understanding of the case
last cited and which here must be given serious attention.
The decision in Hung-Man-Yoc vs. Kieng-Chiong-Seng, supra, discloses that
the firm Kieng-Chiong-Seng was not organized by means of any public
document; that the partnership had not recorded in the mercantile registry;
and that Kieng-Chiong-Seng was not proven to be the firm name, but
rather the designation of the partnership. The conclusion then was, that the
partnership in question was merely de facto and that, therefore, giving
effect to the provisions of article 120 of the Code of Commerce, the right
of action was against the persons in charge of the management of the
association.
Laying the facts of the case of Hung-Man-Yoc vs. Kieng-Chiong-Seng,
supra, side by side with the facts before us, a marked difference is at once
disclosed. In the cited case, the organization of the partnership was not
evidenced by any public document; here, it is by a public document. In
the cited case, the partnership naturally could not present a public
instrument for record in the mercantile registry; here, the contract of
partnership has been duly registered. But the two cases are similar in that
the firm name failed to include the name of any of the partners.
We come then to the ultimate question, which is, whether we should follow
the decision in Hung-man-Yoc vs. Kieng-Chiong-Seng, supra, or whether we
should differentiate the two cases, holding Teck Seing & Co., Ltd., a general
copartnership, notwithstanding the failure of the firm name to include the
name of one of the partners. Let us now notice this decisive point this
decisive point in the case.
Article 119 of the Code of Commerce requires every commercial
association before beginning its business to state its articles, agreements,
and conditions in a public instrument, which shall be presented for record
in the mercantile registry. Article 120, next following, provides that the
persons in charge of the management of the association who violate the
provisions of the foregoing article shall be responsible in solidum to the
persons not members of the association with whom they may have
transacted business in the name of the association. Applied to the facts
before us, it would seem that Teck Seing & Co., Ltd. has fulfilled the
provisions of article 119. Moreover, to permit the creditors only to look to the
person in charge of the management of the association, the partner Lim
Yogsing, would not prove very helpful to them.
What is said in article 126 of the Code of Commerce relating to the general
copartnership transacting business under the name of all its members or of
several of them or of one only, is wisely included in our commercial law. It
would appear, however, that this provision was inserted more for the
protection of the creditors than of the partners themselves. A distinction
could well be drawn between the right of the alleged partnership to
institute action when failing to live up to the provisions of the law, or even
the rights of the partners as among themselves, and the right of a third
person to hold responsible a general copartnership which merely lacks a
legal firm in order to make it a partnership de jure.
The civil law and the common law alike seem to point to a difference
between the rights of the partners who have failed to comply with the law
and the rights of third persons who have dealt with the partnership.
The supreme court of Spain has repeatedly held that notwithstanding the
obligation of the members to register the articles of association in the
commercial registry, agreements containing all the essential requisites are
valid as between the contracting parties, whatever the form adopted, and
that, while the failure to register in the commercial registry necessarily
precludes the members from enforcing rights acquired by them against
third persons, such failure cannot prejudice the rights of third person. (See
decisions of December 6, 1887, January 25, 1888, November 10, 1890, and
January 26, 1900.) The same reasoning would be applicable to the formal
requisite pertaining to the firm name.
The common law is to the same effect. The State of Michian had a statute
prohibiting the transaction of business under an assumed name or any
other than the real name of the individual conducting the same, unless
such person shall file with the county clerk a certificate setting forth the
name under which the business is to be conducted and the real name of
each of the partners, with their residences and post-office addresses, and
making a violation thereof a misdemeanor. The Supreme Court of Michigan
said:
"The one object of the act is manifestly to protect the public against
imposition and fraud, prohibiting persons from concealing their identity by
doing business under an assumed name, making it unlawful to use that their
real names in transacting business without a public record of who they are,
available for use in courts, and to punish those who violate the prohibition.
the object of this act is not limited to facilitating the collection of debts, or
the protection of those giving credit to person doing business under an
65
assumed name. It is not unilateral in its application. It applies to debtor and
creditor, contractor and contractee, alike. Parties doing business with those
acting under an assumed name, Whether they buy or sell, have a right,
under the law, to know who they are, and who to hold responsible, in case
the question of damages for failure to perform or breach of warranty should
arise.
"The general rule is well settled that, where statutes enacted to protect the
public against fraud or imposition, or to safeguard the public health or
morals, contain a prohibition and impose a penalty, all contract in violation
thereof are void. . . .
"As this act involves purely business transactions, and affects only money
interests, we think it should be construed as rendering contracts made in
violation of it unlawful and unenforceable at the instance of the offending
party only, but not as designed to take away the right of innocent parties
who may have dealt with the offenders in ignorance of their having
violated the statute." (Cashin vs. Pilter [1912], 168 Mich., 386; Ann. Cas.
[1913-C], 697.)
The early decision of our Supreme Court in the case of Prautch, Scholes &
Co. vs. Hernandez ([1903], 1 Phil., 705), contains the following pertinent
observations:
"Another case may be supposed. A partnership is organized for commercial
purposes. It fails to comply with the requirement of article 119, A creditor
sues the partnership for a debt contracted by it, claiming to hold the
partners severally. They answer that their failure to comply with the Code of
Commerce makes them a civil partnership and that they are in
accordance with article 1698 of the Civil Code only liable jointly. to allow
such liberty of action would be to permit the parties by a violation of the
code to escape a liability which the law has seen fit to impose upon persons
who organized commercial partnership; 'Because it would be contrary to
all legal principles that the nonperformance of a duty should redound to
the benefit of the person in default either intentional or unintentional.'
(Mercantile Law, Eixala, fourth ed., p. 145.)" (See also Lichauco vs. Lichauco
[1916], 33 Phil., 350, 360.)
Dr. Jose de Echavarri y Vivanco, in his Codigo de Comercio, includes the
following comment after articles 121 and 126 of the Code:
"From the decision cited in this and in the previous comments, the following
is deduced : 1st Defects in the organization cannot affect relations with
third persons. 2d. Member who contract with other persons before the
association is lawfully organized are liable to these persons. 3d. The intention
to form an association is necessary, so that if the intention of mutual
participation in the profits and losses in a particular business is proved, and
there are no articles of association, there is no association. 4th. An
association, the article of which have not been registered, is valid in favor
of third persons. 5th. The private pact or agreement to form a commercial
association is governed not by the commercial law but by the civil law. 6th.
Secret stipulations expressed in a public instrument, but not inserted in the
articles of association, do not affect third person, but are binding on the
parties themselves. 7th. An agreement made in a public instrument, other
than the articles of association, by means of which one of the partners
guarantees to another certain profits or secures him from losses, is valid
between them, without affecting the association. 8th. Contracts entered
into by commercial associations defectively organized are valid when they
are voluntarily executed by the parties, if the only controversy relates to
whether or not they complied with the agreement.
xxx xxx xxx
"The name of the collective merchant is called firm name. By this name, the
new being is distinguished from others, its sphere of action fixed, and the
juridical personality better determined, without constituting an exclusive
character of the general partnership to such an extent as to serve the
purpose of giving a definition of said kind of a mercantile partnership, as is
the case in our Code.
"Having in mind that these partnership are prevailingly of a personal
character, article 126 says that they must transact business under the name
of all its members, of some of them or of one only, the words 'and company'
to be added in the latter two cases.
"It is rendered impossible for the general partnership to adopt a firm name
appropriate to its commercial object; the law wants to link, and does link,
the solidary and unlimited responsibility of the member of this partnership
with the formation of its name, and imposes a limitation upon personal
liberty in its selection, not only by prescribing the requisites, but also by
prohibiting persons not members of the company from including their
names in its firm name under penalty of civil solidary responsibility.
"Of course, the form required by the Code for the adoption of the firm name
does not prevent the addition thereto of any other title connected with the
commercial purpose of the association. The reader may see our
commentaries on the mercantile registry about the business names and firm
names of associations, but it is proper to establish here that, while the
business name may be alienated by any of the means admitted by the law,
it seems impossible to separate the firm names of general partnerships from
the juridical entity for the creation of which it was formed." (Vol. 2, pp. 197,
213.)
On the question of whether the fact that the dirm name "Teck Seing & Co.,
Ltd." does not contain the name of all or any of the partners as prescribed
by the Code of Commerce prevents the creation of a general partnership,
Professor Jose A. Espiritu, as amicus curiae, states:
"My opinion is that such a fact alone cannot and will not be a sufficient
cause of preventing the information of a general partnership, especially if
the other requisites are present and the requisites regarding registration of
the articles of association in the Commercial Registry has been complied
with, as in present case. I do not believe that the adoption of a wrong name
is a material fact to be taken into consideration in this case; first, because
the mere fact that a person uses a name not his own does not prevent him
being bound in a contract or an obligation he voluntarily entered into;
second, because such a requirement of the law is merely a formal and not
necessarily an essential one to the existence of the partnership, and as long
as the name to use it, the acts and contracts done and entered into under
such a name bind the firm to third persons; and third, because the failure
of the partners herein to adopt the correct name prescribed by law cannot
shield them from their personal liabilities, as neither law nor equity will permit
them to utilize their own mistake in order to put the blame on third persons,
and much less, on the firm creditors in order to avoid their personal
responsibility."
The legal intention deducible from the acts of the parties controls in
determining the existence of a partnership. If they intend to do a thing
which in law constitute a partnership, they are partners, although their
purpose was to avoid the creation of such relation. Here, the intention of
the persons making up Teck Seing & Co., Ltd. was to establish a partnership
which they erroneously denominated a limited partnership. If this was their
purpose, all subterfuges resorted to in order to evade liability for possible
losses, while assuming their enjoyment of the advantages to be derived
from the relation must be disregarded. The partners who have their identity
under a designation distinct from that of any of the members of the firm
should be penalized, and not the creditors who presumably have dealt with
the partnership in good faith.
Article 127 and 237 of the Code of Commerce make all the member of the
general copartnership liable personally and in solidum with all their property
for the results of the transaction made in the name and for the account of
the partnership. Section 51 of the Insolvency Law, likewise, makes all the
property of the partnership and also all the separate property of each of
the partners liable. In other words, if a firm be insolvent, but one or more
partners thereof are solvent, the creditors may proceed both against the
firm and against the solvent partner or partners, first exhausting the assets
of the firm before seizing the property of the partners. (Brandenburg on
Bankruptcy, sec. 108; De los Reyes vs. Lukban and Borja [1916], 35 Phil., 757;
Involuntary Insolvency of Campos Rueda & Co. vs. Pacific Commercial Co.
[1922], 44 Phil., 916)
We reach the conclusion that the contract of partnership in the document
hereinbefore quoted established a general partnership or, to be more
exact, a partnership as this word is used in the Insolvency Law.
Wherefore, the order appealed from is reversed, and the record shall be
returned to the court of origin for further proceedings pursuant to the
motion presented by the creditors, in conformity with the provision of the
Insolvency Law. Without special finding as to the costs in this instance, it is
so ordered.
66
Article 1816
[G.R. No. L-3704. December 12, 1907.]
LA COMPAIA MARITIMA, plaintiff-appellant, vs. FRANCISCO MUOZ, ET AL.,
defendants-appellees.
WILLARD, J p:
The plaintiff brought this action in the Court of First Instance of Manila
against the partnership of Francisco Muoz & Sons, and against Francisco
Muoz de Bustillo, Emilio Muoz de Bustillo, and Rafael Naval to recover the
sum of P26,828.30, with interest and costs. Judgment was rendered in the
court below acquitting Emilio Muoz de Bustillo and Rafael Naval of the
complaint, and in favor of the plaintiff and against the defendant
partnership, Francisco Muoz & Sons, and Francisco Muoz de Bustillo form
the sum of P26,828.30 with interest at the rate of 8 per cent per annum from
the 31st day of March, 1905, and costs. From this judgment the plaintiff
appealed.
On the 31st day of March, 1905, the defendants Francisco Muoz, Emilio
Muoz, and Rafael Naval formed on ordinary general mercantile
partnership under the name of Francisco Muoz & Sons for the purpose of
carrying on the mercantile business in the Province of Albay which had
formerly been carried on by Francisco Muoz. Francisco Muoz was a
capitalist partner and Emilio Muoz and Rafael Naval were industrial
partners.
It is said in the decision of the court below that in the articles of partnership
it was called an ordinary, general mercantile partnership, but that from the
article it does not appear to be such a partnership. In the brief of the
appellees it is also claimed that it is not an ordinary, general commercial
partnership. We see nothing in the case to support either the statement of
the court below in its decision or the claim of the appellees in their brief. In
the articles of partnership signed by the partners it is expressly stated that
they have agreed to form, and do form, an ordinary, general mercantile
partnership. The object of the partnership, as stated in the fourth paragraph
of the articles, is a purely mercantile one and all the requirements of the
Code of Commerce in reference to such partnership were complied with.
The articles of partnership were recorded in the mercantile registry in the
Province of Albay. If it should be held that the contract made in this case
did not create an ordinary, general mercantile partnership we do not see
how one could be created.
The claim of the appellees that Emilio Muoz contributed nothing to the
partnership, either in property, money, or industry, can not be sustained. He
contributed as much as did the other industrial partner, Rafael Naval, the
difference between the two being that Rafael Naval was entitled by the
articles of agreement to a fixed salary of P2,500 as long as he was in charge
of the branch office established at Ligao. If he had left that branch office
soon after the partnership was organized, he would have been in the same
condition then that Emilio Muoz was from the beginning. Such a change
would have deprived him of the salary P2,500, but would not have affected
in any way the partnership nor have produced the effect of relieving him
from liability as a partner. The argument of the appellees seems to be that,
because no yearly or monthly salary was assigned to Emilio Muoz, he
contributed nothing to the partnership and received nothing from it. By the
articles themselves he was to receive at the end of five years one-eighth of
the profits. It can not be said, therefore, that he received nothing from the
partnership. The fact that the receipt of this money was postponed for five
years is not important. If the contention of the appellees were sound, it
would result that, where the articles of partnership provided for a distribution
of profits at the end of each year, but did not assign any specific salary to
an industrial partner during that time, he would not be a member of the
partnership. Industrial partners, by signing the articles, agree to contribute
their work to the partnership and article 138 of the Code of Commerce
prohibits them from engaging in other work except by the express consent
of the partnership. With reference to civil partnerships, section 1683 of the
Civil Code relates to the same matter.
It is also said in the brief of the appellees that Emilio Muoz was entirely
excluded from the management of the business. It rather should be said
that he excluded himself from such management, for he signed the articles
of partnership by the terms of which the management was expressly
conferred by him and the others upon the persons therein named. That
partners in their articles can do this, admits of no doubt. Article 125 of the
Code of Commerce requires them to state the partners to whom the
management is intrusted. This right is recognized also in article 132. In the
case of Reyes vs. The Compania Maritima (3 Phil. Rep., 519) the articles of
association provided that the directors for the first eight years should be
certain persons named therein. This court not only held that such provision
was valid but also held that those directors could not be removed from
office during the eight years, even by a majority vote of all the stockholders
of the company.
Emilio Muoz was, therefore, a general partner, and the important question
in the case is whether, as such general partner, he is liable to third persons
for the obligations contracted by the partnership, or whether he relieved
from such liability, either because he is an industrial partner or because he
was so relieved by the express terms of the articles of partnership.
Paragraph 12 of the articles of partnership is as follows:
"Twelfth. All profits arising from mercantile transactions carried on, as well as
such as may be obtained from the sale of property and other assets which
constitute the corporate capital, shall be distributed, on completion of the
term of five years agreed to for the continuation of the partnership, in the
following manner: Three-fourths thereof for the capitalist partner Francisco
Muoz de Bustillo and one-eighth thereof for the industrial partner Emilio
Muoz de Bustillo y Carpiso, and the remaining one-eighth thereof for the
partner Rafael Naval y Garcia. If, in lieu of profits, losses should result in the
winding up of the partnership, the same shall be for the sole and exclusive
account of the capitalist partner Francisco Muoz de Bustillo, without either
of the two industrial partners participating in such losses."
Articles 140 and 141 of the Code of Commerce are as follows:
"ART. 140. Should there not have been stated in the articles of copartnership
the portion of the profits to be received by each partner, said profits shall
be divided pro rata, in accordance with the interest each one has on the
copartnership, partners who have not contributed any capital, but giving
their services, receiving in the distribution the same amount as the partner
who contributed the smallest capital."
"ART. 141. Losses shall be charged in the same proportion among the
partners who have contributed capital, without including those who have
not, unless by special agreement the latter have been constituted as
participants therein."
A comparison of these articles with the twelfth paragraph above quoted
will show that the latter is simply a statement of the rule laid down in the
former. The article do not, therefore, change the rights of the industrial
partners as they are declared by the code, and the question may be
reduced to the very simple one namely, Is an industrial partner in an
ordinary, general mercantile partnership liable to third persons for the debts
and obligations contracted by the partnership?
In limited partnership the Code of Commerce recognizes a difference
between general and special partners, but in a general partnership there is
no such distinction all the members are general partners. The fact that
some may be industrial and some capitalist partners does not make the
members of either of these classes alone such general partners. There is
nothing in the code which says that the industrial partners shall be the only
general partners, nor is there anything which says that the capitalist partners
shall be the only general partners.
Article 127 of the Code of Commerce is as follows:
"All the members of the general copartnership, be they or be they not
managing partners of the same, are liable personally and in solidum with all
their property for the results of the transactions made in the name and for
the account of the partnership, under the signature of the latter, and by a
person authorized to make use thereof."
Do the words "all the partners" found in this article include industrial
partners? The same expression is found in other articles of the code. In
article 129 it is said that, if the management of the partnership has not been
limited by special act to one of the partners, all shall have the right to
participate in the management. Does this mean that the capitalist partners
are the only ones who have that right, or does it include also industrial
partners? Article 132 provides that, when in the articles of partnership the
management has been intrusted to a particular person, he can not be
deprived of such management, but that in certain cases the remaining
partners may appoint a comanager. Does the phrase "remaining partners"
include industrial partners, or is it limited to capitalist partners, and do
industrial partners have no right to participate in the selection of the
comanager? Article 133 provides that all the partners shall have the right
to examine the books of the partnership. Under this article are the capitalist
partners the only ones who have such right? Article 135 provides that the
partners can not use the firm name in their private business. Does this
limitation apply only to capitalist partners or does it extend also to industrial
67
partners? Article 222 provides that a general partnership shall be dissolve
by the death of one of the general partners unless it is otherwise provided
in the articles. Would such a partnership continue if all the industrial partners
should die? Article 229 provides that upon a dissolution of a general
partnership it shall be liquidated by the former managers, but, if all the
partners do not agree to this, a general meeting shall be called, which shall
determine to whom the settlement of the affairs shall be intrusted. Does this
phrase "all the partners" include industrial partners, or are the capitalist
partners the only ones who have a voice in the selection of a manager
during a period of liquidation? Article 237 provides that the private property
of the general partners shall not be taken in payment of the obligations of
the partnership until its property has been exhausted. Does the phrase "the
general partners" include industrial partners?
In all of these articles the industrial partners must be included. It can not
have been intended that, in such a partnership as the one in question,
where there were two industrial and only one capitalist partner, the
industrial partners should have no voice in the management of the business
when the articles of partnership were silent on that subject; that when the
manager appointed mismanages the business the industrial partners should
have no right to appoint a comanager; that they should have no right to
examine the books; that they might use the firm name in their private
business; or that they have no voice in the liquidation of the business after
dissolution. To give a person who contributed no more than, say, P500, these
rights and to take them away from a person who contributed his services,
worth, perhaps, infinitely more than P500, would be discriminate unfairly
against industrial partners.
If the phrase "all the partners" as found in the articles other than article 127
includes industrial partners, then article 127 must include them and they are
liable by the terms thereof for the debts of the firm.
But it is said that article 141 expressly declares to the contrary. It is to be
noticed in the first place that this article does not say that they shall not be
liable for losses. Article 140 declares how the profits shall be divided among
the partners. This article simply declares how the losses shall be divided
among the partners. The use of the words se imputaran is significant. The
verb means abonar una partida a alguno en su cuenta o deducirla de su
debito. Article 141 says nothing about third persons and nothing about the
obligations of the partnership.
While in this section the word "losses" stand's alone, yet in other articles of
the code, where it is clearly intended to impose the liability to third persons,
it is not considered sufficient, but the word "obligations" is added. Thus
article 148, in speaking of the liability of limited partners, uses the phrase las
obligaciones y perdidas. There is the same use of the two same words in
article 153, relating to anonymous partnership. In article 237 the word
"obligations" is used and not the word "losses."
The claim of the appellees is that this article 141 fixes the liability of the
industrial partners to third persons for the obligations of the company. If it
does, then it also fixes the liability of the capitalist partners to the same
persons for the same obligations. If this article says that industrial partners
are not liable for the debts of the concern, it also says that the capitalist
partners shall be only liable for such debts in proportion to the amount of
the money which they have contributed to the partnership; that is to say,
that if there are only two capitalist partners, one of whom has contributed
two-thirds of the capital and the other one-third, the latter is liable to a
creditor of the company for only one-third of the debt and the former for
only two-thirds. It is apparent that, when given this construction, article 141
is directly in conflict with article 127. It is not disputed by the appellees that
by the terms of article 127 each one of the capitalist partners is liable for all
of the debts, regardless of the amount of his contribution, but the
construction which they put upon article 141 makes such capitalist partners
liable for only a proportionate part of the debts.
There is no injustice in imposing this liability upon the industrial partners. They
have a voice in the management of the business, if no manager has been
named in the articles; they share in the profits and as to third persons it is no
more than right that they should share in the obligations. It is admitted that
if in this case there had been a capitalist partner who had contributed only
P100 he would be liable for this entire debt of P26,000.
Our construction of the article is that it relates exclusively to the settlement
of the partnership affairs among the partners themselves and has nothing
to do with the liability of the partners to third persons; that each one of the
industrial partners is liable to third persons for the debts of the firm; that if he
has paid such debts out of his private property during the life of the
partnership, when its affairs are settled he is entitled to credit for the amount
so paid, and if it results that there is not enough property in the partnership
to pay him, then the capitalist partners must pay him. In this particular case
that view is strengthened by the provisions of article 12, above quoted.
There it is stated that if, when the affairs of the partnership are liquidated
that is, at the end of five years it turns out that there had been losses
instead of gains, then the capitalist partner, Francisco Muoz, shall pay such
losses that is, pay them to the industrial partners if they have been
compelled to disburse their own money in payment of the debts of the
partnership.
While this is a commercial partnership and must be governed therefore by
the rules of the Code of Commerce, yet an examination of the provisions
of the Civil Code in reference to partnerships may throw some light upon
the question here to be resolved. Articles 1689 and 1691 contain, in
substance, the provisions of articles 140 and 141 of the Code of Commerce.
It is to be noticed that these articles are found in section 1 of Chapter II [Title
VIII] of Book IV. That section treats of the obligations of the partners between
themselves. The liability of the partners as to third persons is treated in a
distinct section, namely, section 2, comprising articles from 1697 to 1699.
If industrial partners in commercial partnerships are not responsible to third
persons for the debts of the firm, then industrial partners in civil partnerships
are not. Waiving the question as to whether there can be a commercial
partnership composed entirely of industrial partners, it seems clear that
there can be such civil partnership, for article 1678 of the Civil Code
provides as follows:
"A particular partnership has for its object specified things only, their use of
profits, or a specified undertaking, or the exercise of a profession or art."
It might very easily happen, therefor, that a civil partnership could be
composed entirely of industrial partners. If it were, according to the claim
of the appellees, there would be no personal responsibility whatever for the
debts of the partnership. Creditors could rely only upon the property which
the partnership had, which in the case of a partnership organized for the
practice of any art or profession would be practically nothing. In the case
of Agustin vs. Inocencio, 1 just decided by this court, it was alleged in the
complaint, and admitted by the answer
"That is partnership has been formed without articles of association or
capital other than the personal work of each one of the partners, whose
profits are to be equally divided among themselves."
Article 1675 of the Civil Code is as follows:
"General partnership of profits include all that the partners may acquire by
their by their industry or work during the continuation of the partnership.
"Personal or real property which each of the partners may possess at the
time of the celebration of the agreement shall continue to be their private
property, the usufruct only passing to the partnership."
It might very well happen in partnership of this kind that no one of the
partners would have any private property and that if they did the usufruct
thereof would be inconsiderable.
Having in mind these different cases which may arise in the practice, that
construction of the law should be avoided which would enable two
persons, each with a large amount of private property, to form and carry
on a partnership and, upon the bankruptcy of the latter, to say to its
creditors that they contributed no capital to the company but only their
services, and that their private property is not, therefore, liable for its debts.
But little light is thrown upon this question by the authorities. No judgment of
the supreme court of Spain has been called to our attention, and we have
been able to find none which refers in any way to this question. There is,
therefore, no authority from the tribunal for saying that an industrial partner
is not liable to third persons for the debts of the partnership.
In a work published by Lorenzo Benito in 1889 (Lecciones de derecho
mercantil) it is said that industrial partners are not liable for debts. The
author, at page 127, divides general partnership into ordinary and irregular.
The irregular partnership are those which include one or more industrial
partners. It may be said in passing that his views can not apply to this case
because the articles of partnership directly state that it is an ordinary
partnership and do not state that it is an irregular one. But his view of the
law seems to be derived from something other than the Code of
Commerce now in force. He says:
". . . but it has not been very fortunate in sketching the characters of a
regular collective partnership (since it says nothing conclusive in reference
to the irregular partnership) . . ." (p. 127.)
And again:
"This article would not need to be commented upon were it not because
the writer entirely overlooked the fact that there might exist industrial
partners who did not contribute with capital in money, credits, or goods,
68
which partners generally participate in the profits but not in the losses, and
whose position must also be determined in the articles of copartnership." (p.
128.)
And again:
"The only defect that can be pointed out in this article is the fact that it has
been forgotten that in collective partnerships there are industrial partners
who, not being jointly liable for the obligations of the copartnership, should
not include their names in that of the firm." (p. 129.)
As a logical result of his theory he says that an industrial partner has no right
to participate in the administration of the partnership and that his name
can not appear in the firm name. In this last respect his view is opposed to
that of Manresa, who says (Commentaries on the Spanish Civil Code, vol.
11, p. 330):
"It only remains to us to state that a partner who contributes his industry to
the concern can also confer upon it the name or the corporate name
under which such industry should be carried on. In this case, so long as the
copartnership lasts, it can enjoy the credit, reputation, and name or
corporate name under which such industry is carried on; but upon
dissolution thereof the aforesaid name or corporate name pertains to the
partner who contributed the same, and he alone is entitled to use it,
because such a name or style is an accessory to the work of industrial
partner, and upon recovering his work or his industry he also recovers his
name or the style under which he exercised his activity. It has thus been
decided by the French court of cassation in a decision dated June 6, 1859."
In speaking of limited partnerships Benito says (p. 144) that here are found
two kinds of partners, one with unlimited responsibility and the other with
limited responsibility, but adopting his view as to industrial partners, it should
be said that there are three kinds of partners, one with unlimited
responsibility, another with limited responsibility, and the third, the industrial
partner, with no responsibility at all. In Estasen's recent publication on
mercantile partnerships (Tratado de las Sociedades Mercantiles) he quotes
from the work of Benito, but we do not understand that he commits himself
to the doctrines therein laid down. In fact, in his former treatise, Instituciones
de Derecho Mercantil (vol. 3, pp. 1-99), we find nothing which recognizes
the existence of these irregular general partnerships, or the exemption from
the liability to third persons of the industrial partners. He says in his latter work
(p. 186) that according to Dr. Benito the irregular general partner originated
from the desire of the partnership to associate with itself some old clerk or
employee as a reward for his services and the interest which he had shown
in the affairs of the partnership, giving him in place of a fixed salary a
proportionate part of the profits of the business. Article 269 of the Code of
Commerce of 1829 relates to this subject and apparently provides that such
partners shall not be liable for debts. If this article was the basis for Dr.
Benito's view, it can be so no longer, for it does not appear in the present
code. We held in the case of Fortis vs. Gutirrez Hermanos (6 Phil. Rep., 100)
that a mere agreement of that kind does not make the employee a
partner.
An examination of the works of Manresa and Sanchez Roman on the Civil
Code, and of Blanco's Mercantile Law, will shows that no one of these
mentions in any way the irregular general partnership spoken of by Dr.
Benito, nor is there anything found in any one of these commentaries which
in any way indicates that an industrial partner is not liable to third persons
for the debts of the partnership. An examination of the French law will also
show that no distinction of that kind is therein anywhere made and nothing
can be found therein which indicates that the industrial partners are not
liable for the debts of the partnership. (Fuzier-Herman, Repertoire de Droit
Francais, vol. 34, pp. 256, 361, 510, and 512.)
Our conclusion is upon this branch of the case that neither on principle nor
on authority can the industrial partner be relieved from liability to third
persons for the debts of the partnership.
It is apparently claimed by the appellee in his brief that one action can not
be maintained against the partnership and the individual partners, this
claim being based upon the provisions of article 237 of the Code of
Commerce which provides that the private property of the partners shall
not be taken until the partnership property has been exhausted. But this
article furnishes to argument in support of the appellee's claim. An action
can be maintained against the partnership and partners, but the judgment
should recognize the rights of the individual partners which are secured by
said article 237.
The judgment of the court below is reversed and judgment is ordered
against all of the defendants for the sum of P26,828.30, with interest thereon
at the rate of 8 per cent per annum since the 31st day of March, 1905, and
for the cost of this action. Execution of such judgment shall not issue against
the private property of the defendants Francisco Muoz, Emilio Muoz, or
Rafael Naval until the property of the defendant Francisco Muoz & Sons is
exhausted. No costs will be allowed to their party in this court. So ordered.
||| (La Compaia Maritima v. Muoz, G.R. No. L-3704, [December 12,
1907], 9 PHIL 326-347)
[G.R. No. 10695. December 15, 1916.]
TEODORO DE LOS REYES, plaintiff-appellee, vs. VICENTE LUKBAN and
ESPIRIDION BORJA, defendants. VICENTE LUKBAN, appellant.
TORRES, J p:
On December 5, 1913, Teodoro de los Reyes brought suit in the Court of First
Instance of this city against Vicente Lukban and Espiridion Borja, to recover
from them individually the sum of P853, the balance of a debt of P1,086.65
owing for merchandise bought on credit in October and November, 1904,
by the firm Lukban & Borja, from the plaintiff's ship supply store, named La
Industria.
In case No. 3759, prosecuted in the said court by the creditor Reyes against
the said firm of Lukban & Borja, the latter was ordered by a final judgment
of October 19, 1905, to pay the said sum of P1,086.65, together with the
interest thereon, amounting to a total of P1,102.95, in addition to the costs,
P6.24.
One of the partner, Espiridion Borja, paid P522.69 on account of the debt.
There still remains to be paid P610.21, and this sum, together with the costs
and legal interest thereon from July 14, 195, to the date of the complaint,
December 5, 1913, aggregates the total sum of P894.17. The plaintiff prayed
the court to order the defendants jointly or severally to pay him, the plaintiff,
this last mentioned amount, together with the legal interest thereon from
the date of the complaint, and the costs.
After due summons the defendants appeared, and one of them, Espiridion
Borja, in answer to the complaint entered a general and specific denial of
each and all of the allegations therein contained, and, as a special
defense, alleged that it was res judicata and that the plaintiff's action, if it
existed, had already prescribed.
The other defendant, Vicente Lukban, in his amended answer set forth (1)
that he denied generally and specifically each and all of the facts alleged
in each and all of the paragraphs of the complaint; (2) that the issues raised
by the complaint had already been decided in case No. 10908, in which
the firm of Lukban & Borja was acquitted, without costs; (3) that the
defendant Lukban was merely an industrial partner in the firm of Lukban &
Borja was acquitted, without costs; (3) that the defendant Lukban & Borja,
Espiridion Borja being the partner thereof who furnished the capital; (4) that
the assets of the firm of Lukban & Borja had not been exhausted (by
attachment), wherefore the present action is premature; and (5) that the
plaintiff Reyes' action, as regards this defendant Lukban, has prescribed.
At the trial of the case the parties made the following stipulation:
"1. That on July 15, 1905, the herein plaintiff Teodoro de los Reyes brought
suit against the firm of Lukban & Borja to recover the sum of P1,086.65 owing
for merchandise bought on credit in the months of October and
November, 1904, from the ship supply store known by the name of La
Industria. The said suit was heard before the Honorable John C. Sweeney,
on October 9, 1905, on which date the said judge sentenced the
defendant firm to pay the sum of P1,086.65, Philippine currency, with legal
interest thereon from July 14, 1905, to the date of the judgment, amounting
to P16.30, Philippine currency, and costs amounting to P46.24. It does not
appear that this obligation was set forth in writing. All the preceding has
been taken from the record of that court in case No. 3759, De los Reyes vs.
Lukban & Borja.
"2. On August 19, 1913, the same plaintiff Teodoro de los Reyes brought suit
against Lukban & Borja to recover the sum of P853, alleging for this purpose
that the defendant Espiridion Borja paid P522.69 on account of the sum of
P186.65 allowed in the judgment referred to in the preceding paragraph,
there remaining unpaid P610.21 of the principal debt, to which is added
the legal interest thereon from January 1, 1906, to the date of the
commencement of the said suit, thus forming the total sum above stated
of P853. After hearing the case, the Honorable Judge Del Rosario, on
November 20, 1913, rendered judgment absolving the firm of Lukban &
Borja from the complaint without special finding as to costs. All the facts
related in this paragraph appear in case No. 10908 of this court.
"3. That several years ago and seven months after its organization, or, more
specifically, on April 13, 1909, the firm o Lukban & Borja was lawfully
dissolved, as stated by Borja; and that the five years from the 13th of the
same month of the year 1904, stipulated for its duration, had elapsed.
(Judgment in case No. 10908.) The articles of incorporation of the firm of
69
Lukban & Borja are found in the attached document, which, for its
identification, is marked as Exhibit A of this agreement.
"4. That the assets of the firm of Lukban & Borja had not been exhausted (by
attachment) for the reason that the plaintiff did not know what property
belonged to it.
"5. Vicente Lukban and Espiridion Borja, notwithstanding that they alleged
themselves to be copartners of the firm of Lukban & Borja, represented by
Borja."
After hearing the evidence, the curt rendered judgment on November 25,
1914, sentencing the defendants Vicente Lukban and Espiridion Borja jointly
and severally to pay to the plaintiff Teodoro de los Reyes the sum of P60.20,
together with the legal interest thereon from December 17, 1913, and the
costs. To this judgment Lukban excepted, announced his intention to file
the proper bill of exceptions and moved for a new trial on the grounds that
the evidence did not justify the decision and that the latter was contrary to
law. By an order of December 0, the motion for a new trial was overruled
and an exception was entered by this defendant-appellant. The other
defendant, Espiridion Borja, made no exception to the said ruling so the
judgment became final with respect to him.
The subject matter of this suit is an acknowledged debt held to be owing
by a judicial pronouncement contained in a judgment rendered in case
No. 3759, prosecuted by the creditor was unable to collect it in its entirety
but recovered only a part Borja. In order to demonstrate the propriety of
the judgment appealed from, rendered against the parties who were the
partners of the said firm, we shall confine ourselves in this decision to the
four errors assigned to the said judgment by the defendant Lukban,
inasmuch as the other defendant Borja acquiesced in the said judgment
and the same became final as to him. These errors are the following:
"1. In not holding that the action brought against this defendant is improper,
inasmuch as prior to its prosecution no attachment was levied on the assets
of the said partnership.
"2. In not holding that the action brought against this appellee [defendant]
has not been proven.
"3. In not holding that the present is not a true case of res judicata.
"4. In not holding that the appellee's action has prescribed in so far as it
concerns this appellant."
With respect to the first assignment of error, the contents of the writ and the
return of the execution of the final judgment rendered in the said case No.
3759 show that the dissolved partnership of Lukban & borja had absolutely
no property whatever of its own. Had any property whatever of the said
partnership still remained, the defendant Lukban would have pointed it out
in order to avoid being obliged to pay in solidum all the balance of the sum
which the firm was sentenced to pay by the said final judgment of October
19, 1905. He did not do so be cause the firm of Lukban & Borja no longer
had any kind of property or credits, as shown by the document setting forth
the agreement made by and between several creditors of the said firm, a
third party named Ramon Tinsay and the former partner of the firm Lukban
& Borja owed four creditors, among them the plaintiff De los Reyes, the total
sum of P10,165.01 and these creditors with some difficulty succeeded in
collecting the sum of P5,000 through a transaction with the said Ramon
Tinsay who paid this last amount for the account of the partner Espiridion
Borja. It appears that the latter paid to the creditor De los Reyes the
aforementioned sum of P522.69, account of the firm's debt to Teodoro de
los Reyes, a debt which was recognized in the said judgment of October As regards the last assignment of error, alleging prescription of action,
19, 1905. The attachment, or recourse to the property, the lack of which suffice it to say that from October 19, 195, to December 5, 1913, even
proceeding was complained of, is a proceeding that was resorted to when without counting the interruption caused by the action brought on August
attempt was made to execute the final judgment rendered against the 8th of this latter year, the ten year period fixed by section 43 of the Code of
partnership of Lukban & Borja, which proceeding gave negative results; Civil Procedure has not elapsed. In view of the negative results of the
therefore, if the requirement of article 237 of the Code of Commerce must proceeding had by the sheriff in levying execution of the final judgment
be complied with by the creditor it is evident that it has already been done rendered against the partnership of Lukban & Borja, the creditor in the
for the defendant Lukban was unable to show that the partnership to which exercise of his rights has brought the proper action against those who were
he belonged actually possessed any more assets. the members of that firm for the recovery of the unpaid balance of his
credit, and he filed his complaint within the period fixed by the law of
With respect to the second assignment of error, if Teodoro de los Reyes is procedure and the defendants cannot allege that it is now res judicata.
entitled to collect individually from the partners Lukban and Borja the For the foregoing reasons the judgment appealed from is affirmed with the
amount of the debt that the dissolved partnership owed at the time of its costs of this instance against the appellant. So ordered.
dissolution, it is unquestionable that such a right has given rise to the
corresponding right of action to demand the payment of the debt from the
partners individually, or from each of them, by the insolvency of the
partnership, inasmuch as they are personally and severally liable with all
their property for the results of the operations of the partnership which they
conducted.
Article 127 of the Code of Commerce provides:
"All the members of the general copartnership, be they or be they not
managing partners of the same, are personally and severally liable with all
their property for the results of the transactions made in the name and for
the account of the partnership, under the signature of the latter, and by a
person authorized to make use thereof."
With regard to the third assignment of error. Although the action brought in
case No. 10908 by the creditor Teodoro de los Reyes against the partnership
Lukban & Borja be not different from that brought in the present case No.
11296, and although it be deemed to have arisen out of the right of the
plaintiff-creditor to collect his credit, yet the first time it was brought against
the partnership, whereas in the present case it was brought individually
against those who were the members of that partnership. The action
against Vicente Lukban and Espiridion Borja individually can not be
demurred to on the ground of res judicata by the judgment of acquittal
entered in case No. 10908.
Article 1252 of the Civil Code provides:
"In order that the presumption of the res adjudicata may be valid in another
suit, it is necessary that, between the case decided by the sentence and
that in which the same is invoked, there be the most perfect identity
between the things, causes, and persons of the litigants, and their capacity
as such."
There may be perfect identity between the causes of action and the things
demanded in case No. 10908, wherein the said partnership was absolved
from the complaint, and in the present case No. 11296; it is, however,
undeniable that the parties defendant are not the same nor is their
capacity as such. In the first case it was the partnership that was sued, while
in the present case it is Lukban and Borja individually, as former members of
that dissolved partnership, who are sued jointly and severally. Therefore,
pursuant to the above-cited article of the Civil Code, the provisions of
which harmonize with those of section 307 of the Civil section 307 of the
Code of Civil Procedure, the former judgment can not be set up as res
judicata in the present action.
70
Article 1818
[G.R. No. L-39780. November 11, 1985.]
ELMO MUASQUE, petitioner, vs. COURT OF APPEALS, CELESTINO GALAN,
TROPICAL COMMERCIAL COMPANY and RAMON PONS, respondents.
GUTIERREZ, JR., J p:
In this petition for certiorari, the petitioner seeks to annul and set aside the
decision of the Court of Appeals affirming the existence of a partnership
between petitioner and one of the respondents, Celestino Galan and
holding both of them liable to the two intervenors which extended credit to
their partnership. The petitioner wants to be excluded from the liabilities of
the partnership.
Petitioner Elmo Muasque filed a complaint for payment of sum of money
and damages against respondents Celestino Galan, Tropical Commercial,
Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered
into a contract with respondent Tropical through its Cebu Branch Manager
Pons for remodelling a portion of its building without exchanging or
expecting any consideration from Galan although the latter was casually
named as partner in the contract; that by virtue of his having introduced
the petitioner to the employing company (Tropical), Galan would receive
some kind of compensation in the form of some percentages or
commission; that Tropical, under the terms of the contract, agreed to give
petitioner the amount of P7,000.00 soon after the construction began and
thereafter the amount of P6,000.00 every fifteen (15) days during the
construction to make a total sum of P25,000.00; that on January 9, 1967,
Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but
to a stranger to the contract, Galan, who succeeded in getting petitioner's
indorsement on the same check persuading the latter that the same be
deposited in a joint account; that on January 26, 1967, when the second
check for P6,000.00 was due, petitioner refused to indorse said check
presented to him by Galan but through later manipulations, respondent
Pons succeeded in changing the payee's name from Elmo Muasque to
Galan and Associates, thus enabling Galan to cash the same at the Cebu
Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay for construction materials,
the payment of which should have been made from the P13,000.00
received by Galan; that petitioner undertook the construction at his own
expense completing it prior to the March 16, 1967 deadline; that because
of the unauthorized disbursement by respondents Tropical and Pons of the
sum of P13,000.00 to Galan, petitioner demanded that said amount be
paid to him by respondents under the terms of the written contract
between the petitioner and respondent company. prcd
The respondents answered the complaint by denying some and admitting
some of the material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed
that the issues to be resolved are:
(1) Whether or not there existed a partnership between Celestino Galan
and Elmo Muasque; and
(2) Whether or not there existed a justifiable cause on the part of
respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue Diamond
Glass Palace were allowed to intervene, both having legal interest in the
matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which
states:
"IN VIEW WHEREOF, Judgment is hereby rendered:.
"(1) ordering plaintiff Muasque and defendant Galan to pay jointly and
severally the intervenors Cebu and Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively;
"(2) absolving the defendants Tropical Commercial Company and Ramon
Pons from any liability.
"No damages awarded whatsoever."
The petitioner and intervenor Cebu Southern Company and its proprietor,
Tan Siu filed motions for reconsideration.
On January 15, 1971, the trial court issued another order amending its
judgment to make it read as follows:.
"IN VIEW WHEREOF, Judgment is hereby rendered:.
"(1) ordering plaintiff Muasqez and defendant Galan to pay jointly and
severally the intervenors Cebu Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively,
"(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu
Southern Hardware Company and Tan Siu jointly and severally interest at
12% per annum of the sum of P3,229.34 until the amount is fully paid;
"(3) ordering plaintiff and defendant Galan to pay P500.00 representing
attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company;
"(4) absolving the defendants Tropical Commercial Company and Ramon
Pons from any liability.
"No damages awarded whatsoever."
On appeal, the Court of Appeals affirmed the judgment of the trial court
with the sole modification that the liability imposed in the dispositive part of
the decision on the credit of Cebu Southern Hardware and Blue Diamond
Glass Palace was changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of the
partnership of "Galan and Muasque" as Contractor entered into a written
contract with respondent Tropical for remodelling the respondent's Cebu
branch building. A total amount of P25,000.00 was to be paid under the
contract for the entire services of the Contractor. The terms of payment
were as follows: thirty percent (30%) of the whole amount upon the signing
of the contract and the balance thereof divided into three equal
installments at the rate of Six Thousand Pesos (P6,000.00) every fifteen (15)
working days. LLjur
The first payment made by respondent Tropical was in the form of a check
for P7,000.00 in the name of the petitioner. Petitioner, however, indorsed the
check in favor of respondent Galan to enable the latter to deposit it in the
bank and pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his
personal use so that when the second check in the amount of P6,000.00
came and Galan asked the petitioner to indorse it again, the petitioner
refused.
The check was withheld from the petitioner. Since Galan informed the
Cebu branch of Tropical that there was a "misunderstanding" between him
and petitioner, respondent Tropical changed the name of the payee in the
second check from Muasque to "Galan and Associates" which was the
duly registered name of the partnership between Galan and petitioner and
under which name a permit to do construction business was issued by the
mayor of Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued
through his sole efforts. He stated that he borrowed some P12,000.00 from
his friend, Mr. Espina and although the expenses had reached the amount
of P29,000.00 because of the failure of Galan to pay what was partly due
the laborers and partly due for the materials, the construction work was
finished ahead of schedule with the total expenditure reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00, were
subsequently given to the petitioner alone with the last check being given
pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of
money and damages against the respondents, seeking to recover the
following: the amounts covered by the first and second checks which fell
into the hands of respondent Galan, the additional expenses that the
petitioner incurred in the construction, moral and exemplary damages, and
attorney's fees.
Both the trial and appellate courts not only absolved respondents Tropical
and its Cebu Manager, Pons, from any liability but they also held the
71
petitioner together with respondent Galan, liable to the intervenors Cebu
Southern Hardware Company and Blue Diamond Glass Palace for the
credit which the intervenors extended to the partnership of petitioner and
Galan.
In this petition, the legal questions raised by the petitioner are as follows: (1)
Whether or not the appellate court erred in holding that a partnership
existed between petitioner and respondent Galan. (2) Assuming that there
was such a partnership, whether or not the court erred in not finding Galan
guilty of malversing the P13,000.00 covered by the first and second checks
and therefore, accountable to the petitioner for the said amount; and (3)
Whether or not the court committed grave abuse of discretion in holding
that the payment made by Tropical through its manager Pons to Galan was
"good payment."
Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham
and a perfidious partner who misappropriated the amount of P13,000.00
due to the petitioner. Petitioner also contends that the appellate court
committed grave abuse of discretion in holding that the payment made by
Tropical to Galan was "good" payment when the same gave occasion for
the latter to misappropriate the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a contract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muasque." This is readily seen in the first
paragraph of the contract where it states: LLphil
"This agreement made this 20th day of December in the year 1966 by Galan
and Muasque hereinafter called the Contractor, and Tropical
Commercial Co., Inc., hereinafter called the owner do hereby for and in
consideration agree on the following: . . . ."
There is nothing in the records to indicate that the partnership organized by
the two men was not a genuine one. If there was a falling out or
misunderstanding between the partners, such does not convert the
partnership into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed the
check in favor of Galan. Respondent Tropical therefore, had every right to
presume that the petitioner and Galan were true partners. If they were not
partners as petitioner claims, then he has only himself to blame for making
the relationship appear otherwise, not only to Tropical but to their other
creditors as well. The payments made to the partnership were, therefore,
valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643), we ruled:
"Although it may be presumed that Margarita G. Saldajeno had acted in
good faith, the appellees also acted in good faith in extending credit to
the partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the
consequences."
No error was committed by the appellate court in holding that the payment
made by Tropical to Galan was a good payment which binds both Galan
and the petitioner. Since the two were partners when the debts were
incurred, they are also both liable to third persons who extended credit to
their partnership. In the case of George Litton v. Hill and Ceron, et al., (67
Phil. 513, 514), we ruled:
"There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions." (Mills vs. Riggle, 112 Pac., 617).
"The presumption is sufficient to permit third persons to hold the firm liable
on transactions entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority." (Le Roy vs.
Johnson, 7 U.S. (Law. ed.), 391.).
Petitioner also maintains that the appellate court committed grave abuse
of discretion in not holding Galan liable for the amounts which he
"malversed" to the prejudice of the petitioner. He adds that although this
was not one of the issues agreed upon by the parties during the pre-trial,
he, nevertheless, alleged the same in his amended complaint which was
duly admitted by the court. Cdpr
When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner
made allegations as to the alleged malversations of Galan, these were the
same allegations in his original complaint. The malversation by one partner
was not an issue actually raised in the amended complaint but the alleged
connivance of Pons with Galan as a means to serve the latter's personal
purposes.
The petitioner, therefore, should be bound by the delimitation of the issues
during the pre-trial because he himself agreed to the same. In Permanent
Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:.
xxx xxx xxx
". . . The appellant is bound by the delimitation of the issues contained in
the trial court's order issued on the very day the pre-trial conference was
held. Such an order controls the subsequent course of the action, unless
modified before trial to prevent manifest injustice. In the case at bar,
modification of the pre-trial order was never sought at the instance of any
party."
Petitioner could have asked at least for a modification of the issues if he
really wanted to include the determination of Galan's personal liability to
their partnership but he chose not to do so, as he vehemently denied the
existence of the partnership, At any rate, the issue raised in this petition is
the contention of Muasque that the amounts payable to the intervenors
should be shouldered exclusively by Galan. We note that the petitioner is
not solely burdened by the obligations of their ill-starred partnership. The
records show that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000,00 in favor of Eden
Hardware which extended credit to the partnership aside from the
P2,000.00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the
trial court's ordering petitioner and Galan to pay the credits of Blue
Diamond and Cebu Southern Hardware "jointly and severally" is plain error
since the liability of partners under the law to third persons for contracts
executed in connection with partnership business is only pro rata under Art.
1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code, "All partners,
including industrial ones, shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, for the contracts
which may be entered into the name and for the account of the
partnership, under its signature and by a person authorized to act for the
partnership. . . .", this provision should be construed together with Article
1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles
1822 and 1823." In short, while the liability of the partners are merely joint in
transactions entered into by the partnership, a third person who transacted
with said partnership can hold the partners solidarily liable for the whole
obligation if the case of the third person falls under Articles 1822 or 1823.
LLpr
Articles 1822 and 1823 of the Civil Code provide:
"Art. 1822. Where, by 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, loss or injury is caused to any person, not being a partner
in the partnership or any penalty is incurred, the partnership is liable therefor
to the same extent as the partner so acting or omitting to act."
"Art. 1823. The partnership is bound to make good the loss:
"(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
"(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is
misapplied by any partner while it is in the custody of the partnership."
The obligation is solidary because the law protects him, who in good faith
relied upon the authority of a partner, whether such authority is real or
apparent. That is why under Article 1824 of the Civil Code all partners,
whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.
72
In the case at bar the respondent Tropical had every reason to believe that
a partnership existed between the petitioner and Galan and no fault or
error can be imputed against it for making payments to "Galan and
Associates" and delivering the same to Galan because as far as it was
concerned, Galan was a true partner with real authority to transact on
behalf of the partnership with which it was dealing. This is even more true in
the cases of Cebu Southern Hardware and Blue Diamond Glass Palace
who supplied materials on credit to the partnership. Thus, it is but fair that
the consequences of any wrongful act committed by any of the partners
therein should be answered solidarily by all the partners and the partnership
as a whole.
However, as between the partners Muasque and Galan, justice also
dictates that Muasque be reimbursed by Galan for the payments made
by the former representing the liability of their partnership to herein
intervenors, as it was satisfactorily established that Galan acted in bad faith
in his dealings with Muasque as a partner. cdrep
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared
to be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors.
SO ORDERED.
[G.R. No. L-11840. July 26, 1960.]
ANTONIO C. GOQUIOLAY and THE PARTNERSHIP "TAN SIN AN and ANTONIO
C. GOQUIOLAY", plaintiffs-appellants, vs. WASHINGTON Z. SYCIP, ET AL.,
defendants-appellees.
REYES, J.B.L. J p:
Direct appeal from the decision of the Court of First Instance of Davao (the
amount involved being more than P200,000) dismissing the plaintiffs-
appellants' complaint.
From the stipulation of facts of the parties and the evidence on record, it
would appear that on May 29, 1940, Tan Sin An and Antonio C. Goquiolay
entered into a general commercial partnership under the partnership
name "Tan Sin An and Antonio C. Goquiolay", for the purpose of dealing in
real estate. The partnership had a capital of P30,000.00, P18,000.00 of which
was contributed by Goquiolay and P12,000.00 by Tan Sin An. The
agreement lodged upon Tan Sin An the sole management of the
partnership affairs, stipulating that
"III. The co-partnership shall be composed of said Tan Sin An as sole
managing and partner (sic), and Antonio C. Goquiolay as co-partner.
"VIII. The affairs of the co-partnership shall be managed exclusively by the
managing and partner (sic) or by his authorized agent, and it is expressly
stipulated that the managing and partner (sic) may delegate the entire
management of the affairs of the co- partnership by irrevocable power of
attorney to any person, firm or corporation he may select upon such terms
as regards compensation as he may deem proper, and vest in such person,
firm or corporation full power and authority, as the agent of the co-
partnership and in his name, place and stead to do anything for it or on his
behalf which he as such managing and partner (sic) might do or cause to
be done.
"IX. The co-partner shall have no voice or participation in the management
of the affairs of the co-partnership; but he may examine its accounts once
every six (6) months at any time during ordinary business hours, and in
accordance with the provisions of the Code of Commerce." (Articles of Co-
Partnership).
The lifetime of the partnership was fixed at ten (10) years and also that
"In the event of the death of any of the partners at any time before the
expiration of said term, the co-partnership shall not be dissolved but will
have to be continued and the deceased partner shall be represented by
his heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).
However, the partnership could be dissolved and its affairs liquidated at any
time upon mutual agreement in writing of the partners (Art. XIII, articles of
Co-Partnership).
On May 31, 1940, Antonio Goquiolay executed a general power of attorney
to this effect:
"That besides the powers and duties granted the said Tan Sin An by the
articles of co-partnership of said co-partnership "Tan Sin An and Antonio
Goquiolay", the said Tan Sin An should act as my Manager for said co-
partnership for the full period of the term for which said co-partnership was
organized or until the whole period that the said capital of P30,000.00 of the
co-partnership should last, to carry on to the best advantage and interest
of the said co-partnership, to make and execute, sign, seal and deliver for
the co-partnership, and in its name, all bills, bonds, notes, specialties, and
trust receipts or other instruments or documents in writing whatsoever kind
or nature which shall be necessary to the proper conduction of the said
businesses, including the power to mortgage and pledge real and personal
properties, to secure the obligation of the co-partnership, to buy real or
personal properties for cash or upon such terms as he may deem advisable,
to sell personal or real properties, such as lands and buildings of the co-
partnership in any manner he may deem advisable for the best interest of
said co-partnership, to borrow money on behalf of the co-partnership and
to issue promissory notes for the repayment thereof, to deposit the funds of
the co-partnership in any local bank or elsewhere and to draw checks
against funds so deposited . . .
On May 29, 1940, the plaintiff partnership "Tan Sin An and Goquiolay"
purchased the three (3) parcels of land, known as Lots Nos. 526, 441 and
521 of the Cadastral Survey of Davao, subject-matter of the instant
litigation, assuming the payment of a mortgage obligation of P25,000.00,
payable to "La Urbana Sociedad Mutua de Construccin y Prestamos" for
a period of ten (10) years, with 10% interest per annum. Another 46 parcels
were purchased by Tan Sin An in his individual capacity, and he assumed
payment of a mortgage debt thereon for P35,000.00, with interest. The
down payment and the amortization were advanced by Yutivo and Co.,
for the account of the purchasers.
On September 25, 1940, the two separate obligations were consolidated in
an instrument executed by the partnership and Tan Sin An, whereby the
entire 49 lots were mortgaged in favor of the "Banco Hipotecario de
Filipinas" (as successor to "La Urbana") and the covenantors bound
themselves to pay, jointly and severally, the remaining balance of their
unpaid accounts amounting to P52,282.80 within eight 8 years, with 8%
annual interest, payable in 96 equal monthly installments.
On June 26, 1942, Tan Sin An died, leaving as surviving heirs his widow, Kong
Chai Pin, and four minor children, namely: Tan L. Cheng, Tan L. Hua, Tan C.
Chiu and Tan K. Chuan. Defendant Kong Chai Pin was appointed
administratrix of the intestate estate of her deceased husband.
In the meantime, repeated demands for payment were made by the
Banco Hipotecario on the partnership and on Tan Sin An. In March, 1944,
the defendant Sing Yee and Cuan, Co., Inc., upon request of defendant
Yutivo Sons Hardware Co., paid the remaining balance of the mortgage
debt, and the mortgage was cancelled.
Then in 1946, Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc.
filed their claims in the intestate proceedings of Tan Sin An for P62,415.91
and P54,310.13, respectively, as alleged obligations of the partnership "Tan
Sin An and Antonio C. Goquiolay" and Tan Sin An, for advances, interests
and taxes paid in amortizing and discharging their obligations to "La
Urbana" and the "Banco Hipotecario". Disclaiming knowledge of said claims
at first, Kong Chai Pin later admitted the claims in her amended answer and
they were accordingly approved by the Court.
On March 29, 1949, Kong Chai Pin filed a petition with the probate court for
authority to sell all the 49 parcels of land to Washington Z, Sycip and Betty
Y. Lee, for the purpose primarily of settling the aforesaid debts of Tan Sin An
and the partnership. Pursuant to a court order of April 2, 1949, the
administratrix executed on April 4, 1949, a deed of sale 1 of the 49 parcels
of land to the defendants Washington Sycip and Betty Lee in consideration
of P37,000.00 and of vendees' assuming payment of the claims filed by
Yutivo Sons Hardware Co. and Sing Yee and Cuan Co., Inc. Later, in July,
1949, defendants Sycip and Betty Lee executed in favor of the Insular
Development Co., Inc. a deed of transfer covering the said 49 parcels of
land.
Learning about the sale to Sycip and Lee, the surviving partner Antonio
Goquiolay filed, on or about July 25, 1949, a petition in the intestate
proceedings seeking to set aside the order of the probate court approving
the sale in so far as his interest over the parcels of land sold was concerned.
In its order of December 29, 1949, the probate court annulled the sale
executed by the administratrix with respect to the 60% interest of Antonio
Goquiolay over the properties sold. King Chai Pin appealed to the Court of
Appeals, which court later certified the case to us (93 Phil., 413; 49 Off. Gaz.
[7] 2307). On June 30, 1953, we rendered decision setting aside the orders
of the probate court complained of and remanding the case for new trial,
due to the non-inclusion of indispensable parties. Thereafter, new pleadings
were filed.
The second amended complaint in the case at bar prays, among other
things, for the annulment of the sale in favor of Washington Sycip and Betty
Lee, and their subsequent conveyance in favor of the Insular Development
Co., Inc., in so far as the three (3) lots owned by the plaintiff partnership are
concerned. The answer averred the validity of the sale by Kong Chai Pin as
successor partner, in lieu of the late Tan Sin An. After hearing, the complaint
73
was dismissed by the lower court in its decision dated October 30, 1956;
hence, this appeal taken directly to us by the plaintiffs, as the amount
involved is more than P200,000.00. Plaintiffs-appellants assign as errors that
"I. The lower court erred in holding that Kong Chai Pin became the
managing partner of the partnership upon the death of her husband, Tan
Sin An, by virtue of the articles of Partnership executed between the Tan Sin
An and Antonio Goquiolay, and the general power of attorney granted by
Antonio Goquiolay.
II The lower court erred in holding that Kong Chai Pin could act alone as
sole managing partner in view of the minority of the other heirs.
III The lower court erred in holding that Kong Chai Pin was the only heir
qualified to act as managing partner.
IV The lower court erred in holding that Kong Chai Pin had authority to
sell the partnership properties by virtue of the articles of partnership and the
general power of attorney granted to Tan Sin An in order to pay the
partnership indebtedness.
V The lower court erred in finding that the partnership did not pay its
obligation to the Banco Hipotecario.
VI The lower court erred in holding that the consent of Antonio Goquiolay
was not necessary to consummate the sale of the partnership properties.
VII The lower court erred in finding that Kong Chai Pin managed the
business of the partnership after the death of her husband, and that
Antonio Goquiolay knew it.
VIII The lower court erred in holding that the failure of Antonio Goquiolay
to oppose the management of the partnership by Kong Chai Pin estops him
now from attacking the validity of the sale of the partnership properties.
IX The lower court erred in holding that the buyers of the partnership
properties acted in good faith.
X The lower court erred in holding that the sale was not fraudulent against
the partnership and Antonio Goquiolay.
XI The lower court erred in holding that the sale was not only necessary
but beneficial to the partnership.
XII The lower court erred in dismissing the complaint and in ordering
Antonio Goquiolay to pay the costs of suit."
There is merit in the contention that the lower court erred in holding that the
widow, Kong Chai Pin, succeeded her husband, Tan Sin An, in the sole
management of the partnership, upon the latter's death. While, as we
previously stated in our narration of facts, the Articles of Co-Partnership and
the power of attorney executed by Antonio Goquiolay conferred upon Tan
Sin An the exclusive management of the business, such power, premised as
it is upon trust and confidence, was a mere personal right that terminated
upon Tan's demise. The provision in the articles stating that "in the event of
death of any one of the partners within the 10-year term of the partnership,
the deceased partner shall be represented by his heirs", could not have
referred to the managerial right given to Tan Sin An; more appropriately, it
related to the succession in the proprietary interest of each partner. The
covenant that Antonio Goquiolay shall have no voice or participation in
the management of the partnership, being a limitation upon his right as a
general partner, must be held coextensive only with Tan's right to manage
the affairs, the contrary not being clearly apparent.
Upon the other hand, consonant with the articles of co- partnership
providing for the continuation of the firm notwithstanding the death of one
of the partners, the heirs of the deceased, by never repudiating or refusing
to be bound under the said provision in the articles, became individual
partners with Antonio Goquiolay upon Tan's demise. The validity of like
clauses in partnership agreements is expressly sanctioned under Article 222
of the Code of Commerce. 1
Minority of the heirs is not a bar to the application of that clause in the
articles of co-partnership (2 Vivante, Tratado de Derecho Mercantil, 493;
Planiol, Traite Elementaire de Droit Civil, English translation by the Louisiana
State Law Institute, Vol. 2, Pt. 2, p. 177).
Appellants argue, however, that since the "new" members' liability in the
partnership was limited merely to the value of the share or estate left by the
deceased Tan Sin An, they became no more than limited partners and, as
such, were disqualified from the management of the business under Article
148 of the Code of Commerce. Although ordinarily, this effect follows from
the continuance of the heirs in the partnership, 2 it was not so with respect
to the widow Kong Chai Pin, who, by her affirmative actions, manifested
her intent to be bound by the partnership agreement not only as a limited
but as a general partner. Thus, she managed and retained possession of
the partnership properties and was admittedly deriving income therefrom
up to and until the same were sold to Washington Sycip and Betty Lee. In
fact, by executing the deed of sale of the parcels of land in dispute in the
name of the partnership, she was acting no less than as a managing
partner. Having thus preferred to act as such, she could be held liable for
the partnership debts and liabilities as a general partner, beyond what she
might have derived only from the estate of her deceased husband. By
allowing her to retain control of the firm's property from 1942 to 1949, plaintiff
estopped himself to deny her legal representation of the partnership, with
the power to bind it by proper contracts.
The question now arises as to whether or not the consent of the other
partners was necessary to perfect the sale of the partnership properties to
Washington Sycip and Betty Lee. The answer is, we believe, in the negative.
Strangers dealing with a partnership have the right to assume, in the
absence of restrictive clauses in the co-partnership agreement, that every
general partner has power to bind the partnership, specially those partners
acting with ostensible authority. And so, we held in one case:
". . . Third persons, like the plaintiff, are not bound in entering into a contract
with any of the two partners, to ascertain whether or not this partner with
whom the transaction is made has the consent of the other partner. The
public need not make inquiries as to the agreements had between the
partners. Its knowledge is enough that it is contracting with the partnership
which is represented by one of the managing partners.
'There is a general presumption that each individual partner is an agent for
the firm and that he has authority to bind the firm in carrying on the
partnership transactions.' [Mills vs. Riggle, 112 Pac., 617]
'The presumption is sufficient to permit third persons to hold the firm liable
on transactions entered into by one of the members of the firm acting
apparently in its behalf and within the scope of his authority.' [Le Roy vs.
Johnson, 7 U.S. Law, Ed., 391](George Litton vs. Hill & Ceron, et al., 67 Phil.,
513-514)."
We are not unaware of the provision of Article 129 of the Code of
Commerce to the effect that
"If the management of the general partnership has not been limited by
special agreement to any of the members, all shall have the power to take
part in the direction and management of the common business, and the
members present shall come to an agreement for all contracts or
obligations which may concern the association." (Emphasis supplied)
but this obligation is one imposed by law on the partners among
themselves, that does not necessarily affect the validity of the acts of a
partner, while acting within the scope of the ordinary course of business of
the partnership, as regards third persons without notice. The latter may
rightfully assume that the contracting partner was duly authorized to
contract for and in behalf of the firm and that, furthermore, he would not
ordinarily act to the prejudice of his co- partners. The regular course of
business procedure does not require that each time a third person
contracts with one of the managing partners, he should inquire as to the
latter's authority to do so, or that he should first ascertain whether or not the
other partners had given their consent thereto. In fact, Article 130 of the
same Code of Commerce provides that even if a new obligation was
contracted against the express will of one of the managing partners, "it shall
not be annulled for such reason, and it shall produce its effects without
prejudice to the responsibility of the member or members who contracted
it, for the damages they may have caused to the common fund."
Cesar Vivante (2 Tratado de Derecho Mercantil, pp. 114-115) points out:
"367. Primera hipotesis. A falta de factos especiales, la facultad de
administrar corresponde a cada socio personalmente. No hay que esperar
ciertamente concordia con tantas cabezas, y para cuando no vayan de
acuerdo, la disciplina del Cdigo no ofrece un sistema eficaz que evite los
inconvenientes. Pero, ante el silencio del contrato, debia quiz el legislador
privar de la administracin a uno de los socios en beneficio del otro? Sera
una arbitrariedad. Deber quiz declarar nula la Sociedad que no haya
elegido Administrador? El remedio sera peor que el mal. Deber, tal vez,
pretender que todos los socios concurran en todo acto de la Sociedad?
Pero este concurso de todos habra reducido a la impotencia la
administracin, que es asunto de todos los das y de todas horas. Hubieran
sido disposiciones menos oportunas que lo adoptado por el Cdigo, el cual
se confa al espiritu de reciproca confianza que debera animar la
colaboracin de los socios, y en la ley inflexible de responsabilidad que
implica comunidad en los intereses de los mismos.
En esta hiptesis, cada socio puede ejercer todos los negocios
comprendidos en el contrato social sin dar de ello noticia a los otros,
porque cada uno de ellos ejerce la administracin en la totalidad de sus
relaciones, salvo su responsabilidad en el caso de una administracin
culpable. Si debiera dar noticia, el beneficio de su simultnia actividad,
frecuentemente distribuda en lugares y en tiempos diferentes, se echara
a perder. Se objetar el que de esta forma, el derecho de oposicin de
cada uno de los socios puede quedar frustrado. Pero se puede contestar
que este derecho de oposicin concedido por la ley como un remedio
excepcional, debe subordinarse al derecho de ejercer el oficio de
Administrador, que el Cdigo concede sin lmite: 'se presume que los socios
se han concedido recprocamente la facultad de administrar uno para
otro.' Se hara precipitar esta hiptesis en la otra de una administracin
colectiva (art. 1.721, Cdigo Cvil) y se acabara con pedir el
consentimiento, a lo menos tcito, de todos los socios lo que el Cdigo
74
excluye . . ., si se obligase al socio Administrador a dar noticia previa del
negocio a los otros, a fin de que pudieran oponerse si no consintieran."
Commenting on the same subject, Gay de Montell (Cdigo de Comercio,
Tomo II, 147-148) opines:
"Para obligar a las Compaas enfrente de terceros (art. 128 del Cdigo),
no es bastante que los actos y contratos hayan sido ejecutados por un
socio o varios en nombre colectivo, sino que es preciso el concurso de
estos dos elementos, uno, que el socio o socios tengan reconocida la
facultad de administrar la Compaa, y otro, que el acto o contrato haya
sido ejecutado en nombre de la Sociedad y usando de su firma social. Asi
es que toda obligacin contraida bajo la razon social, se presume
contraida por la Compaa. Esta presuncion es impuesta por motivos de
necesidad practica. El tercero no puede cada vez que trata con la
Compaa, inquirir si realmente el negocio concierne a la Sociedad. La
presuncion es juris tantum y no juris et de jure, de modo que s el gerente
suscribe bajo la razn social una obligacin que no interesa a la Sociedad,
ste podr rechazar la accin del tercero probando que el acreedor
conoca que la obligacin no tena ninguna relacin con ella. Si tales actos
y contratos no comportasen la concurrencia de ambos elementos, seran
nulos y podra decretarse la responsabilidad civil o penal contra sus
autores.
En el caso que tales actos o contratos hayan sido tcitamente aprobados
por la Compaa, o contabilizados en sus libros, si el acto o contrato ha
sido convalidado sin protesta y se trata de acto o contrato que ha
producido beneficio social, tendra plena validez, aun cuando le faltase
algunos o ambos de aquellos requistos antes sealados.
Cuando los Estatutos o la escritura social no contienen ninguna clusula
relativa al nombramiento o designacin de uno o mas de un socio para
administrar la Compaa (art. 129 del Cdigo) todos tienen por un igual el
derecho de concurir a la decisin y manejo de los negocios comunes . . ."
Although the partnership under consideration is a commercial partnership
and, therefore, to be governed by the Code of Commerce, the provisions
of the old Civil Code may give us some light on the right of one partner to
bind the partnership. States Art. 1695 thereof:
"Should no agreement have been made with respect to the form of
management, the following rules shall be observed:
1. All the partners shall be considered agents, and whatever any one of
them may do individually shall bind the partnership; but each one may
oppose any act of the others before it has become legally binding."
The records fail to disclose that appellant Goquiolay made any opposition
to the sale of the partnership realty to Washington Z. Sycip and Betty Lee;
on the contrary, it appears that he (Goquiolay) only interposed his
objections after the deed of conveyance was executed and approved by
the probate court, and, consequently, his opposition came too late to be
effective.
Appellants assail the correctness of the amounts paid for the account of
the partnership as found by the trial court. This question, however, need not
be resolved here, as in the deed of conveyance executed by Kong Chai
Pin, the purchasers Washington Sycip and Betty Lee assumed, as part
consideration of the purchase, the full claims of the two creditors, Sing Yee
and Cuan Co., Inc. and Yutivo Sons Hardware Co.
Appellants also question the validity of the sale covering the entire firm
realty, on the ground that it, in effect, threw the partnership into dissolution,
which requires consent of all the partners. This view is untenable. That the
partnership was left without the real property it originally had will not work
its dissolution, since the firm was not organized to exploit these precise lots
but to engage in buying and selling real estate, and "in general real estate
agency and brokerage business". Incidentally, it is to be noted that the
payment of the solidary obligation of both the partnership and the late Tan
Sin An, leaves open the question of accounting and contribution between
the co-debtors, that should be ventilated separately.
Lastly, appellants point out that the sale of the partnership properties was
only a fraudulent device by the appellees, with the connivance of Kong
Chai Pin, to ease out Antonio Goquiolay from the partnership. The "devise",
according to the appellants, started way back sometime in 1945, when one
Yu Khe Thai sounded out Antonio Goquiolay on the possibility of selling his
share in the partnership; and upon his refusal to sell, was followed by the
filing of the claims of Yutivo Sons Hardware Co. and Sing Yee and Cuan
Co., Inc. in the intestate estate proceedings of Tan Sin An. As creditors of
Tan Sin An and the plaintiff partnership (whose liability was alleged to be
joint and several), Yutivo Sons Hardware Co. and Sing Yee and Cuan Co.,
Inc. had every right to file their claims in the intestate proceedings. The
denial of the claims at first by Kong Chai Pin (for lack of sufficient
knowledge) negatives any conspiracy on her part in the alleged fraudulent
scheme, even if she subsequently decided to admit their validity after
studying the claims and finding it best to admit the same. It may not be
amiss to remark that the probate court approved the questioned claims.
There is complete failure of proof, moreover, that the price for which the
properties were sold was unreasonably low, or in any way unfair, since
appellants presented no evidence of the market value of the lots as of the
time of their sale to appellees Sycip and Lee. The alleged value of
P31,056.58 in May of 1955 is no proof of the market value in 1949, specially
because in the interval, the new owners appear to have converted the
land into a subdivision, which they could not do without opening roads and
otherwise improving the property at their own expense. Upon the other
hand, Kong Chai Pin hardly had any choice but to execute the questioned
sale, as it appears that the partnership had neither cash nor other properties
with which to pay its obligations. Anyway, we cannot consider seriously the
inferences freely indulged in by the appellants as allegedly indicating fraud
in the questioned transactions, leading to the conveyance of the lots in
dispute to the appellee Insular Development Co., Inc.
Wherefore, finding no reversible error in the appealed judgment, we affirm
the same, with costs against appellant Antonio Goquiolay.
Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia,
Barrera and Gutierrez David, JJ., concur.
RESOLUTION
December 10, 1963
REYES, J.B.L., J p:
The matter now pending is the appellant's motion for reconsideration of our
main decision, wherein we have upheld the validity of the sale of the lands
owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the
widow of the managing partner, Tan Sin An (executed in her dual capacity
of Administratrix of her husband's estate and as partner, in lieu of the
husband), in favor of buyers Washington Sycip and Betty Lee for the
following consideration:
Cash paid P37,000.00
Debts assumed by purchaser:
To Yutivo 62,415.91
To Sing Yee Cuan & Co. 54,310.13
__________
TOTAL P153,726.04
Appellant Goquiolay, in his motion for reconsideration, insists that, contrary
to our holding, Kong Chai Pin, widow of the deceased partner Tan Sin An,
never became more than a limited partner, incapacitated by law to
manage the affairs of the partnership; that the testimony of her witnesses
Young and Lim belies that she took over administration of the partnership
property; and that, in any event, the sale should be set aside because it
was executed with the intent to defraud appellant of his share in the
properties sold.
Three things must be always held in mind in the discussion of this motion to
reconsider, being basic and beyond controversy:
(a) That we are dealing here with the transfer of partnership property by
one partner, acting in behalf of the firm, to a stranger. There is no question
between partners inter se, and this aspect of the case was expressly
reserved in the main decision of 26 July 1960;
(b) That the partnership was expressly organized "to engage in real estate
business, either by buying and selling real estate". The Articles of co-
partnership, in fact, expressly provided that:
"IV. The object and purpose of the co-partnership are as follows:
1. To engage in real estate business, either by buying and selling real
estates; to subdivide real estates into lots for the purpose of leasing and
selling them.";
(c) That the properties sold were not part of the contributed capital (which
was in cash) but land precisely acquired to be sold, although subject to a
mortgage in favor of the original owners, from whom the partnership had
acquired them.
With these points firmly in mind, let us turn to the points insisted upon by
appellant.
It is first averred that there is "not one iota of evidence" that Kong Chai Pin
managed and retained possession of the partnership properties. Suffice it
to point out that appellant Goquiolay himself admitted that
". . . Mr. Yu Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to
manage the properties (as) she had no other means of income. Then I said,
because I wanted to help Mrs. Kong Chai Pin, she could just do it and
besides I am not interested in agricultural lands. I allowed her to take care
of the properties in order to help her and because I believe in God and I
wanted to help her."
Q. So the answer to my question is you did not take any steps?
A. I did not.
Q. And this conversation which you had with Mrs. Yu Eng Lai was few
months after 1945?
75
A. In the year 1945." (Emphasis supplied)
The appellant subsequently ratified this testimony in his deposition of 30
June 1956, page 8-9, wherein he stated:
"that plantation was being occupied at that time by the widow, Mrs. Tan
Sin An, and of course they are receiving quite a lot of benefit from that
plantation."
Discarding the self-serving expressions, these admissions of Goquiolay are
certainly entitled to greater weight than those of Hernando Young and
Rufino Lim, having been made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young,
that the witness found the properties "abandoned and undeveloped",
omits to mention that said part of the testimony started with the question:
"Now, you said that about 1942 or 1943 you returned to Davao. Did you
meet Mrs. Kong Chai Pin there in Davao at that time?
Similarly, the testimony of Rufino Lim, to the effect that the properties of the
partnership were undeveloped, and the family of the widow (Kong Chai
Pin) did not receive any income from the partnership properties, was given
in answer to the question:
"According to Mr. Goquiolay, during the Japanese occupation Tan Sin An
and his family lived on the plantation of the partnership and derived their
subsistence from that plantation. What can you say to that?" (Dep. 19 July
1956, p. 8)
And also
"What can you say as to the development of these other properties of the
partnership which you saw during the occupation?" (Dep., p. 13, Emphasis
supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is
in Tigatto is about eleven (11) hectares and planted with abaca seedlings
planted by Mr. Sin An. When I went there with Hernando Young we saw all
the abaca destroyed. The place was occupied by the Japanese Army.
They planted camotes and vegetables to feed the Japanese Army. Of
course they never paid any money to Tan Sin An or his family." (Dep., Lim,
pp. 13-14. (Emphasis supplied)
Plainly, Both Young and Lim's testimonies do not belie, or contradict,
Goquiolay's admission that he told Mr. Yu Eng Lai that the widow "could just
do it" (i. e., continue to manage the properties). Witnesses Lim and Young
referred to the period of Japanese occupation; but Goquiolay's authority
was, in fact, given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai
Pin carried out no acts of management during the Japanese occupation
(1942-1944) does not mean that she did not do so from 1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and
Young; he actually manifested his willingness that the widow should
manage the partnership properties. Whether or not she complied with this
authority is a question between her and the appellant, and is not here
involved. But the authority was given, and she did have it when she made
the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai
Pin was only to manage the property, and that it did not include the power
to alienate, citing Article 1713 of the Civil Code of 1889. What this argument
overlooks is that the widow was not a mere agent, because she had
become a partner upon her husband's death, as expressly provided by the
articles of co-partnership. Even more, granting that by succession to her
husband, Tan Sin An, the widow only became a limited partner, Goquiolay's
authorization to manage the partnership property was proof that he
considered and recognized her as general partner, at least since 1945. The
reason is plain: Under the law (Article 148, last paragraph, Code of
Commerce), appellant could not empower the widow, if she were only a
limited partner, to administer the properties of the firm, even as a mere
agent:
"Limited partners may not perform any act of administration with respect to
the interests of the co-partnership, not even in the capacity of agents of
the managing partners." (Emphasis supplied)
By seeking authority to manage partnership property, Tan Sin An's widow
showed that she desired to be considered a general partner. By authorizing
the widow to manage partnership property (which a limited partner could
not be authorized to do), Goquiolay recognized her as such partner, and is
now in estoppel to deny her position as a general partner, with authority to
administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we
did not say "necessarily") becomes a limited partner for his own protection,
because he would normally prefer to avoid any liability in excess of the
value of the estate inherited so as not to jeopardize his personal assets. But
this statutory limitation of responsibility being designed to protect the heir,
the latter may disregard it and instead elect to become a collective or
general partner, with all the rights and privileges of one, and answering for
the debts of the firm not only with the inheritance but also with the heir's
personal fortune. This choice pertains exclusively to the heir, and does not
require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here involved
expressly stipulated that:
"In the event of the death of any of the partners at any time before the
expiration of said term, the co-partnership shall not be dissolved but will
have to be continued and the deceased partner shall be represented by
his heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely
limited partner; on the contrary, they expressly stipulated that in case of
death of either partner "the co-partnership . . . will have to be continued"
with the heirs or assigns. It certainly could not be continued if it were to be
converted from a general partnership into a limited partnership, since the
difference between the two kinds of associations is fundamental; and
specially because the conversion into a limited association would leave the
heirs of the deceased partner without a share in the management. Hence,
the contractual stipulation does actually contemplate that the heirs would
become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner
should they refuse to assume personal and unlimited responsibility for the
obligations of the firm. The heirs, in other words, can not be compelled to
become general partners against their wishes. But because they are not so
compellable, it does not legitimately follow that they may not voluntarily
choose to become general partners, waiving the protective mantle of the
general laws of succession. And in the latter event, it is pointless to discuss
the legality of any conversion of a limited partner into a general one. The
heir never was a limited partner, but chose to be, and became, a general
partner right at the start.
It is immaterial that the heir's name was not included in the firm name, since
no conversion of status is involved, and the articles of co-partnership
expressly contemplated the admission of the partner's heirs into the
partnership.
It must never be overlooked that this case involves the rights acquired by
strangers, and does not deal with the rights arising between partners
Goquiolay and the widow of Tan Sin An. The issues between the partners
inter se were expressly reserved in our main decision. Now, in determining
what kind of partner the widow of partner Tan Sin An had elected to
become, strangers had to be guided by her conduct and actuations and
those of appellant Goquiolay. Knowing that by law a limited partner is
barred from managing the partnership business or property, third parties
(like the purchasers) who found the widow possessing and managing the
firm property with the acquiescence (or at least without apparent
opposition) of the surviving partners were perfectly justified in assuming that
she had become a general partner, and, therefore, in negotiating with her
as such a partner, having authority to act for, and in behalf of, the firm. This
belief, be it noted, was shared even by the probate court that approved
the sale by the widow of the real property standing in the partnership name.
That belief was fostered by the very inaction of appellant Goquiolay. Note
that for seven long years, from partner Tan Sin An's death in 1942 to the sale
in 1949, there was more than ample time for Goquiolay to take up the
management of these properties, or at least ascertain how its affairs stood.
For seven years Goquiolay could have asserted his alleged rights, and by
suitable notice in the commercial registry could have warned strangers that
they must deal with him alone, as sole general partner. But he did nothing
of the sort, because he was not interested (supra), and he did not even
take steps to pay, or settle, the firm debts that were overdue since before
the outbreak of the last war. He did not even take steps, after Tan Sin An
died, to cancel, or modify, the provisions of the partnership articles that he
(Goquiolay) would have no intervention in the management of the
partnership. This laches certainly contributed to confirm the view that the
widow of Tan Sin An had, or was given, authority to manage and deal with
the firm's properties, apart from the presumption that a general partner
dealing with partnership property has the requisite authority from his co-
partners (Litton vs. Hill and Cern, et al., 67 Phil., 513; quoted in our main
decision, p. 11).
"The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the other, undoubtedly creates an obligation between the two
partners, which consists in asking the other's consent before contracting for
the partnership. This obligation of course is not imposed upon a third person
who contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. A third person may and has
a right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his co-partner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary, is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No.
76
18, section 334, Code of Civil Procedure), and that the law has been
obeyed (No. 31, section 334). This last presumption is equally applicable to
contracts which have the force of law between the parties." (Litton vs. Hill
& Cern, et al., 67 Phil., 509, 516) (Emphasis supplied)
It is next urged that the widow, even as a partner, had no authority to sell
the real estate of the firm. This argument is lamentably superficial because
it fails to differentiate between real estate acquired and held as stock-in-
trade and real state held merely as business site (Vivante's "taller banco
social") for the partnership. Where the partnership business is to deal in
merchandise and goods, i.e., movable property, the sale of its real property
(immovables) is not within the ordinary powers of a partner, because it is
not in line with the normal business of the firm. But where the express and
avowed purpose of the partnership is to buy and sell real estate (as in the
present case), the immovables thus acquired by the firm form part of its
stock-in-trade, and the sale thereof is in pursuance of partnership purposes,
hence within the ordinary powers of the partner. This distinction is supported
by the opinion of Gay de Montella 1 , in the very passage quoted in the
appellant's motion for reconsideration:
"La enajenacin puede entrar en las facultades del gerente: cuando es
conforme a los fines sociles. Pero esta facultad de enajenar limitada a las
ventas conforme a los fines sociles, viene limitada a los objetos de
comecio a los productos de la fabrica para explotacin de los cuales se
ha constituido la Sociedad. Ocurrira una cosa parecida cuando el objeto
de la Sociedad fuese la compra y venta de inmuebles, en cuyo caso el
gerente estara facultado para otorgar las ventas que fuere necesario."
(Montella) (Emphasis supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N. Y. Supp. 405, 406, it was held:
"a partnership to deal in real estate may be created and either partner has
the legal right to sell the firm real estate"
In Chester vs. Dickerson, 54 N. Y. 1, 13 Am. Rep. 550:
"And hence, when the partnership business is to deal in real estate, one
partner has ample power, as a general agent of the firm, to enter into an
executory contract for the sale of real estate."
And in Rovelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St., Rep. 83:
"If the several partners engaged in the business of buying and selling real
estate can not bind the firm by purchases or sales of such property made
in the regular course of business, then they are incapable of exercising the
essential rights and powers of general partners and their association is not
really a partnership at all, but a several agency."
Since the sale by the widow was in conformity with the express objective of
the partnership, "to engage . . . in buying and selling real estate" (Art. IV, No.
1, Articles of Copartnership), it can not be maintained that the sale was
made in excess of her powers as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme Court of
Ohio in McGrath, et al., vs. Cowen, et al., 49 N. E., 338. But the facts of that
case are vastly different from the one before us. In the McGrath case, the
Court expressly found that:
"The firm was then, and for some time had been, insolvent, in the sense that
its property was insufficient to pay its debts, though it still had good credit,
and was actively engaged in the prosecution of its business. On that day,
which was Saturday, the plaintiff caused to be prepared, ready for
execution, the four chattel mortgages in question, which cover all the
tangible property then belonging to the firm, including the counters,
shelving, and other furnishings and fixtures necessary for, and used in
carrying on, its business, and signed the same in this form: "In witness
whereof, the said Cowen & McGrath, a firm, and Owen McGrath, surviving
partner of said firm, and Owen McGrath, individually, have hereunto set
their hands, this 20th day of May, A. D. 1893. Cowen & McGrath, by Owen
McGrath. Owen McGrath, Surviving partner of Cowen & McGrath. Owen
McGrath" At the same time, the plaintiff had prepared, ready for filing, the
petition for the dissolution of the partnership and appointment of a receiver,
which he subsequently filed, as hereinafter stated. On the day the
mortgages were signed, they were placed in the hands of the mortgagees,
which was the first intimation to them that there was any intention to make
then. At that time none of the claims secured by the mortgages were due,
except, it may be, a small part of one of them, and none of the creditors to
whom the mortgages were made had requested security, or were pressing
for the payment of their debts . . . The mortgages appear to be without a
sufficient condition of defeasance, and contain a stipulation authorizing
the mortgagees to take immediate possession of the property, which they
did as soon as the mortgages were filed, through the attorney who then
represented them, as well as the plaintiff; and the stores were at once
closed, and possession delivered by them to the receiver appointed upon
the filing of the petition. The avowed purpose of the plaintiff in the course
pursued by him, was to terminate the partnership, place its property
beyond the control of the firm, and insure the preference of the mortgages,
all of which was known to them at the time; . . ." (Cas cit., p. 343, Italics
supplied)
It is natural that from these facts the Supreme Court of Ohio should draw
the conclusion that conveyances were made with intent to terminate the
partnership, and that they were not within the powers of McGrath as
partner. But there is no similarity between those acts and the sale by the
widow of Tan Sin An. In the McGrath case, the sale included even the
fixtures used in the business, in our case, the lands sold were those acquired
to be sold. In the McGrath case, none of the creditors were pressing for
payment; in our case, the creditors had been unpaid for more than seven
years, and their claims had been approved by the probate court for
payment. In the McGrath case, the partnership received nothing beyond
the discharge of its debts; in the present case, not only were its debts
assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash
to the widow, to the profit of the partnership. Clearly, the McGrath ruling is
not applicable.
We will now turn to the question of fraud. No direct evidence of it exists; but
appellant points out, as indicia thereof, the allegedly low price paid for the
property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a
total of P153,726.04, of which P37,000.00 was in cash, and the rest in
partnership debts assumed by the purchaser. These debts (P62,415.91 to
Yutivo, and P54,310.13 to Sing Yee Cuan & Co.) are not questioned; they
were approved by the Court, and its approval is now final. The claims were,
in fact, for the balance on the original purchase price of the land sold (due
first to La Urbana, later to the Banco Hipotecario) plus accrued interests and
taxes, redeemed by the two creditors-claimants. To show that the price was
inadequate, appellant relies on the testimony of the realtor Mata, who in
1955, six years after the sale in question, asserted that the land was worth
P312,000.00. Taking into account the continued rise of real estate values
since liberation, and the fact that the sale in question was practically a
forced sale because the partnership had no other means to pay its
legitimate debts, this evidence certainly does not show such "gross
inadequacy" as to justify rescission of the sale. If at the time of the sale (1949)
the price of P153,726.04 was really low, how is it that appellant was not able
to raise the amount, even if the creditor's representative, Yu Khe Thai, had
already warned him four years before (1945) that the creditors wanted their
money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum
needed to discharge the debts. But the lands were already mortgaged,
and had been mortgaged since 1940, first to La Urbana, and then to the
Banco Hipotecario. Was it reasonable to expect that other persons would
loan money to the partnership when it was unable even to pay the taxes
on the property, and the interest on the principal since 1940? If it had been
possible to find lenders willing to take a chance on such a bad financial
record, would not Goquiolay have taken advantage of it? But the fact is
clear on the record that since liberation until 1949 Goquiolay never lifted a
finger to discharge the debts of the partnership. Is he entitled now to cry
fraud after the debts were discharged with no help from him?
With regard to the relationship between the parties, suffice it to say that the
Supreme Court has ruled that relationship alone is not a badge of fraud
(Oria Hnos. vs. McMicking, 21 Phil., 243; also Hermandad de Smo. Nombre
de Jesus vs. Sanchez, 40 Off. Gaz., 1685). There is no evidence that the
original buyers, Washington Sycip and Betty Lee, were without independent
means to purchase the property. That the Yutivos should be willing to
extend credit to them, and not to appellant, is neither illegal nor immoral;
at the very least, these buyers did not have a record of inveterate defaults
like the partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a
conspiracy between the Yutivo firm and their component members. But no
proof is adduced. If he was such a victim, he could have easily defeated
the conspirators by raising money and paying off the firm's debts between
1945 and 1949; but he did not; he did not even care to look for a purchaser
of the partnership assets. Were it true that the conspiracy to defraud him
arose (as he claims) because of his refusal to sell the lands when in 1945 Yu
Khe Thai asked him to do so, it is certainly strange that the conspirators
should wait 4 years, until 1949, to have the sale effected by the widow of
Tan Sin An, and that the sale should have been routed through the probate
court taking cognizance of Tan Sin An's estate, all of which increased the
risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing
Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in proceedings
for the settlement of the estate of Tan Sin An. This for two reasons: First, Tan
Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (joint and
several) debtors (Exhibit "N" mortgage to the Banco Hipotecario), and Rule
87, section 6, is to the effect that:
"Where the obligation of the decedent is joint and several with another
debtor, the claim shall be filed against the decedent as if he were the only
debtor, without prejudice to the right of the estate to recover contribution
from the other debtor." (Emphasis supplied)
77
Secondly, the solidary obligation was guaranteed by a mortgage on the
properties of the partnership and those of Tan Sin An personally, and a
mortagage in indivisible, in the sense that each and every parcel under
mortgage answers for the totality of the debt (Civ. Code of 1889, Article
1860; New Civil Code, Art. 2089).
A final and conclusive consideration. The fraud charged not being one
used to obtain a party's consent to a contract (i.e., not being deceit or
dolus in contrahendo), if there is fraud at all, it can only be a fraud of
creditors that gives rise to a rescission of the offending contract. But by
express provision of law (Article 1294, Civil Code of 1889; Article 1383, New
Civil Code), "the action for rescission is subsidiary; it can not be instituted
except when the party suffering damage has no other legal means to
obtain reparation for the same". Since there is no allegation, or evidence,
that Goquiolay can not obtain reparation from the widow and heirs of Tan
Sin An, the present suit to rescind the sale in question is not maintenable,
even if the fraud charged actually did exist.
Premises considered, the motion for reconsideration is denied.
||| (Goquiolay v. Sycip, G.R. No. L-11840, [July 26, 1960], 108 PHIL 947-988)
[G.R. No. L-11840. December 10, 1963.]
ANTONIO C. GOQUIOLAY, ET AL., plaintiffs-appellants, vs. WASHINGTON Z.
SYCIP, ET AL., defendants-appellees.
RESOLUTION
REYES, J.B.L., J p:
The matter now pending is the appellant's motion for reconsideration of our
main decision, wherein we have upheld the validity of the sale of the lands
owned by the partnership Goquiolay & Tan Sin An, made in 1949 by the
widow of the managing partner, Tan Sin An (executed in her dual capacity
as Administratrix of the husband's estate and as partner in lieu of the
husband), in favor of buyers Washington Sycip and Betty Lee for the
following consideration:
Cash paidP 37,000.00
Debts assumed by purchaser:
To Yutivo62,415.91
To Sing Yee Cuan & Co.,54,310.13
TOTALP153,726.04.
Appellant Goquiolay, in his motion for reconsideration, insists that, contrary
to our holding, Kong Chai Pin, widow of the deceased partner Tan Sin an,
never became more than a limited partner, incapacitated by law to
manage the affairs of the partnership; that the testimony of her witnesses
Young and Lim belies that she took over the administration of the
partnership property; and that, in any event, the sale should be set aside
because it was executed with the intent to defraud appellant of his share
in the properties sold.
Three things must be always held in mind in the discussion of this motion to
reconsider, being basic and beyond controversy:
(a)That we are dealing here with the transfer of partnership property by one
partner, acting in behalf of the firm, to a stranger. There is no question
between partners inter se, and this aspect of the case was expressly
reserved in the main decision of 26 July 1960;
(b)That partnership was expressly organized "to engage in real estate
business, either by buying and selling real estate". The Articles of co-
partnership, in fact, expressly provided that:
"IV.The object and purpose of the copartnership are as follows:
1.To engage in real estate business, either by buying and selling real estates;
to subdivide real estates into lots for the purpose of leasing and selling
them.";
(c)That the properties sold were not part of the contributed capital (which
was in cash) but land precisely acquired to be sold, although subject to a
mortgage in favor of the original owners, from whom the partnership had
acquired them.
With these points firmly in mind, let us turn to the points insisted upon by
appellant.
It is first averred that there is "not one iota of evidence" that Kong Chai Pin
managed and retained possession of the partnership properties. Suffice it
to point out that appellant Goquiolay himself admitted that
". . . Mr. Yun Eng Lai asked me if I can just let Mrs. Kong Chai Pin continue to
manage the properties (as) she had no other means of income. Then I said,
because I wanted to help Mrs. Kong Chai Pin, she could just do it and
besides I am not interested in agricultural lands. I allowed her to take care
of the properties in order to help her and because I believe in God and
wanted to help her."
QSo the answer to my question is you did not take any steps?
AI did not.
QAnd this conversation which you had with Mrs. Yu Eng Lai was few months
after 1945?
AIn the year 1945." (Italics supplied)
The appellant subsequently ratified this testimony in his deposition of 30
June 1956, pages 8-9, wherein he stated:
"that plantation was being occupied at that time by the widow, Mrs. Tan
Sin An, and of course they are receiving quite a lot of benefit from that
plantation."
Discarding the self-serving expressions, these admissions of Goquiolay are
certainly entitled to greater weight than those of Hernando Young and
Rufino Lim, having been made against the party's own interest.
Moreover, the appellant's reference to the testimony of Hernando Young,
that the witness found the properties "abandoned and undeveloped",
omits to mention that said part of the testimony started with the question:
"Now, you said that about 1942 or 1943 you returned to Davao. Did you
meet Mrs. Kong Chai Pin there in Davao at that time?"
Similarly, the testimony of Rufino Lim, to the effect that the properties of the
partnership were undeveloped, and the family of the widow (Kong Chai
Pin) did not receive any income from the partnership properties, was given
in answer to the question:
"According to Mr. Goquiolay, during the Japanese occupation Tan Sin An
and his family lived on the plantation of the partnership and derived their
subsistence from that plantation. What can you say to that?" (Dep. 19 July
1956, p. 8).
And also
"What can you say as to the development of these other properties of the
partnership which you saw during the occupation?" (Dep. p. 13, Italics
supplied)
to which witness gave the following answer:
I saw the properties in Mamay still undeveloped. The third property which is
in Tigatto is about eleven (11) hectares and planted with abaca seedlings
planted by Mr. Sin An. When I went there with Hernando Young we saw all
the abaca destroyed. The place was occupied by the Japanese Army.
They planted camotes and vegetables to feed the Japanese Army. Of
course they never paid any money to Tan Sin An or his family." (Dep., Lim,
pp. 13-14. Italics supplied)
Plainly, both Young and Lim's testimonies do not belie, or contradict,
Goquiolay's admission that he told Mr. Yu Eng Lai that the window "could
just do it" (i.e., continue to manage the properties). Witnesses Lim and
Young referred to the period of Japanese occupation; but Goquiolay's
authority was, in fact, given to the widow in 1945, after the occupation.
Again, the disputed sale by the widow took place in 1949. That Kong Chai
Pin carried out no acts of management during the Japanese occupation
(1942-1944) does not mean that she did not do so from 1945 to 1949.
We thus find that Goquiolay did not merely rely on reports from Lim and
Young; he actually manifested his willingness that the widow should
78
manage the partnership properties. Whether or not she complied with this
authority is a question between her and the appellant, and is not here
involved. But the authority was given, and she did have it when she made
the questioned sale, because it was never revoked.
It is argued that the authority given by Goquiolay to the widow Kong Chai
Pin was only to manage the property, and that it did not include the power
to alienate, citing Article 1713 of the Civil Code of 1889. What this argument
overlooks is that the widow was not a mere agent, because she had
become a partner upon her husband's death, as expressly provided by the
articles of co-partnership. Even more, granting that by succession to her
husband, Tan Sin An, the widow only became a limited partner, Goquiolay's
authorization to manage the partnership property was proof that he
considered and recognized her as general partner, at least since 1945. The
reason is plain: Under the law (Article 148, last paragraph, Code of
Commerce), appellant could not empower the widow, if she were only a
limited partner, to administer the properties of the firm, even as a mere
agent:
"Limited partners may not reform any act of administration with respect to
the interest of the co-partnership, not even in the capacity of agents of the
managing partners." (Italics supplied).
By seeking authority to manage partnership property, Tan Sin An's widow
showed that she desired to be considered a general partner. By authorizing
the widow to manage partnership property (which a limited partner could
not be authorized to do), Goquiolay recognized her as such partner, and is
now in estoppel to deny her position as a general partner, with authority to
administer and alienate partnership property.
Besides, as we pointed out in our main decision, the heir ordinarily (and we
did not say "necessarily") becomes a limited partner for his own protection,
because he would normally prefer to avoid any liability in excess of the
value of the estate inherited so as not to jeopardize hid personal assets. But
this statutory limitation of responsibility being designed to protect the heir,
the latter may disregard it and instead elect to become a collective or
general partner, with all the rights and privileges of one, and answering for
the debts of the firm not only with the inheritance but also with the heir's
personal fortune. This choice pertains exclusively to the heir, and does not
require the assent of the surviving partner.
It must be remembered that the articles of co-partnership here involved
expressly stipulated that:
"In the event of the death of any of the partners at any time before the
expiration of said term, the co-partnership shall not be dissolved but will
have to be continued and the deceased partner shall be represented by
his heirs or assigns in said co-partnership" (Art. XII, Articles of Co-Partnership).
The Articles did not provide that the heirs of the deceased would be merely
limited partners; on the contrary, they expressly stipulated that in case of
death of either partner "the co-partnership . . . will have to be continued"
with the heirs or assigns. It certainly could not be continued if it were to be
converted from a general partnership into a limited partnership, since the
difference between the two kinds of associations is fundamental; and
specially because the conversion into a limited association would leave the
heirs of the deceased partner without a share in the management. Hence,
the contractual stipulation does actually contemplate that the heirs would
become general partners rather than limited ones.
Of course, the stipulation would not bind the heirs of the deceased partner
should they refuse to assume personal and unlimited responsibility for the
obligations of the firm. The heirs, in other words, can not be compelled to
become general partners against their wishes. But because they are not so
compellable, it does not legitimately follow that they may not voluntarily
choose to become general partners, waiving the protective mantle of the
general laws of succession. And in the latter event, it is pointless to discuss
the legality of any conversion of a limited partner into a general one. The
heir never was a limited partner, but chose to be, and became, a general
partner right at the start.
It is immaterial that the heir's name was not included in the firm name, since
no conversion of status is involved, and the articles of co-partnership
expressly contemplated the admission of the partner's heirs into the
partnership.
It must never be overlooked that this case involves the rights acquired by
strangers, and does not deal with the rights existing between partners
Goquiolay and the widow of Tan Sin An. The issues between the partners
inter se were expressly reserved in our main decision. Now, in determining
what kind of partner the widow of partner Tan Sin An had elected to
become, strangers had to be guided by her conduct and actuations and
those of appellant Goquiolay. Knowing that by law a limited partner is
barred from managing the partnership business or property, third parties
(like the purchasers) who found the widow possessing and managing the
firm property with the acquiescence (or at least without apparent
opposition) of the surviving partners were perfectly justified in assuming that
she had become a general partner, and, therefore, in negotiating with her
as such a partner, having authority to act for, and in behalf of the firm. This
belief, be it noted, was shared even by the probate court that approved
the sale by the widow of the real property standing in the partnership name.
That belief was fostered by the very inaction of appellant Goquiolay. Note
that for seven long years, from partner Tan Sin An's death in 1942 to the sale
in 1949, there was more than ample time for Goquiolay to take up the
management of these properties, or at least ascertain how its affairs stood.
For seven years Goquiolay could have asserted his registry could have
warned strangers that they must deal with him alone, as sole general
partner. But he did nothing of the sort, because he was not interested
(supra), and he did not even take steps to pay, or settle, the firm debts that
were overdue since before the outbreak of the last war. He did not even
take steps, after Tan sin An died, to cancel, or modify, the provisions of the
partnership articles that he (Goquiolay) would have no intervention in the
management of the partnership. This laches certainly contributed to
confirm the view that the widow of Tan Sin An had, or was given, authority
to manage and deal with the firm's properties apart from the presumption
that a general partner dealing with partnership property has the requisite
authority from his co-partners (Litton vs. Hill and Ceron, et al., 67 Phil. 513;
quoted in our main decision, p. 11).
"The stipulation in the articles of partnership that any of the two managing
partners may contract and sign in the name of the partnership with the
consent of the others, undoubtedly creates an obligation between the two
partners, which consists in asking the other's consent before contracting for
the partnership. This obligation of course is not imposed upon a third person
who contracts with the partnership. Neither is it necessary for the third
person to ascertain if the managing partner with whom he contracts has
previously obtained the consent of the other. A third person may and has
a right to presume that the partner with whom he contracts has, in the
ordinary and natural course of business, the consent of his copartner; for
otherwise he would not enter into the contract. The third person would
naturally not presume that the partner with whom he enters into the
transaction is violating the articles of partnership, but on the contrary is
acting in accordance therewith. And this finds support in the legal
presumption that the ordinary course of business has been followed (No.
18, section 334). This last presumption is equally applicable to contracts
which have the force of law between the parties." (Litton vs. Hill & Ceron, et
al., 67 Phil. 409, 516). (Italics supplied.)
It is next urged that the widow, even as a partner, had no authority to sell
the real estate of the firm. This argument is lamentably superficial because
it fails to differentiate between real estate acquired and held as stock-in-
trade and real estate held merely as business site (Vivante's "taller o banco
social") for the partnership. Where the partnership business is to deal in
merchandise and goods, i.e., movable property, the sale of its real property
(immovables) is not within the ordinary powers of a partner, because it is
not in line with the normal business of the firm. But where the express and
avowed purpose of the partnership is to buy and sell real estate (as in the
present case), the immovables thus acquired by the firm from part of its
stock-in-trade, and the sale thereof is in pursuance of partnership purposes,
hence within the ordinary powers of the partner. This distinction is supported
by the opinion of Gay de Montella 1 , in the very passage quoted in the
appellant's motion for reconsideration:
"La enjenacion puede entrar en la facultades del gerente, cuando es
conforme a los fines sociales. Pero esta facultad de enajenar limitada a las
ventas conforme a los fines sociales, viene limitada a los objetos de
comercio o a los productos de la fabrica para explotacion de los cuales se
ha constituido la Sociedad. Ocurrira una cosa parecida cuando el objecto
de la Sociedad fuese la compra y venta de inmuebles, en cuyo caso el
gerente estaria facultado para otorgar las ventas que fuere necesario."
(Montella) (Italics supplied)
The same rule obtains in American law.
In Rosen vs. Rosen, 212 N.Y. Supp. 405, 406, it was held:
79
"a partnership to deal in real estate may be created and either partner has
the legal right to sell the firm real estate."
In Chester vs. Dickerson, 54 N.Y. 1, 13 Am. Rep. 550:
"And hence, when the partnership business is to deal in real estate, one
partner has ample power, as a general agent of the firm, to enter into an
executory contract for the sale of real estate."
And in Revelsky vs. Brown, 92 Ala. 522, 9 South 182, 25 Am. St. Rep. 83:
"If the several partners engaged in the business of buying and selling real
estate can not bind the firm by purchases or sales of such property made
in the regular course of business, then they are incapable of exercising the
essential rights and powers of general partners and their association is not
really a partnership at all, but a several agency."
Since the sale by the widow was in conformity with the express objective of
the partnership, "to engage . . . in buying and selling real estate" (Art. IV, No.
1, Articles of Copartnership), it can not be maintained that the sale was
made in excess of her powers as general partner.
Considerable stress is laid by appellant in the ruling of the Supreme court of
Ohio in McGrath, et al. vs. Cowen, et al., 49 N.E., 338. But the facts of that
case are vastly different from the one before us. In the McGrath case, the
Court expressly found that:
"The firm was then, and for some time had been, insolvent, in the sense that
its property was insufficient to pay its debts, though it still had good credit,
and was actively engaged in the prosecution of its business. On that day,
which was Saturday, the plaintiff caused to be prepared, ready for
execution, the four chattel mortgages in question, which cover all the
tangible property then belonging to the firm, including the counters,
shelving, and other furnishings and fixtures necessary for, and used in
carrying on, its business, and signed the same in this form: "In witness
whereof, the said Cowen & McGrath, a firm, and Owen McGrath, surviving
partner, of said firm, and Owen McGrath, individually, have hereunto set
their hands, this 20th day of May, A.D. 1893. Cowen & Mcgrath, by Owen
McGrath. Owen McGrath, Surviving partner of Cowen & McGrath. Owen
& McGrath." At the same time, the plaintiff had prepared, ready for filing,
the petition for the dissolution of the partnership and appointment of a
receiver which he subsequently filed, as hereinafter stated. On the day the
mortgages were signed, they were placed in the hands of the mortgages,
which was the first intimation to them that there was any intention to make
them. At the time none of the claims secured by the mortgages were due,
except, it may be, a small part of one of the, and none of the creditors to
whom the mortgages were made had requested security, or were pressing
for the payment of their debts. . . . The mortgages appear to be without a
sufficient condition of defeasance, and contain a stipulation authorizing
the mortgagees to take immediate possession of the property, which they
did as soon as the mortgages were filed through the attorney who then
represented them, as well as the plaintiff; and the stores were at once
closed, and possession delivered by them to the receiver appointed upon
the filing of the petition. The avowed purpose of the plaintiff, in the course
pursued by him, was to terminate the partnership, place its property
beyond the control of the firm, and insure the preference of the
mortgagees, all of which was known to them at the time; . . ." (Cas cit., p.
343, Italics supplied).
It is natural that from these facts the Supreme Court of Ohio should draw
the conclusion that the conveyances were made with intent to terminate
the partnership, and that they were not within the powers of McGrath as
partner. But there is no similarity between those acts and the sale by the
widow of Tan Sin An. In the McGrath case, the sale included even the
fixtures used in the business; in our case, the lands sold were those acquired
to be sold. In the McGrath case, none of the creditors were pressing for
payment; in our case, the creditors had been unpaid for more than seven
years, and their claims had been approved by the probate court for
payment. In the McGrath case, the partnership received nothing beyond
the discharge of its debts; in the present case, not only were its debts
assumed by the buyers, but the latter paid, in addition, P37,000.00 in cash
to the widow, to the profit of the partnership. Clearly, the McGrath ruling is
not applicable.
We will now turn to the question of fraud. No direct evidence of it exists; but
appellant points out, as indicia thereof, the allegedly low price paid for the
property, and the relationship between the buyers, the creditors of the
partnership, and the widow of Tan Sin An.
First, as to the price: As already noted, this property was actually sold for a
total of P153,726.04, of which P37,000.00 was in cash, and the rest in
partnership debts assumed by the purchaser. These debts (P62,415.91 to
Yutivo, and P54,310.13 to Sing Ye Cuan & Co.) are not questioned; they
were approved by the Court, and its approval is now final. The claims were,
in fact, for the balance on the original purchase price of the land sold (due
first to La Urbana, later to the Banco Hipotecario) plus accrued interests and
taxes, redeemed by the two creditors-claimants. To show that the price was
inadequate, appellant relies on the testimony of the realtor Mata, who in
1955, six years after the sale in question, asserted that the land was worth
P312,000.00. Taking into account the continued rise of real estate values
since liberation, and the fact that the sale in question was practically a
forced sale because the partnership had no other means to pay its
legitimate debts, this evidence certainly does not show such "gross
inadequacy" as to justify rescission of the sale. If at the time of the sale (1949)
the price of P153,726.04 was really low, how is it that appellant was not able
to raise the amount, even if the creditor's representative, Yu Khe Thai, had
already warned him four years before 91945) that the creditors wanted their
money back, as they were justly entitled to?
It is argued that the land could have been mortgaged to raise the sum
needed to discharge the debts. But the lands were already mortgaged,
and had been mortgaged since 1940, first to La Urbana, and then to the
Banco Hipotecario. Was it reasonable to expect that other persons would
loan money to the partnership when it was unable even to pay the taxes
on the property, and the interest on the principal since 1940? If it had been
possible to find lenders willing to take a chance on such a bad financial
record, would not Goquiolay have taken advantage of it? But the fact is
clear on the record that since liberation until 1949 Goquiolay never lifted a
finger to discharge the debts of the partnership. Is he entitled now to cry
fraud after the debts were discharged with no help from him.
With regard to the relationship between the parties, suffice it to say that the
Supreme Court has ruled that relationship alone is not a badge of fraud.
(Oria Hnos. vs. McMicking, 21 Phil. 243; also Hermandad del Smo. Nombre
de Jesus vs. Sanchez, 40 off. Gaz., 1685). There is no evidence that the
original buyers, Washington Sycip and Betty Lee, were without independent
means to purchase the property. That the Yutivos should be willing to
extend credit to them, and not to appellant, is either illegal nor immoral; at
the very least, these buyers did not have a record of inveterate defaults like
the partnership "Tan Sin An & Goquiolay".
Appellant seeks to create the impression that he was the victim of a
conspiracy between the Yutivo firm and their component members. But no
proof is adduced. If he was such a victim, he could have easily defeated
the conspirators by raising money and paying off the firm's debts between
1945 to 1949; but he did not; he did not even care to look for a purchaser
of the partnership assets. Were it true that the conspiracy to defraud him
arose (as he claims) because of his refusal to sell the lands when in 1945 Yu
Khe Thai asked him to do so, it is certainly strange that the conspirators
should wait 4 years, until 1949, to have the sale effected by the widow of
Tan sin An, and that the sale should have been routed through the probate
court taking cognizance of Tan Sin An's estate, all of which increased the
risk that the supposed fraud should be detected.
Neither was there any anomaly in the filing of the claims of Yutivo and Sing
Yee Cuan & Co., (as subrogees of the Banco Hipotecario) in proceedings
for the settlement of the estate of Tan Sin An. This for two reasons: First, Tan
Sin An and the partnership "Tan Sin An & Goquiolay" were solidary (joint and
several) debtors (Exhibit "N", mortgage to the Banco Hipotecario), and Rule
87, section 6 is to the effect that:
"Where the obligation of the decedent is joint and several with another
debtor, the claim shall be filed against the decedent as if he were the only
debtor, without prejudice to the right of the estate to recover contribution
from the other debtor. (Italics supplied).
Secondly, the solidary obligation was guaranteed by a mortgage on the
properties of the partnership and those of Tan Sin An personally, and a
mortgage is indivisible, in the sense that each and every parcel under
mortgage answers for the totality of the debt (Civ. Code of 1889, Article
1860; New Civil Code, Art. 2089).
A final and conclusive consideration: The fraud charged not being one
used to obtain a party's consent to a contract (i.e., not being deceit or
dolus in contrahendo), if there is fraud at all, it can only be a fraud of
creditors that gives rise to a rescission of the offending contract. But express
provision of law (Article 1294, Civil Code of 1889; Article 1383, New Civil
80
Code), "the action for rescission is subsidiary; it can not be instituted except
when the party suffering damage has no other legal means to obtain
reparation for the same". Since there is no allegation, or evidence, that
Goquiolay can not obtain reparation from the widow and heirs of Tan sin
An, the present suit to rescind the sale in question is not maintainable, even
if the fraud charged actually did exist.

PREMISES CONSIDERED, the motion for reconsideration is denied.

81
Article 1819
[G.R. No. 70403. July 7, 1989.]
SANTIAGO SYJUCO, INC., petitioner, vs. HON. JOSE P. CASTRO, AS
PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF THE NATIONAL CAPITAL
JUDICIAL REGION, BRANCH LXXXV, QUEZON CITY, THE CITY SHERIFF OF THE
CITY OF MANILA, THE CITY REGISTER OF DEEDS OF THE CITY OF MANILA,
EUGENIO LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM
and/or THE PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY
PATERNO P. CANLAS, respondents.
DECISION
NARVASA, J p:
This case may well serve as a textbook example of how judicial processes,
designed to promote the swift and efficient disposition of disputes at law,
can be so grossly abused and manipulated as to produce precisely the
opposite result; how they can be utilized by parties with small scruples to
forestall for an unconscionably long time so essentially simple a matter as
making the security given for a just debt answer for its payment.
The records of the present proceedings and of two other cases already
decided by this Court expose how indeed the routine procedure of an
extrajudicial foreclosure came by dint of brazen forum shopping and
other devious maneuvering to grow into a veritable thicket of litigation
from which the mortgagee has been trying to extricate itself for the last
twenty years.
Back in November 1964, Eugenio Lim, for and in his own behalf and as
attorney-in-fact of his mother, the widow Maria Moreno (now deceased)
and of his brother Lorenzo, together with his other brothers, Aramis, Mario
and Paulino, and his sister, Nila, all hereinafter collectively called the Lims,
borrowed from petitioner Santiago Syjuco, Inc. (hereinafter, Syjuco only)
the sum of P800,000.00. The loan was given on the security of a first
mortgage on property registered in the names of said borrowers as owners
in common under Transfer Certificates of Title Numbered 75413 and 75415
of the Registry of Deeds of Manila. Thereafter additional loans on the same
security were obtained by the Lims from Syjuco, so that as of May 8, 1967,
the aggregate of the loans stood at P2,460,000.00, exclusive of interest, and
the security had been augmented by bringing into the mortgage other
property, also registered as owned pro indiviso by the Lims under two titles:
TCT Nos. 75416 and 75418 of the Manila Registry.
There is no dispute about these facts, nor about the additional
circumstance that as stipulated in the mortgage deed the obligation
matured on November 8, 1967; that the Lims failed to pay it despite
demands therefor; that Syjuco consequently caused extra-judicial
proceedings for the foreclosure of the mortgage to be commenced by the
Sheriff of Manila; and that the latter scheduled the auction sale of the
mortgaged property on December 27,1968. 1 The attempt to foreclose
triggered off a legal battle that has dragged on for more than twenty years
now, fought through five (5) cases in the trial courts, 2 two (2) in the Court
of Appeals, 3 and three (3) more in this Court, 4 with the end only now in
sight.
1. CIVIL CASE NO. 75180, CFI MANILA, BR. 5; CA-G.R. NO. 00242-R; G.R. NO.
L-34683
To stop the foreclosure, the Lims through Atty. Marcial G. Mendiola, who
was later joined by Atty. Raul Correa filed Civil Case No. 75180 On
December 24, 1968 in the Court of First Instance of Manila (Branch 5). In
their complaint they alleged that their mortgage was void, being usurious
for stipulating interest of 23% on top of 11% that they had been required to
pay as "kickback." An order restraining the auction sale was issued two days
later, on December 26, 1968, premised inter alia on the Lims' express waiver
of "their rights to the notice and re-publication of the notice of sale which
may be conducted at some future date." 5
On November 25, 1970, the Court of First Instance (then presided over by
Judge Conrado M. Vasquez 6 ) rendered judgment finding that usury
tainted the mortgage without, however, rendering it void, declaring the
amount due to be only P1,136,235.00 and allowing the foreclosure to
proceed for satisfaction of the obligation reckoned at only said amount. 7
Syjuco moved for new trial to enable it to present additional evidence to
overthrow the finding of usury, and the Court ordered the case reopened
for that purpose. The Lims tried to negate that order of reopening in the
Court of Appeals, the proceedings being docketed as CA-G.R. No. 00242-
R. They failed. The Court of Appeals upheld the Trial Court. The Lims then
sought to nullify this action of the Appellate Court; towards that end, they
filed with this Court a petition for certiorari and prohibition, docketed as G.R.
No. L-34683. But here, too, they failed; their petition was dismissed. 8
Thereafter, and on the basis of the additional evidence adduced by Syjuco
on remand of the case from this Court, the Trial Court promulgated an
amended decision on August 16, 1972, reversing its previous holding that
usury had flawed the Lims' loan obligation. It declared that the principal of
said obligation indeed amounted to P2,460,000.00, exclusive of interest at
the rate of 12% per annum from November 8, 1967, and, that obligation
being already due, the defendants (Syjuco and the Sheriff of Manila) could
proceed with the extrajudicial foreclosure of the mortgage given to secure
its satisfaction. 9
2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752; G.R. NO. L-
45752
On September 9, 1972, Atty. Paterno R. Canlas entered his appearance in
Civil Case No. 75180 as counsel for the Lims in collaboration with Atty. Raul
Correa, and on the same date appealed to the Court of Appeals from the
amended decision of August 16, 1972. 10 In that appeal, which was
docketed as CA-G.R. No. 51752, Messrs. Canlas and Correa prayed that
the loans be declared usurious; that the principal of the loans be found to
be in the total amount of P1,269,505.00 only, and the interest thereon fixed
at only 6% per annum from the filing of the complaint; and that the
mortgage be also pronounced void ab initio. 11
The appeal met with no success. In a decision promulgated on October 25,
1976, the Court of Appeals affirmed in toto the Trial Court's amended
decision. 12
The Lims came to this Court seeking reversal of the appellate Court's
decision. However, their petition for review filed in their behalf by Canlas,
and Atty. Pio R. Marcos, and docketed as G.R. No. L-45752 was denied
for lack of merit in a minute resolution dated August 5, 1977. The Lims' motion
for reconsideration was denied and entry of judgment was made on
September 24, 1977. 13 Here the matter should have ended; it marked only
the beginning of Syjuco's travails.
3. CIVIL CASE NO. 112762, CFI MANILA BRANCH 9
Syjuco then resumed its efforts to proceed with the foreclosure. It caused
the auction sale of the mortgaged property to be scheduled on December
20, 1977, only to be frustrated again by another action filed by the Lims on
December 19, 1977, docketed as Civil Case No. 112762 of the Court of First
Instance of Manila. 14 The action sought to stop the sale on the ground that
the notice of foreclosure had not been republished; this, notwithstanding
that as earlier stressed, the restraining order of December 26, 1968 issued in
Civil Case No 75180 explicitly declared itself to be predicated on the Lims'
waiver of "their rights to the notice and republication of the notice of sale
which may be conducted at some future date." 15 An order restraining the
sale issued in the case, although the petition for preliminary injunction was
subsequently denied. A supplemental complaint was also filed by the Lims
seeking recovery of some P1 million in damages allegedly suffered by
reason of said lack of republication. 16
4. CIVIL CASE NO. 75180
That very same claim that there had been no republication of the notice
of sale, which was the foundation of the Lims' action in Civil Case No. 112762
as aforesaid was made by the Lims the basis of an urgent motion filed on
December 15, 1977 in Civil Case No. 75180, in which, as earlier narrated, the
judgment authorizing the foreclosure had been affirmed by both the Court
of Appeals and this Court, and had become final and executory. And that
motion sought exactly the same remedy prayed for in Civil Case No. 112762
(filed by the Lims four [4] days later, on December 19,1977), i.e., the
prevention of the auction sale. The Court Branch 5, then presided over
by Judge Jose H. Tecson granted the restraining order on December 19,
1977, 17 the very same day that the Lims commenced Civil Case No. 112762
in the same Court and in which subsequent action they asked for and
obtained a similar restraining order.
The Lims' counsel thus brought about the anomalous situation of two (2)
restraining orders directed against the same auction sale, based on the
same ground, issued by different courts having cognizance of two (2)
separate proceedings instituted for identical objectives. This situation lasted
82
for all of three (3) years, despite the republication of the notice of sale
caused by Syjuco in January, 1978 in an effort to end all dispute about the
matter, and despite Judge Tecson's having been made aware of Civil Case
No. 112762. It should have been apparent to Judge Tecson that there was
nothing more to be done in Civil Case No. 75180 except to enforce the
judgment, already final and executory, authorizing the extrajudicial
foreclosure of the mortgage, a judgment sanctioned, to repeat, by both
the Court of Appeals and the Supreme Court; that there was in truth no
need for another publication of the notice since the Lims had precisely
waived such republication, this waiver having been the condition under
which they had earlier obtained an order restraining the first scheduled
sale; that, in any event, the republication effected by Syjuco had removed
the only asserted impediment to the holding of the same; and that, finally,
the Lims were acting in bad faith: they were maintaining proceedings in
two (2) different courts for essentially the same relief. 18 Incredibly, not only
did Judge Tecson refuse to allow the holding of the auction sale, as was the
only just and lawful course indicated by the circumstances, 19 he
authorized the Lims to sell the mortgaged property in a private sale, 20 with
the evident intention that the proceeds of the sale, which he directed to
be deposited in court, would be divided between Syjuco and the Lims; this,
in line with the patently specious theory advocated by the Lims' counsel
that the bond filed by them for the postponement of the sale, set at P6
million by the Court (later increased by P3 million) had superseded and
caused novation of the mortgage. 21 The case lay fallow for a year, certain
other incidents arising and remaining unresolved on account of numerous
postponements.
5. G.R. No. L-56014
Finally, on January 28, 1981, Syjuco betook itself to this Court, presumably
no longer disposed to await Judge Tecson's pleasure or the Lims'
convenience. It filed a petition for certiorari and prohibition, docketed as
G.R. No. L-56014, alleging that in Civil Case No. 75180, Judge Tecson had
gravely abused discretion in:
(1) unreasonably delaying the foreclosure of the mortgage;
(2) entertaining the Lims' motion to discharge said mortgage grounded on
the theory that it had been superseded and novated by the Lims' act of
filing the bond required by Judge Tecson in connection with the
postponement of the foreclosure sale, and unreasonably delaying
resolution of the issue; and
(3) authorizing the Lims to negotiate and consummate the private sale of
the mortgaged property and motu proprio extending the period granted
the Lims for the purpose, in disregard of the final and executory judgment
rendered in the case.
By judgment rendered on September 21, 1982, after due proceedings, this
Court 22 issued the writ prayed for and nullified the orders and actuations
of Judge Tecson in Civil Case No. 75180. The judgment declared that:
(1) the republication by Syjuco of the notice of foreclosure sale rendered
the complaint in Civil Case No. 112762 moot and academic; hence, said
case could not operate to bar the sale;
(2) the Lims' bonds (of P6 million and P3 million), having by the terms thereof
been given to guarantee payment of damages to Syjuco and the Sheriff of
Manila resulting from the suspension of the auction sale, could not in any
sense and from any aspect have the effect of superseding the mortgage
or novating it;
(3) in fact, the bonds had become worthless when, as shown by the record,
the bondsman's authority to transact non-life insurance business in the
Philippines was not renewed, for cause, as of July 1, 1981.
The decision consequently decreed that the Sheriff of Manila should
proceed with the mortgage sale, there being no further impediment
thereto. 23
Notice of the decision was served on the Lims, through Atty. Canlas, on
October 2, 1982. A motion for reconsideration was filed, 24 but the same
was denied with finality for lack of merit and entry of final judgment was
made on March 22, 1983. 25
6. THE SECRET ACTION: CIVIL CASE NO. Q-36845 OF THE REGIONAL TRIAL
COURT, QUEZON CITY, JUDGE JOSE P. CASTRO, PRESIDING
Twelve (12) days after the Lims were served, as above mentioned, with
notice of this Court's judgment in G.R. No. 56014, or on October 14, 1982,
they caused the filing with the Regional Trial Court of Quezon City of still
another action, the third, also designed, like the first two, to preclude
enforcement of the mortgage held by Syjuco.
This time the complaint was presented, not in their individual names, but in
the name of a partnership of which they themselves were the only partners:
"Heirs of Hugo Lim." The complaint advocated the theory that the mortgage
which they, together with their mother, had individually constituted (and
thereafter amended during the period from 1964 to 1967) over lands
standing in their names in the Property Registry as owners pro indiviso, in fact
no longer belonged to them at that time, having been earlier deeded over
by them to the partnership, "Heirs of Hugo Lim," more precisely, on March
30, 1959, hence, said mortgage was void because executed by them
without authority from the partnership.
The complaint was signed by a lawyer other than Atty. Canlas, but the
records disclose that Atty. Canlas took over as counsel as of November 4,
1982. The case, docketed as Civil Case No. Q-39295, was assigned to
Branch 35 of the Quezon City Regional Trial Court, then presided over by
Judge Jose P. Castro.
Judge Castro issued a restraining order on October 15, 1982. Then, Sheriff
Perfecto G. Dalangin submitted a return of summons to the effect that on
December 6, 1982 he
". . . served personally and left a copy of summons together with a copy of
Complaint and its annexes . . . upon defendant's office formerly at 313
Quirino Ave., Paraaque, Metro-Manila and now at 407 Doa Felisa Syjuco
Building, Remedios St., corner Taft Avenue, Manila, through the Manager,
a person of sufficient age and discretion, duly authorized to receive service
of such nature, but who refused to accept service and signed receipt
thereof." 26
A vaguer return will be hard to find. It is impossible to discern from it where
precisely the summons was served, whether at Quirino Avenue, Paraaque,
or Taft Avenue, Manila; and it is inexplicable that the name of the person
that the sheriff had been able to identify as the manager is not stated, the
latter being described merely as "a person of sufficient age and discretion."
In any event, as it was to claim later, Syjuco asserts that it was never so
served with summons, or with any other notice, pleading, or motion relative
to the case, for that matter.
On February 10, 1983, Atty. Canlas filed an ex parte motion to declare
Syjuco in default. The order of default issued the next day, also directing the
plaintiff partnership to present evidence ex parte within three (3) days. On
February 22, 1983, judgment by default was rendered, declaring void the
mortgage in question because executed by the Lims without authority from
the partnership which was and had been since March 30, 1959 the
exclusive owner of the mortgaged property, and making permanent an
injunction against the foreclosure sale that had issued on January 14, 1983.
27 Service of notice of the default judgment was, according to the return
of the same Sheriff Perfecto Dalangin, effected on the following day,
February 23, 1983. His return is a virtual copy of his earlier one regarding
service of summons: it also states the place of service as the defendant's
office, either at its former location, 313 Quirino Avenue, Paraaque, or at
the later address, 407 Doa Felisa, Syjuco Building, Taft Avenue, Manila; and
it also fails to identify the person on whom service was made, describing
him only as "the clerk or person in charge" of the office. 28
Unaccountably, and contrary to what might be expected from the rapidity
with which it was decided twelve (12) days from February 10, 1983, when
the motion to declare defendant Syjuco in default was filed the case
was afterwards allowed by Atty. Canlas to remain dormant for seventeen
(17) months. He made no effort to have the judgment executed, or to avail
of it in other actions instituted by him against Syjuco. The judgment was not
to be invoked until sometime in or after July, 1984, again to stop the
extrajudicial mortgage sale scheduled at or about that time at the instance
of Syjuco, as shall presently be recounted.
7. Other Actions in the Interim:
a. CIVIL CASE NO. 83-19018, RTC MANILA
While the Lims, through their partnership ("Heirs of Hugo Lim"), were
prosecuting their action in the sala of Judge Castro, as above narrated,
Syjuco once again tried to proceed with the foreclosure after entry of
judgment had been made in G.R. No. 56014 on March 22, 1983. It
83
scheduled the auction sale on July 30, 1983. But once again it was
frustrated. Another obstacle was put up by the Lims and their counsel, Atty.
Canlas. This was Civil Case No. 83-19018 of the Manila Regional Trial Court.
The case was filed to stop the sale on the theory that what was sought to
be realized from the sale was much in excess of the judgment in Civil Case
No. 75180, and that there was absence of the requisite notice. It is
significant that the judgment by default rendered by Judge Castro in Civil
Case No. Q-36485 was not asserted as additional ground to support the
cause of action. Be this as it may, a restraining order was issued on July
20,1983 in said Civil Case No. 83-19018. 29
b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY
What the outcome of this case, No. 83-19018, is not clear. What is certain is
(1) that the auction sale was re-scheduled for September 20, 1983, (2) that
it was aborted because the Lims managed to obtain still another restraining
order in another case commenced by their lawyer, Atty. Canlas: Civil Case
No. Q-32924 of the Court of First Instance of Quezon City, grounded on the
proposition that the publication of the notice of sale was defective; and (3)
that the action was dismissed by the Regional Trial Court on February 3,
1984. 30
No other salient details about these two (2) cases are available in the
voluminous records before the Court, except that it was Atty. Canlas who
had filed them. He admits having done so unequivocally: "Thus, the
undersigned counsel filed injunction cases in Civil Case No. 83-19018 and
Civil Case No. 39294, Regional Trial Courts of Manila and Quezon City. . . "
31
7. REACTIVATION OF CIVIL CASE NO. Q-36485, RTC, QUEZON CITY, BRANCH
XXXV
Upon the dismissal of Civil Case No. 39294, Syjuco once more resumed its
efforts to effect the mortgage sale which had already been stymied for
more than fifteen (15) years. At its instance, the sheriff once again set a
date for the auction sale. But on the date of the sale, a letter of Atty. Canlas
was handed to the sheriff drawing attention to the permanent injunction of
the sale embodied in the judgment by default rendered by Judge Castro
in Civil Case No. Q-36485. 32 Syjuco lost no time in inquiring about Civil Case
No. Q-36485, and was very quickly made aware of the judgment by default
therein promulgated and the antecedent events leading thereto. It was
also made known that on July 9, 1984, Judge Castro had ordered execution
of the judgment; that Judge Castro had on July 16, 1984 granted Atty.
Canlas' motion to declare cancelled the titles to the Lims' mortgaged
properties and as null and void the annotation of the mortgage and its
amendments on said titles, and to direct the Register of Deeds of Manila to
issue new titles, in lieu of the old, in the name of the partnership, "Heirs of
Hugo Lim." 33
On July 17, 1984, Syjuco filed in said Civil Case No. Q-36485 a motion for
reconsideration of the decision and for dismissal of the action, alleging that
it had never been served with summons; that granting arguendo that
service had somehow been made, it had never received notice of the
decision and therefore the same had not and could not have become
final; and that the action should be dismissed on the ground of bar by prior
judgment premised on the final decisions of the Supreme Court in G.R. No.
L-45752 and G.R. No. 56014.
Two other motions by Syjuco quickly followed. The first, dated July 20, 1984,
prayed for abatement of Judge Castro's order decreeing the issuance of
new certificates of title over the mortgaged lands in the name of the
plaintiff partnership. 34 The second, filed on July 24, 1984, was a supplement
to the motion to dismiss earlier filed, asserting another ground for the
dismissal of the action, i.e., failure to state a cause of action, it appearing
that the mortgaged property remained registered in the names of the
individual members of the Lim family notwithstanding that the property had
supposedly been conveyed to the plaintiff partnership long before the
execution of the mortgage and its amendments, and that even
assuming ownership of the property by the partnership, the mortgage
executed by all the partners was valid and binding under Articles 1811 and
1819 of the Civil Code. 35
The motions having been opposed in due course by the plaintiff
partnership, they remained pending until January 31, 1985 when Syjuco
moved for their immediate resolution. Syjuco now claims that Judge Castro
never acted on the motions. The latter however states that he did issue an
order on February 22, 1985 declaring that he had lost jurisdiction to act
thereon because, petitio principii, his decision had already become final
and executory.
8. G.R. NO. L-70403; THE PROCEEDING AT BAR
For the third time Syjuco is now before this Court on the same matter. It filed
on April 3, 1985 the instant petition for certiorari, prohibition and mandamus.
It prays in its petition that the default judgment rendered against it by Judge
Castro in said Civil Case No. Q-36485 be annulled on the ground of lack of
service of summons, res judicata and laches, and failure of the complaint
to state a cause of action; that the sheriff be commanded to proceed with
the foreclosure of the mortgage on the property covered by Transfer
Certificates of Title Numbered 75413, 75415, 75416 and 75418 of the Manila
Registry; and that the respondents the Lims, Judge Castro, the Sheriff and
the Register of Deeds of Manila, the partnership known as "Heirs of Hugo
Lim," and Atty. Paterno R. Canlas, counsel for the Lims and their partnership
be perpetually enjoined from taking any further steps to prevent the
foreclosure.
The comment filed for the respondents by Atty. Canlas in substance alleged
that (a) Syjuco was validly served with summons in Civil Case No. Q-36485,
hence, that the decision rendered by default therein was also valid and,
having been also duly served on said petitioner, became final by operation
of law after the lapse of the reglementary appeal period; (b) finality of said
decision removed the case from the jurisdiction of the trial court, which was
powerless to entertain and act on the motion for reconsideration and
motion to dismiss; (c) the petition was in effect an action to annul a
judgment, a proceeding within the original jurisdiction of the Court of
Appeals; (d) the plea of res judicata came too late because raised after
the decision had already become final; moreover, no identity of parties
existed between the cases invoked, on the one hand, and Civil Case No.
Q-36485, on the other, the parties in the former being the Lims in their
personal capacities and in the latter, the Lim Partnership, a separate and
distinct juridical entity; and the pleaded causes of action being different,
usury in the earlier cases and authority of the parties to encumber
partnership property in the case under review; (e) the plea of laches also
came too late, not having been invoked in the lower court; and (f) the
property involved constituted assets of the Lim partnership, being registered
as such with the Securities and Exchange Commission. 36
On his own behalf Atty. Canlas submitted that he had no knowledge of the
institution of Civil Case No. Q-36485 (though he admitted being
collaborating counsel in said case); that he did not represent the Lims in all
their cases against Syjuco, having been counsel for the former only since
1977, not for the last seventeen years as claimed by Syjuco; and that he
had no duty to inform opposing counsel of the pendency of Civil Case No.
Q-36485. 37
Respondent Judge Castro also filed a comment 38 disclaiming knowledge
of previous controversies regarding the mortgaged property. He asserted
that Syjuco had been properly declared in default for having failed to
answer the complaint despite service of summons upon it, and that his
decision in said case which was also properly served on Syjuco became
final when it was not timely appealed, after which he lost jurisdiction to
entertain the motion for reconsideration and motion to dismiss. He also
denied having failed to act on said motions, adverting to an alleged order
of February 22, 1985 where he declared his lack of jurisdiction to act
thereon.
The respondent Register of Deeds for his part presented a comment
wherein he stated that by virtue of an order of execution in Civil Case No.
Q-36485, he had cancelled TCT's Nos. 75413, 75415, 75416 and 75418 of his
Registry and prepared new certificates of title in lieu thereof, but that
cancellation had been held in abeyance for lack of certain registration
requirements and by reason also of the motion of Syjuco's Atty. Formoso to
hold in abeyance enforcement of the trial court's order of July 16, 1984 as
well as of the temporary restraining order subsequently issued by the Court.
39
It is time to write finis to this unedifying narrative which is notable chiefly for
the deception, deviousness and trickery which have marked the private
respondents' thus far successful attempts to avoid the payment of a just
obligation. The record of the present proceeding and the other records
already referred to, which the Court has examined at length, make it clear
that the dispute should have been laid to rest more than eleven years ago,
with entry of judgment of this Court (on September 24, 1977) in G.R. No. L-
45752 sealing the fate of the Lims' appeal against the amended decision in
Civil Case No. 75180 where they had originally questioned the validity of the
mortgage and its foreclosure. That result, the records also show, had itself
been nine (9) years in coming, Civil Case No. 75180 having been instituted
84
in December 1968 and, after trial and judgment, gone through the Court
of Appeals (in CA-G.R. No. 00242-R) and this Court (in G.R. No. 34683), both
at the instance of the Lims, on the question of reopening before the
amended decision could be issued.
Unwilling, however, to concede defeat, the Lims moved (in Civil Case No.
75180) to stop the foreclosure sale on the ground of lack of republication.
On December 19, 1977 they obtained a restraining order in said case, but
this notwithstanding, on the very same date they filed another action (Civil
Case No. 117262) in a different branch of the same Court of First Instance
of Manila to enjoin the foreclosure sale on the same ground of alleged lack
of republication. At about this time, Syjuco republished the notice of sale in
order, as it was later to manifest, to end all further dispute.
That move met with no success. The Lims managed to persuade the judge
in Civil Case No. 75180, notwithstanding his conviction that the amended
decision in said case had already become final, not only to halt the
foreclosure sale but also to authorize said respondents to dispose of the
mortgaged property at a private sale upon posting a bond of P6,000,000.00
(later increased by P3,000,000.00) to guarantee payment of Syjuco's
mortgage credit. This gave the Lims a convenient excuse for further
suspension of the foreclosure sale by introducing a new wrinkle into their
contentions - that the bond superseded the mortgage which should, they
claimed, therefore be discharged instead of foreclosed.
Thus from the final months of 1977 until the end of 1980, a period of three
years, Syjuco found itself fighting a legal battle on two fronts: in the already
finally decided Civil Case No. 75180 and in Civil Case No. 117262, upon the
single issue of alleged lack of republication, an issue already mooted by
the Lims' earlier waiver of republication as a condition for the issuance of
the original restraining order of December 26, 1968 in Civil Case No. 75180,
not to mention the fact that said petitioner had also tried to put an end to
it by actually republishing the notice of sale.
With the advent of 1981, its pleas for early resolution having apparently
fallen on deaf ears, Syjuco went to this Court (in G.R. No. L-56014) from
which, on September 21, 1982, it obtained the decision already referred to
holding, in fine, that there existed no further impediment to the foreclosure
sale and that the sheriff could proceed with the same.
Said decision, instead of deterring further attempts to derail the foreclosure,
apparently gave the signal for the clandestine filing this time by the
Partnership of the Heirs of Hugo Lim on October 14, 1982 of Civil Case No.
Q-36485, the subject of the present petition, which for the first time asserted
the claim that the mortgaged property had been contributed to the
plaintiff partnership long before the execution of the Syjuco's mortgage in
order to defeat the foreclosure.
Syjuco now maintains that it had no actual knowledge of the existence and
pendency of Civil Case No. Q-36485 until confronted, in the manner
already adverted to, with the fait accompli of a "final" judgment with
permanent injunction therein, and nothing in the record disabuses the
Court about the truth of this disclaimer. Indeed, considering what had
transpired up to that denouement, it becomes quite evident that
actuations of the Lims and their lawyer had been geared to keeping Syjuco
in the dark about said case. Their filing of two other cases also seeking to
enjoin the foreclosure sale (Civil Case No. 83-19018, Regional Trial Court of
Manila in July 1983, and Civil Case No. Q-32924, Regional Trial Court of
Quezon City in September of the same year) after said sale had already
been permanently enjoined by default judgment in Civil Case No. Q-36485,
appears in retrospect to be nothing but a brace of feints calculated to
keep Syjuco in that state of ignorance and to lull any apprehensions it may
have harbored about encountering further surprises from any other quarter.
Further credence is lent to this appraisal by the unusually rapid movement
of Civil Case No. Q-36485 itself in its earlier stages; which saw the motion to
declare Syjuco in default filed, an order of default issued, evidence ex parte
for the plaintiffs received and judgment by default rendered, all within the
brief span of twelve days, February 10-22, 1983. Notice of said judgment
was "served" on February 23, 1983, the day after it was handed down, only
to be followed by an unaccountable lull of well over a year before it was
ordered executed on July 9, 1984 unaccountable, considering that
previous flurry of activity, except in the context of a plan to rush the case to
judgment and then divert Syjuco's attention to the Lims' moves in other
directions so as to prevent discovery of the existence of the case until it was
too late.
The Court cannot but condemn in the strongest terms this trifling with the
judicial process which degrades the administration of justice, mocks,
subverts and misuses that process for purely dilatory purposes, thus tending
to bring it into disrepute, and seriously erodes public confidence in the will
and competence of the courts to dispense swift justice.
Upon the facts, the only defense to the foreclosure that could possibly have
merited the full-blown trial and appeal proceedings it actually went
through was that of alleged usury pleaded in Civil Case No. 75180 and
finally decided against the respondent Lims in G.R. No. L-45752 in
September 1977. The other issues of failure to republish and discharge of
mortgage by guarantee set up in succeeding actions were sham issues,
questions without substance raised only for purposes of delay by the private
respondents, in which they succeeded only too well. The claim urged in this
latest case: that the mortgaged property had been contributed to the
respondent partnership and was already property of said partnership when
the individual Lims unauthorizedly mortgaged it to Syjuco, is of no better
stripe, and this, too, is clear from the undisputed facts and the legal
conclusions to be drawn therefrom.
The record shows that the respondent partnership is composed exclusively
of the individual Lims in whose name all the cases herein referred to, with
the sole exception of Civil Case No. Q-36485, were brought and
prosecuted, their contribution to the partnership consisting chiefly, if not
solely, of the property subject of the Syjuco mortgage. It is also a fact that
despite its having been contributed to the partnership, allegedly on March
30, 1959, the property was never registered with the Register of Deeds in the
name of the partnership, but to this date remains registered in the names
of the Lims as owners in common. The original mortgage deed of November
14, 1964 was executed by the Lims as such owners, as were all subsequent
amendments of the mortgage. There can be no dispute that in those
circumstances, the respondent partnership was chargeable with
knowledge of the mortgage from the moment of its execution. The legal
fiction of a separate juridical personality and existence will not shield it from
the conclusion of having such knowledge which naturally and irresistibly
flows from the undenied facts. It would violate all precepts of reason,
ordinary experience and common sense to propose that a partnership, as
such, cannot be held accountable with knowledge of matters commonly
known to all the partners or of acts in which all of the latter, without
exception, have taken part, where such matters or acts affect property
claimed as its own by said partnership.
If, therefore, the respondent partnership was inescapably chargeable with
knowledge of the mortgage executed by all the partners thereof, its silence
and failure to impugn said mortgage within a reasonable time, let alone a
space of more than seventeen years, brought into play the doctrine of
estoppel to preclude any attempt to avoid the mortgage as allegedly
unauthorized.
The principles of equitable estoppel, sometimes called estoppel in pais, are
made part of our law by Art. 1432 of the Civil Code. Coming under this class
is estoppel by silence, which obtains here and as to which it has been held
that:
". . . an estoppel may arise from silence as well as from words. 'Estoppel by
silence' arises where a person, who by force of circumstances is under a
duty to another to speak, refrains from doing so and thereby leads the other
to believe in the existence of a state of facts in reliance on which he acts
to his prejudice. Silence may support an estoppel whether the failure to
speak is intentional or negligent.
"Inaction or silence may under some circumstances amount to a
misrepresentation and concealment of the facts, so as to raise an equitable
estoppel. When the silence is of such a character and under such
circumstances that it would become a fraud on the other party to permit
the party who has kept silent to deny what his silence has induced the other
to believe and act on, it will operate as an estoppel. This doctrine rests on
the principle that if one maintains silence, when in conscience he ought to
speak, equity will debar him from speaking when in conscience he ought
to remain silent. He who remains silent when he ought to speak cannot be
heard to speak when he should be silent." 40
And more to the point:
"A property owner who knowingly permits another to sell or encumber the
property, without disclosing his title or objecting to the transaction, is
estopped to set up his title or interest as against a person who has been
thereby misled to his injury.
xxx xxx xxx
85
"An owner of real property who stands by and sees a third person selling or
mortgaging it under claim of title without asserting his own title or giving the
purchaser or mortgagee any notice thereof is estopped, as against such
purchaser or mortgagee, afterward to assert his title; and, although title
does not pass under these circumstances, a conveyance will be decreed
by a court of equity. Especially is the rule applicable where the party
against whom the estoppel is claimed, in addition to standing by, takes part
in making the sale or mortgage." 41
"More specifically, the concept to which that species of estoppel which
results from the nondisclosure of an estate or interest in real property has
ordinarily been referred is fraud, actual or constructive . . . Although fraud
is not an essential element of the original conduct working the estoppel, it
may with perfect property be said that it would be fraudulent for the party
to repudiate his conduct, and to assert a right or claim in contravention
thereof." 42
Equally or even more preclusive of the respondent partnership's claim to
the mortgaged property is the last paragraph of Article 1819 of the Civil
Code, which contemplates a situation duplicating the circumstances that
attended the execution of the mortgage in favor of Syjuco and therefore
applies foursquare thereto:
"Where the title to real property is in the names of all the partners a
conveyance executed by all the partners passes all their rights in such
property."
The term "conveyance" used in said provision, which is taken from Section
10 of the American Uniform Partnership Act, includes a mortgage.
"Interpreting Sec. 10 of the Uniform Partnership Act, it has been held that
the right to mortgage is included in the right to convey. This is different from
the rule in agency that a special power to sell excludes the power to
mortgage (Art. 1879)." 43
As indisputable as the propositions and principles just stated is that the
cause of action in Civil Case No. Q-36485 is barred by prior judgment. The
right subsumed in that cause is the negation of the mortgage, postulated
on the claim that the parcels of land mortgaged by the Lims to Syjuco did
not in truth belong to them but to the partnership. Assuming this to be so,
the right could have been asserted at the time that the Lims instituted their
first action on December 24,1968 in the Manila Court of First Instance, Civil
Case No. 75180, or when they filed their subsequent actions: Civil Case No.
112762, on December 19, 1977; Civil Case No. 83-19018, in 1983, and Civil
Case No. Q-39294, also in 1983. The claim could have been set up by the
Lims, as members composing the partnership, "Heirs of Hugo Lim." It could
very well have been put forth by the partnership itself, as co-plaintiff in the
corresponding complaints, considering that the actions involved property
supposedly belonging to it and were being prosecuted by the entire
membership of the partnership, and therefore, the partnership was in
actuality, the real party in interest. In fact, consistently with the Lims' theory,
they should be regarded, in all the actions presented by them, as having
sued for vindication, not of their individual rights over the property
mortgaged, but those of the partnership. There is thus no reason to
distinguish between the Lims, as individuals, and the partnership itself, since
the former constituted the entire membership of the latter. In other words,
despite the concealment of the existence of the partnership, for all intents
and purposes and consistently with the Lims' own theory, it was that
partnership which was the real party in interest in all the actions; it was
actually represented in said actions by all the individual members thereof,
and consequently, those members' acts, declarations and omissions
cannot be deemed to be simply the individual acts of said members, but
in fact and in law, those of the partnership.
What was done by the Lims or by the partnership of which they were the
only members was to split their cause of action in violation of the well
known rule that only one suit may be instituted for a single cause of action.
44 The right sought to be enforced by them in all their actions was, at
bottom, to strike down the mortgage constituted in favor of Syjuco, a right
which, in their view, resulted from several circumstances, namely that the
mortgage was constituted over property belonging to the partnership
without the latter's authority; that the principal obligation thereby secured
was usurious; that the publication of the notice of foreclosure sale was
fatally defective, circumstances which had already taken place at the
time of the institution of the actions. They instituted four (4) actions for the
same purpose on one ground or the other, making each ground the
subject of a separate action. Upon these premises, application of the
sanction indicated by law is called for, i.e., the judgment on the merits in
any one is available as a bar in the others. 45
The first judgment rendered in Civil Case No. 75180 and affirmed by both
the Court of Appeals (CA-G.R. No. 51752) and this Court (G.R. No. L-45752)
should therefore have barred all the others, all the requisites of res judicata
being present. The judgment was a final and executory judgment; it had
been rendered by a competent court; and there was, between the first
and subsequent cases, not only identity of subject-matter and of cause of
action, but also of parties. As already pointed out, the plaintiffs in the first
four (4) actions, the Lims, were representing exactly the same claims as
those of the partnership, the plaintiff in the fifth and last action, of which
partnership they were the only members, and there was hence no
substantial difference as regards the parties plaintiff in all the actions. Under
the doctrine of res judicata, the judgment in the first was and should have
been regarded as conclusive in all other actions not only "with respect to
the matter directly adjudged," but also "as to any other matter that could
have been raised in relation thereto." 46 It being indisputable that the
matter of the partnership's being the owner of the mortgaged properties
"could have been raised in relation" to those expressly made issuable in the
first action, it follows that matter could not be re-litigated in the last action,
the fifth.
Though confronted with the facts thus precluding the respondent
partnership's claim to the property under both the principle of estoppel and
the provisions of Article 1819, last paragraph, of the Civil Code, as well as
the familiar doctrine of res judicata, the respondent Judge refused to act
on Syjuco's motions on the ground that he no longer had jurisdiction to do
so because they were filed after judgment by default against Syjuco, which
failed to answer the complaint despite valid service of summons, had been
rendered and become final. The sheriff's return, however, creates grave
doubts about the correctness of the Judge's basic premise that summons
had been validly served on Syjuco. For one thing, the return 47 is unspecific
about where service was effected. No safe conclusion about the place of
service can be made from its reference to a former and a present office of
Syjuco in widely separate locations, with nothing to indicate whether
service was effected at one address or the other, or even at both. A more
serious defect is the failure to name the person served who is, with equal
ambiguity, identified only as "the Manager" of the defendant corporation
(petitioner herein). Since the sheriff's return constitutes primary evidence of
the manner and incidents of personal service of a summons, the Rules are
quite specific about what such a document should contain:
"SEC. 20. Proof of service. The proof of service of a summons shall be
made in writing by the server and shall set forth the manner, place and
date of service; shall specify any papers which have been served with the
process and the name of the person who received the same; and shall be
sworn to when made by a person other than a sheriff or his deputy." 48
In the case of Delta Motor Sales Corporation vs. Mangosing 49 it was held
that:
"(a) strict compliance with the mode of service is necessary to confer
jurisdiction of the court over a corporation. The officer upon whom service
is made must be one who is named in the statute; otherwise the service is
insufficient. So, where the statute requires that in the case of a domestic
corporation summons should be served on `the president or head of the
corporation, secretary, treasurer, cashier or managing agent thereof',
service of summons on the secretary's wife did not confer jurisdiction over
the corporation in the foreclosure proceeding against it. Hence, the decree
of foreclosure and the deficiency judgment were void and should be
vacated (Reader vs. District Court, 94 Pacific 2nd 858).
"The purpose is to render it reasonably certain that the corporation will
receive prompt and proper notice in an action against it or to insure that
the summons be served on a representative so integrated with the
corporation that such person will know what to do with the legal papers
served on him. In other words, `to bring home to the corporation notice of
the filing of the action'. (35 A C.J.S. 288 citing Jenkins vs. Lykes Bros. S.S. Co.,
48 F. Supp. 848; MacCarthy vs. Langston, D.C. Fla., 23 F.R.D. 249).
"The liberal construction rule cannot be invoked and utilized as a substitute
for the plain legal requirements as to the manner in which summons should
be served on a domestic corporation (U.S. vs. Mollenhauer Laboratories,
Inc., 267 Fed. Rep. 2nd 260)."
The rule cannot be any less exacting as regards adherence to the
requirements of proof of service, it being usually by such proof that
sufficiency of compliance with the prescribed mode of service is measured.
Here the only proof of service of summons is the questioned sheriff's return
which, as already pointed out, is not only vague and unspecific as to the
86
place of service, but also neglects to identify by name the recipient of the
summons as required by Rule 20, Section 14, of the Rules of Court. Where
the sheriff's return is defective the presumption of regularity in the
performance of official functions will not lie. 50 The defective sheriff's return
thus being insufficient and incompetent to prove that summons was served
in the manner prescribed for service upon corporations, there is no
alternative to affirming the petitioner's claim that it had not been validly
summoned in Civil Case No. Q-36485. It goes without saying that lacking
such valid service, the Trial Court did not acquire jurisdiction over the
petitioner Syjuco, rendering null and void all subsequent proceedings and
issuances in the action from the order of default up to and including the
judgment by default and the order for its execution. 51
The respondents' contention that the petition is in effect an action to annul
a judgment which is within the exclusive original jurisdiction of the Court of
Appeals 52 has already been answered in Matanguihan vs. Tengco 53
where, by declaring that an action for annulment of judgment is not a plain,
speedy and adequate remedy, this Court in effect affirmed that certiorari
is an appropriate remedy against judgments or proceedings alleged to
have been rendered or had without valid service of summons. 54
Respondent Judge Castro begged the question when, instead of resolving
on the merits the issue of the invalidity of his default judgment and of the
proceedings leading thereto because of absence of valid service of
summons on the defendant, which had been expressly raised in the
defendant's motion for reconsideration, he simply refused to do so on the
excuse that he had lost jurisdiction over the case. This refusal was, in the
premises, a grave abuse of judicial discretion which must be rectified.
What has been said makes unnecessary any further proceedings in the
Court below, which might otherwise be indicated by the consideration that
two of the postulates of petitioner's unresolved motions which the Court
considers equally as decisive as res judicata, to wit: estoppel by silence and
Article 1819, last paragraph, of the Civil Code, do not constitute grounds
for a motion to dismiss under rule 16, of the Rules of Court. Such a step would
only cause further delay. And delay has been the bane of petitioner's
cause, defying through all these years all its efforts to collect on a just debt.
The undenied and undisputable facts make it perfectly clear that the claim
to the mortgaged property belatedly and in apparent bad faith pressed
by the respondent partnership is foreclosed by both law and equity. Further
proceedings will not make this any clearer than it already is. The Court is
clothed with ample authority, in such a case, to call a halt to all further
proceedings and pronounce judgment on the basis of what is already
manifestly of record.
So much for the merits; the consequences that should attend the
inexcusable and indefensible conduct of the respondents Lims, the
respondent partnership and their counsel, Atty. Paterno R. Canlas, should
now be addressed. That the Lims and their partnership acted in bad faith
and with intent to defraud is manifest in the record of their actuations,
presenting as they did, piecemeal and in one case after another, defenses
to the foreclosure or claims in derogation thereof that were available to
them from the very beginning actuations that were to stave off the
liquidation of an undenied debt for more than twenty years and
culminated in the clandestine filing and prosecution of the action subject
of the present petition.
What has happened here, it bears repeating, is nothing less than an abuse
of process, a trifling with the courts and with the rights of access thereto, for
which Atty. Canlas must share responsibility equally with his clients. The latter
could not have succeeded so well in obstructing the course of justice
without his aid and advice and his tireless espousal of their claims and
pretensions made in the various cases chronicled here. That the cause to
which he lent his advocacy was less than just or worthy could not have
escaped him, if not at the start of his engagement, in the years that
followed when with his willing assistance, if not instigation, it was shuttled
from one forum to another after each setback. This Court merely stated
what is obvious and cannot be gainsaid when, in Surigao Mineral
Reservation Board vs. Cloribel, 55 it held that a party's lawyer of record has
control of the proceedings and that "(w)hatever steps his client takes should
be within his knowledge and responsibility."
In Prudential Bank vs. Castro, 56 strikingly similar actuations in a case, which
are described in the following paragraph taken from this Court's decision
therein:
"Respondents' foregoing actuations reveal an 'unholy alliance' between
them and a clear indication of partiality for the party represented by the
other to the detriment of the objective dispensation of justice. Writs of
Attachment and Execution were issued and implemented with lightning
speed; the case itself was railroaded to a swift conclusion through a similar
judgment; astronomical sums were awarded as damages and attorney's
fees; and topping it all, the right to appeal was foreclosed by clever
maneuvers," and which, the Court found, followed a pattern of conduct in
other cases of which judicial notice was taken, were deemed sufficient
cause for disbarment.
Atty. Canlas even tried to mislead this Court by claiming that he became
the Lims' lawyer only in 1977, 57 when the record indubitably shows that he
has represented them since September 9, 1972 when he first appeared for
them to prosecute their appeal in Civil Case No. 75180. 58 He has also quite
impenitently disclaimed a duty to inform opposing counsel in Civil Case No.
Q-39294 of the existence of Civil Case No. Q-36485, as plaintiffs' counsel in
both actions, even while the former, which involved the same mortgage,
was already being litigated when the latter was filed, although in the
circumstances such disclosure was required by the ethics of his profession,
if not indeed by his lawyer's oath.
A clear case also exists for awarding at least nominal damages to
petitioner, though damages are not expressly prayed for, under the general
prayer of the petition for "such other reliefs as may be just and equitable
under the premises," and the action being not only of certiorari and
prohibition, but also of mandamus in which the payment of "damages
sustained by the petitioner by reason of the wrongful acts of the defendant"
is expressly authorized. 59
There is no question in the Court's mind that such interests as may have
accumulated on the mortgage loan will not offset the prejudice visited
upon the petitioner by the excruciatingly long delay in the satisfaction of
said debt that the private respondents have engineered and fomented.
These very same considerations dictate the imposition of exemplary
damages in accordance with Art. 2229 of the Civil Code.
WHEREFORE, so that complete justice may be dispensed here and, as far
as consistent with that end, all the matters and incidents with which these
proceedings are concerned may be brought to a swift conclusion:
(1) the assailed judgment by default in Civil Case No. Q-36485, the writ of
execution and all other orders issued in implementation thereof, and all
proceedings in the case leading to said judgment after the filing of the
complaint are DECLARED null and void and are hereby SET ASIDE; and the
complaint in said case is DISMISSED for being barred by prior judgment and
estoppel, and for lack of merit;
(2) the City Sheriff of Manila is ORDERED, upon receipt of this Decision, to
schedule forthwith and thereafter conduct with all due dispatch the sale at
public auction of the mortgaged property in question for the satisfaction of
the mortgage debt of the respondents Lims to petitioner, in the principal
amount of P2,460,000.00 as found in the amended decision in Civil Case
No. 75180 of the Court of First Instance of Manila, interests thereon at the
rate of twelve (12%) percent per annum from November 8, 1967 until the
date of sale, plus such other and additional sums for commissions,
expenses, fees, etc. as may be lawfully chargeable in extrajudicial
foreclosure and sale proceedings;
(3) the private respondents, their successors and assigns, are PERPETUALLY
ENJOINED from taking any action whatsoever to obstruct, delay or prevent
said auction sale;
(4) the private respondents (the Lims, the Partnership of the Heirs of Hugo
Lim and Atty. Paterno R. Canlas) are sentenced, jointly and severally, to pay
the petitioner P25,000.00 as nominal damages and P100,000.00 as
exemplary damages, as well as treble costs; and
(5) let this matter be referred to the Integrated Bar of the Philippines for
investigation, report, and recommendation insofar as the conduct of Atty.
Canlas as counsel in this case and in the other cases hereinabove referred
to is concerned.
SO ORDERED.
87
Article 1822-1823
[G.R. No. L-39780. November 11, 1985.]
ELMO MUASQUE, petitioner, vs. COURT OF APPEALS, CELESTINO GALAN,
TROPICAL COMMERCIAL COMPANY and RAMON PONS, respondents.
GUTIERREZ, JR., J p:
In this petition for certiorari, the petitioner seeks to annul and set aside the
decision of the Court of Appeals affirming the existence of a partnership
between petitioner and one of the respondents, Celestino Galan and
holding both of them liable to the two intervenors which extended credit to
their partnership. The petitioner wants to be excluded from the liabilities of
the partnership.
Petitioner Elmo Muasque filed a complaint for payment of sum of money
and damages against respondents Celestino Galan, Tropical Commercial,
Co., Inc. (Tropical) and Ramon Pons, alleging that the petitioner entered
into a contract with respondent Tropical through its Cebu Branch Manager
Pons for remodelling a portion of its building without exchanging or
expecting any consideration from Galan although the latter was casually
named as partner in the contract; that by virtue of his having introduced
the petitioner to the employing company (Tropical), Galan would receive
some kind of compensation in the form of some percentages or
commission; that Tropical, under the terms of the contract, agreed to give
petitioner the amount of P7,000.00 soon after the construction began and
thereafter the amount of P6,000.00 every fifteen (15) days during the
construction to make a total sum of P25,000.00; that on January 9, 1967,
Tropical and/or Pons delivered a check for P7,000.00 not to the plaintiff but
to a stranger to the contract, Galan, who succeeded in getting petitioner's
indorsement on the same check persuading the latter that the same be
deposited in a joint account; that on January 26, 1967, when the second
check for P6,000.00 was due, petitioner refused to indorse said check
presented to him by Galan but through later manipulations, respondent
Pons succeeded in changing the payee's name from Elmo Muasque to
Galan and Associates, thus enabling Galan to cash the same at the Cebu
Branch of the Philippine Commercial and Industrial Bank (PCIB) placing the
petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay for construction materials,
the payment of which should have been made from the P13,000.00
received by Galan; that petitioner undertook the construction at his own
expense completing it prior to the March 16, 1967 deadline; that because
of the unauthorized disbursement by respondents Tropical and Pons of the
sum of P13,000.00 to Galan, petitioner demanded that said amount be
paid to him by respondents under the terms of the written contract
between the petitioner and respondent company. prcd
The respondents answered the complaint by denying some and admitting
some of the material averments and setting up counterclaims.
During the pre-trial conference, the petitioners and respondents agreed
that the issues to be resolved are:
(1) Whether or not there existed a partnership between Celestino Galan
and Elmo Muasque; and
(2) Whether or not there existed a justifiable cause on the part of
respondent Tropical to disburse money to respondent Galan.
The business firms Cebu Southern Hardware Company and Blue Diamond
Glass Palace were allowed to intervene, both having legal interest in the
matter in litigation.
After trial, the court rendered judgment, the dispositive portion of which
states:
"IN VIEW WHEREOF, Judgment is hereby rendered:.
"(1) ordering plaintiff Muasque and defendant Galan to pay jointly and
severally the intervenors Cebu and Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively;
"(2) absolving the defendants Tropical Commercial Company and Ramon
Pons from any liability.
"No damages awarded whatsoever."
The petitioner and intervenor Cebu Southern Company and its proprietor,
Tan Siu filed motions for reconsideration.
On January 15, 1971, the trial court issued another order amending its
judgment to make it read as follows:.
"IN VIEW WHEREOF, Judgment is hereby rendered:.
"(1) ordering plaintiff Muasqez and defendant Galan to pay jointly and
severally the intervenors Cebu Southern Hardware Company and Blue
Diamond Glass Palace the amount of P6,229.34 and P2,213.51, respectively,
"(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu
Southern Hardware Company and Tan Siu jointly and severally interest at
12% per annum of the sum of P3,229.34 until the amount is fully paid;
"(3) ordering plaintiff and defendant Galan to pay P500.00 representing
attorney's fees jointly and severally to Intervenor Cebu Southern Hardware
Company;
"(4) absolving the defendants Tropical Commercial Company and Ramon
Pons from any liability.
"No damages awarded whatsoever."
On appeal, the Court of Appeals affirmed the judgment of the trial court
with the sole modification that the liability imposed in the dispositive part of
the decision on the credit of Cebu Southern Hardware and Blue Diamond
Glass Palace was changed from "jointly and severally" to "jointly."
Not satisfied, Mr. Muasque filed this petition.
The present controversy began when petitioner Muasque in behalf of the
partnership of "Galan and Muasque" as Contractor entered into a written
contract with respondent Tropical for remodelling the respondent's Cebu
branch building. A total amount of P25,000.00 was to be paid under the
contract for the entire services of the Contractor. The terms of payment
were as follows: thirty percent (30%) of the whole amount upon the signing
of the contract and the balance thereof divided into three equal
installments at the rate of Six Thousand Pesos (P6,000.00) every fifteen (15)
working days. LLjur
The first payment made by respondent Tropical was in the form of a check
for P7,000.00 in the name of the petitioner. Petitioner, however, indorsed the
check in favor of respondent Galan to enable the latter to deposit it in the
bank and pay for the materials and labor used in the project.
Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his
personal use so that when the second check in the amount of P6,000.00
came and Galan asked the petitioner to indorse it again, the petitioner
refused.
The check was withheld from the petitioner. Since Galan informed the
Cebu branch of Tropical that there was a "misunderstanding" between him
and petitioner, respondent Tropical changed the name of the payee in the
second check from Muasque to "Galan and Associates" which was the
duly registered name of the partnership between Galan and petitioner and
under which name a permit to do construction business was issued by the
mayor of Cebu City. This enabled Galan to encash the second check.
Meanwhile, as alleged by the petitioner, the construction continued
through his sole efforts. He stated that he borrowed some P12,000.00 from
his friend, Mr. Espina and although the expenses had reached the amount
of P29,000.00 because of the failure of Galan to pay what was partly due
the laborers and partly due for the materials, the construction work was
finished ahead of schedule with the total expenditure reaching P34,000.00.
The two remaining checks, each in the amount of P6,000.00, were
subsequently given to the petitioner alone with the last check being given
pursuant to a court order.
As stated earlier, the petitioner filed a complaint for payment of sum of
money and damages against the respondents, seeking to recover the
following: the amounts covered by the first and second checks which fell
into the hands of respondent Galan, the additional expenses that the
petitioner incurred in the construction, moral and exemplary damages, and
attorney's fees.
88
Both the trial and appellate courts not only absolved respondents Tropical
and its Cebu Manager, Pons, from any liability but they also held the
petitioner together with respondent Galan, liable to the intervenors Cebu
Southern Hardware Company and Blue Diamond Glass Palace for the
credit which the intervenors extended to the partnership of petitioner and
Galan.
In this petition, the legal questions raised by the petitioner are as follows: (1)
Whether or not the appellate court erred in holding that a partnership
existed between petitioner and respondent Galan. (2) Assuming that there
was such a partnership, whether or not the court erred in not finding Galan
guilty of malversing the P13,000.00 covered by the first and second checks
and therefore, accountable to the petitioner for the said amount; and (3)
Whether or not the court committed grave abuse of discretion in holding
that the payment made by Tropical through its manager Pons to Galan was
"good payment."
Petitioner contends that the appellate court erred in holding that he and
respondent Galan were partners, the truth being that Galan was a sham
and a perfidious partner who misappropriated the amount of P13,000.00
due to the petitioner. Petitioner also contends that the appellate court
committed grave abuse of discretion in holding that the payment made by
Tropical to Galan was "good" payment when the same gave occasion for
the latter to misappropriate the proceeds of such payment.
The contentions are without merit.
The records will show that the petitioner entered into a contract with
Tropical for the renovation of the latter's building on behalf of the
partnership of "Galan and Muasque." This is readily seen in the first
paragraph of the contract where it states: LLphil
"This agreement made this 20th day of December in the year 1966 by Galan
and Muasque hereinafter called the Contractor, and Tropical
Commercial Co., Inc., hereinafter called the owner do hereby for and in
consideration agree on the following: . . . ."
There is nothing in the records to indicate that the partnership organized by
the two men was not a genuine one. If there was a falling out or
misunderstanding between the partners, such does not convert the
partnership into a sham organization.
Likewise, when Muasque received the first payment of Tropical in the
amount of P7,000.00 with a check made out in his name, he indorsed the
check in favor of Galan. Respondent Tropical therefore, had every right to
presume that the petitioner and Galan were true partners. If they were not
partners as petitioner claims, then he has only himself to blame for making
the relationship appear otherwise, not only to Tropical but to their other
creditors as well. The payments made to the partnership were, therefore,
valid payments.
In the case of Singsong v. Isabela Sawmill (88 SCRA 643), we ruled:
"Although it may be presumed that Margarita G. Saldajeno had acted in
good faith, the appellees also acted in good faith in extending credit to
the partnership. Where one of two innocent persons must suffer, that person
who gave occasion for the damages to be caused must bear the
consequences."
No error was committed by the appellate court in holding that the payment
made by Tropical to Galan was a good payment which binds both Galan
and the petitioner. Since the two were partners when the debts were
incurred, they are also both liable to third persons who extended credit to
their partnership. In the case of George Litton v. Hill and Ceron, et al., (67
Phil. 513, 514), we ruled:
"There is a general presumption that each individual partner is an
authorized agent for the firm and that he has authority to bind the firm in
carrying on the partnership transactions." (Mills vs. Riggle, 112 Pac., 617).
"The presumption is sufficient to permit third persons to hold the firm liable
on transactions entered into by one of members of the firm acting
apparently in its behalf and within the scope of his authority." (Le Roy vs.
Johnson, 7 U.S. (Law. ed.), 391.).
Petitioner also maintains that the appellate court committed grave abuse
of discretion in not holding Galan liable for the amounts which he
"malversed" to the prejudice of the petitioner. He adds that although this
was not one of the issues agreed upon by the parties during the pre-trial,
he, nevertheless, alleged the same in his amended complaint which was
duly admitted by the court. Cdpr
When the petitioner amended his complaint, it was only for the purpose of
impleading Ramon Pons in his personal capacity. Although the petitioner
made allegations as to the alleged malversations of Galan, these were the
same allegations in his original complaint. The malversation by one partner
was not an issue actually raised in the amended complaint but the alleged
connivance of Pons with Galan as a means to serve the latter's personal
purposes.
The petitioner, therefore, should be bound by the delimitation of the issues
during the pre-trial because he himself agreed to the same. In Permanent
Concrete Products, Inc. v. Teodoro, (26 SCRA 336), we ruled:.
xxx xxx xxx
". . . The appellant is bound by the delimitation of the issues contained in
the trial court's order issued on the very day the pre-trial conference was
held. Such an order controls the subsequent course of the action, unless
modified before trial to prevent manifest injustice. In the case at bar,
modification of the pre-trial order was never sought at the instance of any
party."
Petitioner could have asked at least for a modification of the issues if he
really wanted to include the determination of Galan's personal liability to
their partnership but he chose not to do so, as he vehemently denied the
existence of the partnership, At any rate, the issue raised in this petition is
the contention of Muasque that the amounts payable to the intervenors
should be shouldered exclusively by Galan. We note that the petitioner is
not solely burdened by the obligations of their ill-starred partnership. The
records show that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000,00 in favor of Eden
Hardware which extended credit to the partnership aside from the
P2,000.00 he already paid to Universal Lumber.
We, however, take exception to the ruling of the appellate court that the
trial court's ordering petitioner and Galan to pay the credits of Blue
Diamond and Cebu Southern Hardware "jointly and severally" is plain error
since the liability of partners under the law to third persons for contracts
executed in connection with partnership business is only pro rata under Art.
1816, of the Civil Code.
While it is true that under Article 1816 of the Civil Code, "All partners,
including industrial ones, shall be liable pro rata with all their property and
after all the partnership assets have been exhausted, for the contracts
which may be entered into the name and for the account of the
partnership, under its signature and by a person authorized to act for the
partnership. . . .", this provision should be construed together with Article
1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles
1822 and 1823." In short, while the liability of the partners are merely joint in
transactions entered into by the partnership, a third person who transacted
with said partnership can hold the partners solidarily liable for the whole
obligation if the case of the third person falls under Articles 1822 or 1823.
LLpr
Articles 1822 and 1823 of the Civil Code provide:
"Art. 1822. Where, by 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, loss or injury is caused to any person, not being a partner
in the partnership or any penalty is incurred, the partnership is liable therefor
to the same extent as the partner so acting or omitting to act."
"Art. 1823. The partnership is bound to make good the loss:
"(1) Where one partner acting within the scope of his apparent authority
receives money or property of a third person and misapplies it; and
"(2) Where the partnership in the course of its business receives money or
property of a third person and the money or property so received is
misapplied by any partner while it is in the custody of the partnership."
The obligation is solidary because the law protects him, who in good faith
relied upon the authority of a partner, whether such authority is real or
apparent. That is why under Article 1824 of the Civil Code all partners,
whether innocent or guilty, as well as the legal entity which is the
partnership, are solidarily liable.
89

In the case at bar the respondent Tropical had every reason to believe that
a partnership existed between the petitioner and Galan and no fault or
error can be imputed against it for making payments to "Galan and
Associates" and delivering the same to Galan because as far as it was
concerned, Galan was a true partner with real authority to transact on
behalf of the partnership with which it was dealing. This is even more true in
the cases of Cebu Southern Hardware and Blue Diamond Glass Palace
who supplied materials on credit to the partnership. Thus, it is but fair that
the consequences of any wrongful act committed by any of the partners
therein should be answered solidarily by all the partners and the partnership
as a whole.
However, as between the partners Muasque and Galan, justice also
dictates that Muasque be reimbursed by Galan for the payments made
by the former representing the liability of their partnership to herein
intervenors, as it was satisfactorily established that Galan acted in bad faith
in his dealings with Muasque as a partner. cdrep
WHEREFORE, the decision appealed from is hereby AFFIRMED with the
MODIFICATION that the liability of petitioner and respondent Galan to
intervenors Blue Diamond Glass and Cebu Southern Hardware is declared
to be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors.
SO ORDERED.
[G.R. No. 159139. January 13, 2004.]
INFORMATION TECHNOLOGY FOUNDATION OF THE PHILIPPINES, MA.
CORAZON M. AKOL, MIGUEL UY, EDUARDO H. LOPEZ, AUGUSTO C. LAGMAN,
REX C. DRILON, MIGUEL HILADO, LEY SALCEDO, and MANUEL ALCUAZ JR.,
petitioners, vs. COMMISSION ON ELECTIONS; COMELEC CHAIRMAN
BENJAMIN ABALOS SR.; COMELEC BIDDING and AWARD COMMITTEE
CHAIRMAN EDUARDO D. MEJOS and MEMBERS GIDEON DE GUZMAN, JOSE
F. BALBUENA, LAMBERTO P. LLAMAS, and BARTOLOME SINOCRUZ JR.; MEGA
PACIFIC eSOLUTIONS, INC.; and MEGA PACIFIC CONSORTIUM, respondents.
DECISION
PANGANIBAN, J p:
There is grave abuse of discretion (1) when an act is done contrary to the
Constitution, the law or jurisprudence; 1 or (2) when it is executed
whimsically, capriciously or arbitrarily out of malice, ill will or personal bias. 2
In the present case, the Commission on Elections approved the assailed
Resolution and awarded the subject Contract not only in clear violation of
law and jurisprudence, but also in reckless disregard of its own bidding rules
and procedure. For the automation of the counting and canvassing of the
ballots in the 2004 elections, Comelec awarded the Contract to "Mega
Pacific Consortium" an entity that had not participated in the bidding.
Despite this grant, the poll body signed the actual automation Contract
with "Mega Pacific eSolutions, Inc.," a company that joined the bidding but
had not met the eligibility requirements.
Comelec awarded this billion-peso undertaking with inexplicable haste,
without adequately checking and observing mandatory financial,
technical and legal requirements. It also accepted the proferred computer
hardware and software even if, at the time of the award, they had
undeniably failed to pass eight critical requirements designed to safeguard
the integrity of elections, especially the following three items:
They failed to achieve the accuracy rating criteria of 99.9995 percent set-
up by the Comelec itself
They were not able to detect previously downloaded results at various
canvassing or consolidation levels and to prevent these from being
inputted again
They were unable to print the statutorily required audit trails of the
count/canvass at different levels without any loss of data
Because of the foregoing violations of law and the glaring grave abuse of
discretion committed by Comelec, the Court has no choice but to exercise
its solemn "constitutional duty" 3 to void the assailed Resolution and the
subject Contract. The illegal, imprudent and hasty actions of the
Commission have not only desecrated legal and jurisprudential norms, but
have also cast serious doubts upon the poll body's ability and capacity to
conduct automated elections. Truly, the pith and soul of democracy
credible, orderly, and peaceful elections has been put in jeopardy by
the illegal and gravely abusive acts of Comelec.
The Case
Before us is a Petition 4 under Rule 65 of the Rules of Court, seeking (1) to
declare null and void Resolution No. 6074 of the Commission on Elections
(Comelec), which awarded "Phase II of the Modernization Project of the
Commission to Mega Pacific Consortium (MPC);" (2) to enjoin the
implementation of any further contract that may have been entered into
by Comelec "either with Mega Pacific Consortium and/or Mega Pacific
eSolutions, Inc. (MPEI);" and (3) to compel Comelec to conduct a re-
bidding of the project.
The Facts
The following facts are not disputed. They were culled from official
documents, the parties' pleadings, as well as from admissions during the
Oral Argument on October 7, 2003.
On June 7, 1995, Congress passed Republic Act 8046, 5 which authorized
Comelec to conduct a nationwide demonstration of a computerized
election system and allowed the poll body to pilot-test the system in the
March 1996 elections in the Autonomous Region in Muslim Mindanao
(ARMM).
On December 22, 1997, Congress enacted Republic Act 8436 6 authorizing
Comelec to use an automated election system (AES) for the process of
voting, counting votes and canvassing/consolidating the results of the
national and local elections. It also mandated the poll body to acquire
automated counting machines (ACMs), computer equipment, devices
and materials; and to adopt new electoral forms and printing materials.
Initially intending to implement the automation during the May 11, 1998
presidential elections, Comelec in its Resolution No. 2985 dated February
9, 1998 7 eventually decided against full national implementation and
limited the automation to the Autonomous Region in Muslim Mindanao
(ARMM). However, due to the failure of the machines to read correctly
some automated ballots in one town, the poll body later ordered their
manual count for the entire Province of Sulu. 8
In the May 2001 elections, the counting and canvassing of votes for both
national and local positions were also done manually, as no additional
ACMs had been acquired for that electoral exercise allegedly because of
time constraints.
On October 29, 2002, Comelec adopted in its Resolution 02-0170 a
modernization program for the 2004 elections. It resolved to conduct
biddings for the three (3) phases of its Automated Election System; namely,
Phase I Voter Registration and Validation System; Phase II Automated
Counting and Canvassing System; and Phase III Electronic Transmission.
On January 24, 2003, President Gloria Macapagal-Arroyo issued Executive
Order No. 172, which allocated the sum of P2.5 billion to fund the AES for
the May 10, 2004 elections. Upon the request of Comelec, she authorized
the release of an additional P500 million.
On January 28, 2003, the Commission issued an "Invitation to Apply for
Eligibility and to Bid," which we quote as follows:
"INVITATION TO APPLY FOR ELIGIBILITY AND TO BID
The Commission on Elections (COMELEC), pursuant to the mandate of
Republic Act Nos. 8189 and 8436, invites interested offerors, vendors,
suppliers or lessors to apply for eligibility and to bid for the procurement by
purchase, lease, lease with option to purchase, or otherwise, supplies,
equipment, materials and services needed for a comprehensive
Automated Election System, consisting of three (3) phases: (a)
registration/verification of voters, (b) automated counting and
consolidation of votes, and (c) electronic transmission of election results,
with an approved budget of TWO BILLION FIVE HUNDRED MILLION
(Php2,500,000,000) Pesos. EICDSA
Only bids from the following entities shall be entertained:
a. Duly licensed Filipino citizens/proprietorships;
b. Partnerships duly organized under the laws of the Philippines and of
which at least sixty percent (60%) of the interest belongs to citizens of the
Philippines;
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c. Corporations duly organized under the laws of the Philippines, and of
which at least sixty percent (60%) of the outstanding capital stock belongs
to citizens of the Philippines;
d. Manufacturers, suppliers and/or distributors forming themselves into a
joint venture, i.e., a group of two (2) or more manufacturers, suppliers
and/or distributors that intend to be jointly and severally responsible or liable
for a particular contract, provided that Filipino ownership thereof shall be
at least sixty percent (60%); and
e. Cooperatives duly registered with the Cooperatives Development
Authority.
Bid documents for the three (3) phases may be obtained starting 10
February 2003, during office hours from the Bids and Awards Committee
(BAC) Secretariat/Office of Commissioner Resurreccion Z. Borra, 7th Floor,
Palacio del Governador, Intramuros, Manila, upon payment at the Cash
Division, Commission on Elections, in cash or cashier's check, payable to the
Commission on Elections, of a non-refundable amount of FIFTEEN
THOUSAND PESOS (Php15,000.00) for each phase. For this purpose,
interested offerors, vendors, suppliers or lessors have the option to
participate in any or all of the three (3) phases of the comprehensive
Automated Election System.
A Pre-Bid Conference is scheduled on 13 February 2003, at 9:00 a.m. at the
Session Hall, Commission on Elections, Postigo Street, Intramuros, Manila.
Should there be questions on the bid documents, bidders are required to
submit their queries in writing to the BAC Secretariat prior to the scheduled
Pre-Bid Conference.
Deadline for submission to the BAC of applications for eligibility and bid
envelopes for the supply of the comprehensive Automated Election System
shall be at the Session Hall, Commission on Elections, Postigo Street,
Intramuros, Manila on 28 February 2003 at 9:00 a.m.
The COMELEC reserves the right to review the qualifications of the bidders
after the bidding and before the contract is executed. Should such review
uncover any misrepresentation made in the eligibility statements, or any
changes in the situation of the bidder to materially downgrade the
substance of such statements, the COMELEC shall disqualify the bidder
upon due notice without any obligation whatsoever for any expenses or
losses that may be incurred by it in the preparation of its bid." 9
On February 11, 2003, Comelec issued Resolution No. 5929 clarifying certain
eligibility criteria for bidders and the schedule of activities for the project
bidding, as follows:
"1.) Open to Filipino and foreign corporation duly registered and licensed
to do business and is actually doing business in the Philippines, subject to
Sec. 43 of RA 9184 (An Act providing in the Modernization Standardization
and Regulation of the Procurement Activities of the Government and for
other purposes etc.)
2.) Track Record:
a) For counting machines should have been used in at least one (1)
political exercise with no less than Twenty Million Voters;
b) For verification of voters the reference site of an existing data base
installation using Automated Fingerprint Identification System (AFIS) with at
least Twenty Million.
3.) Ten percent (10%) equity requirement shall be based on the total project
cost; and
4.) Performance bond shall be twenty percent (20%) of the bid offer.
RESOLVED moreover, that:
1) A. Due to the decision that the eligibility requirements and the rest of the
Bid documents shall be released at the same time, and the memorandum
of Comm. Resurreccion Z. Borra dated February 7, 2003, the documents to
be released on Friday, February 14, 2003 at 2:00 o'clock p.m. shall be the
eligibility criteria, Terms of Reference (TOR) and other pertinent documents;
B. Pre-Bid conference shall be on February 18, 2003; and
C. Deadline for the submission and receipt of the Bids shall be on March 5,
2003.
2) The aforementioned documents will be available at the following offices:
a) Voters Validation: Office of Comm. Javier
b) Automated Counting Machines: Office of Comm. Borra
c) Electronic Transmission: Office of Comm. Tancangco" 10
On February 17, 2003, the poll body released the Request for Proposal (RFP)
to procure the election automation machines. The Bids and Awards
Committee (BAC) of Comelec convened a pre-bid conference on
February 18, 2003 and gave prospective bidders until March 10, 2003 to
submit their respective bids.
Among others, the RFP provided that bids from manufacturers, suppliers
and/or distributors forming themselves into a joint venture may be
entertained, provided that the Philippine ownership thereof shall be at least
60 percent. Joint venture is defined in the RFP as "a group of two or more
manufacturers, suppliers and/or distributors that intend to be jointly and
severally responsible or liable for a particular contract." 11
Basically, the public bidding was to be conducted under a two-
envelope/two stage system. The bidder's first envelope or the Eligibility
Envelope should establish the bidder's eligibility to bid and its qualifications
to perform the acts if accepted. On the other hand, the second envelope
would be the Bid Envelope itself. The RFP outlines the bidding procedures
as follows:
"25. Determination of Eligibility of Prospective Bidders
"25.1 The eligibility envelopes of prospective Bidders shall be opened first to
determine their eligibility. In case any of the requirements specified in
Clause 20 is missing from the first bid envelope, the BAC shall declare said
prospective Bidder as ineligible to bid. Bid envelopes of ineligible Bidders
shall be immediately returned unopened.
"25.2 The eligibility of prospective Bidders shall be determined using simple
'pass/fail' criteria and shall be determined as either eligible or ineligible. If
the prospective Bidder is rated 'passed' for all the legal, technical and
financial requirements, he shall be considered eligible. If the prospective
Bidder is rated 'failed' in any of the requirements, he shall be considered
ineligible.
"26. Bid Examination/Evaluation
"26.1 The BAC will examine the Bids to determine whether they are
complete, whether any computational errors have been made, whether
required securities have been furnished, whether the documents have
been properly signed, and whether the Bids are generally in order.
"26.2 The BAC shall check the submitted documents of each Bidder against
the required documents enumerated under Clause 20, to ascertain if they
are all present in the Second bid envelope (Technical Envelope). In case
one (1) or more of the required documents is missing, the BAC shall rate the
Bid concerned as 'failed' and immediately return to the Bidder its Third bid
envelope (Financial Envelope) unopened. Otherwise, the BAC shall rate the
first bid envelope as 'passed'.
"26.3 The BAC shall immediately open the Financial Envelopes of the
Bidders whose Technical Envelopes were passed or rated on or above the
passing score. Only Bids that are determined to contain all the bid
requirements for both components shall be rated 'passed' and shall
immediately be considered for evaluation and comparison.
"26.4 In the opening and examination of the Financial Envelope, the BAC
shall announce and tabulate the Total Bid Price as calculated. Arithmetical
errors will be rectified on the following basis: If there is a discrepancy
between words and figures, the amount in words will prevail. If there is a
discrepancy between the unit price and the total price that is obtained by
multiplying the unit price and the quantity, the unit price shall prevail and
the total price shall be corrected accordingly. If there is a discrepancy
between the Total Bid Price and the sum of the total prices, the sum of the
total prices prevail and the Total Bid Price shall be corrected accordingly.
HcSaAD
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"26.5 Financial Proposals which do not clearly state the Total Bid Price shall
be rejected. Also, Total Bid Price as calculated that exceeds the approved
budget for the contract shall also be rejected.
27. Comparison of Bids
"27.1 The bid price shall be deemed to embrace all costs, charges and fees
associated with carrying out all the elements of the proposed Contract,
including but not limited to, license fees, freight charges and taxes.
"27.2 The BAC shall establish the calculated prices of all Bids rated 'passed'
and rank the same in ascending order.
xxx xxx xxx
"29. Postqualification
"29.1 The BAC will determine to its satisfaction whether the Bidder selected
as having submitted the lowest calculated bid is qualified to satisfactorily
perform the Contract.
"29.2 The determination will take into account the Bidder's financial,
technical and production capabilities/resources. It will be based upon an
examination of the documentary evidence of the Bidder's qualification
submitted by the Bidder as well as such other information as the BAC deems
necessary and appropriate.
"29.3 A bid determined as not substantially responsive will be rejected by
the BAC and may not subsequently be made responsive by the Bidder by
correction of the non-conformity.
"29.4 The BAC may waive any informality or non-conformity or irregularity in
a bid which does not constitute a material deviation, provided such waiver
does not prejudice or affect the relative ranking of any Bidder.
"29.5 Should the BAC find that the Bidder complies with the legal, financial
and technical requirements, it shall make an affirmative determination
which shall be a prerequisite for award of the Contract to the Bidder.
Otherwise, it will make a negative determination which will result in rejection
of the Bidder's bid, in which event the BAC will proceed to the next lowest
calculated bid to make a similar determination of that Bidder's capabilities
to perform satisfactorily." 12
Out of the 57 bidders, 13 the BAC found MPC and the Total Information
Management Corporation (TIMC) eligible. For technical evaluation, they
were referred to the BAC's Technical Working Group (TWG) and the
Department of Science and Technology (DOST).
In its Report on the Evaluation of the Technical Proposals on Phase II, DOST
said that both MPC and TIMC had obtained a number of failed marks in the
technical evaluation. Notwithstanding these failures, Comelec en banc, on
April 15, 2003, promulgated Resolution No. 6074 awarding the project to
MPC. The Commission publicized this Resolution and the award of the
project to MPC on May 16, 2003.
On May 29, 2003, five individuals and entities (including the herein
Petitioners Information Technology Foundation of the Philippines,
represented by its president, Alfredo M. Torres; and Ma. Corazon Akol)
wrote a letter 14 to Comelec Chairman Benjamin Abalos Sr. They protested
the award of the Contract to Respondent MPC "due to glaring irregularities
in the manner in which the bidding process had been conducted." Citing
therein the noncompliance with eligibility as well as technical and
procedural requirements (many of which have been discussed at length in
the Petition), they sought a re-bidding.
In a letter-reply dated June 6, 2003, 15 the Comelec chairman speaking
through Atty. Jaime Paz, his head executive assistant rejected the protest
and declared that the award "would stand up to the strictest scrutiny."
Hence, the present Petition. 16
The Issues
In their Memorandum, petitioners raise the following issues for our
consideration:
"1. The COMELEC awarded and contracted with a non-eligible entity; . . .
"2. Private respondents failed to pass the Technical Test as required in the
RFP. Notwithstanding, such failure was ignored. In effect, the COMELEC
changed the rules after the bidding in effect changing the nature of the
contract bidded upon.
"3. Petitioners have locus standi.
"4. Instant Petition is not premature. Direct resort to the Supreme Court is
justified." 17
In the main, the substantive issue is whether the Commission on Elections,
the agency vested with the exclusive constitutional mandate to oversee
elections, gravely abused its discretion when, in the exercise of its
administrative functions, it awarded to MPC the contract for the second
phase of the comprehensive Automated Election System.
Before discussing the validity of the award to MPC, however, we deem it
proper to first pass upon the procedural issues: the legal standing of
petitioners and the alleged prematurity of the Petition.
This Court's Ruling
The Petition is meritorious.
First Procedural Issue:
Locus Standi of Petitioners
Respondents chorus that petitioners do not possess locus standi, inasmuch
as they are not challenging the validity or constitutionality of RA 8436.
Moreover, petitioners supposedly admitted during the Oral Argument that
no law had been violated by the award of the Contract. Furthermore, they
allegedly have no actual and material interest in the Contract and, hence,
do not stand to be injured or prejudiced on account of the award.
On the other hand, petitioners suing in their capacities as taxpayers,
registered voters and concerned citizens respond that the issues central
to this case are "of transcendental importance and of national interest."
Allegedly, Comelec's flawed bidding and questionable award of the
Contract to an unqualified entity would impact directly on the success or
the failure of the electoral process. Thus, any taint on the sanctity of the
ballot as the expression of the will of the people would inevitably affect their
faith in the democratic system of government. Petitioners further argue that
the award of any contract for automation involves disbursement of public
funds in gargantuan amounts; therefore, public interest requires that the
laws governing the transaction must be followed strictly.
We agree with petitioners. Our nation's political and economic future
virtually hangs in the balance, pending the outcome of the 2004 elections.
Hence, there can be no serious doubt that the subject matter of this case
is "a matter of public concern and imbued with public interest"; 18 in other
words, it is of "paramount public interest" 19 and "transcendental
importance." 20 This fact alone would justify relaxing the rule on legal
standing, following the liberal policy of this Court whenever a case involves
"an issue of overarching significance to our society." 21 Petitioners' legal
standing should therefore be recognized and upheld.
Moreover, this Court has held that taxpayers are allowed to sue when there
is a claim of "illegal disbursement of public funds," 22 or if public money is
being "deflected to any improper purpose"; 23 or when petitioners seek to
restrain respondent from "wasting public funds through the enforcement of
an invalid or unconstitutional law." 24 In the instant case, individual
petitioners, suing as taxpayers, assert a material interest in seeing to it that
public funds are properly and lawfully used. In the Petition, they claim that
the bidding was defective, the winning bidder not a qualified entity, and
the award of the Contract contrary to law and regulation. Accordingly,
they seek to restrain respondents from implementing the Contract and,
necessarily, from making any unwarranted expenditure of public funds
pursuant thereto. Thus, we hold that petitioners possess locus standi.
Second Procedural Issue:
Alleged Prematurity Due to Non-Exhaustion
of Administrative Remedies
Respondents claim that petitioners acted prematurely, since they had not
first utilized the protest mechanism available to them under RA 9184, the
Government Procurement Reform Act, for the settlement of disputes
pertaining to procurement contracts.
Section 55 of RA 9184 states that protests against decisions of the Bidding
and Awards Committee in all stages of procurement may be lodged with
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the head of the procuring entity by filing a verified position paper and
paying a protest fee. Section 57 of the same law mandates that in no case
shall any such protest stay or delay the bidding process, but it must first be
resolved before any award is made.
On the other hand, Section 58 provides that court action may be resorted
to only after the protests contemplated by the statute shall have been
completed. Cases filed in violation of this process are to be dismissed for
lack of jurisdiction. Regional trial courts shall have jurisdiction over final
decisions of the head of the procuring entity, and court actions shall be
instituted pursuant to Rule 65 of the 1997 Rules of Civil Procedure. cECTaD
Respondents assert that throughout the bidding process, petitioners never
questioned the BAC Report finding MPC eligible to bid and recommending
the award of the Contract to it (MPC). According to respondents, the
Report should have been appealed to the Comelec en banc, pursuant to
the aforementioned sections of RA 9184. In the absence of such appeal,
the determination and recommendation of the BAC had become final.
The Court is not persuaded.
Respondent Comelec came out with its en banc Resolution No. 6074 dated
April 15, 2003, awarding the project to Respondent MPC even before the
BAC managed to issue its written report and recommendation on April 21,
2003. Thus, how could petitioners have appealed the BAC's
recommendation or report to the head of the procuring entity (the
chairman of Comelec), when the Comelec en banc had already
approved the award of the contract to MPC even before petitioners
learned of the BAC recommendation?
It is claimed 25 by Comelec that during its April 15, 2003 session, it received
and approved the verbal report and recommendation of the BAC for the
award of the Contract to MPC, and that the BAC subsequently re-affirmed
its verbal report and recommendation by submitting it in writing on April 21,
2003. Respondents insist that the law does not require that the BAC Report
be in writing before Comelec can act thereon; therefore, there is allegedly
nothing irregular about the Report as well as the en banc Resolution.
However, it is obvious that petitioners could have appealed the BAC's
report and recommendation to the head of the procuring entity (the
Comelec chair) only upon their discovery thereof, which at the very earliest
would have been on April 21, 2003, when the BAC actually put its report in
writing and finally released it. Even then, what would have been the use of
protesting/appealing the report to the Comelec chair, when by that time
the Commission en banc (including the chairman himself) had already
approved the BAC Report and awarded the Contract to MPC?
And even assuming arguendo that petitioners had somehow gotten wind
of the verbal BAC report on April 15, 2003 (immediately after the en banc
session), at that point the Commission en banc had already given its
approval to the BAC Report along with the award to MPC. To put it bluntly,
the Comelec en banc itself made it legally impossible for petitioners to avail
themselves of the administrative remedy that the Commission is so impiously
harping on. There is no doubt that they had not been accorded the
opportunity to avail themselves of the process provided under Section 55
of RA 9184, according to which a protest against a decision of the BAC may
be filed with the head of the procuring entity. Nemo tenetur ad impossible,
26 to borrow private respondents' favorite Latin excuse. 27
Some Observations on the BAC Report to the Comelec
We shall return to this issue of alleged prematurity shortly, but at this
interstice, we would just want to put forward a few observations regarding
the BAC Report and the Comelec en banc's approval thereof.
First, Comelec contends that there was nothing unusual about the fact that
the Report submitted by the BAC came only after the former had already
awarded the Contract, because the latter had been asked to render its
report and recommendation orally during the Commission's en banc
session on April 15, 2003. Accordingly, Comelec supposedly acted upon
such oral recommendation and approved the award to MPC on the same
day, following which the recommendation was subsequently reduced into
writing on April 21, 2003. While not entirely outside the realm of the possible,
this interesting and unique spiel does not speak well of the process that
Comelec supposedly went through in making a critical decision with
respect to a multi-billion-peso contract.
We can imagine that anyone else standing in the shoes of the Honorable
Commissioners would have been extremely conscious of the overarching
need for utter transparency. They would have scrupulously avoided the
slightest hint of impropriety, preferring to maintain an exacting regularity in
the performance of their duties, instead of trying to break a speed record
in the award of multi-billion-peso contracts. After all, between April 15 and
April 21 were a mere six (6) days. Could Comelec not have waited out six
more days for the written report of the BAC, instead of rushing pell-mell into
the arms of MPC? Certainly, respondents never cared to explain the nature
of the Commission's dire need to act immediately without awaiting the
formal, written BAC Report.
In short, the Court finds it difficult to reconcile the uncommon dispatch with
which Comelec acted to approve the multi-billion-peso deal, with its claim
of having been impelled by only the purest and most noble of motives.
At any rate, as will be discussed later on, several other factors combine to
lend negative credence to Comelec's tale.
Second, without necessarily ascribing any premature malice or
premeditation on the part of the Comelec officials involved, it should
nevertheless be conceded that this cart-before-the-horse maneuver
(awarding of the Contract ahead of the BAC's written report) would
definitely serve as a clever and effective way of averting and frustrating
any impending protest under Section 55.
Having made the foregoing observations, we now go back to the question
of exhausting administrative remedies. Respondents may not have realized
it, but the letter addressed to Chairman Benjamin Abalos Sr. dated May 29,
2003 28 serves to eliminate the prematurity issue as it was an actual written
protest against the decision of the poll body to award the Contract. The
letter was signed by/for, inter alia, two of herein petitioners: the Information
Technology Foundation of the Philippines, represented by its president,
Alfredo M. Torres; and Ma. Corazon Akol.
Such letter-protest is sufficient compliance with the requirement to exhaust
administrative remedies particularly because it hews closely to the
procedure outlined in Section 55 of RA 9184.
And even without that May 29, 2003 letter-protest, the Court still holds that
petitioners need not exhaust administrative remedies in the light of Paat v.
Court of Appeals. 29 Paat enumerates the instances when the rule on
exhaustion of administrative remedies may be disregarded, as follows:
"(1) when there is a violation of due process,
(2) when the issue involved is purely a legal question,
(3) when the administrative action is patently illegal amounting to lack or
excess of jurisdiction,
(4) when there is estoppel on the part of the administrative agency
concerned,
(5) when there is irreparable injury,
(6) when the respondent is a department secretary whose acts as an alter
ego of the President bears the implied and assumed approval of the latter,
(7) when to require exhaustion of administrative remedies would be
unreasonable,
(8) when it would amount to a nullification of a claim,
(9) when the subject matter is a private land in land case proceedings,
(10) when the rule does not provide a plain, speedy and adequate remedy,
and
(11) when there are circumstances indicating the urgency of judicial
intervention." 30
The present controversy precisely falls within the exceptions listed as Nos. 7,
10 and 11: "(7) when to require exhaustion of administrative remedies would
be unreasonable; (10) when the rule does not provide a plain, speedy and
adequate remedy, and (11) when there are circumstances indicating the
urgency of judicial intervention." As already stated, Comelec itself made
the exhaustion of administrative remedies legally impossible or, at the very
least, "unreasonable."
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In any event, the peculiar circumstances surrounding the unconventional
rendition of the BAC Report and the precipitate awarding of the Contract
by the Comelec en banc plus the fact that it was racing to have its
Contract with MPC implemented in time for the elections in May 2004
(barely four months away) have combined to bring about the urgent
need for judicial intervention, thus prompting this Court to dispense with the
procedural exhaustion of administrative remedies in this case.
Main Substantive Issue:
Validity of the Award to MPC
We come now to the meat of the controversy. Petitioners contend that the
award is invalid, since Comelec gravely abused its discretion when it did
the following:
1. Awarded the Contract to MPC though it did not even participate in the
bidding
2. Allowed MPEI to participate in the bidding despite its failure to meet the
mandatory eligibility requirements
3. Issued its Resolution of April 15, 2003 awarding the Contract to MPC
despite the issuance by the BAC of its Report, which formed the basis of the
assailed Resolution, only on April 21, 2003 31
4. Awarded the Contract, notwithstanding the fact that during the bidding
process, there were violations of the mandatory requirements of RA 8436 as
well as those set forth in Comelec's own Request for Proposal on the
automated election system IHaECA
5. Refused to declare a failed bidding and to conduct a re-bidding despite
the failure of the bidders to pass the technical tests conducted by the
Department of Science and Technology
6. Failed to follow strictly the provisions of RA 8436 in the conduct of the
bidding for the automated counting machines
After reviewing the slew of pleadings as well as the matters raised during
the Oral Argument, the Court deems it sufficient to focus discussion on the
following major areas of concern that impinge on the issue of grave abuse
of discretion:
A. Matters pertaining to the identity, existence and eligibility of MPC as a
bidder
B. Failure of the automated counting machines (ACMs) to pass the DOST
technical tests
C. Remedial measures and re-testings undertaken by Comelec and DOST
after the award, and their effect on the present controversy
A.
Failure to Establish the Identity, Existence and Eligibility
of the Alleged Consortium as a Bidder
On the question of the identity and the existence of the real bidder,
respondents insist that, contrary to petitioners' allegations, the bidder was
not Mega Pacific eSolutions, Inc. (MPEI), which was incorporated only on
February 27, 2003, or 11 days prior to the bidding itself. Rather, the bidder
was Mega Pacific Consortium (MPC), of which MPEI was but a part. As proof
thereof, they point to the March 7, 2003 letter of intent to bid, signed by the
president of MPEI allegedly for and on behalf of MPC. They also call
attention to the official receipt issued to MPC, acknowledging payment for
the bidding documents, as proof that it was the "consortium" that
participated in the bidding process.
We do not agree. The March 7, 2003 letter, signed by only one signatory
"Willy U. Yu, President, Mega Pacific eSolutions, Inc., (Lead
Company/Proponent) For: Mega Pacific Consortium" and without any
further proof, does not by itself prove the existence of the consortium. It
does not show that MPEI or its president have been duly pre-authorized by
the other members of the putative consortium to represent them, to bid on
their collective behalf and, more important, to commit them jointly and
severally to the bid undertakings. The letter is purely self-serving and
uncorroborated.
Neither does an official receipt issued to MPC, acknowledging payment for
the bidding documents, constitute proof that it was the purported
consortium that participated in the bidding. Such receipts are issued by
cashiers without any legally sufficient inquiry as to the real identity or
existence of the supposed payor.
To assure itself properly of the due existence (as well as eligibility and
qualification) of the putative consortium, Comelec's BAC should have
examined the bidding documents submitted on behalf of MPC. They would
have easily discovered the following fatal flaws.
Two-Envelope, Two-Stage System
As stated earlier in our factual presentation, the public bidding system
designed by Comelec under its RFP (Request for Proposal for the
Automation of the 2004 Election) mandated the use of a two-envelope,
two-stage system. A bidder's first envelope (Eligibility Envelope) was meant
to establish its eligibility to bid and its qualifications and capacity to perform
the contract if its bid was accepted, while the second envelope would be
the Bid Envelope itself.
The Eligibility Envelope was to contain legal documents such as articles of
incorporation, business registrations, licenses and permits, mayor's permit,
VAT certification, and so forth; technical documents containing
documentary evidence to establish the track record of the bidder and its
technical and production capabilities to perform the contract; and
financial documents, including audited financial statements for the last
three years, to establish the bidder's financial capacity.
In the case of a consortium or joint venture desirous of participating in the
bidding, it goes without saying that the Eligibility Envelope would necessarily
have to include a copy of the joint venture agreement, the consortium
agreement or memorandum of agreement or a business plan or some
other instrument of similar import establishing the due existence,
composition and scope of such aggrupation. Otherwise, how would
Comelec know who it was dealing with, and whether these parties are
qualified and capable of delivering the products and services being
offered for bidding? 32
In the instant case, no such instrument was submitted to Comelec during
the bidding process. This fact can be conclusively ascertained by
scrutinizing the two-inch thick "Eligibility Requirements" file submitted by
Comelec last October 9, 2003, in partial compliance with this Court's
instructions given during the Oral Argument. This file purports to replicate
the eligibility documents originally submitted to Comelec by MPEI allegedly
on behalf of MPC, in connection with the bidding conducted in March
2003. Included in the file are the incorporation papers and financial
statements of the members of the supposed consortium and certain
certificates, licenses and permits issued to them.
However, there is no sign whatsoever of any joint venture agreement,
consortium agreement, memorandum of agreement, or business plan
executed among the members of the purported consortium.
The only logical conclusion is that no such agreement was ever submitted
to the Comelec for its consideration, as part of the bidding process.
It thus follows that, prior the award of the Contract, there was no
documentary or other basis for Comelec to conclude that a consortium
had actually been formed amongst MPEI, SK C&C and WeSolv, along with
Election.com and ePLDT. 33 Neither was there anything to indicate the
exact relationships between and among these firms; their diverse roles,
undertakings and prestations, if any, relative to the prosecution of the
project, the extent of their respective investments (if any) in the supposed
consortium or in the project; and the precise nature and extent of their
respective liabilities with respect to the contract being offered for bidding.
And apart from the self-serving letter of March 7, 2003, there was not even
any indication that MPEI was the lead company duly authorized to act on
behalf of the others.
So, it necessarily follows that, during the bidding process, Comelec had no
basis at all for determining that the alleged consortium really existed and
was eligible and qualified; and that the arrangements among the members
were satisfactory and sufficient to ensure delivery on the Contract and to
protect the government's interest.
Notwithstanding such deficiencies, Comelec still deemed the "consortium"
eligible to participate in the bidding, proceeded to open its Second
Envelope, and eventually awarded the bid to it, even though per the
Comelec's own RFP the BAC should have declared the MPC ineligible to
bid and returned the Second (Bid) Envelope unopened.
Inasmuch as Comelec should not have considered MPEI et al. as
comprising a consortium or joint venture, it should not have allowed them
to avail themselves of the provision in Section 5.4 (b) (i) of the IRR for RA 6957
94
(the Build-Operate-Transfer Law), as amended by RA 7718. This provision
states in part that a joint venture/consortium proponent shall be evaluated
based on the individual or collective experience of the member-firms of the
joint venture or consortium and of the contractor(s) that it has engaged for
the project. Parenthetically, respondents have uniformly argued that the
said IRR of RA 6957, as amended, have suppletory application to the instant
case.
Hence, had the proponent MPEI been evaluated based solely on its own
experience, financial and operational track record or lack thereof, it would
surely not have qualified and would have been immediately considered
ineligible to bid, as respondents readily admit.
At any rate, it is clear that Comelec gravely abused its discretion in
arbitrarily failing to observe its own rules, policies and guidelines with respect
to the bidding process, thereby negating a fair, honest and competitive
bidding.
Commissioners Not Aware of Consortium
In this regard, the Court is beguiled by the statements of Commissioner
Florentino Tuason Jr., given in open court during the Oral Argument last
October 7, 2003. The good commissioner affirmed that he was aware, of his
own personal knowledge, that there had indeed been a written
agreement among the "consortium" members, 34 although it was an
internal matter among them, 35 and of the fact that it would be presented
by counsel for private respondent. 36
However, under questioning by Chief Justice Hilario G. Davide Jr. and
Justice Jose C. Vitug, Commissioner Tuason in effect admitted that, while
he was the commissioner-in-charge of Comelec's Legal Department, he
had never seen, even up to that late date, the agreement he spoke of. 37
Under further questioning, he was likewise unable to provide any
information regarding the amounts invested into the project by several
members of the claimed consortium. 38 A short while later, he admitted
that the Commission had not taken a look at the agreement (if any). 39
He tried to justify his position by claiming that he was not a member of the
BAC. Neither was he the commissioner-in-charge of the Phase II
Modernization project (the automated election system); but that, in any
case, the BAC and the Phase II Modernization Project Team did look into
the aspect of the composition of the consortium.
It seems to the Court, though, that even if the BAC or the Phase II Team had
taken charge of evaluating the eligibility, qualifications and credentials of
the consortium-bidder, still, in all probability, the former would have referred
the task to Commissioner Tuason, head of Comelec's Legal Department.
That task was the appreciation and evaluation of the legal effects and
consequences of the terms, conditions, stipulations and covenants
contained in any joint venture agreement, consortium agreement or a
similar document assuming of course that any of these was available at
the time. The fact that Commissioner Tuason was barely aware of the
situation bespeaks the complete absence of such document, or the utter
failure or neglect of the Comelec to examine it assuming it was available
at all at the time the award was made on April 15, 2003. TIaDHE
In any event, the Court notes for the record that Commissioner Tuason
basically contradicted his statements in open court about there being one
written agreement among all the consortium members, when he
subsequently referred 40 to the four (4) Memoranda of Agreement (MOAs)
executed by them. 41
At this juncture, one might ask: What, then, if there are four MOAs instead
of one or none at all? Isn't it enough that there are these corporations
coming together to carry out the automation project? Isn't it true, as
respondent aver, that nowhere in the RFP issued by Comelec is it required
that the members of the joint venture execute a single written agreement
to prove the existence of a joint venture. Indeed, the intention to be jointly
and severally liable may be evidenced not only by a single joint venture
agreement, but also by supplementary documents executed by the parties
signifying such intention. What then is the big deal?
The problem is not that there are four agreements instead of only one. The
problem is that Comelec never bothered to check. It never based its
decision on documents or other proof that would concretely establish the
existence of the claimed consortium or joint venture or agglomeration. It
relied merely on the self-serving representation in an uncorroborated letter
signed by only one individual, claiming that his company represented a
"consortium" of several different corporations. It concluded forthwith that a
consortium indeed existed, composed of such and such members, and
thereafter declared that the entity was eligible to bid.
True, copies of financial statements and incorporation papers of the
alleged "consortium" members were submitted. But these papers did not
establish the existence of a consortium, as they could have been provided
by the companies concerned for purposes other than to prove that they
were part of a consortium or joint venture. For instance, the papers may
have been intended to show that those companies were each qualified to
be a sub-contractor (and nothing more) in a major project. Those
documents did not by themselves support the assumption that a
consortium or joint venture existed among the companies.
In brief, despite the absence of competent proof as to the existence and
eligibility of the alleged consortium (MPC), its capacity to deliver on the
Contract, and the members' joint and several liability therefor, Comelec
nevertheless assumed that such consortium existed and was eligible. It then
went ahead and considered the bid of MPC, to which the Contract was
eventually awarded, in gross violation of the former's own bidding rules and
procedures contained in its RFP. Therein lies Comelec's grave abuse of
discretion.
Sufficiency of the Four Agreements
Instead of one multilateral agreement executed by, and effective and
binding on, all the five "consortium members" as earlier claimed by
Commissioner Tuason in open court it turns out that what was actually
executed were four (4) separate and distinct bilateral Agreements. 42
Obviously, Comelec was furnished copies of these Agreements only after
the bidding process had been terminated, as these were not included in
the Eligibility Documents. These Agreements are as follows:
A Memorandum of Agreement between MPEI and SK C&C
A Memorandum of Agreement between MPEI and WeSolv
A "Teaming Agreement" between MPEI and Election.com Ltd.
A "Teaming Agreement" between MPEI and ePLDT
In sum, each of the four different and separate bilateral Agreements is valid
and binding only between MPEI and the other contracting party, leaving
the other "consortium" members total strangers thereto. Under this setup,
MPEI dealt separately with each of the "members," and the latter (WeSolv,
SK C&C, Election.com, and ePLDT) in turn had nothing to do with one
another, each dealing only with MPEI.
Respondents assert that these four Agreements were sufficient for the
purpose of enabling the corporations to still qualify (even at that late stage)
as a consortium or joint venture, since the first two Agreements had
allegedly set forth the joint and several undertakings among the parties,
whereas the latter two clarified the parties' respective roles with regard to
the Project, with MPEI being the independent contractor and Election.com
and ePLDT the subcontractors.
Additionally, the use of the phrase "particular contract" in the Comelec's
Request for Proposal (RFP), in connection with the joint and several liabilities
of companies in a joint venture, is taken by them to mean that all the
members of the joint venture need not be solidarily liable for the entire
project or joint venture, because it is sufficient that the lead company and
the member in charge of a particular contract or aspect of the joint venture
agree to be solidarily liable.
At this point, it must be stressed most vigorously that the submission of the
four bilateral Agreements to Comelec after the end of the bidding process
did nothing to eliminate the grave abuse of discretion it had already
committed on April 15, 2003.
Deficiencies Have Not Been "Cured"
In any event, it is also claimed that the automation Contract awarded by
Comelec incorporates all documents executed by the "consortium"
members, even if these documents are not referred to therein. The basis of
this assertion appears to be the passages from Section 1.4 of the Contract,
which is reproduced as follows:
"All Contract Documents shall form part of the Contract even if they or any
one of them is not referred to or mentioned in the Contract as forming a
part thereof. Each of the Contract Documents shall be mutually
complementary and explanatory of each other such that what is noted in
one although not shown in the other shall be considered contained in all,
95
and what is required by any one shall be as binding as if required by all,
unless one item is a correction of the other.
"The intent of the Contract Documents is the proper, satisfactory and timely
execution and completion of the Project, in accordance with the Contract
Documents. Consequently, all items necessary for the proper and timely
execution and completion of the Project shall be deemed included in the
Contract."
Thus, it is argued that whatever perceived deficiencies there were in the
supplementary contracts those entered into by MPEI and the other
members of the "consortium" as regards their joint and several undertakings
have been cured. Better still, such deficiencies have supposedly been
prevented from arising as a result of the above-quoted provisions, from
which it can be immediately established that each of the members of MPC
assumes the same joint and several liability as the other members.
The foregoing argument is unpersuasive. First, the contract being referred
to, entitled "The Automated Counting and Canvassing Project Contract," is
between Comelec and MPEI, not the alleged consortium, MPC. To repeat,
it is MPEI not MPC that is a party to the Contract. Nowhere in that
Contract is there any mention of a consortium or joint venture, of members
thereof, much less of joint and several liability. Supposedly executed
sometime in May 2003, 43 the Contract bears a notarization date of June
30, 2003, and contains the signature of Willy U. Yu signing as president of
MPEI (not for and on behalf of MPC), along with that of the Comelec chair.
It provides in Section 3.2 that MPEI (not MPC) is to supply the Equipment and
perform the Services under the Contract, in accordance with the
appendices thereof; nothing whatsoever is said about any consortium or
joint venture or partnership.
Second, the portions of Section 1.4 of the Contract reproduced above do
not have the effect of curing (much less preventing) deficiencies in the
bilateral agreements entered into by MPEI with the other members of the
"consortium," with respect to their joint and several liabilities. The term
"Contract Documents," as used in the quoted passages of Section 1.4, has
a well-defined meaning and actually refers only to the following
documents:
The Contract itself along with its appendices
The Request for Proposal (also known as "Terms of Reference") issued by
the Comelec, including the Tender Inquiries and Bid Bulletins
The Tender Proposal submitted by MPEI
In other words, the term "Contract Documents" cannot be understood as
referring to or including the MOAs and the Teaming Agreements entered
into by MPEI with SK C&C, WeSolv, Election.com and ePLDT. This much is
very clear and admits of no debate. The attempt to use the provisions of
Section 1.4 to shore up the MOAs and the Teaming Agreements is simply
unwarranted.
Third and last, we fail to see how respondents can arrive at the conclusion
that, from the above-quoted provisions, it can be immediately established
that each of the members of MPC assumes the same joint and several
liability as the other members. Earlier, respondents claimed exactly the
opposite that the two MOAs (between MPEI and SK C&C, and between
MPEI and WeSolv) had set forth the joint and several undertakings among
the parties; whereas the two Teaming Agreements clarified the parties'
respective roles with regard to the Project, with MPEI being the
independent contractor and Election.com and ePLDT the subcontractors.
Obviously, given the differences in their relationships, their respective
liabilities cannot be the same. Precisely, the very clear terms and
stipulations contained in the MOAs and the Teaming Agreements
entered into by MPEI with SK C&C, WeSolv, Election.com and ePLDT
negate the idea that these "members" are on a par with one another and
are, as such, assuming the same joint and several liability. IHTASa
Moreover, respondents have earlier seized upon the use of the term
"particular contract" in the Comelec's Request for Proposal (RFP), in order
to argue that all the members of the joint venture did not need to be
solidarily liable for the entire project or joint venture. It was sufficient that the
lead company and the member in charge of a particular contract or
aspect of the joint venture would agree to be solidarily liable. The glaring
lack of consistency leaves us at a loss. Are respondents trying to establish
the same joint and solidary liability among all the "members" or not?
Enforcement of Liabilities Problematic
Next, it is also maintained that the automation Contract between Comelec
and the MPEI confirms the solidary undertaking of the lead company and
the consortium member concerned for each particular Contract,
inasmuch as the position of MPEI and anyone else performing the services
contemplated under the Contract is described therein as that of an
independent contractor.
The Court does not see, however, how this conclusion was arrived at. In the
first place, the contractual provision being relied upon by respondents is
Article 14, "Independent Contractors," which states: "Nothing contained
herein shall be construed as establishing or creating between the
COMELEC and MEGA the relationship of employee and employer or
principal and agent, it being understood that the position of MEGA and of
anyone performing the Services contemplated under this Contract, is that
of an independent contractor."
Obviously, the intent behind the provision was simply to avoid the creation
of an employer-employee or a principal-agent relationship and the
complications that it would produce. Hence, the Article states that the role
or position of MPEI, or anyone else performing on its behalf, is that of an
independent contractor. It is obvious to the Court that respondents are
stretching matters too far when they claim that, because of this provision,
the Contract in effect confirms the solidary undertaking of the lead
company and the consortium member concerned for the particular phase
of the project. This assertion is an absolute non sequitur.
Enforcement of Liabilities Under the Civil Code Not Possible
In any event, it is claimed that Comelec may still enforce the liability of the
"consortium" members under the Civil Code provisions on partnership,
reasoning that MPEI et al. represented themselves as partners and
members of MPC for purposes of bidding for the Project. They are,
therefore, liable to the Comelec to the extent that the latter relied upon
such representation. Their liability as partners is solidary with respect to
everything chargeable to the partnership under certain conditions.
The Court has two points to make with respect to this argument. First, it must
be recalled that SK C&C, WeSolv, Election.com and ePLDT never
represented themselves as partners and members of MPC, whether for
purposes of bidding or for something else. It was MPEI alone that
represented them to be members of a "consortium" it supposedly headed.
Thus, its acts may not necessarily be held against the other "members."
Second, this argument of the OSG in its Memorandum 44 might possibly
apply in the absence of a joint venture agreement or some other writing
that discloses the relationship of the "members" with one another. But
precisely, this case does not deal with a situation in which there is nothing
in writing to serve as reference, leaving Comelec to rely on mere
representations and therefore justifying a falling back on the rules on
partnership. For, again, the terms and stipulations of the MOAs entered into
by MPEI with SK C&C and WeSolv, as well as the Teaming Agreements of
MPEI with Election.com and ePLDT (copies of which have been furnished
the Comelec) are very clear with respect to the extent and the limitations
of the firms' respective liabilities.
In the case of WeSolv and SK C&C, their MOAs state that their liabilities,
while joint and several with MPEI, are limited only to the particular areas of
work wherein their services are engaged or their products utilized. As for
Election.com and ePLDT, their separate "Teaming Agreements" specifically
ascribe to them the role of subcontractor vis-a-vis MPEI as contractor and,
based on the terms of their particular agreements, neither Election.com nor
ePLDT is, with MPEI, jointly and severally liable to Comelec. 45 It follows then
that in the instant case, there is no justification for anyone, much less
Comelec, to resort to the rules on partnership and partners' liabilities.
Eligibility of a Consortium Based on the Collective Qualifications of Its
Members
Respondents declare that, for purposes of assessing the eligibility of the
bidder, the members of MPC should be evaluated on a collective basis.
Therefore, they contend, the failure of MPEI to submit financial statements
(on account of its recent incorporation) should not by itself disqualify MPC,
since the other members of the "consortium" could meet the criteria set out
in the RFP.
Thus, according to respondents, the collective nature of the undertaking of
the members of MPC, their contribution of assets and sharing of risks, and
the community of their interest in the performance of the Contract lead to
96
these reasonable conclusions: (1) that their collective qualifications should
be the basis for evaluating their eligibility; (2) that the sheer enormity of the
project renders it improbable to expect any single entity to be able to
comply with all the eligibility requirements and undertake the project by
itself; and (3) that, as argued by the OSG, the RFP allows bids from
manufacturers, suppliers and/or distributors that have formed themselves
into a joint venture, in recognition of the virtual impossibility of a single
entity's ability to respond to the Invitation to Bid.
Additionally, argues the Comelec, the Implementing Rules and Regulations
of RA 6957 (the Build-Operate-Transfer Law) as amended by RA 7718 would
be applicable, as proponents of BOT projects usually form joint ventures or
consortiums. Under the IRR, a joint venture/consortium proponent shall be
evaluated based on the individual or the collective experience of the
member-firms of the joint venture/consortium and of the contractors the
proponent has engaged for the project.
Unfortunately, this argument seems to assume that the "collective" nature
of the undertaking of the members of MPC, their contribution of assets and
sharing of risks, and the "community" of their interest in the performance of
the Contract entitle MPC to be treated as a joint venture or consortium;
and to be evaluated accordingly on the basis of the members' collective
qualifications when, in fact, the evidence before the Court suggest
otherwise.
This Court in Kilosbayan v. Guingona 46 defined joint venture as "an
association of persons or companies jointly undertaking some commercial
enterprise; generally, all contribute assets and share risks. It requires a
community of interest in the performance of the subject matter, a right to
direct and govern the policy in connection therewith, and [a] duty, which
may be altered by agreement to share both in profit and losses."
Going back to the instant case, it should be recalled that the automation
Contract with Comelec was not executed by the "consortium" MPC or
by MPEI for and on behalf of MPC but by MPEI, period. The said Contract
contains no mention whatsoever of any consortium or members thereof.
This fact alone seems to contradict all the suppositions about a joint
undertaking that would normally apply to a joint venture or consortium: that
it is a commercial enterprise involving a community of interest, a sharing of
risks, profits and losses, and so on.
Now let us consider the four bilateral Agreements, starting with the
Memorandum of Agreement between MPEI and WeSolv Open Computing,
Inc., dated March 5, 2003. The body of the MOA consists of just seven (7)
short paragraphs that would easily fit in one page! It reads as follows:
"1. The parties agree to cooperate in successfully implementing the Project
in the substance and form as may be most beneficial to both parties and
other subcontractors involved in the Project.
"2. Mega Pacific shall be responsible for any contract negotiations and
signing with the COMELEC and, subject to the latter's approval, agrees to
give WeSolv an opportunity to be present at meetings with the COMELEC
concerning WeSolv's portion of the Project.
"3. WeSolv shall be jointly and severally liable with Mega Pacific only for the
particular products and/or services supplied by the former for the Project.
"4. Each party shall bear its own costs and expenses relative to this
agreement unless otherwise agreed upon by the parties.
"5. The parties undertake to do all acts and such other things incidental to,
necessary or desirable or the attainment of the objectives and purposes of
this Agreement.
"6. In the event that the parties fail to agree on the terms and conditions of
the supply of the products and services including but not limited to the
scope of the products and services to be supplied and payment terms,
WeSolv shall cease to be bound by its obligations stated in the
aforementioned paragraphs.
"7. Any dispute arising from this Agreement shall be settled amicably by the
parties whenever possible. Should the parties be unable to do so, the
parties hereby agree to settle their dispute through arbitration in
accordance with the existing laws of the Republic of the Philippines."
(Emphasis supplied.)
Even shorter is the Memorandum of Agreement between MPEI and SK C&C
Co. Ltd., dated March 9, 2003, the body of which consists of only six (6)
paragraphs, which we quote: IDCHTE
"1. All parties agree to cooperate in achieving the Consortium's objective
of successfully implementing the Project in the substance and form as may
be most beneficial to the Consortium members and in accordance with
the demand of the RFP.
"2. Mega Pacific shall have full powers and authority to represent the
Consortium with the Comelec, and to enter and sign, for and in behalf of
its members any and all agreement/s which may be required in the
implementation of the Project.
"3. Each of the individual members of the Consortium shall be jointly and
severally liable with the Lead Firm for the particular products and/or services
supplied by such individual member for the project, in accordance with
their respective undertaking or sphere of responsibility.
"4. Each party shall bear its own costs and expenses relative to this
agreement unless otherwise agreed upon by the parties.
"5. The parties undertake to do all acts and such other things incidental to,
necessary or desirable for the attainment of the objectives and purposes of
this Agreement.
"6. Any dispute arising from this Agreement shall be settled amicably by the
parties whenever possible. Should the parties be unable to do so, the
parties hereby agree to settle their dispute through arbitration in
accordance with the existing laws of the Republic of the Philippines."
(Emphasis supplied.)
It will be noted that the two Agreements quoted above are very similar in
wording. Neither of them contains any specifics or details as to the exact
nature and scope of the parties' respective undertakings, performances
and deliverables under the Agreement with respect to the automation
project. Likewise, the two Agreements are quite bereft of pesos-and-
centavos data as to the amount of investments each party contributes, its
respective share in the revenues and/or profit from the Contract with
Comelec, and so forth all of which are normal for agreements of this
nature. Yet, according to public and private respondents, the participation
of MPEI, WeSolv and SK C&C comprises fully 90 percent of the entire
undertaking with respect to the election automation project, which is worth
about P1.3 billion.
As for Election.com and ePLDT, the separate "Teaming Agreements" they
entered into with MPEI for the remaining 10 percent of the entire project
undertaking are ironically much longer and more detailed than the MOAs
discussed earlier. Although specifically ascribing to them the role of
subcontractor vis-a-vis MPEI as contractor, these Agreements are, however,
completely devoid of any pricing data or payment terms. Even the
appended Schedules supposedly containing prices of goods and services
are shorn of any price data. Again, as mentioned earlier, based on the
terms of their particular Agreements, neither Election.com nor ePLDT with
MPEI is jointly and severally liable to Comelec.
It is difficult to imagine how these bare Agreements especially the first
two could be implemented in practice; and how a dispute between the
parties or a claim by Comelec against them, for instance, could be
resolved without lengthy and debilitating litigations. Absent any clear-cut
statement as to the exact nature and scope of the parties' respective
undertakings, commitments, deliverables and covenants, one party or
another can easily dodge its obligation and deny or contest its liability
under the Agreement; or claim that it is the other party that should have
delivered but failed to.
Likewise, in the absence of definite indicators as to the amount of
investments to be contributed by each party, disbursements for expenses,
the parties' respective shares in the profits and the like, it seems to the Court
that this situation could readily give rise to all kinds of misunderstandings
and disagreements over money matters.
Under such a scenario, it will be extremely difficult for Comelec to enforce
the supposed joint and several liabilities of the members of the "consortium."
The Court is not even mentioning the possibility of a situation arising from a
failure of WeSolv and MPEI to agree on the scope, the terms and the
conditions for the supply of the products and services under the
Agreement. In that situation, by virtue of paragraph 6 of its MOA, WeSolv
would perforce cease to be bound by its obligations including its joint
97
and solidary liability with MPEI under the MOA and could forthwith [QUESTIONS] CONSORTIUM MANAGEMENT
disengage from the project. Effectively, WeSolv could at any time
unilaterally exit from its MOA with MPEI by simply failing to agree. Where YES NO YES NO
would that outcome leave MPEI and Comelec? 1. Does the machine have
an accuracy rating of at
To the Court, this strange and beguiling arrangement of MPEI with the other least 99.995 percent?
companies does not qualify them to be treated as a consortium or joint At COLD
venture, at least of the type that government agencies like the Comelec environmental
should be dealing with. With more reason is it unable to agree to the conditions
proposal to evaluate the members of MPC on a collective basis. At NORMAL
environmental
In any event, the MPC members claim to be a joint venture/consortium; conditions
and respondents have consistently been arguing that the IRR for RA 6957, At HARSH
as amended, should be applied to the instant case in order to allow a environmental
collective evaluation of consortium members. Surprisingly, considering conditions
these facts, respondents have not deemed it necessary for MPC members 2. Accurately records and
to comply with Section 5.4 (a) (iii) of the IRR for RA 6957 as amended. reports the date and time
of the start and end of
According to the aforementioned provision, if the project proponent is a counting of ballots per
joint venture or consortium, the members or participants thereof are precinct?
required to submit a sworn statement that, if awarded the contract, they 3. Prints election returns
shall bind themselves to be jointly, severally and solidarily liable for the without any loss of date
project proponent's obligations thereunder. This provision was supposed to during generation of
mirror Section 5 of RA 6957, as amended, which states: "In all cases, a such reports?
consortium that participates in a bid must present proof that the members 4. Uninterruptible back-up
of the consortium have bound themselves jointly and severally to assume power system, that will
responsibility for any project. The withdrawal of any member of the engage immediately to
consortium prior to the implementation of the project could be a ground allow operation of at
for the cancellation of the contract." least 10 minutes after
outage, power surge or
The Court has certainly not seen any joint and several undertaking by the abnormal electrical
MPC members that even approximates the tenor of that which is described occurrences?
above. We fail to see why respondents should invoke the IRR if it is for their 5. Machine reads two-
benefit, but refuse to comply with it otherwise. sided ballots in one Note: This
pass? particular
B. requirement
DOST Technical Tests Flunked by the Automated Counting Machines needs further
Let us now move to the second subtopic, which deals with the substantive verification
issue: the ACM's failure to pass the tests of the Department of Science and 6. Machine can detect
Technology (DOST). previously counted
ballots and prevent
After respondent "consortium" and the other bidder, TIM, had submitted previously counted
their respective bids on March 10, 2003, the Comelec's BAC through its ballots from being
Technical Working Group (TWG) and the DOST evaluated their technical counted more than
proposals. Requirements that were highly technical in nature and that once?
required the use of certain equipment in the evaluation process were 7. Stores results of counted
referred to the DOST for testing. The Department reported thus: votes by precinct in Note: This
external (removable) particular
TEST RESULTS MATRIX 47 storage device? requirement
needs further
[Technical Evaluation of Automated Counting Machine] verification
KEY REQUIREMENTS MEGA-PACIFIC TOTAL INFORMATION 8. Data stored in external
media is encrypted? Note: This
particular
requirement
needs further
verification
9. Physical key or similar
device allows, limits, or
restricts operation of the
machine?
10. CPU speed is at least
400mHz? Note: This
particular
requirement
needs further
verification
11. Port to allow use of
dot-matrix printers?
12. Generates printouts of
the election returns in a
format specified by the
COMELEC?
Generates printouts
In format specified by
COMELEC
13. Prints election returns
without any loss of data
during generation of
such report?
14. Generates an audit trail
of the counting
machine, both hard copy
and soft copy?
Hard copy
Soft copy
Note: This
particular
requirement
needs further
verification
15. Does the
City/Municipal Note: This
Canvassing System particular
consolidate results from requirement
all precincts within it needs further
using the encrypted soft verification
copy of the data
generated by the
counting machine and
stored on the removable
data storage device?
16. Does the
City/Municipal Note: This Note: This
Canvassing System particular particular
98
consolidate results from requirement requirement verification
all precincts within it needs further needs further 22. Can the result of the The BAC, in its Report dated April 21, 2003, recommended that the Phase II
using the encrypted soft verification verification city/municipal Note: This project involving the acquisition of automated counting machines be
copy of the data consolidation be stored particular awarded to MPEI. It said:
generated by the in a data storage device? requirement
counting machine and needs further "After incisive analysis of the technical reports of the DOST and the
transmitted through an verification Technical Working Group for Phase II Automated Counting Machine, the
electronic transmission 23. Does the system BAC considers adaptability to advances in modern technology to ensure
media? consolidate results from Note: This an effective and efficient method, as well as the security and integrity of
17. Does the system output all precincts in the particular the system.
a Zero City/Municipal Note: This provincial/district/ requirement
Canvass Report, which particular national using the data needs further "The results of the evaluation conducted by the TWG and that of the DOST
is printed on election requirement storage device from verification (14 April 2003 report), would show the apparent advantage of Mega-
day prior to the conduct needs further different levels of Pacific over the other competitor, TIM.
of the actual canvass verification consolidation?
operation, that shows 24. Is the system 100% "The BAC further noted that both Mega-Pacific and TIM obtained some
that all totals for all the accurate? Note: This 'failed marks' in the technical evaluation. In general, the 'failed marks' of
votes for all the particular Total Information Management as enumerated above affect the counting
candidates and other requirement machine itself which are material in nature, constituting non-compliance to
information, are indeed needs further the RFP. On the other hand, the 'failed marks' of Mega-Pacific are mere
zero or null? verification formalities on certain documentary requirements which the BAC may
18. Does the system 25. Is the Program able to waive as clearly indicated in the Invitation to Bid.
consolidate results from Note: This detect previously Note: This
all precincts in the particular downloaded precinct particular "In the DOST test, TIM obtained 12 failed marks and mostly attributed to the
city/municipality using requirement results and prevent these requirement counting machine itself as stated earlier. These are requirements of the RFP
the data storage device needs further from being inputted needs further and therefore the BAC cannot disregard the same.
coming from the verification again into the System? verification
counting machine? 26. The System is able to "Mega-Pacific failed in 8 items however these are mostly on the software
19. Is the machine 100% print the specified which can be corrected by reprogramming the software and therefore
accurate? Note: This reports and the audit can be readily corrected.
particular trail without any loss of
requirement data during generation "The BAC verbally inquired from DOST on the status of the retest of the
needs further of the abovementioned counting machines of the TIM and was informed that the report will be
verification reports? forthcoming after the holy week. The BAC was informed that the retest is on
20. Is the Program able to Prints specified reports a different parameters they're being two different machines being tested.
detect previously Note: This Audit Trail One purposely to test if previously read ballots will be read again and the
downloaded precinct particular Note: This other for the other features such as two sided ballots.
results and prevent these requirement particular
from being inputted needs further requirement "The said machine and the software therefore may not be considered the
again into the System? verification needs further same machine and program as submitted in the Technical proposal and
21. The System is able to verification therefore may be considered an enhancement of the original proposal.
print the specified 27. Can the results of the
reports and the audit provincial/district/ Note: This "Advance information relayed to the BAC as of 1:40 PM of 15 April 2003 by
trail without any loss of national consolidation particular Executive Director Ronaldo T. Viloria of DOST is that the result of the test in
data during generation be stored in a data requirement the two counting machines of TIM contains substantial errors that may lead
of the above-mentioned storage device? needs further to the failure of these machines based on the specific items of the RFP that
reports? verification DOST has to certify.
Prints specified reports
Audit Trail According to respondents, it was only after the TWG and the DOST had OPENING OF FINANCIAL BIDS
Note: This conducted their separate tests and submitted their respective reports that
particular the BAC, on the basis of these reports formulated its "The BAC on 15 April 2003, after notifying the concerned bidders opened
requirement comments/recommendations on the bids of the consortium and TIM. the financial bids in their presence and the results were as follows:
needs further HaTSDA
99
Mega-Pacific:
Option 1 Outright purchase: Bid Price if Php1,248,949,088.00
Option 2 Lease option:
70% Down payment of cost of hardware or Php642,755,757.07
Remainder payable over 50 months or a total of Php642,755,757.07
Discount rate of 15% p.a. or 1.2532% per month.
Total Number of Automated Counting Machine 1,769 ACMs
(Nationwide)
TIM:
Total Bid Price Php1,297,860,560.00
Total Number of Automated Counting Machine 2,272 ACMs (Mindanao
and NCR only)
"Premises considered, it appears that the bid of Mega Pacific is the lowest
calculated responsive bid, and therefore, the Bids and Awards Committee
(BAC) recommends that the Phase II project re Automated Counting
Machine be awarded to Mega Pacific eSolutions, Inc." 48
The BAC, however, also stated on page 4 of its Report: "Based on the 14
April 2003 report (Table 6) of the DOST, it appears that both Mega-Pacific
and TIM (Total Information Management Corporation) failed to meet some
of the requirements. Below is a comparative presentation of the
requirements wherein Mega-Pacific or TIM or both of them failed: . . .." What
followed was a list of "key requirements," referring to technical requirements,
and an indication of which of the two bidders had failed to meet them.
Failure to Meet the Required Accuracy Rating
The first of the key requirements was that the counting machines were to
have an accuracy rating of at least 99.9995 percent. The BAC Report
indicates that both Mega Pacific and TIM failed to meet this standard.
The key requirement of accuracy rating happens to be part and parcel of
the Comelec's Request for Proposal (RFP). The RFP, on page 26, even states
that the ballot counting machines and ballot counting software "must have
an accuracy rating of 99.9995% (not merely 99.995%) or better as certified
by a reliable independent testing agency."
When questioned on this matter during the Oral Argument, Commissioner
Borra tried to wash his hands by claiming that the required accuracy rating
of 99.9995 percent had been set by a private sector group in tandem with
Comelec. He added that the Commission had merely adopted the
accuracy rating as part of the group's recommended bid requirements,
which it had not bothered to amend even after being advised by DOST
that such standard was unachievable. This excuse, however, does not in
any way lessen Comelec's responsibility to adhere to its own published
bidding rules, as well as to see to it that the consortium indeed meets the
accuracy standard. Whichever accuracy rating is the right standard
whether 99.995 or 99.9995 percent the fact remains that the machines of
the so-called "consortium" failed to even reach the lesser of the two. On this
basis alone, it ought to have been disqualified and its bid rejected outright.
At this point, the Court stresses that the essence of public bidding is violated
by the practice of requiring very high standards or unrealistic specifications
that cannot be met like the 99.9995 percent accuracy rating in this case
only to water them down after the bid has been award. Such scheme,
which discourages the entry of prospective bona fide bidders, is in fact a
sure indication of fraud in the bidding, designed to eliminate fair
competition. Certainly, if no bidder meets the mandatory requirements,
standards or specifications, then no award should be made and a failed
bidding declared.
Failure of Software to Detect Previously Downloaded Data
Furthermore, on page 6 of the BAC Report, it appears that the "consortium"
as well as TIM failed to meet another key requirement for the counting
machine's software program to be able to detect previously downloaded
precinct results and to prevent these from being entered again into the
counting machine. This same deficiency on the part of both bidders
reappears on page 7 of the BAC Report, as a result of the recurrence of
their failure to meet the said key requirement.
That the ability to detect previously downloaded data at different
canvassing or consolidation levels is deemed of utmost importance can be
seen from the fact that it is repeated three times in the RFP. On page 30
thereof, we find the requirement that the city/municipal canvassing system
software must be able to detect previously downloaded precinct results
and prevent these from being "inputted" again into the system. Again, on
page 32 of the RFP, we read that the provincial/district canvassing system
software must be able to detect previously downloaded city/municipal
results and prevent these from being "inputted" again into the system. And
once more, on page 35 of the RFP, we find the requirement that the
national canvassing system software must be able to detect previously
downloaded provincial/district results and prevent these from being
"inputted" again into the system.
Once again, though, Comelec chose to ignore this crucial deficiency,
which should have been a cause for the gravest concern. Come May 2004,
unscrupulous persons may take advantage of and exploit such deficiency
by repeatedly downloading and feeding into the computers results
favorable to a particular candidate or candidates. We are thus confronted
with the grim prospect of election fraud on a massive scale by means of
just a few key strokes. The marvels and woes of the electronic age!
Inability to Print the Audit Trail
But that grim prospect is not all. The BAC Report, on pages 6 and 7, indicate
that the ACMs of both bidders were unable to print the audit trail without
any loss of data. In the case of MPC, the audit trail system was "not yet
incorporated" into its ACMs.
This particular deficiency is significant, not only to this bidding but to the
cause of free and credible elections. The purpose of requiring audit trails is
to enable Comelec to trace and verify the identities of the ACM operators
responsible for data entry and downloading, as well as the times when the
various data were downloaded into the canvassing system, in order to
forestall fraud and to identify the perpetrators. CTIDcA
Thus, the RFP on page 27 states that the ballot counting machines and
ballot counting software must print an audit trail of all machine operations
for documentation and verification purposes. Furthermore, the audit trail
must be stored on the internal storage device and be available on demand
for future printing and verifying. On pages 3031, the RFP also requires that
the city/municipal canvassing system software be able to print an audit trail
of the canvassing operations, including therein such data as the date and
time the canvassing program was started, the log-in of the authorized users
(the identity of the machine operators), the date and time the canvass
data were downloaded into the canvassing system, and so on and so forth.
On page 33 of the RFP, we find the same audit trail requirement with
respect to the provincial/district canvassing system software; and again on
pages 3536 thereof, the same audit trail requirement with respect to the
national canvassing system software.
That this requirement for printing audit trails is not to be lightly brushed aside
by the BAC or Comelec itself as a mere formality or technicality can be
readily gleaned from the provisions of Section 7 of RA 8436, which authorizes
the Commission to use an automated system for elections.
The said provision which respondents have quoted several times, provides
that ACMs are to possess certain features divided into two classes: those
that the statute itself considers mandatory and other features or capabilities
that the law deems optional. Among those considered mandatory are
"provisions for audit trails"! Section 7 reads as follows: "The System shall
contain the following features: (a) use of appropriate ballots; (b) stand-
alone machine which can count votes and an automated system which
can consolidate the results immediately; (c) with provisions for audit trails;
(d) minimum human intervention; and (e) adequate safeguard/security
measures." (Italics and emphases supplied.)
In brief, respondents cannot deny that the provision requiring audit trails is
indeed mandatory, considering the wording of Section 7 of RA 8436.
Neither can Respondent Comelec deny that it has relied on the BAC
Report, which indicates that the machines or the software was deficient in
that respect. And yet, the Commission simply disregarded this shortcoming
and awarded the Contract to private respondent, thereby violating the
very law it was supposed to implement.
C.
Inadequacy of Post Facto Remedial Measures
Respondents argue that the deficiencies relating to the detection of
previously downloaded data, as well as provisions for audit trails, are mere
100
shortcomings or minor deficiencies in software or programming, which can
be rectified. Perhaps Comelec simply relied upon the BAC Report, which
states on page 8 thereof that "Mega Pacific failed in 8 items[;] however
these are mostly on the software which can be corrected by re-
programming . . . and therefore can be readily corrected."
The undersigned ponente's questions, some of which were addressed to
Commissioner Borra during the Oral Argument, remain unanswered to this
day. First of all, who made the determination that the eight "fail" marks of
Mega Pacific were on account of the software was it DOST or TWG? How
can we be sure these failures were not the results of machine defects? How
was it determined that the software could actually be re-programmed and
thereby rectified? Did a qualified technical expert read and analyze the
source code 49 for the programs and conclude that these could be saved
and remedied? (Such determination cannot be done by any other means
save by the examination and analysis of the source code.)
Who was this qualified technical expert? When did he carry out the study?
Did he prepare a written report on his findings? Or did the Comelec just
make a wild guess? It does not follow that all defects in software programs
can be rectified, and the programs saved. In the information technology
sector, it is common knowledge that there are many badly written
programs, with significant programming errors written into them; hence it
does not make economic sense to try to correct the programs; instead,
programmers simply abandon them and just start from scratch. There's no
telling if any of these programs is unrectifiable, unless a qualified
programmer reads the source code.
And if indeed a qualified expert reviewed the source code, did he also
determine how much work would be needed to rectify the programs? And
how much time and money would be spent for that effort? Who would
carry out the work? After the rectification process, who would ascertain
and how would it be ascertained that the programs have indeed been
properly rectified, and that they would work properly thereafter? And of
course, the most important question to ask: could the rectification be done
in time for the elections in 2004?
Clearly, none of the respondents bothered to think the matter through.
Comelec simply took the word of the BAC as gospel truth, without even
bothering to inquire from DOST whether it was true that the deficiencies
noted could possibly be remedied by re-programming the software.
Apparently, Comelec did not care about the software, but focused only on
purchasing the machines.
What really adds to the Court's dismay is the admission made by
Commissioner Borra during the Oral Argument that the software currently
being used by Comelec was merely the "demo" version, inasmuch as the
final version that would actually be used in the elections was still being
developed and had not yet been finalized.
It is not clear when the final version of the software would be ready for
testing and deployment. It seems to the Court that Comelec is just keeping
its fingers crossed and hoping the final product would work. Is there a "Plan
B" in case it does not? Who knows? But all these software programs are part
and parcel of the bidding and the Contract awarded to the Consortium.
Why is it that the machines are already being brought in and paid for, when
there is as yet no way of knowing if the final version of the software would
be able to run them properly, as well as canvass and consolidate the results
in the manner required?
The counting machines, as well as the canvassing system, will never work
properly without the correct software programs. There is an old adage that
is still valid to this day: "Garbage in, garbage out." No matter how powerful,
advanced and sophisticated the computers and the servers are, if the
software being utilized is defective or has been compromised, the results
will be no better than garbage. And to think that what is at stake here is the
2004 national elections the very basis of our democratic life.
Correction of Defects?
To their Memorandum, public respondents proudly appended 19
Certifications issued by DOST declaring that some 285 counting machines
had been tested and had passed the acceptance testing conducted by
the Department on October 818, 2003. Among those tested were some
machines that had failed previous tests, but had undergone adjustments
and thus passed re-testing.
Unfortunately, the Certifications from DOST fail to divulge in what manner
and by what standards or criteria the condition, performance and/or
readiness of the machines were re-evaluated and re-appraised and
thereafter given the passing mark. Apart from that fact, the remedial efforts
of respondents were, not surprisingly, apparently focused again on the
machines the hardware. Nothing was said or done about the software
the deficiencies as to detection and prevention of downloading and
entering previously downloaded data, as well as the capability to print an
audit trail. No matter how many times the machines were tested and re-
tested, if nothing was done about the programming defects and
deficiencies, the same danger of massive electoral fraud remains. As
anyone who has a modicum of knowledge of computers would say, "That's
elementary!"
And only last December 5, 2003, an Inq7.net news report quoted the
Comelec chair as saying that the new automated poll system would be
used nationwide in May 2004, even as the software for the system remained
unfinished. It also reported that a certain Titus Manuel of the Philippine
Computer Society, which was helping Comelec test the hardware and
software, said that the software for the counting still had to be submitted
on December 15, while the software for the canvassing was due in early
January.
Even as Comelec continues making payments for the ACMs, we keep
asking ourselves: who is going to ensure that the software would be tested
and would work properly?
At any rate, the re-testing of the machines and/or the 100 percent testing
of all machines (testing of every single unit) would not serve to eradicate
the grave abuse of discretion already committed by Comelec when it
awarded the Contract on April 15, 2003, despite the obvious and admitted
flaws in the bidding process, the failure of the "winning bidder" to qualify,
and the inability of the ACMs and the intended software to meet the bid
requirements and rules.
Comelec's Latest "Assurances" Are Unpersuasive
Even the latest pleadings filed by Comelec do not serve to allay our
apprehensions. They merely affirm and compound the serious violations of
law and gravely abusive acts it has committed. Let us examine them.
The Resolution issued by this Court on December 9, 2003 required
respondents to inform it as to the number of ACMs delivered and paid for,
as well as the total payment made to date for the purchase thereof. They
were likewise instructed to submit a certification from the DOST attesting to
the number of ACMs tested, the number found to be defective; and
"whether the reprogrammed software has been tested and found to have
complied with the requirements under Republic Act No. 8436." 50
In its "Partial Compliance and Manifestation" dated December 29, 2003,
Comelec informed the Court that 1,991 ACMs had already been delivered
to the Commission as of that date. It further certified that it had already
paid the supplier the sum of P849,167,697.41, which corresponded to 1,973
ACM units that had passed the acceptance testing procedures conducted
by the MIRDC-DOST 51 and which had therefore been accepted by the
poll body. ICTcDA
In the same submission, for the very first time, Comelec also disclosed to the
Court the following:
"The Automated Counting and Canvassing Project involves not only the
manufacturing of the ACM hardware but also the development of three
(3) types of software, which are intended for use in the following:
1. Evaluation of Technical Bids
2. Testing and Acceptance Procedures
3. Election Day Use."
Purchase of the First Type of Software Without Evaluation
In other words, the first type of software was to be developed solely for the
purpose of enabling the evaluation of the bidder's technical bid. Comelec
explained thus: "In addition to the presentation of the ACM hardware, the
bidders were required to develop a 'base' software program that will
enable the ACM to function properly. Since the software program utilized
during the evaluation of bids is not the actual software program to be
employed on election day, there being two (2) other types of software
program that will still have to be developed and thoroughly tested prior to
actual election day use, defects in the 'base' software that can be readily
101
corrected by reprogramming are considered minor in nature, and may
therefore be waived."
In short, Comelec claims that it evaluated the bids and made the decision
to award the Contract to the "winning" bidder partly on the basis of the
operation of the ACMs running a "base" software. That software was
therefore nothing but a sample or "demo" software, which would not be the
actual one that would be used on election day. Keeping in mind that the
Contract involves the acquisition of not just the ACMs or the hardware, but
also the software that would run them, it is now even clearer that the
Contract was awarded without Comelec having seen, much less
evaluated, the final product the software that would finally be utilized
come election day. (Not even the "near-final" product, for that matter).
What then was the point of conducting the bidding, when the software that
was the subject of the Contract was still to be created and could
conceivably undergo innumerable changes before being considered as
being in final form? And that is not all!
No Explanation for Lapses in the Second Type of Software
The second phase, allegedly involving the second type of software, is simply
denominated "Testing and Acceptance Procedures." As best as we can
construe, Comelec is claiming that this second type of software is also to
be developed and delivered by the supplier in connection with the "testing
and acceptance" phase of the acquisition process. The previous pleadings,
though including the DOST reports submitted to this Court have not
heretofore mentioned any statement, allegation or representation to the
effect that a particular set of software was to be developed and/or
delivered by the supplier in connection with the testing and acceptance
of delivered ACMs.
What the records do show is that the imported ACMs were subjected to the
testing and acceptance process conducted by the DOST. Since the initial
batch delivered included a high percentage of machines that had failed
the tests, Comelec asked the DOST to conduct a 100 percent testing; that
is, to test every single one of the ACMs delivered. Among the machines
tested on October 8 to 18, 2003, were some units that had failed previous
tests but had subsequently been re-tested and had passed. To repeat,
however, until now, there has never been any mention of a second set or
type of software pertaining to the testing and acceptance process.
In any event, apart from making that misplaced and uncorroborated
claim, Comelec in the same submission also professes (in response to the
concerns expressed by this Court) that the reprogrammed software has
been tested and found to have complied with the requirements of RA 8436.
It reasoned thus: "Since the software program is an inherent element in the
automated counting system, the certification issued by the MIRDC-DOST
that one thousand nine hundred seventy-three (1,973) units passed the
acceptance test procedures is an official recognition by the MIRDC-DOST
that the software component of the automated election system, which has
been reprogrammed to comply with the provisions of Republic Act No.
8436 as prescribed in the Ad Hoc Technical Evaluation Committee's ACM
Testing and Acceptance Manual, has passed the MIRDC-DOST tests."
The facts do not support this sweeping statement of Comelec. A scrutiny of
the MIRDC-DOST letter dated December 15, 2003, 52 which it relied upon,
does not justify its grand conclusion. For clarity's sake, we quote in full the
letter-certification, as follows:
"15 December 2003
"HON. RESURRECCION Z. BORRA
Commissioner-in-Charge
Phase II, Modernization Project
Commission on Elections
Intramuros, Manila
Attention: Atty. Jose M. Tolentino, Jr.
Project Director
"Dear Commissioner Borra:
"We are pleased to submit 11 DOST Test Certifications representing 11 lots
and covering 158 units of automated counting machines (ACMs) that we
have tested from 0212 December 2003.
"To date, we have tested all the 1,991 units of ACMs, broken down as follow:
(sic)
1st batch 30 units 4th batch 438 units
2nd batch 288 units 5th batch 438 units
3rd batch 414 units 6th batch 383 units
"It should be noted that a total of 18 units have failed the test. Out of these
18 units, only one (1) unit has failed the retest.
"Thank you and we hope you will find everything in order.
"Very truly yours,
"ROLANDO T. VILORIA, CESO III
Executive Director cum
Chairman, DOST-Technical Evaluation Committee"
Even a cursory glance at the foregoing letter shows that it is completely
bereft of anything that would remotely support Comelec's contention that
the "software component of the automated election system . . . has been
reprogrammed to comply with" RA 8436, and "has passed the MIRDC-DOST
tests." There is no mention at all of any software reprogramming. If the
MIRDC-DOST had indeed undertaken the supposed reprogramming and
the process turned out to be successful, that agency would have proudly
trumpeted its singular achievement.
How Comelec came to believe that such reprogramming had been
undertaken is unclear. In any event, the Commission is not forthright and
candid with the factual details. If reprogramming has been done, who
performed it and when? What exactly did the process involve? How can
we be assured that it was properly performed? Since the facts attendant
to the alleged reprogramming are still shrouded in mystery, the Court
cannot give any weight to Comelec's bare allegations.
The fact that a total of 1,973 of the machines has ultimately passed the
MIRDC-DOST tests does not by itself serve as an endorsement of the
soundness of the software program, much less as a proof that it has been
reprogrammed. In the first place, nothing on record shows that the tests
and re-tests conducted on the machines were intended to address the
serious deficiencies noted earlier. As a matter of fact, the MIRDC-DOST
letter does not even indicate what kinds of tests or re-tests were conducted,
their exact nature and scope, and the specific objectives thereof. 53 The
absence of relevant supporting documents, combined with the utter
vagueness of the letter, certainly fails to inspire belief or to justify the
expansive confidence displayed by Comelec. In any event, it goes without
saying that remedial measures such as the alleged reprogramming cannot
in any way mitigate the grave abuse of discretion already committed as
early as April 15, 2003.
Rationale of Public Bidding Negated by the Third Type of Software
Respondent Comelec tries to assuage this Court's anxiety in these words:
"The reprogrammed software that has already passed the requirements of
Republic Act No. 8436 during the MIRDC-DOST testing and acceptance
procedures will require further customization since the following additional
elements, among other things, will have to be considered before the final
software can be used on election day: 1. Final Certified List of Candidates
. . . 2. Project of Precincts . . . 3. Official Ballot Design and Security Features .
. . 4. Encryption, digital certificates and digital signatures . . . The certified list
of candidates for national elective positions will be finalized on or before 23
January 2004 while the final list of projects of precincts will be prepared also
on the same date. Once all the above elements are incorporated in the
software program, the Test Certification Group created by the Ad Hoc
Technical Evaluation Committee will conduct meticulous testing of the final
software before the same can be used on election day. In addition to the
testing to be conducted by said Test Certification Group, the Comelec will
conduct mock elections in selected areas nationwide not only for purposes
of public information but also to further test the final election day program.
Public respondent Comelec, therefore, requests that it be given up to 16
February 2004 to comply with this requirement."
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The foregoing passage shows the imprudent approach adopted by
Comelec in the bidding and acquisition process. The Commission says that
before the software can be utilized on election day, it will require
"customization" through addition of data like the list of candidates,
project of precincts, and so on. And inasmuch as such data will become
available only in January 2004 anyway, there is therefore no perceived
need on Comelec's part to rush the supplier into producing the final (or
near-final) version of the software before that time. In any case, Comelec
argues that the software needed for the electoral exercise can be
continuously developed, tested, adjusted and perfected, practically all the
way up to election day, at the same time that the Commission is
undertaking all the other distinct and diverse activities pertinent to the
elections.
Given such a frame of mind, it is no wonder that Comelec paid little
attention to the counting and canvassing software during the entire
bidding process, which took place in FebruaryMarch 2003. Granted that
the software was defective, could not detect and prevent the re-use of
previously downloaded data or produce the audit trail aside from its
other shortcomings nevertheless, all those deficiencies could still be
corrected down the road. At any rate, the software used for bidding
purposes would not be the same one that will be used on election day, so
why pay any attention to its defects? Or to the Comelec's own bidding rules
for that matter? HcTIDC
Clearly, such jumbled ratiocinations completely negate the rationale
underlying the bidding process mandated by law.
At the very outset, the Court has explained that Comelec flagrantly
violated the public policy on public biddings (1) by allowing MPC/MPEI to
participate in the bidding even though it was not qualified to do so; and (2)
by eventually awarding the Contract to MPC/MPEI. Now, with the latest
explanation given by Comelec, it is clear that the Commission further
desecrated the law on public bidding by permitting the winning bidder to
change and alter the subject of the Contract (the software), in effect
allowing a substantive amendment without public bidding.
This stance is contrary to settled jurisprudence requiring the strict
application of pertinent rules, regulations and guidelines for public bidding
for the purpose of placing each bidder, actual or potential, on the same
footing. The essence of public bidding is, after all, an opportunity for fair
competition, and a fair basis for the precise comparison of bids. In common
parlance, public bidding aims to "level the playing field." That means each
bidder must bid under the same conditions; and be subject to the same
guidelines, requirements and limitations, so that the best offer or lowest bid
may be determined, all other things being equal.
Thus, it is contrary to the very concept of public bidding to permit a
variance between the conditions under which bids are invited and those
under which proposals are submitted and approved; or, as in this case, the
conditions under which the bid is won and those under which the awarded
Contract will be complied with. The substantive amendment of the
contract bidded out, without any public bidding after the bidding
process had been concluded is violative of the public policy on public
biddings, as well as the spirit and intent of RA 8436. The whole point in going
through the public bidding exercise was completely lost. The very rationale
of public bidding was totally subverted by the Commission.
From another perspective, the Comelec approach also fails to make sense.
Granted that, before election day, the software would still have to be
customized to each precinct, municipality, city, district, and so on, there still
was nothing at all to prevent Comelec from requiring prospective
suppliers/bidders to produce, at the very start of the bidding process, the
"next-to-final" versions of the software (the best software the suppliers had)
pre-tested and ready to be customized to the final list of candidates and
project of precincts, among others, and ready to be deployed thereafter.
The satisfaction of such requirement would probably have provided far
better bases for evaluation and selection, as between suppliers, than the
so-called demo software.
Respondents contend that the bidding suppliers' counting machines were
previously used in at least one political exercise with no less than 20 million
voters. If so, it stands to reason that the software used in that past electoral
exercise would probably still be available and, in all likelihood, could have
been adopted for use in this instance. Paying for machines and software of
that category (already tried and proven in actual elections and ready to
be adopted for use) would definitely make more sense than paying the
same hundreds of millions of pesos for demo software and empty promises
of usable programs in the future.
But there is still another gut-level reason why the approach taken by
Comelec is reprehensible. It rides on the perilous assumption that nothing
would go wrong; and that, come election day, the Commission and the
supplier would have developed, adjusted and "re-programmed" the
software to the point where the automated system could function as
envisioned. But what if such optimistic projection does not materialize?
What if, despite all their herculean efforts, the software now being hurriedly
developed and tested for the automated system performs dismally and
inaccurately or, worse, is hacked and/or manipulated? 54 What then will
we do with all the machines and defective software already paid for in the
amount of P849 million of our tax money? Even more important, what will
happen to our country in case of failure of the automation?
The Court cannot grant the plea of Comelec that it be given until February
16, 2004 to be able to submit a "certification relative to the additional
elements of the software that will be customized," because for us to do so
would unnecessarily delay the resolution of this case and would just give
the poll body an unwarranted excuse to postpone the 2004 elections. On
the other hand, because such certification will not cure the gravely abusive
actions complained of by petitioners, it will be utterly useless.
Is this Court being overly pessimistic and perhaps even engaging in
speculation? Hardly. Rather, the Court holds that Comelec should not have
gambled on the unrealistic optimism that the supplier's software
development efforts would turn out well. The Commission should have
adopted a much more prudent and judicious approach to ensure the
delivery of tried and tested software, and readied alternative courses of
action in case of failure. Considering that the nation's future is at stake here,
it should have done no less.
Epilogue
Once again, the Court finds itself at the crossroads of our nation's history. At
stake in this controversy is not just the business of a computer supplier, or a
questionable proclamation by Comelec of one or more public officials.
Neither is it about whether this country should switch from the manual to the
automated system of counting and canvassing votes. At its core is the
ability and capacity of the Commission on Elections to perform properly,
legally and prudently its legal mandate to implement the transition from
manual to automated elections.
Unfortunately, Comelec has failed to measure up to this historic task. As
stated at the start of this Decision, Comelec has not merely gravely abused
its discretion in awarding the Contract for the automation of the counting
and canvassing of the ballots. It has also put at grave risk the holding of
credible and peaceful elections by shoddily accepting electronic
hardware and software that admittedly failed to pass legally mandated
technical requirements. Inadequate as they are, the remedies it proffers
post facto do not cure the grave abuse of discretion it already committed
(1) on April 15, 2003, when it illegally made the award; and (2) "sometime"
in May 2003 when it executed the Contract for the purchase of defective
machines and non-existent software from a non-eligible bidder.
For these reasons, the Court finds it totally unacceptable and
unconscionable to place its imprimatur on this void and illegal transaction
that seriously endangers the breakdown of our electoral system. For this
Court to cop-out and to close its eyes to these illegal transactions, while
convenient, would be to abandon its constitutional duty of safeguarding
public interest.
As a necessary consequence of such nullity and illegality, the purchase of
the machines and all appurtenances thereto including the still-to-be-
produced (or in Comelec's words, to be "reprogrammed") software, as well
as all the payments made therefor, have no basis whatsoever in law. The
public funds expended pursuant to the void Resolution and Contract must
therefore be recovered from the payees and/or from the persons who
made possible the illegal disbursements, without prejudice to possible
criminal prosecutions against them.
Furthermore, Comelec and its officials concerned must bear full
responsibility for the failed bidding and award, and held accountable for
the electoral mess wrought by their grave abuse of discretion in the
performance of their functions. The State, of course, is not bound by the
mistakes and illegalities of its agents and servants.
True, our country needs to transcend our slow, manual and archaic
electoral process. But before it can do so, it must first have a diligent and
competent electoral agency that can properly and prudently implement
a well-conceived automated election system.
103
At bottom, before the country can hope to have a speedy and fraud-free
automated election, it must first be able to procure the proper
computerized hardware and software legally, based on a transparent and
valid system of public bidding. As in any democratic system, the ultimate
goal of automating elections must be achieved by a legal, valid and
above-board process of acquiring the necessary tools and skills therefor.
Though the Philippines needs an automated electoral process, it cannot
accept just any system shoved into its bosom through improper and illegal
methods. As the saying goes, the end never justifies the means. Penumbral
contracting will not produce enlightened results.

WHEREFORE, the Petition is GRANTED. The Court hereby declares NULL and
VOID Comelec Resolution No. 6074 awarding the contract for Phase II of
the CAES to Mega Pacific Consortium (MPC). Also declared null and void is
the subject Contract executed between Comelec and Mega Pacific
eSolutions (MPEI). 55 Comelec is further ORDERED to refrain from
implementing any other contract or agreement entered into with regard to
this project.

Let a copy of this Decision be furnished the Office of the Ombudsman

which shall determine the criminal liability, if any, of the public officials (and
conspiring private individuals, if any) involved in the subject Resolution and
Contract. Let the Office of the Solicitor General also take measures to
protect the government and vindicate public interest from the ill effects of
the illegal disbursements of public funds made by reason of the void
Resolution and Contract.

SO ORDERED.

104
Article 1830
[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 p:
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. cdasia
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: cdta
'"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: cdtai
'"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 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; cdta
'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 may be 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 of P100,00.00; cdta
'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. aisadc
"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 aisadc
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 04 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). LibLex
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: cdt
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. cdt
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): cdt
"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
105
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.
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 of 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 cdt
The term "retirement" must have been used in the articles, as we so hold, in
a generic sense to mean the dissociation by a partner, inclusive of
resignation or withdrawal, from the partnership that thereby dissolves it.
On the third and final issue, we accord due respect to the appellate court
and respondent Commission on their common factual finding, i. e., that
Attorney Misa did not act in bad faith. Public respondents viewed his
withdrawal to have been spurred by "interpersonal conflict" among the
partners. It would not be right, we agree, to let any of the partners remain
in the partnership under such an atmosphere of animosity; certainly, not
against their will. 12 Indeed, for as long as the reason for withdrawal of a
partner is not contrary to the dictates of justice and fairness, nor for the
purpose of unduly visiting harm and damage upon the partnership, bad
faith cannot be said to characterize the act. Bad faith, in the context here
used, is no different from its normal concept of a conscious and intentional
design to do a wrongful act for a dishonest purpose or moral obliquity.
WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement
on costs.
SO ORDERED.
[G.R. No. 127405. October 4, 2000.]
MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS
and NENITA A. ANAY, respondents.
YNARES-SANTIAGO, J p:
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 Belo's name should not
appear in any documents relating to their transactions with West Bend
Company. Instead, they agreed to use Anay's 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 Belo's 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
Tocao's 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., 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
106
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. TCIDSa
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 P 13,300,360.00.
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) P32,000.00 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 allies," 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; aIHCSA
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 attorney's 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,
Anay's 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 Marjorie's financial contribution and Anay's experience, the
combination of the two would be invaluable to the partnership, also
supported that conclusion. Belo's 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 Tocao's
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 court a 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
107
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. aEHIDT
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 company's cookware products; it was through the
same efforts that the business was propelled to financial success. Petitioner
Tocao herself admitted private respondent's 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, it's 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 Torda-Cruz 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 Belo's 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 thirty-seven (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 Belo's roles as both capitalists to the partnership with private
respondent are buttressed by petitioner Tocao's 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 Belo's first name, William, and her nickname, Jiji.
23 The special relationship between them dovetails with petitioner Belo's
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 Tocao's
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. That's 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: That's 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.
aHADTC
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 respondent's employer, it is difficult
to believe that they shall receive the same income in the business. In a
108
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 Tocao's 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. . . . . " 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 respondent's 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:
". . . . 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 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 HcTDSA
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 Tocao's 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, attorney's fees that should be
granted on account of the award of exemplary damages and petitioners'
evident bad faith in refusing to satisfy private respondent's 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 respondent's
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 attorney's fees in the amount of P25,000.00.
SO ORDERED.
[G.R. No. 17024. March 24, 1922.]
DOMINGO BEARNEZA, plaintiff-appellee, vs. BALBINO DEQUILLA, defendant-
appellant.
ROMUALDEZ, J p:
In the year 1903, Balbino Dequilla, the herein defendant, and Perpetua
Bearneza formed a partnership for the purpose of exploiting a fish pond
situated in the barrio of Talisay, municipality of Barotac Nuevo, Province of
Iloilo, Perpetua obligating herself to contribute to the payment of the
expenses of the business, which obligation she made good, and both
agreeing to divide the profits between themselves, which they had been
doing until the death of the said Perpetua in the year 1912.
The deceased left a will in one of the clauses of which she appointed
Domingo Bearneza, the herein plaintiff, as her heir to succeed to all her
rights and interests in the fish pond in question.
Demand having been made upon Balbino Dequilla by Domingo Bearneza
for the delivery of the part of the fish pond belonging to his decedent,
Perpetua, and delivery having been refused, Domingo Bearneza brought
this action to recover said part of the fish pond and one-half of the profits
received by the defendant from the fish pond from the year 1913-1919, as
damages (the amended complaint was filed on April 12, 1920), amounting,
according to plaintiff, to the sum of thirteen thousand one hundred pesos
(P13,100).
In his answer, the defendant denies generally and specifically the
allegations of the complaint, and alleges, as special defense, that "the
formation of the supposed partnership between the plaintiff and the
defendant for the exploitation of the aforesaid fish pond was not carried
into effect, on account of the plaintiff having refused to defray the
expenses of reconstruction and exploitation of said fish pond." As another
special defense, the defendant alleges "that in the event that the court
should hold the plaintiff to be entitled to the undivided one-half of the fish
pond, claimed in the complaint, the plaintiff's action has prescribed, the
time for bringing the same having elapsed."
Proceedings having been held as usual, the court below rendered
judgment, declaring the plaintiff owner of one-half of the fish pond, which
composed of the portions known as "Alimango" and "Dalusan," but without
awarding him any of the damages claimed by him, the same not having
been proven, in the opinion of the court, and ordering the defendant to
pay the costs.
From this judgment the defendant appeals, making various assignments of
error. The plaintiff did not appeal from that part of the judgment denying
his claim for damages; hence the only question we are called upon to
109
decide is whether or not the plaintiff has any right to maintain an action for
the recovery of one-half of the said fish pond.
The partnership formed by Perpetua Bearneza and Balbino Dequilla, as to
the existence of which the proof contained in the record is conclusive and
there is no dispute, was of a civil nature. It was particular partnership, as
defined in article 1678 of the Civil Code, it having had for its subject-matter
a specified thing, to wit, the exploitation of the aforementioned fish pond.
Although, as the trial court says in its decision, the defendant, in his letters
to Perpetua or her husband, makes reference to the fish pond, calling it
"our," or "your fish pond," this reference cannot be held to include the land
on which the said fish pond, was built. It has not been proven that Perpetua
Bearneza participated in the ownership of said land, and Exhibits 2 and 3 of
the defendant show that he has been paying, as exclusive owner of the fish
pond, the land tax thereon, although in Exhibit X he says that the said land
belongs to the State. The conclusion, therefore, from the evidence is that
the land on which the fish pond was constructed did not constitute a part
of the subject-matter of the aforesaid partnership.
Now, this partnership not having been organized in the form of a mercantile
partnership, and, therefore, the provisions of the Code of Commerce not
being applicable thereto (article 1670 of the Civil Code), it was dissolved
by the death of Perpetua Bearneza, and falls under the provisions of article
1700, subsection 3, of the same Code, and not under the exception
established in the last paragraph of said article 1700 of the Civil Code.
Neither can it be maintained that the partnership continued to exist after
the death of Perpetua, inasmuch as it does not appear that any stipulation
to that effect has ever been made by her and the defendant, pursuant to
the provisions of article 1704 of the Code last cited.
The partnership having been dissolved by the death of Perpetua Bearneza,
its subsequent legal status was that of a partnership in liquidation, and the
only rights inherited by her testamentary heir, the herein plaintiff, were those
resulting from the said liquidation in favor of the deceased partner, and
nothing more. Before this liquidation is made, which up to the present has
not been effected, it is impossible to determine what rights or interests, if
any, the deceased had, the partnership bond having been dissolved.
There is no sufficient ground for that a community of property existed
between plaintiff and the defendant, it not being known whether the
deceased still had any interest in the partnership property which could
have been transmitted by will to the plaintiff. There being no community of
property, article 395 of the Civil Code cited by the plaintiff in support of his
contention can have no application to the case at bar.
Neither can it be said that the partnership continued between the plaintiff
and the defendant. It is true that the latter's act in requiring the heirs of
Perpetua to contribute to the payment of the expenses of exploitation of
the aforesaid fishing industry was an attempt to continue the partnership,
but it is also true that neither the said heirs collectively, nor the plaintiff
individually, took any action in response to that requirement, nor new
contract of partnership existed.
We find that the plaintiff has not sufficiently shown his right of action.
The judgment appealed from is modified, the same being affirmed insofar
as it denies the plaintiff's claim for damages, and reversed insofar as it
declares the said plaintiff owner of one-half of the fish pond, "Alimango"
and "Dalusan," here in dispute.
No special finding as to costs is made. So ordered.
[G.R. No. L-30616. December 10, 1990.]
EUFRACIO D. ROJAS, plaintiff-appellant, vs. CONSTANCIO B. MAGLANA,
defendant-appellee.
PARAS, J p:
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. LLpr
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). LLphil
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).
110
On April 7, 1961, Rojas filed an action before the Court of First Instance of
Davao against Maglana for the recovery of properties, accounting,
receivership and damages, docketed as Civil Case No. 3518 (Record on
Appeal, pp. 1-26).
Rojas' petition for appointment of a receiver was denied (R.A. 894).
Upon motion of Rojas on May 23, 1961, Judge Romero appointed
commissioners to examine the long and voluminous accounts of the
Eastcoast Development Enterprises (Ibid., pp. 894-895).
The motion to dismiss the complaint filed by Maglana on June 21, 1961
(Ibid., pp. 102-114) was denied by Judge Romero for want of merit (Ibid., p.
125). Judge Romero also required the inclusion of the entire year 1961 in the
report to be submitted by the commissioners (Ibid., pp. 138-143).
Accordingly, the commissioners started examining the records and
supporting papers of the partnership as well as 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). llcd
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. cdrep
"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
111
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. 24-25). Except for the fact that they took
in one industrial partner; gave him an equal share in the profits and fixed
the term of the second partnership to thirty (30) years, everything else was
the same. Thus, they adopted the same name, EASTCOAST DEVELOPMENT
ENTERPRISES, they pursued the same purposes and the capital contributions
of Rojas and Maglana as stipulated in both partnerships call for the same
amounts. Just as important is the fact that all subsequent renewals of Timber
License No. 35-36 were secured in favor of the First Partnership, the original
licensee. To all intents and purposes therefore, the First Articles of Partnership
were only amended, in the form of Supplementary Articles of Co-
Partnership (Exhibit "C") which was never registered (Brief for Plaintiff-
Appellant, p. 5). Otherwise stated, even during the existence of the second
partnership, all business transactions were carried out under the duly
registered articles. As found by the trial court, it is an admitted fact that
even up to now, there are still subsisting obligations and contracts of the
latter (Decision, R.A. pp. 950-957). No rights and obligations accrued in the
name of the second partnership except in favor of Pahamotang which was
fully paid by the duly registered partnership (Decision, R.A., pp. 919-921).
LLpr
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 also show that Rojas not only abandoned the partnership but also took
dissolved the partnership, it is in effect a notice of withdrawal. funds in an amount more than his contribution (Decision, R.A., p. 949).
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 In the given situation Maglana cannot be said to be in bad faith nor can
the cause is not justified or no cause was given, the withdrawing partner is he be liable for damages.
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 PREMISES CONSIDERED, the assailed decision of the Court of First Instance
dissolution. And in whatever way he may view the situation, the conclusion of Davao, Branch III, is hereby MODIFIED in the sense that the duly registered
is inevitable that Rojas and Maglana shall be guided in the liquidation of partnership of Eastcoast Development Enterprises continued to exist until
the partnership by the provisions of its duly registered Articles of Co- liquidated and that the sharing basis of the partners should be on share and
Partnership; that is, all profits and losses of the partnership shall be divided share alike as provided for in its Articles of Partnership, in accordance with
"share and share alike" between the partners. the computation of the commissioners. We also hereby AFFIRM the decision
of the trial court in all other respects. cdll
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 SO ORDERED.
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. prcd
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
112
Article 1842
Feu Leng vs IAC 169 SCRA 746 --- supra, p. 58
Emilio Emnace vs Court of Appeals, GR No. 126334, November 23, 2001
supra, p. 61
Cases Joint Ventures
Litonjua vs Litonjua 477 SCRA 576--- supra, p. 46
[G.R. No. 183374. June 29, 2010.]
MARSMAN DRYSDALE LAND, INC., petitioner, vs. PHILIPPINE GEOANALYTICS,
INC. AND GOTESCO PROPERTIES, INC., respondents.
[G.R. No. 183376. June 29, 2010.]
GOTESCO PROPERTIES, INC., petitioner, vs. MARSMAN DRYSDALE LAND, INC.
AND PHILIPPINE GEOANALYTICS, INC., respondents.
DECISION
CARPIO MORALES, J p:
On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale)
and Gotesco Properties, Inc. (Gotesco) entered into a Joint Venture
Agreement (JVA) for the construction and development of an office
building on a land owned by Marsman Drysdale in Makati City. 1
The JVA contained the following pertinent provisions:
SECTION 4. CAPITAL OF THE JV
It is the desire of the Parties herein to implement this Agreement by investing
in the PROJECT on a FIFTY (50%) PERCENT-FIFTY (50%) PERCENT basis.
4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall
contribute the Property.
The total appraised value of the Property is PESOS: FOUR HUNDRED TWENTY
MILLION (P420,000,000.00).
For this purpose, [Marsman Drysdale] shall deliver the Property in a buildable
condition within ninety (90) days from signing of this Agreement barring any
unforeseen circumstances over which [Marsman Drysdale] has no control.
Buildable condition shall mean that the old building/structure which stands
on the Property is demolished and taken to ground level.
4.2. Contribution of [Gotesco]-[Gotesco] shall contribute the amount of
PESOS: FOUR HUNDRED TWENTY MILLION (P420,000,000.00) in cash which
shall be payable as follows:
4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon signing of
this Agreement.
4.2.2. The balance of PESOS: THREE HUNDRED SEVENTY MILLION
(P370,000,000.00) shall be paid based on progress billings, relative to the
development and construction of the Building, but shall in no case exceed
ten (10) months from delivery of the Property in a Buildable condition as
defined in section 4.1. IcTEAD
A joint account shall be opened and maintained by both Parties for
handling of said balance, among other Project concerns.
4.3. Funding and Financing
4.3.1 Construction funding for the Project shall be obtained from the cash
contribution of [Gotesco].
4.3.2 Subsequent funding shall be obtained from the pre-selling of units in
the Building or, when necessary, from loans from various banks or financial
institutions. [Gotesco] shall arrange the required funding from such banks or
financial institutions, under such terms and conditions which will provide
financing rates favorable to the Parties.
4.3.3 [Marsman Drysdale] shall not be obligated to fund the Project as its
contribution is limited to the Property.
4.3.4 If the cost of the Project exceeds the cash contribution of [Gotesco],
the proceeds obtained from the pre-selling of units and proceeds from
loans, the Parties shall agree on other sources and terms of funding such
excess as soon as practicable.
4.3.5. . . .
4.3.6. . . .
4.3.7. . . .
4.3.8 All funds advanced by a Party (or by third parties in substitution for
advances from a Party) shall be repaid by the JV.
4.3.9 If any Party agrees to make an advance to the Project but fails to do
so (in whole or in part) the other party may advance the shortfall and the
Party in default shall indemnify the Party making the substitute advance on
demand for all of its losses, costs and expenses incurred in so doing.
(emphasis supplied; underscoring in the original)
Via Technical Services Contract (TSC) dated July 14, 1997, 2 the joint
venture engaged the services of Philippine Geoanalytics, Inc. (PGI) to
provide subsurface soil exploration, laboratory testing, seismic study and
geotechnical engineering for the project. PGI, was, however, able to drill
only four of five boreholes needed to conduct its subsurface soil exploration
and laboratory testing, justifying its failure to drill the remaining borehole to
the failure on the part of the joint venture partners to clear the area where
the drilling was to be made. 3 PGI was able to complete its seismic study
though. aATEDS
PGI then billed the joint venture on November 24, 1997 for P284,553.50
representing the cost of partial subsurface soil exploration; and on January
15, 1998 for P250,800 representing the cost of the completed seismic study.
4
Despite repeated demands from PGI, 5 the joint venture failed to pay its
obligations.
Meanwhile, due to unfavorable economic conditions at the time, the joint
venture was cut short and the planned building project was eventually
shelved. 6
PGI subsequently filed on November 11, 1999 a complaint for collection of
sum of money and damages at the Regional Trial Court (RTC) of Quezon
City against Marsman Drysdale and Gotesco.
In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed
the responsibility of paying PGI to Gotesco which, under the JVA, was solely
liable for the monetary expenses of the project. 7
Gotesco, on the other hand, countered that PGI has no cause of action
against it as PGI had yet to complete the services enumerated in the
contract; and that Marsman Drysdale failed to clear the property of debris
which prevented PGI from completing its work. 8
By Decision of June 2, 2004, 9 Branch 226 of the Quezon City RTC rendered
judgment in favor of PGI, disposing as follows:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered in
favor of plaintiff [PGI].
The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay
plaintiff, jointly:
(1) the sum of P535,353.50 with legal interest from the date of this decision
until fully paid;
(2) the sum of P200,000.00 as exemplary damages;
(3) the sum of P200,000.00 as and for attorney's fees; and
(4) costs of suit. cCSTHA
The cross-claim of defendant [Marsman Drysdale] against defendant
[Gotesco] is hereby GRANTED as follows:
a) Defendant [Gotesco] is ordered to reimburse co-defendant [Marsman
Drysdale] in the amount of P535,353.[50] in accordance with the [JVA].
b) Defendant [Gotesco] is further ordered to pay co-defendant [Marsman
Drysdale] the sum of P100,000.00 as and for attorney's fees.
SO ORDERED. (underscoring in the original; emphasis supplied)
Marsman Drysdale moved for partial reconsideration, contending that it
should not have been held jointly liable with Gotesco on PGI's claim as well
as on the awards of exemplary damages and attorney's fees. The motion
was, by Resolution of October 28, 2005, denied.
113
Both Marsman Drysdale and Gotesco appealed to the Court of Appeals
which, by Decision of January 28, 2008, 10 affirmed with modification the
decision of the trial court. Thus the appellate court disposed:
WHEREFORE, premises considered, the instant appeal is PARTLY GRANTED.
The assailed Decision dated June 2, 2004 and the Resolution dated
October 28, 2005 of the RTC of Quezon City, Branch 226, in Civil Case No.
Q99-39248 are hereby AFFIRMED with MODIFICATION deleting the award of
exemplary damages in favor of [PGI] and the P100,000.00 attorney's fees in
favor of [Marsman Drysdale] and ordering defendant-appellant [Gotesco]
to REIMBURSE [Marsman Drysdale] 50% of the aggregate sum due [PGI],
instead of the lump sum P535,353.00 awarded by the RTC. The rest of the
Decision stands.
SO ORDERED. (capitalization and emphasis in the original; underscoring
supplied)
In partly affirming the trial court's decision, the appellate court ratiocinated
that notwithstanding the terms of the JVA, the joint venture cannot avoid
payment of PGI's claim since "[the JVA] could not affect third persons like
[PGI] because of the basic civil law principle of relativity of contracts which
provides that contracts can only bind the parties who entered into it, and
it cannot favor or prejudice a third person, even if he is aware of such
contract and has acted with knowledge thereof." 11 ICASEH
Their motions for partial reconsideration having been denied, 12 Marsman
Drysdale and Gotesco filed separate petitions for review with the Court
which were docketed as G.R. Nos. 183374 and 183376, respectively. By
Resolution of September 8, 2008, the Court consolidated the petitions.
In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court
in
A. . . . ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER
CONCEDING THAT [GOTESCO] SHOULD ULTIMATELY BE SOLELY LIABLE TO
[PGI].
B. . . . AWARDING ATTORNEY'S FEES IN FAVOR OF [PGI] . . .
C. . . . IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE
REQUIREMENT OF "SATISFACTORY PERFORMANCE" OF ITS PRESTATION
WHICH, PURSUANT TO THE TECHNICAL SERVICES CONTRACT, IS THE
CONDITION SINE QUA NON TO COMPENSATION.
D. . . . DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN DRYSDALE'S]
ENTITLEMENT TO AN AWARD OF ATTORNEY'S FEES. 13
On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate
court committed error when it
. . . ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK
PERFORMED BY [PGI] AND P100,000.00 [AS] ATTORNEY'S FEES . . . [AND] TO
REIMBURSE [MARSMAN DRYSDALE] 50% OF P535,353.50 AND PAY
[MARSMAN DRYSDALE] P100,000.00 AS ATTORNEY'S FEES. 14
On the issue of whether PGI was indeed entitled to the payment of services
it rendered, the Court sees no imperative to re-examine the congruent
findings of the trial and appellate courts thereon. Undoubtedly, the exercise
involves an examination of facts which is normally beyond the ambit of the
Court's functions under a petition for review, for it is well-settled that this
Court is not a trier of facts. While this judicial tenet admits of exceptions,
such as when the findings of facts of the appellate court are contrary to
those of the trial court's, or when the judgment is based on a
misapprehension of facts, or when the findings of facts are contradicted by
the evidence on record, 15 these extenuating grounds find no application
in the present petitions.
AT ALL EVENTS, the Court is convinced that PGI had more than sufficiently
established its claims against the joint venture. In fact, Marsman Drysdale
had long recognized PGI's contractual claims when it (PGI) received a
Certificate of Payment 16 from the joint venture's project manager 17 which
was endorsed to Gotesco for processing and payment. 18 STcADa
The core issue to be resolved then is which between joint venturers
Marsman Drysdale and Gotesco bears the liability to pay PGI its unpaid
claims.
To Marsman Drysdale, it is Gotesco since, under the JVA, construction
funding for the project was to be obtained from Gotesco's cash
contribution, as its (Marsman Drysdale's) participation in the venture was
limited to the land.
Gotesco maintains, however, that it has no liability to pay PGI since it was
due to the fault of Marsman Drysdale that PGI was unable to complete its
undertaking.
The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.
PGI executed a technical service contract with the joint venture and was
never a party to the JVA. While the JVA clearly spelled out, inter alia, the
capital contributions of Marsman Drysdale (land) and Gotesco (cash) as
well as the funding and financing mechanism for the project, the same
cannot be used to defeat the lawful claim of PGI against the two joint
venturers-partners.
The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as
the beneficial owner of the project, 19 and all billing invoices indicated the
consortium therein as the client.
As the appellate court held, Articles 1207 and 1208 of the Civil Code, which
respectively read:
Art. 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of
the former has a right to demand, or that each one of the latter is bound
to render, entire compliance with the prestations. There is a solidary liability
only when the obligation expressly so states, or when the law or nature of
the obligation requires solidarity.
Art. 1208. If from the law, or the nature or the wording of the obligations to
which the preceding article refers the contrary does not appear, the credit
or debt shall be presumed to be divided into as many equal shares as there
are creditors or debtors, the credits or debts being considered distinct from
one another, subject to the Rules of Court governing the multiplicity of suits.
(emphasis and underscoring supplied)
presume that the obligation owing to PGI is joint between Marsman
Drysdale and Gotesco.
The only time that the JVA may be made to apply in the present petitions
is when the liability of the joint venturers to each other would set in.
A joint venture being a form of partnership, it is to be governed by the laws
on partnership. 20 Article 1797 of the Civil Code provides:
Art. 1797. The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed
upon, the share of each in the losses shall be in the same proportion.
In the absence of stipulation, the share of each in the profits and losses shall
be in proportion to what he may have contributed, but the industrial
partner shall not be liable for the losses. As for the profits, the industrial
partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall
also receive a share in the profits in proportion to his capital. (emphasis and
underscoring supplied)
In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the
proceeds of the project. 21 They did not provide for the splitting of losses,
however. Applying the above-quoted provision of Article 1797 then, the
same ratio applies in splitting the P535,353.50 obligation-loss of the joint
venture.
The appellate court's decision must be modified, however. Marsman
Drysdale and Gotesco being jointly liable, there is no need for Gotesco to
reimburse Marsman Drysdale for "50% of the aggregate sum due" to PGI.
Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI
would not only be contrary to the law on partnership on division of losses
but would partake of a clear case of unjust enrichment at Gotesco's
expense. The grant by the lower courts of Marsman Drysdale cross-claim
against Gotesco was thus erroneous.
Marsman Drysdale's supplication for the award of attorney's fees in its favor
must be denied. It cannot claim that it was compelled to litigate or that the
civil action or proceeding against it was clearly unfounded, for the JVA
provided that, in the event a party advances funds for the project, the joint
venture shall repay the advancing party.
Marsman Drysdale was thus not precluded from advancing funds to pay
for PGI's contracted services to abate any legal action against the joint
venture itself. It was in fact hardline insistence on Gotesco having sole
responsibility to pay for the obligation, despite the fact that PGI's services
redounded to the benefit of the joint venture, that spawned the legal
action against it and Gotesco.
Finally, an interest of 12% per annum on the outstanding obligation must be
imposed from the time of demand 23 as the delay in payment makes the
obligation one of forbearance of money, conformably with this Court's
ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. 24 Marsman
Drysdale and Gotesco should bear legal interest on their respective
obligations.
WHEREFORE, the assailed Decision and Resolution of the Court of Appeals
are AFFIRMED with MODIFICATION in that the order for Gotesco to
reimburse Marsman Drysdale is DELETED, and interest of 12% per annum on
the respective obligations of Marsman Drysdale and Gotesco is imposed,
114
computed from the last demand or on January 5, 1999 up to the finality of
the Decision.
If the adjudged amount and the interest remain unpaid thereafter, the
interest rate shall be 12% per annum computed from the time the judgment
becomes final and executory until it is fully satisfied. The appealed decision
is, in all other respects, affirmed.
Costs against petitioners Marsman Drysdale and Gotesco.
SO ORDERED.
[G.R. No. 174149. September 8, 2010.]
J. TIOSEJO INVESTMENT CORP., petitioner, vs. SPOUSES BENJAMIN AND
ELEANOR ANG, respondents.
DECISION
PEREZ, J p:
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 former's
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 A-1006, for
the agreed contract price of P52,597.88 per square meter or a total
P2,077,334.25. 8 On the same date PPGI and respondents also executed
Contract to Sell No. 0214 over the 12.50 square meter parking space
identified as Parking Slot No. 0405, for the stipulated consideration of
P26,400.00 square meters or a total of P313,500.00.
On 21 July 1999, respondents filed against petitioner and PPGI the
complaint for the rescission of the aforesaid Contracts to Sell docketed
before the HLURB as HLURB Case No. REM 072199-10567. Contending that
they were assured by petitioner and PPGI that the subject condominium
unit and parking space would be available for turn-over and occupancy
in December 1998, respondents averred, among other matters, that in view
of the non-completion 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 attorney's fees and the costs.
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 attorney's fees and litigation expenses.
Petitioner also specifically denied the material allegations of the complaint
in separate answer dated 5 February 2002 12 which it amended on 20 May
2002. Calling attention to the fact that its prestation under the JVA consisted
in contributing the property on which The Meditel was to be constructed,
petitioner asseverated that, by the terms of the JVA, each party was
individually responsible for the marketing and sale of the units pertaining to
its share; that not being privy to the Contracts to Sell executed by PPGI and
respondents, it did not receive any portion of the payments made by the
latter; and, that without any contributory fault and negligence on its part,
PPGI breached its undertakings under the JVA by failing to complete the
condominium project. In addition to the dismissal of the complaint and the
grant of its counterclaims for exemplary damages, attorney's 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.
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)
attorney's 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 latter's cross-claim in the 14
September 2004 decision rendered by said administrative body's 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. Attorney's 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 petitioner's 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
115
seeking yet another extension of 10 days or until 10 April 2005 within which
to file its appeal memorandum.
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 petitioner's appeal on the ground that the latter's
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.
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 former's 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, 259-260
[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.
Petitioner's motion for reconsideration of the foregoing resolution 36 was
denied for lack of merit in the CA's 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: ICTcDA
I. THE COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE
TECHNICALITY;
II. THE COURT OF APPEALS ERRED IN REFUSING TO RESOLVE THE PETITION ON
THE MERITS THEREBY AFFIRMING THE OFFICE OF THE PRESIDENT'S DECISION (A)
DISMISSING JTIC'S APPEAL ON A MERE TECHNICALITY; (B) AFFIRMING THE
HLURB BOARD'S DECISION INSOFAR AS IT FOUND JTIC SOLIDARILY LIABLE
WITH PRIMETOWN TO PAY SPOUSES ANG DAMAGES, ATTORNEY'S FEES AND
THE COST OF THE SUIT; AND (C) AFFIRMING THE HLURB BOARD'S DECISION
INSOFAR AS IT FAILED TO AWARD JITC ITS COUNTERCLAIMS AGAINST
SPOUSES ANG. 38
The Court's 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 petitioner's 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) aEHAIS
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, petitioner's
appeal before the OP was likewise dismissed in view of its failure to file its
appeal memorandum within the extensions of time it had been granted by
said office. After being granted an initial extension of 15 days to do the
same, the records disclose that petitioner was granted by the OP a second
extension of 10 days from 15 March 2005 or until 25 March 2005 within which
to file its appeal memorandum, on the condition that no further extensions
shall be allowed. Aside from not heeding said proviso, petitioner had,
consequently, no more time to extend when it filed its 31 March 2005 motion
seeking yet another extension of 10 days or until 10 April 2005 within which
to file its appeal memorandum.
With the foregoing procedural antecedents, the initial 15-day extension
granted by the CA and the injunction under Sec. 4, Rule 43 of the 1997 Rules
of Civil Procedure against further extensions "except for the most
compelling reason", it was clearly inexcusable for petitioner to expediently
plead its counsel's 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.
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:
116
"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. ICHcTD
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.
[G.R. No. 195580. April 21, 2014.]
NARRA NICKEL MINING AND DEVELOPMENT CORP., TESORO MINING AND
DEVELOPMENT, INC., and MCARTHUR MINING, INC., petitioners, vs.
REDMONT CONSOLIDATED MINES CORP., respondent.
DECISION
VELASCO, JR., J p:
Before this Court is a Petition for Review on Certiorari under Rule 45 filed by
Narra Nickel and Mining Development Corp. (Narra), Tesoro Mining and
Development, Inc. (Tesoro), and McArthur Mining, Inc. (McArthur), which
seeks to reverse the October 1, 2010 Decision 1 and the February 15, 2011
Resolution of the Court of Appeals (CA).
The Facts
Sometime in December 2006, respondent Redmont Consolidated Mines
Corp. (Redmont), a domestic corporation organized and existing under
Philippine laws, took interest in mining and exploring certain areas of the
province of Palawan. After inquiring with the Department of Environment
and Natural Resources (DENR), it learned that the areas where it wanted to
undertake exploration and mining activities where already covered by
Mineral Production Sharing Agreement (MPSA) applications of petitioners
Narra, Tesoro and McArthur.
Petitioner McArthur, through its predecessor-in-interest Sara Marie Mining,
Inc. (SMMI), filed an application for an MPSA and Exploration Permit (EP)
with the Mines and Geo-Sciences Bureau (MGB), Region IV-B, Office of the
Department of Environment and Natural Resources (DENR). Subsequently,
SMMI was issued MPSA-AMA-IVB-153 covering an area of over 1,782
hectares in Barangay Sumbiling, Municipality of Bataraza, Province of
Palawan and EPA-IVB-44 which includes an area of 3,720 hectares in
Barangay Malatagao, Bataraza, Palawan. The MPSA and EP were then
transferred to Madridejos Mining Corporation (MMC) and, on November 6,
2006, assigned to petitioner McArthur. 2
Petitioner Narra acquired its MPSA from Alpha Resources and Development
Corporation and Patricia Louise Mining & Development Corporation
(PLMDC) which previously filed an application for an MPSA with the MGB,
Region IV-B, DENR on January 6, 1992. Through the said application, the
DENR issued MPSA-IV-1-12 covering an area of 3.277 hectares in barangays
Calategas and San Isidro, Municipality of Narra, Palawan. Subsequently,
PLMDC conveyed, transferred and/or assigned its rights and interests over
the MPSA application in favor of Narra.
Another MPSA application of SMMI was filed with the DENR Region IV-B,
labeled as MPSA-AMA-IVB-154 (formerly EPA-IVB-47) over 3,402 hectares in
Barangays Malinao and Princesa Urduja, Municipality of Narra, Province of
Palawan. SMMI subsequently conveyed, transferred and assigned its rights
and interest over the said MPSA application to Tesoro.
On January 2, 2007, Redmont filed before the Panel of Arbitrators (POA) of
the DENR three (3) separate petitions for the denial of petitioners'
applications for MPSA designated as AMA-IVB-153, AMA-IVB-154 and MPSA
IV-1-12. CSHEAI
In the petitions, Redmont alleged that at least 60% of the capital stock of
McArthur, Tesoro and Narra are owned and controlled by MBMI Resources,
Inc. (MBMI), a 100% Canadian corporation. Redmont reasoned that since
MBMI is a considerable stockholder of petitioners, it was the driving force
behind petitioners' filing of the MPSAs over the areas covered by
applications since it knows that it can only participate in mining activities
through corporations which are deemed Filipino citizens. Redmont argued
that given that petitioners' capital stocks were mostly owned by MBMI, they
were likewise disqualified from engaging in mining activities through MPSAs,
which are reserved only for Filipino citizens.
In their Answers, petitioners averred that they were qualified persons under
Section 3 (aq) of Republic Act No. (RA) 7942 or the Philippine Mining Act of
1995 which provided:
Sec. 3 Definition of Terms. As used in and for purposes of this Act, the
following terms, whether in singular or plural, shall mean:
xxx xxx xxx
(aq) "Qualified person" means any citizen of the Philippines with capacity
to contract, or a corporation, partnership, association, or cooperative
organized or authorized for the purpose of engaging in mining, with
technical and financial capability to undertake mineral resources
development and duly registered in accordance with law at least sixty per
cent (60%) of the capital of which is owned by citizens of the Philippines:
Provided, That a legally organized foreign-owned corporation shall be
deemed a qualified person for purposes of granting an exploration permit,
financial or technical assistance agreement or mineral processing permit.
Additionally, they stated that their nationality as applicants is immaterial
because they also applied for Financial or Technical Assistance
Agreements (FTAA) denominated as AFTA-IVB-09 for McArthur, AFTA-IVB-08
for Tesoro and AFTA-IVB-07 for Narra, which are granted to foreign-owned
corporations. Nevertheless, they claimed that the issue on nationality
should not be raised since McArthur, Tesoro and Narra are in fact Philippine
Nationals as 60% of their capital is owned by citizens of the Philippines. They
asserted that though MBMI owns 40% of the shares of PLMC (which owns
5,997 shares of Narra), 3 40% of the shares of MMC (which owns 5,997 shares
of McArthur) 4 and 40% of the shares of SLMC (which, in turn, owns 5,997
shares of Tesoro), 5 the shares of MBMI will not make it the owner of at least
60% of the capital stock of each of petitioners. They added that the best
tool used in determining the nationality of a corporation is the "control test,"
embodied in Sec. 3 of RA 7042 or the Foreign Investments Act of 1991. They
also claimed that the POA of DENR did not have jurisdiction over the issues
117
in Redmont's petition since they are not enumerated in Sec. 77 of RA 7942.
Finally, they stressed that Redmont has no personality to sue them because
it has no pending claim or application over the areas applied for by
petitioners.
On December 14, 2007, the POA issued a Resolution disqualifying petitioners
from gaining MPSAs. It held:
[I]t is clearly established that respondents are not qualified applicants to
engage in mining activities. On the other hand, [Redmont] having filed its
own applications for an EPA over the areas earlier covered by the MPSA
application of respondents may be considered if and when they are
qualified under the law. The violation of the requirements for the issuance
and/or grant of permits over mining areas is clearly established thus, there
is reason to believe that the cancellation and/or revocation of permits
already issued under the premises is in order and open the areas covered
to other qualified applicants.
xxx xxx xxx
WHEREFORE, the Panel of Arbitrators finds the Respondents, McArthur
Mining, Inc., Tesoro Mining and Development, Inc., and Narra Nickel Mining
and Development Corp. as, DISQUALIFIED for being considered as Foreign
Corporations. Their Mineral Production Sharing Agreement (MPSA) are
hereby . . . DECLARED NULL AND VOID. 6
The POA considered petitioners as foreign corporations being "effectively
controlled" by MBMI, a 100% Canadian company and declared their MPSAs
null and void. In the same Resolution, it gave due course to Redmont's EPAs.
Thereafter, on February 7, 2008, the POA issued an Order 7 denying the
Motion for Reconsideration filed by petitioners.
Aggrieved by the Resolution and Order of the POA, McArthur and Tesoro
filed a joint Notice of Appeal 8 and Memorandum of Appeal 9 with the
Mines Adjudication Board (MAB) while Narra separately filed its Notice of
Appeal 10 and Memorandum of Appeal. 11
In their respective memorandum, petitioners emphasized that they are
qualified persons under the law. Also, through a letter, they informed the
MAB that they had their individual MPSA applications converted to FTAAs.
McArthur's FTAA was denominated as AFTA-IVB-09 12 on May 2007, while
Tesoro's MPSA application was converted to AFTA-IVB-08 13 on May 28,
2007, and Narra's FTAA was converted to AFTA-IVB-07 14 on March 30, 2006.
DHESca
Pending the resolution of the appeal filed by petitioners with the MAB,
Redmont filed a Complaint 15 with the Securities and Exchange
Commission (SEC), seeking the revocation of the certificates for registration
of petitioners on the ground that they are foreign-owned or controlled
corporations engaged in mining in violation of Philippine laws. Thereafter,
Redmont filed on September 1, 2008 a Manifestation and Motion to
Suspend Proceeding before the MAB praying for the suspension of the
proceedings on the appeals filed by McArthur, Tesoro and Narra.
Subsequently, on September 8, 2008, Redmont filed before the Regional
Trial Court of Quezon City, Branch 92 (RTC) a Complaint 16 for injunction
with application for issuance of a temporary restraining order (TRO) and/or
writ of preliminary injunction, docketed as Civil Case No. 08-63379. Redmont
prayed for the deferral of the MAB proceedings pending the resolution of
the Complaint before the SEC.
But before the RTC can resolve Redmont's Complaint and applications for
injunctive reliefs, the MAB issued an Order on September 10, 2008, finding
the appeal meritorious. It held:
WHEREFORE, in view of the foregoing, the Mines Adjudication Board hereby
REVERSES and SETS ASIDE the Resolution dated 14 December 2007 of the
Panel of Arbitrators of Region IV-B (MIMAROPA) in POA-DENR Case Nos.
2001-01, 2007-02 and 2007-03, and its Order dated 07 February 2008
denying the Motions for Reconsideration of the Appellants. The Petition filed
by Redmont Consolidated Mines Corporation on 02 January 2007 is hereby
ordered DISMISSED. 17
Belatedly, on September 16, 2008, the RTC issued an Order 18 granting
Redmont's application for a TRO and setting the case for hearing the prayer
for the issuance of a writ of preliminary injunction on September 19, 2008.
Meanwhile, on September 22, 2008, Redmont filed a Motion for
Reconsideration 19 of the September 10, 2008 Order of the MAB.
Subsequently, it filed a Supplemental Motion for Reconsideration 20 on
September 29, 2008.
Before the MAB could resolve Redmont's Motion for Reconsideration and
Supplemental Motion for Reconsideration, Redmont filed before the RTC a
Supplemental Complaint 21 in Civil Case No. 08-63379.
On October 6, 2008, the RTC issued an Order 22 granting the issuance of a
writ of preliminary injunction enjoining the MAB from finally disposing of the
appeals of petitioners and from resolving Redmont's Motion for
Reconsideration and Supplement Motion for Reconsideration of the MAB's
September 10, 2008 Resolution.
On July 1, 2009, however, the MAB issued a second Order denying
Redmont's Motion for Reconsideration and Supplemental Motion for
Reconsideration and resolving the appeals filed by petitioners.
Hence, the petition for review filed by Redmont before the CA, assailing the
Orders issued by the MAB. On October 1, 2010, the CA rendered a Decision,
the dispositive of which reads:
WHEREFORE, the Petition is PARTIALLY GRANTED. The assailed Orders, dated
September 10, 2008 and July 1, 2009 of the Mining Adjudication Board are
reversed and set aside. The findings of the Panel of Arbitrators of the
Department of Environment and Natural Resources that respondents
McArthur, Tesoro and Narra are foreign corporations is upheld and,
therefore, the rejection of their applications for Mineral Product Sharing
Agreement should be recommended to the Secretary of the DENR.
With respect to the applications of respondents McArthur, Tesoro and Narra
for Financial or Technical Assistance Agreement (FTAA) or conversion of
their MPSA applications to FTAA, the matter for its rejection or approval is
left for determination by the Secretary of the DENR and the President of the
Republic of the Philippines.
SO ORDERED. 23
In a Resolution dated February 15, 2011, the CA denied the Motion for
Reconsideration filed by petitioners.
After a careful review of the records, the CA found that there was doubt as
to the nationality of petitioners when it realized that petitioners had a
common major investor, MBMI, a corporation composed of 100%
Canadians. Pursuant to the first sentence of paragraph 7 of Department of
Justice (DOJ) Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules
which implemented the requirement of the Constitution and other laws
pertaining to the exploitation of natural resources, the CA used the
"grandfather rule" to determine the nationality of petitioners. It provided:
Shares belonging to corporations or partnerships at least 60% of the capital
of which is owned by Filipino citizens shall be considered as of Philippine
nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to
such percentage shall be counted as of Philippine nationality. Thus, if
100,000 shares are registered in the name of a corporation or partnership at
least 60% of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But
if less than 60%, or say, 50% of the capital stock or capital of the corporation
or partnership, respectively, belongs to Filipino citizens, only 50,000 shares
shall be recorded as belonging to aliens. 24 (emphasis supplied)
In determining the nationality of petitioners, the CA looked into their
corporate structures and their corresponding common shareholders. Using
the grandfather rule, the CA discovered that MBMI in effect owned majority
of the common stocks of the petitioners as well as at least 60% equity
interest of other majority shareholders of petitioners through joint venture
agreements. The CA found that through a "web of corporate layering, it is
clear that one common controlling investor in all mining corporations
involved . . . is MBMI." 25 Thus, it concluded that petitioners McArthur, Tesoro
and Narra are also in partnership with, or privies-in-interest of, MBMI.
Furthermore, the CA viewed the conversion of the MPSA applications of
petitioners into FTAA applications suspicious in nature and, as a
consequence, it recommended the rejection of petitioners' MPSA
applications by the Secretary of the DENR.
With regard to the settlement of disputes over rights to mining areas, the CA
pointed out that the POA has jurisdiction over them and that it also has the
power to determine the of nationality of petitioners as a prerequisite of the
118
Constitution prior the conferring of rights to "co-production, joint venture or
production-sharing agreements" of the state to mining rights. However, it
also stated that the POA's jurisdiction is limited only to the resolution of the
dispute and not on the approval or rejection of the MPSAs. It stipulated that
only the Secretary of the DENR is vested with the power to approve or reject
applications for MPSA.
Finally, the CA upheld the findings of the POA in its December 14, 2007
Resolution which considered petitioners McArthur, Tesoro and Narra as
foreign corporations. Nevertheless, the CA determined that the POA's
declaration that the MPSAs of McArthur, Tesoro and Narra are void is highly
improper. cCaEDA
While the petition was pending with the CA, Redmont filed with the Office
of the President (OP) a petition dated May 7, 2010 seeking the cancellation
of petitioners' FTAAs. The OP rendered a Decision 26 on April 6, 2011,
wherein it canceled and revoked petitioners' FTAAs for violating and
circumventing the "Constitution . . .[,] the Small Scale Mining Law and
Environmental Compliance Certificate as well as Sections 3 and 8 of the
Foreign Investment Act and E.O. 584." 27 The OP, in affirming the
cancellation of the issued FTAAs, agreed with Redmont stating that
petitioners committed violations against the abovementioned laws and
failed to submit evidence to negate them. The Decision further quoted the
December 14, 2007 Order of the POA focusing on the alleged
misrepresentation and claims made by petitioners of being domestic or
Filipino corporations and the admitted continued mining operation of
PMDC using their locally secured Small Scale Mining Permit inside the area
earlier applied for an MPSA application which was eventually transferred to
Narra. It also agreed with the POA's estimation that the filing of the FTAA
applications by petitioners is a clear admission that they are "not capable
of conducting a large scale mining operation and that they need the
financial and technical assistance of a foreign entity in their operation, that
is why they sought the participation of MBMI Resources, Inc." 28 The Decision
further quoted:
The filing of the FTAA application on June 15, 2007, during the pendency of
the case only demonstrate the violations and lack of qualification of the
respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the earlier
MPSA is an admission that indeed the respondent is not Filipino but rather
of foreign nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders in their head
office in Canada suggest that they are conducting operation only through
their local counterparts. 29
The Motion for Reconsideration of the Decision was further denied by the
OP in a Resolution 30 dated July 6, 2011. Petitioners then filed a Petition for
Review on Certiorari of the OP's Decision and Resolution with the CA,
docketed as CA-G.R. SP No. 120409. In the CA Decision dated February 29,
2012, the CA affirmed the Decision and Resolution of the OP. Thereafter,
petitioners appealed the same CA decision to this Court which is now
pending with a different division.
Thus, the instant petition for review against the October 1, 2010 Decision of
the CA. Petitioners put forth the following errors of the CA:
I.
The Court of Appeals erred when it did not dismiss the case for mootness
despite the fact that the subject matter of the controversy, the MPSA
Applications, have already been converted into FTAA applications and
that the same have already been granted.
II.
The Court of Appeals erred when it did not dismiss the case for lack of
jurisdiction considering that the Panel of Arbitrators has no jurisdiction to
determine the nationality of Narra, Tesoro and McArthur.
III.
The Court of Appeals erred when it did not dismiss the case on account of
Redmont's willful forum shopping.
IV.
The Court of Appeals' ruling that Narra, Tesoro and McArthur are foreign
corporations based on the "Grandfather Rule" is contrary to law, particularly
the express mandate of the Foreign Investments Act of 1991, as amended,
and the FIA Rules.
V.
The Court of Appeals erred when it applied the exceptions to the res inter
alios acta rule.
VI.
The Court of Appeals erred when it concluded that the conversion of the
MPSA Applications into FTAA Applications were of "suspicious nature" as the
same is based on mere conjectures and surmises without any shred of
evidence to show the same. 31
We find the petition to be without merit.
This case not moot and academic
The claim of petitioners that the CA erred in not rendering the instant case
as moot is without merit.
Basically, a case is said to be moot and/or academic when it "ceases to
present a justiciable controversy by virtue of supervening events, so that a
declaration thereon would be of no practical use or value." 32 Thus, the
courts "generally decline jurisdiction over the case or dismiss it on the
ground of mootness." 33
The "mootness" principle, however, does accept certain exceptions and
the mere raising of an issue of "mootness" will not deter the courts from trying
a case when there is a valid reason to do so. In David v. Macapagal-Arroyo
(David), the Court provided four instances where courts can decide an
otherwise moot case, thus:
1.) There is a grave violation of the Constitution;
2.) The exceptional character of the situation and paramount public
interest is involved;
3.) When constitutional issue raised requires formulation of controlling
principles to guide the bench, the bar, and the public; and caTIDE
4.) The case is capable of repetition yet evading review. 34
All of the exceptions stated above are present in the instant case. We of
this Court note that a grave violation of the Constitution, specifically Section
2 of Article XII, is being committed by a foreign corporation right under our
country's nose through a myriad of corporate layering under different,
allegedly, Filipino corporations. The intricate corporate layering utilized by
the Canadian company, MBMI, is of exceptional character and involves
paramount public interest since it undeniably affects the exploitation of our
Country's natural resources. The corresponding actions of petitioners during
the lifetime and existence of the instant case raise questions as what
principle is to be applied to cases with similar issues. No definite ruling on
such principle has been pronounced by the Court; hence, the disposition
of the issues or errors in the instant case will serve as a guide "to the bench,
the bar and the public." 35 Finally, the instant case is capable of repetition
yet evading review, since the Canadian company, MBMI, can keep on
utilizing dummy Filipino corporations through various schemes of corporate
layering and conversion of applications to skirt the constitutional prohibition
against foreign mining in Philippine soil.
Conversion of MPSA applications to FTAA applications
We shall discuss the first error in conjunction with the sixth error presented by
petitioners since both involve the conversion of MPSA applications to FTAA
applications. Petitioners propound that the CA erred in ruling against them
since the questioned MPSA applications were already converted into FTAA
applications; thus, the issue on the prohibition relating to MPSA applications
of foreign mining corporations is academic. Also, petitioners would want us
to correct the CA's finding which deemed the aforementioned conversions
of applications as suspicious in nature, since it is based on mere conjectures
and surmises and not supported with evidence.
We disagree.
The CA's analysis of the actions of petitioners after the case was filed
against them by respondent is on point. The changing of applications by
petitioners from one type to another just because a case was filed against
them, in truth, would raise not a few sceptics' eyebrows. What is the reason
for such conversion? Did the said conversion not stem from the case
challenging their citizenship and to have the case dismissed against them
119
for being "moot"? It is quite obvious that it is petitioners' strategy to have the
case dismissed against them for being "moot."
Consider the history of this case and how petitioners responded to every
action done by the court or appropriate government agency: on January
2, 2007, Redmont filed three separate petitions for denial of the MPSA
applications of petitioners before the POA. On June 15, 2007, petitioners
filed a conversion of their MPSA applications to FTAAs. The POA, in its
December 14, 2007 Resolution, observed this suspect change of
applications while the case was pending before it and held:
The filing of the Financial or Technical Assistance Agreement application is
a clear admission that the respondents are not capable of conducting a
large scale mining operation and that they need the financial and
technical assistance of a foreign entity in their operation that is why they
sought the participation of MBMI Resources, Inc. The participation of MBMI
in the corporation only proves the fact that it is the Canadian company
that will provide the finances and the resources to operate the mining areas
for the greater benefit and interest of the same and not the Filipino
stockholders who only have a less substantial financial stake in the
corporation.
xxx xxx xxx
. . . The filing of the FTAA application on June 15, 2007, during the pendency
of the case only demonstrate the violations and lack of qualification of the
respondent corporations to engage in mining. The filing of the FTAA
application conversion which is allowed foreign corporation of the earlier
MPSA is an admission that indeed the respondent is not Filipino but rather
of foreign nationality who is disqualified under the laws. Corporate
documents of MBMI Resources, Inc. furnished its stockholders in their head
office in Canada suggest that they are conducting operation only through
their local counterparts. 36
On October 1, 2010, the CA rendered a Decision which partially granted
the petition, reversing and setting aside the September 10, 2008 and July 1,
2009 Orders of the MAB. In the said Decision, the CA upheld the findings of
the POA of the DENR that the herein petitioners are in fact foreign
corporations thus a recommendation of the rejection of their MPSA
applications were recommended to the Secretary of the DENR. With
respect to the FTAA applications or conversion of the MPSA applications to
FTAAs, the CA deferred the matter for the determination of the Secretary of
the DENR and the President of the Republic of the Philippines. 37
In their Motion for Reconsideration dated October 26, 2010, petitioners
prayed for the dismissal of the petition asserting that on April 5, 2010, then
President Gloria Macapagal-Arroyo signed and issued in their favor FTAA
No. 05-2010-IVB, which rendered the petition moot and academic.
However, the CA, in a Resolution dated February 15, 2011 denied their
motion for being a mere "rehash of their claims and defenses." 38 Standing
firm on its Decision, the CA affirmed the ruling that petitioners are, in fact,
foreign corporations. On April 5, 2011, petitioners elevated the case to us
via a Petition for Review on Certiorari under Rule 45, questioning the
Decision of the CA. Interestingly, the OP rendered a Decision dated April 6,
2011, a day after this petition for review was filed, cancelling and revoking
the FTAAs, quoting the Order of the POA and stating that petitioners are
foreign corporations since they needed the financial strength of MBMI, Inc.
in order to conduct large scale mining operations. The OP Decision also
based the cancellation on the misrepresentation of facts and the violation
of the "Small Scale Mining Law and Environmental Compliance Certificate
as well as Sections 3 and 8 of the Foreign Investment Act and E.O. 584." 39
On July 6, 2011, the OP issued a Resolution, denying the Motion for
Reconsideration filed by the petitioners.
Respondent Redmont, in its Comment dated October 10, 2011, made
known to the Court the fact of the OP's Decision and Resolution. In their
Reply, petitioners chose to ignore the OP Decision and continued to reuse
their old arguments claiming that they were granted FTAAs and, thus, the
case was moot. Petitioners filed a Manifestation and Submission dated
October 19, 2012, 40 wherein they asserted that the present petition is moot
since, in a remarkable turn of events, MBMI was able to sell/assign all its
shares/interest in the "holding companies" to DMCI Mining Corporation
(DMCI), a Filipino corporation and, in effect, making their respective
corporations fully-Filipino owned.
Again, it is quite evident that petitioners have been trying to have this case
dismissed for being "moot." Their final act, wherein MBMI was able to
allegedly sell/assign all its shares and interest in the petitioner "holding
companies" to DMCI, only proves that they were in fact not Filipino
corporations from the start. The recent divesting of interest by MBMI will not
change the stand of this Court with respect to the nationality of petitioners
prior the suspicious change in their corporate structures. The new
documents filed by petitioners are factual evidence that this Court has no
power to verify.
The only thing clear and proved in this Court is the fact that the OP declared
that petitioner corporations have violated several mining laws and made
misrepresentations and falsehood in their applications for FTAA which lead
to the revocation of the said FTAAs, demonstrating that petitioners are not
beyond going against or around the law using shifty actions and strategies.
Thus, in this instance, we can say that their claim of mootness is moot in itself
because their defense of conversion of MPSAs to FTAAs has been
discredited by the OP Decision.
Grandfather test
The main issue in this case is centered on the issue of petitioners' nationality,
whether Filipino or foreign. In their previous petitions, they had been
adamant in insisting that they were Filipino corporations, until they
submitted their Manifestation and Submission dated October 19, 2012
where they stated the alleged change of corporate ownership to reflect
their Filipino ownership. Thus, there is a need to determine the nationality of
petitioner corporations.
Basically, there are two acknowledged tests in determining the nationality
of a corporation: the control test and the grandfather rule. Paragraph 7 of
DOJ Opinion No. 020, Series of 2005, adopting the 1967 SEC Rules which
implemented the requirement of the Constitution and other laws pertaining
to the controlling interests in enterprises engaged in the exploitation of
natural resources owned by Filipino citizens, provides:
Shares belonging to corporations or partnerships at least 60% of the capital
of which is owned by Filipino citizens shall be considered as of Philippine
nationality, but if the percentage of Filipino ownership in the corporation or
partnership is less than 60%, only the number of shares corresponding to
such percentage shall be counted as of Philippine nationality. Thus, if
100,000 shares are registered in the name of a corporation or partnership at
least 60% of the capital stock or capital, respectively, of which belong to
Filipino citizens, all of the shares shall be recorded as owned by Filipinos. But
if less than 60%, or say, 50% of the capital stock or capital of the corporation
or partnership, respectively, belongs to Filipino citizens, only 50,000 shares
shall be counted as owned by Filipinos and the other 50,000 shall be
recorded as belonging to aliens.
The first part of paragraph 7, DOJ Opinion No. 020, stating "shares belonging
to corporations or partnerships at least 60% of the capital of which is owned
by Filipino citizens shall be considered as of Philippine nationality," pertains
to the control test or the liberal rule. On the other hand, the second part of
the DOJ Opinion which provides, "if the percentage of the Filipino
ownership in the corporation or partnership is less than 60%, only the number
of shares corresponding to such percentage shall be counted as Philippine
nationality," pertains to the stricter, more stringent grandfather rule. TaEIcS
Prior to this recent change of events, petitioners were constant in
advocating the application of the "control test" under RA 7042, as
amended by RA 8179, otherwise known as the Foreign Investments Act
(FIA), rather than using the stricter grandfather rule. The pertinent provision
under Sec. 3 of the FIA provides:
SECTION 3. Definitions. As used in this Act:
a.) The term Philippine national shall mean a citizen of the Philippines; or a
domestic partnership or association wholly owned by the citizens of the
Philippines; a corporation organized under the laws of the Philippines of
which at least sixty percent (60%) of the capital stock outstanding and
entitled to vote is wholly owned by Filipinos or a trustee of funds for pension
or other employee retirement or separation benefits, where the trustee is a
Philippine national and at least sixty percent (60%) of the fund will accrue
to the benefit of Philippine nationals: Provided, That were a corporation and
its non-Filipino stockholders own stocks in a Securities and Exchange
Commission (SEC) registered enterprise, at least sixty percent (60%) of the
capital stock outstanding and entitled to vote of each of both corporations
must be owned and held by citizens of the Philippines and at least sixty
percent (60%) of the members of the Board of Directors, in order that the
corporation shall be considered a Philippine national. (emphasis supplied)
The grandfather rule, petitioners reasoned, has no leg to stand on in the
instant case since the definition of a "Philippine National" under Sec. 3 of
the FIA does not provide for it. They further claim that the grandfather rule
"has been abandoned and is no longer the applicable rule." 41 They also
120
opined that the last portion of Sec. 3 of the FIA admits the application of a
"corporate layering" scheme of corporations. Petitioners claim that the
clear and unambiguous wordings of the statute preclude the court from
construing it and prevent the court's use of discretion in applying the law.
They said that the plain, literal meaning of the statute meant the
application of the control test is obligatory.
We disagree. "Corporate layering" is admittedly allowed by the FIA; but if it
is used to circumvent the Constitution and pertinent laws, then it becomes
illegal. Further, the pronouncement of petitioners that the grandfather rule
has already been abandoned must be discredited for lack of basis.
Art. XII, Sec. 2 of the Constitution provides:
Sec. 2. All lands of the public domain, waters, minerals, coal, petroleum
and other mineral oils, all forces of potential energy, fisheries, forests or
timber, wildlife, flora and fauna, and other natural resources are owned by
the State. With the exception of agricultural lands, all other natural
resources shall not be alienated. The exploration, development, and
utilization of natural resources shall be under the full control and supervision
of the State. The State may directly undertake such activities, or it may enter
into co-production, joint venture or production-sharing agreements with
Filipino citizens, or corporations or associations at least sixty per centum of
whose capital is owned by such citizens. Such agreements may be for a
period not exceeding twenty-five years, renewable for not more than
twenty-five years, and under such terms and conditions as may be
provided by law.
xxx xxx xxx
The President may enter into agreements with Foreign-owned corporations
involving either technical or financial assistance for large-scale exploration,
development, and utilization of minerals, petroleum, and other mineral oils
according to the general terms and conditions provided by law, based on
real contributions to the economic growth and general welfare of the
country. In such agreements, the State shall promote the development and
use of local scientific and technical resources. (emphasis supplied)
The emphasized portion of Sec. 2 which focuses on the State entering into
different types of agreements for the exploration, development, and
utilization of natural resources with entities who are deemed Filipino due to
60 percent ownership of capital is pertinent to this case, since the issues are
centered on the utilization of our country's natural resources or specifically,
mining. Thus, there is a need to ascertain the nationality of petitioners since,
as the Constitution so provides, such agreements are only allowed
corporations or associations "at least 60 percent of such capital is owned
by such citizens." The deliberations in the Records of the 1986 Constitutional
Commission shed light on how a citizenship of a corporation will be
determined:
Mr. BENNAGEN:
Did I hear right that the Chairman's interpretation of an independent
national economy is freedom from undue foreign control? What is the
meaning of undue foreign control?
MR. VILLEGAS:
Undue foreign control is foreign control which sacrifices national
sovereignty and the welfare of the Filipino in the economic sphere.
MR. BENNAGEN:
Why does it have to be qualified still with the word "undue"? Why not simply
freedom from foreign control? I think that is the meaning of independence,
because as phrased, it still allows for foreign control.
MR. VILLEGAS:
It will now depend on the interpretation because if, for example, we retain
the 60/40 possibility in the cultivation of natural resources, 40 percent
involves some control; not total control, but some control.
MR. BENNAGEN:
In any case, I think in due time we will propose some amendments.
MR. VILLEGAS:
Yes. But we will be open to improvement of the phraseology.
Mr. BENNAGEN:
Yes.
Thank you, Mr. Vice-President.
xxx xxx xxx
MR. NOLLEDO:
In Sections 3, 9 and 15, the Committee stated local or Filipino equity and
foreign equity; namely, 60-40 in Section 3, 60-40 in Section 9, and 2/3-1/3 in
Section 15.
MR. VILLEGAS:
That is right.
MR. NOLLEDO:
In teaching law, we are always faced with the question: 'Where do we
base the equity requirement, is it on the authorized capital stock, on the
subscribed capital stock, or on the paid-up capital stock of a corporation'?
Will the Committee please enlighten me on this?
MR. VILLEGAS:
We have just had a long discussion with the members of the team from the
UP Law Center who provided us with a draft. The phrase that is contained
here which we adopted from the UP draft is '60 percent of the voting stock.'
MR. NOLLEDO:
That must be based on the subscribed capital stock, because unless
declared delinquent, unpaid capital stock shall be entitled to vote.
MR. VILLEGAS:
That is right.
MR. NOLLEDO:
Thank you.
With respect to an investment by one corporation in another corporation,
say, a corporation with 60-40 percent equity invests in another corporation
which is permitted by the Corporation Code, does the Committee adopt
the grandfather rule?
MR. VILLEGAS:
Yes, that is the understanding of the Committee.
MR. NOLLEDO:
Therefore, we need additional Filipino capital?
MR. VILLEGAS:
Yes. 42 (emphasis supplied)
It is apparent that it is the intention of the framers of the Constitution to apply
the grandfather rule in cases where corporate layering is present.
Elementary in statutory construction is when there is conflict between the
Constitution and a statute, the Constitution will prevail. In this instance,
specifically pertaining to the provisions under Art. XII of the Constitution on
National Economy and Patrimony, Sec. 3 of the FIA will have no place of
application. As decreed by the honorable framers of our Constitution,the
grandfather rule prevails and must be applied.
Likewise, paragraph 7, DOJ Opinion No. 020, Series of 2005 provides:
The above-quoted SEC Rules provide for the manner of calculating the
Filipino interest in a corporation for purposes, among others, of determining
compliance with nationality requirements (the 'Investee Corporation'). Such
manner of computation is necessary since the shares in the Investee
Corporation may be owned both by individual stockholders ('Investing
121
Individuals') and by corporations and partnerships ('Investing Corporation'). ludicrous to limit the application of the said word only to the instances
The said rules thus provide for the determination of nationality depending where the stockholdings of non-Filipino stockholders are more than 40% of
on the ownership of the Investee Corporation and, in certain instances, the the total stockholdings in a corporation. The corporations interested in Manuel A. Agcaoili Filipino
Investing Corporation. circumventing our laws would clearly strive to have "60% Filipino Ownership" 1
at face value. It would be senseless for these applying corporations to state PhP1,000.00
Under the above-quoted SEC Rules, there are two cases in determining the in their respective articles of incorporation that they have less than 60% PhP1,000.00
nationality of the Investee Corporation. The first case is the 'liberal rule', later Filipino stockholders since the applications will be denied instantly. Thus, Michael T. Mason American
coined by the SEC as the Control Test in its 30 May 1990 Opinion, and various corporate schemes and layerings are utilized to circumvent the 1
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which application of the Constitution. PhP1,000.00
states, '(s)hares belonging to corporations or partnerships at least 60% of the PhP1,000.00
capital of which is owned by Filipino citizens shall be considered as of Obviously, the instant case presents a situation which exhibits a scheme Kenneth Cawkell Canadian
Philippine nationality.' Under the liberal Control Test, there is no need to employed by stockholders to circumvent the law, creating a cloud of 1
further trace the ownership of the 60% (or more) Filipino stockholdings of the doubt in the Court's mind. To determine, therefore, the actual participation, PhP1,000.00
Investing Corporation since a corporation which is at least 60% Filipino- direct or indirect, of MBMI, the grandfather rule must be used. PhP1,000.00
owned is considered as Filipino.
McArthur Mining, Inc.
The second case is the Strict Rule or the Grandfather Rule Proper and To establish the actual ownership, interest or participation of MBMI in each
pertains to the portion in said Paragraph 7 of the 1967 SEC Rules which of petitioners' corporate structure, they have to be "grandfathered."
states, "but if the percentage of Filipino ownership in the corporation or Total
partnership is less than 60%, only the number of shares corresponding to As previously discussed, McArthur acquired its MPSA application from MMC, 10,000
such percentage shall be counted as of Philippine nationality." Under the which acquired its application from SMMI. McArthur has a capital stock of PhP10,000,000.00
Strict Rule or Grandfather Rule Proper, the combined totals in the Investing ten million pesos (PhP10,000,000) divided into 10,000 common shares at one PhP2,708,174.60
Corporation and the Investee Corporation must be traced (i.e., thousand pesos (PhP1,000) per share, subscribed to by the following: 44
"grandfathered") to determine the total percentage of Filipino ownership. ======
Name Nationality Number of Amount Amount Paid ============
Moreover, the ultimate Filipino ownership of the shares must first be traced Shares Subscribed ============
to the level of the Investing Corporation and added to the shares directly (emphasis supplied)
owned in the Investee Corporation . . . . Madridejos Mining Filipino
5,997 Interestingly, looking at the corporate structure of MMC, we take note that
xxx xxx xxx PhP5,997,000.00 it has a similar structure and composition as McArthur. In fact, it would seem
PhP825,000.00 that MBMI is also a major investor and "controls" 45 MBMI and also, similar
In other words, based on the said SEC Rule and DOJ Opinion, the Corporation nominal shareholders were present, i.e., Fernando B. Esguerra (Esguerra),
Grandfather Rule or the second part of the SEC Rule applies only when the Lauro L. Salazar (Salazar), Michael T. Mason (Mason) and Kenneth Cawkell
60-40 Filipino-foreign equity ownership is in doubt (i.e., in cases where the (Cawkell):
joint venture corporation with Filipino and foreign stockholders with less than Madridejos Mining Corporation
60% Filipino stockholdings [or 59%] invests in other joint venture corporation MBMI Resources, Canadian Name Nationality Number of Amount Amount Paid
which is either 60-40% Filipino-alien or the 59% less Filipino). Stated differently, 3,998 Shares Subscribed
where the 60-40 Filipino-foreign equity ownership is not in doubt, the PhP3,998,000.00
Grandfather Rule will not apply. (emphasis supplied) CTacSE PhP1,878,174.60 Olympic Mines & Filipino 6,663 PhP6,663,000.00 PhP0
Inc. Development Corp.
After a scrutiny of the evidence extant on record, the Court finds that this MBMI Resources, Canadian 3,331 PhP3,331,000.00
case calls for the application of the grandfather rule since, as ruled by the PhP2,803,900.00
POA and affirmed by the OP, doubt prevails and persists in the corporate Inc.
ownership of petitioners. Also, as found by the CA, doubt is present in the Lauro L. Salazar Filipino Amanti Limson Filipino 1 PhP1,000.00 PhP1,000.00
60-40 Filipino equity ownership of petitioners Narra, McArthur and Tesoro, 1 Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00
since their common investor, the 100% Canadian corporation MBMI, PhP1,000.00 Esguerra
funded them. However, petitioners also claim that there is "doubt" only PhP1,000.00 Lauro Salazar Filipino 1 PhP1,000.00 PhP1,000.00
when the stockholdings of Filipinos are less than 60%. 43 Fernando B. Filipino Emmanuel G. Filipino 1 PhP1,000.00 PhP1,000.00
1 Hernando
The assertion of petitioners that "doubt" only exists when the stockholdings PhP1,000.00 Michael T. Mason American 1 PhP1,000.00
are less than 60% fails to convince this Court. DOJ Opinion No. 20, which PhP1,000.00 PhP1,000.00
petitioners quoted in their petition, only made an example of an instance Esguerra Kenneth Cawkell Canadian 1 PhP1,000.00
where "doubt" as to the ownership of the corporation exists. It would be PhP1,000.00
122

Total 10,000 PhP10,000,000.00 PhP2,809,900.00 Total 10,000 PhP10,000,000.00 PhP2,708,174.60 Narra Nickel Mining and Development Corporation
====== ============== ============== ===== ============== ============= Moving on to the last petitioner, Narra, which is the transferee and assignee
(emphasis supplied) (emphasis supplied) of PLMDC's MPSA application, whose corporate structure's arrangement is
similar to that of the first two petitioners discussed. The capital stock of Narra
Noticeably, Olympic Mines & Development Corporation (Olympic) did not Except for the name "Sara Marie Mining, Inc.," the table above shows is ten million pesos (PhP10,000,000), which is divided into ten thousand
pay any amount with respect to the number of shares they subscribed to in exactly the same figures as the corporate structure of petitioner McArthur, common shares (10,000) at one thousand pesos (PhP1,000) per share,
the corporation, which is quite absurd since Olympic is the major down to the last centavo. All the other shareholders are the same: MBMI, shown as follows: ACHEaI
stockholder in MMC. MBMI's 2006 Annual Report sheds light on why Olympic Salazar, Esguerra, Agcaoili, Mason and Cawkell. The figures under
failed to pay any amount with respect to the number of shares it subscribed "Nationality," "Number of Shares," "Amount Subscribed," and "Amount Paid" Name Nationality Number of Amount Amount Paid
to. It states that Olympic entered into joint venture agreements with several are exactly the same. Delving deeper, we scrutinize SMMI's corporate Shares Subscribed
Philippine companies, wherein it holds directly and indirectly a 60% structure:
effective equity interest in the Olympic Properties. 46 Quoting the said Patricia Louise Filipino 5,997 PhP5,997,000.00 PhP1,677,000.00
Annual report: Name Nationality Number of Amount Amount Paid Mining &
Shares Subscribed Development
On September 9, 2004, the Company and Olympic Mines & Development Corp.
Corporation ("Olympic") entered into a series of agreements including a Olympic Mines & Filipino 6,663 PhP6,663,000.00 PhP0 MBMI Canadian 3,998 PhP3,996,000.00 PhP1,116,000.00
Property Purchase and Development Agreement (the Transaction Development Corp. Resources, Inc.
Documents) with respect to three nickel laterite properties in Palawan, MBMI Resources, Canadian 3,331 PhP3,331,000.00 Higinio C. Filipino 1 PhP1,000.00 PhP1,000.00
Philippines (the "Olympic Properties"). The Transaction Documents PhP2,794,000.00 Mendoza, Jr.
effectively establish a joint venture between the Company and Olympic Inc. Henry E. Filipino 1 PhP1,000.00 PhP1,000.00
for purposes of developing the Olympic Properties. The Company holds Amanti Limson Filipino 1 PhP1,000.00 PhP1,000.00 Fernandez
directly and indirectly an initial 60% interest in the joint venture. Under Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00 Manuel A. Filipino 1 PhP1,000.00 PhP1,000.00
certain circumstances and upon achieving certain milestones, the Esguerra Agcaoili
Company may earn up to a 100% interest, subject to a 2.5% net revenue Lauro Salazar Filipino 1 PhP1,000.00 PhP1,000.00 Ma. Elena A. Filipino 1 PhP1,000.00 PhP1,000.00
royalty. 47 (emphasis supplied) Emmanuel G. Filipino 1 PhP1,000.00 PhP1,000.00 Bocalan
Hernando Bayani H. Agabin Filipino 1 PhP1,000.00 PhP1,000.00
Thus, as demonstrated in this first corporation, McArthur, when it is Michael T. Mason American 1 PhP1,000.00 Robert L. American 1 PhP1,000.00 PhP1,000.00
"grandfathered," company layering was utilized by MBMI to gain control PhP1,000.00 McCurdy
over McArthur. It is apparent that MBMI has more than 60% or more equity Kenneth Cawkell Canadian 1 PhP1,000.00 Kenneth Cawkell Canadian 1 PhP1,000.00
interest in McArthur, making the latter a foreign corporation. PhP1,000.00 PhP1,000.00

Tesoro Mining and Development, Inc. Total 10,000 PhP10,000,000.00 PhP2,809,900.00 Total 10,000 PhP10,000,000.00 PhP2,800,000.00
Tesoro, which acquired its MPSA application from SMMI, has a capital stock ====== ============= ============ ====== ============= =============
of ten million pesos (PhP10,000,000) divided into ten thousand (10,000) (emphasis supplied)
common shares at PhP1,000 per share, as demonstrated below: Again, MBMI, along with other nominal stockholders, i.e., Mason, Agcaoili
After subsequently studying SMMI's corporate structure, it is not farfetched and Esguerra, is present in this corporate structure.
Name Nationality Number of Amount Amount Paid for us to spot the glaring similarity between SMMI and MMC's corporate
Shares Subscribed structure. Again, the presence of identical stockholders, namely: Olympic, Patricia Louise Mining & Development Corporation
MBMI, Amanti Limson (Limson), Esguerra, Salazar, Hernando, Mason and Using the grandfather method, we further look and examine PLMDC's
Sara Marie Filipino 5,997 PhP5,997,000.00 PhP825,000.00 Cawkell. The figures under the headings "Nationality," "Number of Shares," corporate structure:
Mining, Inc. "Amount Subscribed," and "Amount Paid" are exactly the same except for
MBMI Canadian 3,998 PhP3,998,000.00 PhP1,878,174.60 the amount paid by MBMI which now reflects the amount of two million Name Nationality Number of Amount Amount Paid
Resources, Inc. seven hundred ninety four thousand pesos (PhP2,794,000). Oddly, the total Shares Subscribed
Lauro L. Salazar Filipino 1 PhP1,000.00 PhP1,000.00 value of the amount paid is two million eight hundred nine thousand nine
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00 hundred pesos (PhP2,809,900). Palawan Alpha Filipino 6,596 PhP6,596,000.00 PhP0
Esguerra South Resources
Manuel A. Filipino 1 PhP1,000.00 PhP1,000.00 Accordingly, after "grandfathering" petitioner Tesoro and factoring in Development
Agcaoili Olympic's participation in SMMI's corporate structure, it is clear that MBMI is Corporation
Michael T. Mason American 1 PhP1,000.00 in control of Tesoro and owns 60% or more equity interest in Tesoro. This MBMI Resources, Canadian 3,396 PhP3,396,000.00
PhP1,000.00 makes petitioner Tesoro a non-Filipino corporation and, thus, disqualifies it PhP2,796,000.00
Kenneth Cawkell Canadian 1 PhP1,000.00 to participate in the exploitation, utilization and development of our natural Inc.
PhP1,000.00 resources. Higinio C. Filipino 1 PhP1,000.00 PhP1,000.00
123
Mendoza, Jr.
Fernando B. Filipino 1 PhP1,000.00 PhP1,000.00 Under a joint venture agreement the Company holds directly and indirectly
Esguerra an effective equity interest in the Alpha Property of 60.4%. Pursuant to a
Henry E. Filipino 1 PhP1,000.00 PhP1,000.00 shareholders' agreement, the Company exercises joint control over the
Fernandez companies in the Alpha Group. 48 (emphasis supplied)
Lauro L. Salazar Filipino 1 PhP1,000.00 PhP1,000.00
Manuel A. Agcaoili Filipino 1 PhP1,000.00 Concluding from the above-stated facts, it is quite safe to say that
PhP1,000.00 petitioners McArthur, Tesoro and Narra are not Filipino since MBMI, a 100%
Bayani H. Agabin Filipino 1 PhP1,000.00 PhP1,000.00 Canadian corporation, owns 60% or more of their equity interests. Such
Michael T. Mason American 1 PhP1,000.00 conclusion is derived from grandfathering petitioners' corporate owners,
PhP1,000.00 namely: MMI, SMMI and PLMDC. Going further and adding to the picture,
Kenneth Cawkell Canadian 1 PhP1,000.00 MBMI's Summary of Significant Accounting Policies statement regarding
PhP1,000.00 the "joint venture" agreements that it entered into with the "Olympic" and
"Alpha" groups involves SMMI, Tesoro, PLMDC and Narra. Noticeably, the difficult to distinguish between joint ventures and partnerships. Thus: IEDHAT
Total 10,000 PhP10,000,000.00 PhP2,708,174.60 ownership of the "layered" corporations boils down to MBMI, Olympic or
====== ============= ============ corporations under the "Alpha" group wherein MBMI has joint venture
(emphasis supplied) agreements with, practically exercising majority control over the
corporations mentioned. In effect, whether looking at the capital structure
Yet again, the usual players in petitioners' corporate structures are present. or the underlying relationships between and among the corporations,
Similarly, the amount of money paid by the 2nd tier majority stock holder, in petitioners are NOT Filipino nationals and must be considered foreign since
this case, Palawan Alpha South Resources and Development Corp. 60% or more of their capital stocks or equity interests are owned by MBMI.
(PASRDC), is zero.
Application of the res inter alios acta rule
Studying MBMI's Summary of Significant Accounting Policies dated October Petitioners question the CA's use of the exception of the res inter alios acta
31, 2005 explains the reason behind the intricate corporate layering that or the "admission by co-partner or agent" rule and "admission by privies"
MBMI immersed itself in: under the Rules of Court in the instant case, by pointing out that statements
made by MBMI should not be admitted in this case since it is not a party to
JOINT VENTURES The Company's ownership interests in various mining the case and that it is not a "partner" of petitioners.
ventures engaged in the acquisition, exploration and development of
mineral properties in the Philippines is described as follows: Secs. 29 and 31, Rule 130 of the Revised Rules of Court provide:
(a) Olympic Group Sec. 29. Admission by co-partner or agent. The act or declaration of a
partner or agent of the party within the scope of his authority and during
The Philippine companies holding the Olympic Property, and the ownership the existence of the partnership or agency, may be given in evidence
and interests therein, are as follows: against such party after the partnership or agency is shown by evidence
other than such act or declaration itself. The same rule applies to the act or
Olympic-Philippines (the "Olympic Group" declaration of a joint owner, joint debtor, or other person jointly interested
Sara Marie Mining Properties Ltd. ("Sara Marie") 33.3% with the party.
Tesoro Mining & Development, Inc. (Tesoro) 60.0%
Sec. 31. Admission by privies. Where one derives title to property from
Pursuant to the Olympic joint venture agreement the Company holds another, the act, declaration, or omission of the latter, while holding the
directly and indirectly an effective equity interest in the Olympic Property title, in relation to the property, is evidence against the former.
of 60.0%. Pursuant to a shareholders' agreement, the Company exercises
joint control over the companies in the Olympic Group. Petitioners claim that before the above-mentioned Rule can be applied to
a case, "the partnership relation must be shown, and that proof of the fact
(b) Alpha Group must be made by evidence other than the admission itself." 49 Thus,
petitioners assert that the CA erred in finding that a partnership relationship
The Philippine companies holding the Alpha Property, and the ownership exists between them and MBMI because, in fact, no such partnership exists.
interests therein, are as follows:
Partnerships vs. joint venture agreements
Alpha-Philippines (the "Alpha Group") Petitioners claim that the CA erred in applying Sec. 29, Rule 130 of the Rules
Patricia Louise Mining Development Inc. ("Patricia") 34.0% by stating that "by entering into a joint venture, MBMI have a joint interest"
Narra Nickel Mining & Development Corporation (Narra) 60.4% with Narra, Tesoro and McArthur. They challenged the conclusion of the CA
which pertains to the close characteristics of "partnerships" and "joint
venture agreements." Further, they asserted that before this particular
partnership can be formed, it should have been formally reduced into
writing since the capital involved is more than three thousand pesos
(PhP3,000). Being that there is no evidence of written agreement to form a
partnership between petitioners and MBMI, no partnership was created.
We disagree.
A partnership is defined as two or more persons who bind themselves to
contribute money, property, or industry to a common fund with the
intention of dividing the profits among themselves. 50 On the other hand,
joint ventures have been deemed to be "akin" to partnerships since it is
[T]he relations of the parties to a joint venture and the nature of their
association are so similar and closely akin to a partnership that it is ordinarily
held that their rights, duties, and liabilities are to be tested by rules which
are closely analogous to and substantially the same, if not exactly the
same, as those which govern partnership. In fact, it has been said that the
trend in the law has been to blur the distinctions between a partnership and
a joint venture, very little law being found applicable to one that does not
apply to the other. 51
Though some claim that partnerships and joint ventures are totally different
animals, there are very few rules that differentiate one from the other; thus,
joint ventures are deemed "akin" or similar to a partnership. In fact, in joint
venture agreements, rules and legal incidents governing partnerships are
applied. 52
Accordingly, culled from the incidents and records of this case, it can be
assumed that the relationships entered between and among petitioners
and MBMI are no simple "joint venture agreements." As a rule, corporations
are prohibited from entering into partnership agreements; consequently,
corporations enter into joint venture agreements with other corporations or
partnerships for certain transactions in order to form "pseudo partnerships."
Obviously, as the intricate web of "ventures" entered into by and among
petitioners and MBMI was executed to circumvent the legal prohibition
against corporations entering into partnerships, then the relationship
created should be deemed as "partnerships," and the laws on partnership
should be applied. Thus, a joint venture agreement between and among
corporations may be seen as similar to partnerships since the elements of
partnership are present.
Considering that the relationships found between petitioners and MBMI are
considered to be partnerships, then the CA is justified in applying Sec. 29,
Rule 130 of the Rules by stating that "by entering into a joint venture, MBMI
have a joint interest" with Narra, Tesoro and McArthur.
Panel of Arbitrators' jurisdiction
We affirm the ruling of the CA in declaring that the POA has jurisdiction over
the instant case. The POA has jurisdiction to settle disputes over rights to
mining areas which definitely involve the petitions filed by Redmont against
124
petitioners Narra, McArthur and Tesoro. Redmont, by filing its petition
against petitioners, is asserting the right of Filipinos over mining areas in the
Philippines against alleged foreign-owned mining corporations. Such claim
constitutes a "dispute" found in Sec. 77 of RA 7942:
Within thirty (30) days, after the submission of the case by the parties for the
decision, the panel shall have exclusive and original jurisdiction to hear and
decide the following:
(a) Disputes involving rights to mining areas
(b) Disputes involving mineral agreements or permits
We held in Celestial Nickel Mining Exploration Corporation v. Macroasia
Corp.: 53
The phrase "disputes involving rights to mining areas" refers to any adverse
claim, protest, or opposition to an application for mineral agreement. The
POA therefore has the jurisdiction to resolve any adverse claim, protest, or
opposition to a pending application for a mineral agreement filed with the
concerned Regional Office of the MGB. This is clear from Secs. 38 and 41 of
the DENR AO 96-40, which provide:
Sec. 38.
xxx xxx xxx
Within thirty (30) calendar days from the last date of
publication/posting/radio announcements, the authorized officer(s) of the
concerned office(s) shall issue a certification(s) that the
publication/posting/radio announcement have been complied with. Any
adverse claim, protest, opposition shall be filed directly, within thirty (30)
calendar days from the last date of publication/posting/radio
announcement, with the concerned Regional Office or through any
concerned PENRO or CENRO for filing in the concerned Regional Office for
purposes of its resolution by the Panel of Arbitrators pursuant to the
provisions of this Act and these implementing rules and regulations. Upon
final resolution of any adverse claim, protest or opposition, the Panel of
Arbitrators shall likewise issue a certification to that effect within five (5)
working days from the date of finality of resolution thereof. Where there is
no adverse claim, protest or opposition, the Panel of Arbitrators shall likewise
issue a Certification to that effect within five working days therefrom.
xxx xxx xxx
No Mineral Agreement shall be approved unless the requirements under
this Section are fully complied with and any adverse
claim/protest/opposition is finally resolved by the Panel of Arbitrators.
Sec. 41.
xxx xxx xxx
Within fifteen (15) working days from the receipt of the Certification issued
by the Panel of Arbitrators as provided in Section 38 hereof, the concerned
Regional Director shall initially evaluate the Mineral Agreement
applications in areas outside Mineral reservations. He/She shall thereafter
endorse his/her findings to the Bureau for further evaluation by the Director
within fifteen (15) working days from receipt of forwarded documents.
Thereafter, the Director shall endorse the same to the secretary for
consideration/approval within fifteen working days from receipt of such
endorsement.
In case of Mineral Agreement applications in areas with Mineral
Reservations, within fifteen (15) working days from receipt of the
Certification issued by the Panel of Arbitrators as provided for in Section 38
hereof, the same shall be evaluated and endorsed by the Director to the
Secretary for consideration/approval within fifteen days from receipt of
such endorsement. (emphasis supplied) ACcDEa
It has been made clear from the aforecited provisions that the "disputes
involving rights to mining areas" under Sec. 77(a) specifically refer only to
those disputes relative to the applications for a mineral agreement or
conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a
mining right application is further elucidated by Secs. 219 and 43 of DENR
AO 95-936, which read:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.
Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may also be
filed directly with the Panel of Arbitrators within the concerned periods for
filing such claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement.
xxx xxx xxx
The Regional Director or concerned Regional Director shall also cause the
posting of the application on the bulletin boards of the Bureau, concerned
Regional office(s) and in the concerned province(s) and municipality(ies),
copy furnished the barangays where the proposed contract area is
located once a week for two (2) consecutive weeks in a language
generally understood in the locality. After forty-five (45) days from the last
date of publication/posting has been made and no adverse claim, protest
or opposition was filed within the said forty-five (45) days, the concerned
offices shall issue a certification that publication/posting has been made
and that no adverse claim, protest or opposition of whatever nature has
been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last
date of publication/posting, with the Regional Offices concerned, or
through the Department's Community Environment and Natural Resources
Officers (CENRO) or Provincial Environment and Natural Resources Officers
(PENRO), to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However previously published valid and subsisting mining claims
are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this
section are fully complied with and any opposition/adverse claim is dealt
with in writing by the Director and resolved by the Panel of Arbitrators.
(Emphasis supplied.)
It has been made clear from the aforecited provisions that the "disputes
involving rights to mining areas" under Sec. 77(a) specifically refer only to
those disputes relative to the applications for a mineral agreement or
conferment of mining rights.
The jurisdiction of the POA over adverse claims, protest, or oppositions to a
mining right application is further elucidated by Secs. 219 and 43 of DENRO
AO 95-936, which reads:
Sec. 219. Filing of Adverse Claims/Conflicts/Oppositions.
Notwithstanding the provisions of Sections 28, 43 and 57 above, any
adverse claim, protest or opposition specified in said sections may also be
filed directly with the Panel of Arbitrators within the concerned periods for
filing such claim, protest or opposition as specified in said Sections.
Sec. 43. Publication/Posting of Mineral Agreement Application.
xxx xxx xxx
The Regional Director or concerned Regional Director shall also cause the
posting of the application on the bulletin boards of the Bureau, concerned
Regional office(s) and in the concerned province(s) and municipality(ies),
copy furnished the barangays where the proposed contract area is
located once a week for two (2) consecutive weeks in a language
generally understood in the locality. After forty-five (45) days from the last
date of publication/posting has been made and no adverse claim, protest
or opposition was filed within the said forty-five (45) days, the concerned
offices shall issue a certification that publication/posting has been made
and that no adverse claim, protest or opposition of whatever nature has
been filed. On the other hand, if there be any adverse claim, protest or
opposition, the same shall be filed within forty-five (45) days from the last
date of publication/posting, with the Regional offices concerned, or
through the Department's Community Environment and Natural Resources
Officers (CENRO) or Provincial Environment and Natural Resources Officers
(PENRO), to be filed at the Regional Office for resolution of the Panel of
Arbitrators. However, previously published valid and subsisting mining claims
are exempted from posted/posting required under this Section.
No mineral agreement shall be approved unless the requirements under this
section are fully complied with and any opposition/adverse claim is dealt
with in writing by the Director and resolved by the Panel of Arbitrators.
(Emphasis supplied.)
These provisions lead us to conclude that the power of the POA to resolve
any adverse claim, opposition, or protest relative to mining rights under Sec.
125
77(a) of RA 7942 is confined only to adverse claims, conflicts and
oppositions relating to applications for the grant of mineral rights. POA's
jurisdiction is confined only to resolutions of such adverse claims, conflicts
and oppositions and it has no authority to approve or reject said
applications. Such power is vested in the DENR Secretary upon
recommendation of the MGB Director. Clearly, POA's jurisdiction over
"disputes involving rights to mining areas" has nothing to do with the
cancellation of existing mineral agreements. (emphasis ours)
Accordingly, as we enunciated in Celestial, the POA unquestionably has
jurisdiction to resolve disputes over MPSA applications subject of Redmont's
petitions. However, said jurisdiction does not include either the approval or
rejection of the MPSA applications, which is vested only upon the Secretary
of the DENR. Thus, the finding of the POA, with respect to the rejection of
petitioners' MPSA applications being that they are foreign corporation, is
valid.
Justice Marvic Mario Victor F. Leonen, in his Dissent, asserts that it is the
regular courts, not the POA, that has jurisdiction over the MPSA applications
of petitioners.
This postulation is incorrect.
It is basic that the jurisdiction of the court is determined by the statute in
force at the time of the commencement of the action. 54
Sec. 19, Batas Pambansa Blg. 129 or "The Judiciary Reorganization Act of
1980" reads:
Sec. 19. Jurisdiction in Civil Cases. Regional Trial Courts shall exercise
exclusive original jurisdiction:
1. In all civil actions in which the subject of the litigation is incapable of
pecuniary estimation.
On the other hand, the jurisdiction of POA is unequivocal from Sec. 77 of RA
7942:
Section 77. Panel of Arbitrators.
. . . Within thirty (30) days, after the submission of the case by the parties for
the decision, the panel shall have exclusive and original jurisdiction to hear
and decide the following:
(c) Disputes involving rights to mining areas SEIcHa
(d) Disputes involving mineral agreements or permits
It is clear that POA has exclusive and original jurisdiction over any and all
disputes involving rights to mining areas. One such dispute is an MPSA
application to which an adverse claim, protest or opposition is filed by
another interested applicant. In the case at bar, the dispute arose or
originated from MPSA applications where petitioners are asserting their
rights to mining areas subject of their respective MPSA applications. Since
respondent filed 3 separate petitions for the denial of said applications, WHEREFORE, premises considered, the instant petition is DENIED. The
then a controversy has developed between the parties and it is POA's assailed Court of Appeals Decision dated October 1, 2010 and Resolution
jurisdiction to resolve said disputes. dated February 15, 2011 are hereby AFFIRMED.
Moreover, the jurisdiction of the RTC involves civil actions while what SO ORDERED.
petitioners filed with the DENR Regional Office or any concerned DENRE or
CENRO are MPSA applications. Thus POA has jurisdiction.
Furthermore, the POA has jurisdiction over the MPSA applications under the
doctrine of primary jurisdiction. Euro-med Laboratories v. Province of
Batangas 55 elucidates:
The doctrine of primary jurisdiction holds that if a case is such that its
determination requires the expertise, specialized training and knowledge of
an administrative body, relief must first be obtained in an administrative
proceeding before resort to the courts is had even if the matter may well
be within their proper jurisdiction.
Whatever may be the decision of the POA will eventually reach the court
system via a resort to the CA and to this Court as a last recourse.
Selling of MBMI's shares to DMCI
As stated before, petitioners' Manifestation and Submission dated October
19, 2012 would want us to declare the instant petition moot and academic
due to the transfer and conveyance of all the shareholdings and interests
of MBMI to DMCI, a corporation duly organized and existing under
Philippine laws and is at least 60% Philippine-owned. 56 Petitioners reasoned
that they now cannot be considered as foreign-owned; the transfer of their
shares supposedly cured the "defect" of their previous nationality. They
claimed that their current FTAA contract with the State should stand since
"even wholly-owned foreign corporations can enter into an FTAA with the
State." 57 Petitioners stress that there should no longer be any issue left as
regards their qualification to enter into FTAA contracts since they are
qualified to engage in mining activities in the Philippines. Thus, whether the
"grandfather rule" or the "control test" is used, the nationalities of petitioners
cannot be doubted since it would pass both tests.
The sale of the MBMI shareholdings to DMCI does not have any bearing in
the instant case and said fact should be disregarded. The manifestation
can no longer be considered by us since it is being tackled in G.R. No.
202877 pending before this Court. Thus, the question of whether petitioners,
allegedly a Philippine-owned corporation due to the sale of MBMI's
shareholdings to DMCI, are allowed to enter into FTAAs with the State is a
non-issue in this case.
In ending, the "control test" is still the prevailing mode of determining
whether or not a corporation is a Filipino corporation, within the ambit of
Sec. 2, Art. II of the 1987 Constitution, entitled to undertake the exploration,
development and utilization of the natural resources of the Philippines.
When in the mind of the Court there is doubt, based on the attendant facts
and circumstances of the case, in the 60-40 Filipino-equity ownership in the
corporation, then it may apply the "grandfather rule."
126
Cases Law on Trusts
Article 1440
[G.R. No. 165849. December 10, 2007.]
GILBERT G. GUY, petitioner, vs. THE COURT OF APPEALS (8TH DIVISION),
NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G.
GUY, GLADYS G. YAO, and EMILIA TABUGADIR, respondents.
[G.R. No. 170185. December 10, 2007.]
IGNACIO AND IGNACIO LAW OFFICES, petitioner, vs. THE COURT OF APPEALS
(7TH DIVISION), NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY,
GERALDINE G. GUY, GLADYS G. YAO, and EMILIA A. TABUGADIR,
respondents.
[G.R. No. 170186. December 10, 2007.]
SMARTNET PHILIPPINES, petitioner, vs. THE COURT OF APPEALS (7TH DIVISION),
NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G.
GUY, GLADYS G. YAO, and EMILIA A. TABUGADIR, respondents.
[G.R. No. 171066. December 10, 2007.]
LINCOLN CONTINENTAL DEVELOPMENT CO., INC., petitioner, vs. NORTHERN
ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G. GUY, GRACE
G. CHEU, GLADYS G. YAO, and EMILIA A. TABUGADIR, respondents.
[G.R. No. 176650. December 10, 2007.]
LINCOLN CONTINENTAL DEVELOPMENT COMPANY, INC., petitioner, vs.
NORTHERN ISLANDS CO., INCORPORATED, SIMNY G. GUY, GERALDINE G.
GUY, GRACE G. CHEU, GLADYS G. YAO, and EMILIA A. TABUGADIR,
respondents.
DECISION
SANDOVAL-GUTIERREZ, J p:
Before us are five (5) consolidated cases which stemmed from Civil Case
No. 04-109444 filed with the Regional Trial Court (RTC), Branch 24, Manila,
subsequently re-raffled to Branch 46 1 and eventually to Branch 25. 2
The instant controversies arose from a family dispute. Gilbert Guy is the son
of Francisco and Simny Guy. Geraldine, Gladys and Grace are his sisters.
The family feud involves the ownership and control of 20,160 shares of stock
of Northern Islands Co., Inc. (Northern Islands) engaged in the manufacture,
distribution, and sales of various home appliances bearing the "3-D"
trademark.
Simny and her daughters Geraldine, Gladys and Grace, as well as Northern
Islands and Emilia Tabugadir, have been impleaded as respondents in the
above-entitled cases. Northern Islands is a family-owned corporation
organized in 1957 by spouses Francisco and respondent Simny Guy. In
November 1986, they incorporated Lincoln Continental Development
Corporation, Inc. (Lincoln Continental) as a holding company of the 50%
shares of stock of Northern Islands in trust for their three (3) daughters,
respondents Geraldine, Gladys and Grace. Sometime in December 1986,
upon instruction of spouses Guy, Atty. Andres Gatmaitan, president of
Lincoln Continental, indorsed in blank Stock Certificate No. 132 (covering
8,400 shares) and Stock Certificate No. 133 (covering 11,760 shares) and
delivered them to Simny.
In 1984, spouses Guy found that their son Gilbert has been disposing of the
assets of their corporations without authority. In order to protect the assets
of Northern Islands, Simny surrendered Stock Certificate Nos. 132 and 133 to
Emilia Tabugadir, an officer of Northern Islands. The 20,160 shares covered
by the two Stock Certificates were then registered in the names of
respondent sisters, thus enabling them to assume an active role in the
management of Northern Islands.
On January 27, 2004, during a special meeting of the stockholders of
Northern Islands, Simny was elected President; Grace as Vice-President for
Finance; Geraldine as Corporate Treasurer; and Gladys as Corporate
Secretary. Gilbert retained his position as Executive Vice President. This
development started the warfare between Gilbert and his sisters. ACcTDS
On March 18, 2004, Lincoln Continental filed with the RTC, Branch 24, Manila
a Complaint for Annulment of the Transfer of Shares of Stock against
respondents, docketed as Civil Case No. 04-109444. The complaint
basically alleges that Lincoln Continental owns 20,160 shares of stock of
Northern Islands; and that respondents, in order to oust Gilbert from the
management of Northern Islands, falsely transferred the said shares of stock
in respondent sisters' names. Lincoln Continental then prayed for an award
of damages and that the management of Northern Islands be restored to
Gilbert. Lincoln also prayed for the issuance of a temporary restraining order
(TRO) and a writ of preliminary mandatory injunction to prohibit
respondents from exercising any right of ownership over the shares.
On June 16, 2004, Lincoln Continental filed a Motion to Inhibit the Presiding
Judge of Branch 24, RTC, Manila on the ground of partiality. In an Order
dated June 22, 2004, the presiding judge granted the motion and inhibited
himself from further hearing Civil Case No. 04-109444. It was then re-raffled
to Branch 46 of the same court.
On July 12, 2004, Branch 46 set the continuation of the hearing on Lincoln
Continentals application for a TRO.
On July 13, 2004, respondents filed with the Court of Appeals a Petition for
Certiorari and Mandamus, docketed as CA-G.R. SP No. 85069, raffled off to
the Tenth Division. Respondents alleged that the presiding judge of Branch
24, in issuing the Order dated June 22, 2004 inhibiting himself from further
hearing Civil Case No. 04-109444, and the presiding judge of Branch 46, in
issuing the Order dated July 12, 2004 setting the continuation of hearing on
Lincoln Continental's application for a TRO, acted with grave abuse of
discretion tantamount to lack or excess of jurisdiction.
Meanwhile, on July 15, 2004, the trial court issued the TRO prayed for by
Lincoln Continental directing respondents to restore to Gilbert the shares of
stock under controversy. In the same Order, the trial court set the hearing
of Lincoln Continental's application for a writ of preliminary injunction on
July 19, 20, and 22, 2004.
On July 16, 2004, the Court of Appeals (Tenth Division) issued a TRO enjoining
Branch 46, RTC, Manila from enforcing, maintaining, or giving effect to its
Order of July 12, 2004 setting the hearing of Lincoln Continental's
application for a TRO.
Despite the TRO, the trial court proceeded to hear Lincoln Continental's
application for a writ of preliminary injunction. This prompted respondents
to file in the same CA-G.R. SP No. 85069 a Supplemental Petition for
Certiorari, Prohibition, and Mandamus seeking to set aside the Orders of the
trial court setting the hearing and actually hearing Lincoln Continental's
application for a writ of preliminary injunction. They prayed for a TRO and a
writ of preliminary injunction to enjoin the trial court (Branch 46) from further
hearing Civil Case No. 04-109444.
On September 17, 2004, the TRO issued by the Court of Appeals (Tenth
Division) in CA-G.R. SP No. 85069 expired.
On September 20, 2004, Gilbert filed a Motion for Leave to Intervene and
Motion to Admit Complaint-in-Intervention in Civil Case No. 04-109444. In its
Order dated October 4, 2004, the trial court granted the motions. DCESaI
Meantime, on October 13, 2004, the trial court issued the writ of preliminary
mandatory injunction prayed for by Lincoln Continental in Civil Case No.
04-109444.
On October 20, 2004, the Court of Appeals (Tenth Division) denied
respondents' application for injunctive relief since the trial court had
already issued a writ of preliminary injunction in favor of Lincoln Continental.
Consequently, on October 22, 2004, respondents filed with the Tenth
Division a Motion to Withdraw Petition and Supplemental Petition in CA-G.R.
SP No. 85069.
On October 26, 2004, respondents filed a new Petition for Certiorari with the
Court of Appeals, docketed as CA-G.R. SP No. 87104, raffled off to the
Eighth Division. They prayed that the TRO and writ of preliminary injunction
issued by the RTC, Branch 46, Manila be nullified and that an injunctive relief
be issued restoring to them the management of Northern Islands. They
alleged that Gilbert has been dissipating the assets of the corporation for
his personal gain.
On October 28, 2004, the Court of Appeals Eighth Division issued a TRO
enjoining the implementation of the writ of preliminary injunction dated
October 13, 2004 issued by the trial court in Civil Case No. 04-109444; and
directing Lincoln Continental to turn over the assets and records of Northern
Islands to respondents.
127
On November 2, 2004, respondents filed with the appellate court (Eighth
Division) an Urgent Omnibus Motion praying for the issuance of a break-
open Order to implement its TRO.
On November 4, 2004, the Eighth Division issued a Resolution granting
respondents' motion. Pursuant to this Resolution, respondents entered the
Northern Islands premises at No. 3 Mercury Avenue, Libis, Quezon City.
On November 18, 2004, Gilbert filed with this Court a petition for certiorari,
docketed as G.R. No. 165849, alleging that the Court of Appeals (Eighth
Division), in granting an injunctive relief in favor of respondents, committed
grave abuse of discretion tantamount to lack or in excess of jurisdiction. The
petition also alleges that respondents resorted to forum shopping.
Meanwhile, on December 16, 2004, Smartnet Philippines, Inc. (Smartnet)
filed with the Metropolitan Trial Court (MeTC), Branch 35, Quezon City a
complaint for forcible entry against respondents, docketed as Civil Case
No. 35-33937. The complaint alleges that in entering the Northern Islands
premises, respondents took possession of the area being occupied by
Smartnet and barred its officers and employees from occupying the same.
Likewise on December 16, 2004, Ignacio and Ignacio Law Offices also filed
with Branch 37, same court, a complaint for forcible entry against
respondents, docketed as Civil Case No. 34106. It alleges that respondents
forcibly occupied its office space when they took over the premises of
Northern Islands.
On December 22, 2004, the Eighth Division issued the writ of preliminary
injunction prayed for by respondents in CA-G.R. SP No. 87104. DISHEA
Subsequently, the presiding judge of the RTC, Branch 46, Manila retired. Civil
Case No. 04-109444 was then re-raffled to Branch 25.
On January 20, 2005, respondents filed with the Eighth Division of the
appellate court a Supplemental Petition for Certiorari with Urgent Motion
for a Writ of Preliminary Injunction to Include Supervening Events. Named as
additional respondents were 3-D Industries, Judge Celso D. Lavia,
Presiding Judge, RTC, Branch 71, Pasig City and Sheriff Cresencio Rabello,
Jr. This supplemental petition alleges that Gilbert, in an attempt to
circumvent the injunctive writ issued by the Eighth Division of the appellate
court, filed with the RTC, Branch 71, Pasig City a complaint for replevin on
behalf of 3-D Industries, to enable it to take possession of the assets and
records of Northern Islands. The complaint was docketed as Civil Case No.
70220. On January 18, 2005, the RTC issued the writ of replevin in favor of 3-
D Industries.
On April 15, 2005, respondents filed with the Eighth Division a Second
Supplemental Petition for Certiorari and Prohibition with Urgent Motion for
the Issuance of an Expanded Writ of Preliminary Injunction. Impleaded
therein as additional respondents were Ignacio and Ignacio Law Offices,
Smartnet, Judge Maria Theresa De Guzman, Presiding Judge, MeTC,
Branch 35, Quezon City, Judge Augustus C. Diaz, Presiding Judge, MeTC,
Branch 37, Quezon City, Sun Fire Trading Incorporated, Zolt Corporation,
Cellprime Distribution Corporation, Goodgold Realty and Development
Corporation, John Does and John Doe Corporations. Respondents alleged
in the main that the new corporations impleaded are alter egos of Gilbert;
and that the filing of the forcible entry cases with the MeTC was intended
to thwart the execution of the writ of preliminary injunction dated
December 22, 2004 issued by the Court of Appeals (Eighth Division) in CA-
G.R. SP No. 87104.
On April 26, 2005, the Eighth Division issued a Resolution admitting
respondents' new pleading. On August 19, 2005, the Eighth Division (now
Seventh Division) rendered its Decision in CA-G.R. SP No. 87104, the
dispositive portion of which reads:
WHEREFORE, premises considered, the petition is hereby GRANTED and the
October 13, 2004 Order and the October 13, 2004 Writ of Preliminary
Mandatory Injunction issued by Branch 46 of the Regional Trial Court of
Manila are hereby REVERSED and SET ASIDE. The December 17, 2004 Order
and Writ of Preliminary Injunction issued by this Court of Appeals are hereby
MADE PERMANENT against all respondents herein.
SO ORDERED.
Meanwhile, in a Decision 3 dated September 19, 2005, the RTC, Branch 25,
Manila dismissed the complaint filed by Lincoln Continental and the
complaint-in-intervention of Gilbert in Civil Case No. 04-109444, thus:
WHEREFORE, in view of the foregoing, the Complaint and the Complaint-in-
Intervention are hereby DISMISSED. Plaintiff and plaintiff-intervenor are
hereby ordered to jointly and severally pay defendants the following:
(a) Moral damages in the amount of Php2,000,000.00 each for defendants
Simny Guy, Geraldine Guy, Grace Guy-Cheu and Gladys Yao;
(b) Moral damages in the amount of Php200,000.00 for defendant Emilia
Tabugadir; cTIESa
(c) Exemplary damages in the amount of Php2,000,000.00 each for
defendants Simny Guy, Geraldine Guy, Grace Guy-Cheu, and Gladys Yao;
(d) Exemplary damages in the amount of Php200,000.00 for defendant
Emilia Tabugadir;
(e) Attorney's fees in the amount of Php2,000.000.00; and
(f) Costs of suit.
SO ORDERED.
The trial court held that Civil Case No. 04-109444 is a baseless and an
unwarranted suit among family members; that based on the evidence,
Gilbert was only entrusted to hold the disputed shares of stock in his name
for the benefit of the other family members; and that it was only when
Gilbert started to dispose of the assets of the family's corporations without
their knowledge that respondent sisters caused the registration of the shares
in their respective names.
Both Lincoln Continental and Gilbert timely appealed the RTC Decision to
the Court of Appeals, docketed therein as CA-G.R. CV No. 85937.
On September 15, 2005, 3-D Industries, Inc. filed a petition for certiorari,
prohibition, and mandamus with this Court assailing the Decision of the
Court of Appeals in CA-G.R. SP No. 87104 setting aside the writ of preliminary
injunction issued by the RTC, Branch 46. The petition was docketed as G.R.
No. 169462 and raffled off to the Third Division of this Court.
On October 3, 2005, the Third Division of this Court issued a Resolution 4
dismissing the petition of 3-D Industries in G.R. No. 169462. 3-D Industries
timely filed its motion for reconsideration but this was denied by this Court
in its Resolution 5 dated December 14, 2005.
Meanwhile, on October 10, 2005, Gilbert, petitioner in G.R. No. 165849 for
certiorari, filed with this Court a Supplemental Petition for Certiorari,
Prohibition, and Mandamus with Urgent Application for a Writ of Preliminary
Mandatory Injunction challenging the Decision of the Court of Appeals
(Seventh Division), dated August 19, 2005, in CA-G.R. SP No. 87104. This
Decision set aside the Order dated October 13, 2004 of the RTC, Branch 46
granting the writ of preliminary injunction in favor of Lincoln Continental.
On November 8, 2005, Ignacio and Ignacio Law Offices and Smartnet filed
with this Court their petitions for certiorari, docketed as G.R. Nos. 170185 and
170186, respectively.
On February 27, 2006, Lincoln Continental filed with this Court a petition for
review on certiorari challenging the Decision of the Court of Appeals
(Seventh Division) in CA-G.R. CV No. 85937, docketed as G.R. No. 171066.
On March 20, 2006, we ordered the consolidation of G.R. No. 171066 with
G.R. Nos. 165849, 170185, and 170186.
In the meantime, in a Decision dated November 27, 2006 in CA-G.R. CV No.
85937, the Court of Appeals (Special Second Division) affirmed the Decision
in Civil Case No. 04-109444 of the RTC (Branch 25) dismissing Lincoln
Continental's complaint and Gilbert's complaint-in-intervention, thus:
cSaADC
WHEREFORE, the appeals are dismissed and the assailed decision AFFIRMED
with modifications that plaintiff and plaintiff-intervenor are ordered to pay
each of the defendants-appellees Simny Guy, Geraldine Guy, Grace Guy-
Cheu and Gladys Yao moral damages of P500,000.00, exemplary damages
of P100,000.00 and attorney's fees of P500,000.00.
SO ORDERED.
128
Lincoln Continental and Gilbert filed their respective motions for
reconsideration, but they were denied in a Resolution promulgated on
February 12, 2007.
Lincoln Continental then filed with this Court a petition for review on
certiorari assailing the Decision of the Court of Appeals (Former Special
Second Division) in CA-G.R. CV No. 85937. This petition was docketed as
G.R. No. 176650 and raffled off to the Third Division of this Court.
In our Resolution dated June 6, 2007, we ordered G.R. No. 176650
consolidated with G.R. Nos. 165849, 170185, 170186, and 171066.
THE ISSUES
In G.R. Nos. 165849 and 171066, petitioners Gilbert and Lincoln Continental
raise the following issues: (1) whether respondents are guilty of forum
shopping; and (2) whether they are entitled to the injunctive relief granted
in CA-G.R. SP No. 87104.
In G.R. Nos. 170185 and 170186, the pivotal issue is whether the Court of
Appeals committed grave abuse of discretion amounting to lack or excess
of jurisdiction in ruling that petitioners Ignacio and Ignacio Law Offices and
Smartnet are also covered by its Resolution granting the writ of preliminary
injunction in favor of respondents.
In G.R. No. 176650, the core issue is whether the Court of Appeals (Special
Second Division) erred in affirming the Decision of the RTC, Branch 25,
Manila dated September 19, 2005 dismissing the complaint of Lincoln
Continental and the complaint-in-intervention of Gilbert in Civil Case No.
04-109444.
THE COURT'S RULING
A. G.R. Nos. 165849 and 171066
On the question of forum shopping, petitioners Gilbert and Lincoln
Continental contend that the acts of respondents in filing a petition for
certiorari and mandamus in CA-G.R. SP No. 85069 and withdrawing the
same and their subsequent filing of a petition for certiorari in CA-G.R. SP No.
87104 constitute forum shopping; that respondents withdrew their petition
in CA-G.R. SP No. 85069 after the Tenth Division issued a Resolution dated
October 20, 2004 denying their application for a writ of preliminary
injunction; that they then filed an identical petition in CA-G.R. SP No. 87104
seeking the same relief alleged in their petition in CA-G.R. SP No. 85069; and
that by taking cognizance of the petition in CA-G.R. SP No. 87104, instead
of dismissing it outright on the ground of forum shopping, the Court of
Appeals committed grave abuse of discretion tantamount to lack or excess
of jurisdiction. cTAaDC
A party is guilty of forum shopping when he repetitively avails of several
judicial remedies in different courts, simultaneously or successively, all
substantially founded on the same transactions and the same essential
facts and circumstances, and all raising substantially the same issues either
pending in, or already resolved adversely by some other court. 6 It is
prohibited by Section 5, Rule 7 of the 1997 Rules of Civil Procedure, as
amended, which provides:
SECTION 5. Certification against forum shopping. The plaintiff or principal
party shall certify under oath in the complaint or other initiatory pleading
asserting a claim for relief, or in a sworn certification annexed thereto and
simultaneously filed therewith: (a) that he has not theretofore commenced
any action or filed any other claim involving the same issues in any court,
tribunal, or quasi-judicial agency and, to the best of his knowledge, no such
other action or claim is pending therein; (b) if there is such other pending
action or claim, a complete statement of the present status thereof; and
(c) if he should thereafter learn that the same or similar action has been
filed or is pending, he shall report that fact within five (5) days therefrom to
the court wherein his aforesaid complaint or initiatory pleading has been
filed.
Failure to comply with the foregoing requirements shall not be curable by
mere amendment of the complaint or other initiatory pleading but shall be
cause for the dismissal of the case without prejudice, unless otherwise
provided, upon motion and hearing. The submission of a false certification
or non-compliance with any of the undertakings therein shall constitute
indirect contempt of court, without prejudice to the corresponding
administrative and criminal actions. If the acts of the party or his counsel
clearly constitute willful and deliberate forum shopping, the same shall be
ground for summary dismissal with prejudice and shall constitute direct
contempt, as well as a cause for administrative sanctions.
Forum shopping is condemned because it unnecessarily burdens our courts
with heavy caseloads, unduly taxes the manpower and financial resources
of the judiciary and trifles with and mocks judicial processes, thereby
affecting the efficient administration of justice. 7 The primary evil sought to
be proscribed by the prohibition against forum shopping is, however, the
possibility of conflicting decisions being rendered by the different courts
and/or administrative agencies upon the same issues. 8
Forum shopping may only exist where the elements of litis pendentia are
present or where a final judgment in one case will amount to res judicata
in the other. 9 Litis pendentia as a ground for dismissing a civil action is that
situation wherein another action is pending between the same parties for
the same cause of action, such that the second action is unnecessary and
vexatious. The elements of litis pendentia are as follows: (a) identity of
parties, or at least such as representing the same interest in both actions;
(b) identity of rights asserted and the relief prayed for, the relief being
founded on the same facts; and (c) the identity of the two cases such that
judgment in one, regardless of which party is successful, would amount to
res judicata in the other. 10 From the foregoing, it is clear that sans litis
pendentia or res judicata, there can be no forum shopping.
While the first element of litis pendentia identity of parties is present in
both CA-G.R. SP No. 85069 and CA-G.R. SP No. 87104, however, the second
element, does not exist. The petitioners in CA-G.R. SP No. 85069 prayed that
the following Orders be set aside:
(1) the Order of inhibition dated June 22, 2004 issued by the presiding judge
of the RTC of Manila, Branch 24; and aTCADc
(2) the Order dated July 12, 2004 issued by Branch 46 setting Gilbert's
application for preliminary injunction for hearing.
In their petition in CA-G.R. SP No. 87104, respondents prayed for the
annulment of the writ of preliminary injunction issued by the RTC, Branch 46
after the expiration of the TRO issued by the Tenth Division of the Court of
Appeals. Evidently, this relief is not identical with the relief sought by
respondents in CA-G.R. SP No. 85069. Clearly, the second element of litis
pendentia the identity of reliefs sought is lacking in the two petitions
filed by respondents with the appellate court. Thus, we rule that no grave
abuse of discretion amounting to lack or excess of jurisdiction may be
attributed to the Court of Appeals (Eighth Division) for giving due course to
respondents' petition in CA-G.R. SP No. 87104.
On the second issue, Section 3, Rule 58 of the 1997 Rules of Civil Procedure,
as amended provides:
SECTION 3. Grounds for issuance of preliminary injunction. A preliminary
injunction may be granted when it is established:
(a) That the applicant is entitled to the relief demanded, and the whole or
part of such relief consists in restraining the commission or continuance of
the act or acts complained of, or in requiring the performance of an act or
acts, either for a limited period or perpetually;
(b) That the commission, continuance, or non-performance of the act or
acts complained of during the litigation would probably work injustice to
the applicant; or
(c) That a party, court, agency, or a person is doing, threatening, or is
attempting to do, or is procuring or suffering to be done, some act or acts
probably in violation of the rights of the applicant respecting the subject of
the action or proceeding, and tending to render the judgment ineffectual.
For a party to be entitled to an injunctive writ, he must show that there exists
a right to be protected and that the acts against which the injunction is
directed are violative of this right. 11 In granting the respondents'
application for injunctive relief and making the injunction permanent, the
Court of Appeals (Seventh Division) found that they have shown their clear
and established right to the disputed 20,160 shares of stock because: (1)
they have physical possession of the two stock certificates equivalent to the
said number of shares; (2) Lincoln Continental is a mere trustee of the Guy
family; and (3) respondents constitute a majority of the board of directors
of Northern Islands, and accordingly have management and control of the
company at the inception of Civil Case No. 94-109444. The appellate court
then ruled that the trial court committed grave abuse of discretion in issuing
a writ of preliminary mandatory injunction in favor of Guy. The writ actually
reduced the membership of Northern Islands board to just one member
Gilbert Guy. Moreover, he failed to establish by clear and convincing
evidence his ownership of the shares of stock in question. The Court of
129
Appeals then held there was an urgent necessity to issue an injunctive writ
in order to prevent serious damage to the rights of respondents and
Northern Islands.
We thus find no reason to depart from the findings of the Court of Appeals.
Indeed, we cannot discern any taint of grave abuse of discretion on its part
in issuing the assailed writ of preliminary injunction and making the
injunction permanent. DHCSTa
B. G.R. Nos. 170185 & 170186
Ignacio and Ignacio Law Offices and Smartnet, petitioners, claim that the
Court of Appeals never acquired jurisdiction over their respective persons
as they were not served with summons, either by the MeTC or by the
appellate court in CA-G.R. SP No. 87104. Thus, they submit that the Court of
Appeals committed grave abuse of discretion amounting to lack or excess
of jurisdiction when it included them in the coverage of its injunctive writ.
Jurisdiction is the power or capacity given by the law to a court or tribunal
to entertain, hear, and determine certain controversies. 12 Jurisdiction over
the subject matter of a case is conferred by law.
Section 9 (1) of Batas Pambansa Blg. 129, 13 as amended, provides:
SEC. 9. Jurisdiction. The Court of Appeals shall exercise:
(1) Original jurisdiction to issue writs of mandamus, prohibition, certiorari,
habeas corpus, and quo warranto, and auxiliary writs or processes, whether
or not in aid of its appellate jurisdiction.
Rule 46 of the 1997 Rules of Civil Procedure, as amended, governs all cases
originally filed with the Court of Appeals. The following provisions of the Rule
state:
SEC. 2. To what actions applicable. This Rule shall apply to original actions
for certiorari, prohibition, mandamus and quo warranto.
Except as otherwise provided, the actions for annulment of judgment shall
be governed by Rule 47, for certiorari, prohibition, and mandamus by Rule
65, and for quo warranto by Rule 66.
xxx xxx xxx
SEC. 4. Jurisdiction over person of respondent, how acquired. The court
shall acquire jurisdiction over the person of the respondent by the service
on him of its order or resolution indicating its initial action on the petition or
by his voluntary submission to such jurisdiction.
SEC. 5. Action by the court. The court may dismiss the petition outright
with specific reasons for such dismissal or require the respondent to file a
comment on the same within ten (10) days from notice. Only pleadings
required by the court shall be allowed. All other pleadings and papers may
be filed only with leave of court.
It is thus clear that in cases covered by Rule 46, the Court of Appeals
acquires jurisdiction over the persons of the respondents by the service
upon them of its order or resolution indicating its initial action on the
petitions or by their voluntary submission to such jurisdiction. 14 The reason
for this is that, aside from the fact that no summons or other coercive
process is served on respondents, their response to the petitions will depend
on the initial action of the court thereon. Under Section 5, the court may
dismiss the petitions outright, hence, no reaction is expected from
respondents and under the policy adopted by Rule 46, they are not
deemed to have been brought within the court's jurisdiction until after
service on them of the dismissal order or resolution. 15
Records show that on April 27, 2005, petitioners in these two forcible entry
cases, were served copies of the Resolution of the Court of Appeals
(Seventh Division) dated April 26, 2005 in CA-G.R. SP No. 87104. 16 The
Resolution states: SEcAIC
Private respondents SMARTNET PHILIPPINES, INC., IGNACIO & IGNACIO LAW
OFFICE, SUNFIRE TRADING, INC., ZOLT CORPORATION, CELLPRIME
DISTRIBUTION CORPO., GOODGOLD REALTY & DEVELOPMENT CORP., are
hereby DIRECTED to file CONSOLIDATED COMMENT on the original Petition
for Certiorari, the First Supplemental Petition for Certiorari, and the Second
Supplemental Petition for Certiorari (not a Motion to Dismiss) within ten (10)
days from receipt of a copy of the original, first and second Petitions for
Certiorari. 17
Pursuant to Rule 46, the Court of Appeals validly acquired jurisdiction over
the persons of Ignacio and Ignacio Law Offices and Smartnet upon being
served with the above Resolution.
But neither of the parties bothered to file the required comment. Their
allegation that they have been deprived of due process is definitely without
merit. We have consistently held that when a party was afforded an
opportunity to participate in the proceedings but failed to do so, he cannot
complain of deprivation of due process for by such failure, he is deemed to
have waived or forfeited his right to be heard without violating the
constitutional guarantee. 18
On the question of whether the Court of Appeals could amend its
Resolution directing the issuance of a writ of preliminary injunction so as to
include petitioners, suffice to state that having acquired jurisdiction over
their persons, the appellate court could do so pursuant to Section 5 (g), Rule
135 of the Revised Rules of Court, thus: aCSTDc
SEC. 5. Inherent powers of courts. Every court shall have power:
xxx xxx xxx
(g) To amend and control its process and orders so as to make them
conformable to law and justice.
In Villanueva v. CFI of Oriental Mindoro 19 and Eternal Gardens Memorial
Parks Corp. v. Intermediate Appellate Court, 20 we held that under this Rule,
a court has inherent power to amend its judgment so as to make it
conformable to the law applicable, provided that said judgment has not
yet acquired finality, as in these cases.
C. G.R. No. 176650
The fundamental issue is who owns the disputed shares of stock in Northern
Islands.
We remind petitioner Lincoln Continental that what it filed with this Court is
a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended. It is a rule in this jurisdiction that in petitions for
review under Rule 45, only questions or errors of law may be raised. 21 There
is a question of law when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts, or when the
issue does not call for an examination of the probative value of the
evidence presented. There is a question of fact when the doubt arises as to
the truth or falsehood of facts or when there is a need to calibrate the whole
evidence considering mainly the credibility of the witnesses, the existence
and relevancy of specific surrounding circumstances, as well as their
relation to each other and to the whole, and the probability of the situation.
22 Obviously, the issue raised by the instant petition for review on certiorari,
involves a factual matter, hence, is outside the domain of this Court.
However, in the interest of justice and in order to settle this controversy once
and for all, a ruling from this Court is imperative.
One thing is clear. It was established before the trial court, affirmed by the
Court of Appeals, that Lincoln Continental held the disputed shares of stock
of Northern Islands merely in trust for the Guy sisters. In fact, the evidence
proffered by Lincoln Continental itself supports this conclusion. It bears
emphasis that this factual finding by the trial court was affirmed by the
Court of Appeals, being supported by evidence, and is, therefore, final and
conclusive upon this Court.
Article 1440 of the Civil Code provides that:
ART. 1440. A person who establishes a trust is called the trustor; one in whom
confidence is reposed as regards property for the benefit of another person
is known as the trustee; and the person for whose benefit the trust has been
created is referred to as the beneficiary.
In the early case of Gayondato v. Treasurer of the Philippine Islands, 23 this
Court defines trust, in its technical sense, as "a right of property, real or
personal, held by one party for the benefit of another." Differently stated, a
trust is "a fiduciary relationship with respect to property, subjecting the
person holding the same to the obligation of dealing with the property for
the benefit of another person." 24
Both Lincoln Continental and Gilbert claim that the latter holds legal title to
the shares in question. But record shows that there is no evidence that the
stock certificates representing the contested shares are in respondents'
possession. Significantly, there is no proof to support his allegation that the
130
transfer of the shares of stock to respondent sisters is fraudulent. As aptly
held by the Court of Appeals, fraud is never presumed but must be
established by clear and convincing evidence. 25 Gilbert failed to
discharge this burden. We agree with the Court of Appeals that respondent
sisters own the shares of stock, Gilbert being their mere trustee. Verily, we
find no reversible error in the challenged Decision of the Court of Appeals
(Special Second Division) in CA-G.R. CV No. 85937. HCDAac

WHEREFORE, we DISMISS the petitions in G.R. Nos. 165849, 170185, 170186

and 176650; and DENY the petitions in G.R. Nos. 171066 and 176650. The
Resolutions of the Court of Appeals (Eighth Division), dated October 28,
2004 and November 4, 2004, as well as the Decision dated October 10, 2005
of the Court of Appeals (Seventh Division) in CA-G.R. SP No. 87104 are
AFFIRMED. We likewise AFFIRM IN TOTO the Decision of the Court of Appeals
(Special Second Division), dated November 27, 2006 in CA-G.R. CV No.
85937. Costs against petitioners.

SO ORDERED.

131
Article 1443
[G.R. No. 76590. February 26, 1990.]
HEIRS OF MARIA DE LA CRUZ Y GUTIERREZ, petitioners, vs. COURT OF APPEALS
and HEIRS OF MARIA DE LA CRUZ Y GUEVARRA, respondents.
PARAS, J p:
This is a petition for review on certiorari of the June 17, 1986 decision * of the
then Intermediate Appellate Court in AC-G.R. CV No. 05785 reversing the
appealed decision of the Regional Trial Court of Angeles City, and the
November 12, 1986 resolution of the same court denying the motion for
reconsideration.
Herein petitioners are the heirs (children) of the late Maria de la Cruz y
Gutierrez, married to Mateo del Rosario Lansang, while herein private
respondents are the heirs of Maria de la Cruz y Guevarra, married to Calixto
Dimalanta, and Fermin de la Cruz. The controversy involves a 1,980 square
meters portion of Lot 1488.
From 1921 until her death in 1951, Maria dela Cruz y Gutierrez resided in the
questioned lot in the concept of an owner. She declared the lot for tax
purposes in her name. Later, she entrusted the administration of the said lot
to her niece Maria de la Cruz y Guevarra. When cadastral proceedings
were held in Porac, in Cadastral Case No. 18, on March 17, 1926, Maria de
la Cruz y Gutierrez filed an answer to the questioned lot. In the said filed
answer, over the handwritten name "Maria de la Cruz y Gutierrez" is a
thumbmark presumably affixed by her, Exhibit "2-C"; that in paragraph 7, a
person named therein as Fermin de la Cruz y Gutierrez is stated to have an
interest or participation on the said lot. However, in the space provided in
paragraph 8 to be filled up with the personal circumstances of claimant
Maria de la Cruz y Gutierrez, what appears therein is the name Maria de la
Cruz, married to Calixto Dimalanta, instead of Maria de la Cruz y Gutierrez,
Exhibit "2-A"; and in the space provided in paragraph 9, intended for the
personal circumstances of other person or persons who may have an
interest on the said lot, the name Fermin de la Cruz, single, appears, Exhibit
"2-B". Accordingly, the trial court rendered a decision adjudicating Lot No.
1488 in favor of Maria de la Cruz, 26 years old, married to Calixto Dimalanta
and Fermin de la Cruz, Single. Finally, Original Certificate of Title No. 16684
of the Register of Deeds of Pampanga was issued in their names. LLjur
Petitioners, claiming to have learned of the same only on July 1, 1974, on
October 1, 1974 (allegedly barely three months after discovery of the
registration, and two years after the death of Maria de la Cruz y Guevarra
who, before she died in 1974, revealed to petitioners Daniel Lansang and
Isidro Lansang that the lot of their mother Maria de la Cruz y Gutierrez had
been included in her title), filed with the then Court of First Instance of
Pampanga, Branch IV, presided over by Hon. Cesar V. Alejandria, a
complaint for reconveyance, docketed therein as Civil Case No. 2148. The
same was amended on June 16, 1975.
The main thrust of the complaint is that the claimant of Lot 1488 in Cadastral
Case No. 18 was Maria de la Cruz y Gutierrez and not Maria de la Cruz y
Guevarra who by not using her maternal surname "Guevarra" succeeded
in registering Lot 1488 in her name and that of her brother Fermin de la Cruz.
Under the circumstances, it is claimed that Maria de la Cruz married to
Calixto Dimalanta and Fermin de la Cruz hold the property in trust for the
petitioners.
In their answer (Rollo, pp. 62-65), private respondents claimed that the land
in question is their exclusive property, having inherited the same from their
parents and the OCT No. 16684 was issued in their names. Moreover, they
asserted that petitioners have lost their cause of action by prescription.
During the pre-trial, the parties stipulated the following facts:
1. That Lot No. 1488 is the lot in question as stated in Paragraph 3 of the
Complaint;
2. That on March 17, 1926, Maria de la Cruz y Gutierrez filed her Answer over
the cadastral lot in question;
3. That Maria de la Cruz y Gutierrez affixed her thumbmark in the Answer
dated March 17, 1926;
4. That by virtue of the Answer over Cadastral lot in question filed by Maria
de la Cruz y Gutierrez on March 17, 1926, OCT No. 16684 was issued
covering the lot in question;
5. That the maternal surname of Maria de la Cruz and Fermin de la Cruz is
Guevarra and not Gutierrez; and
6. That Maria de la Cruz y Guevarra and Fermin de la Cruz y Guevarra did
not file their answer over the lot in question. (p. 3, Intermediate Appellate
Court Decision; p. 46, Rollo)
The issues stated are as follows:
1. Whether or not the handwritings in the Answer of Maria de la Cruz y
Gutierrez were her handwritings;
2. Whether or not the heirs of Maria de la Cruz y Gutierrez are paying the
land taxes of the lot in question proportionately to their respective shares;
3. Whether or not Lot l488, the lot in question, is declared in the name of
Maria de la Cruz y Gutierrez;
4. Whether or not during the lifetime of Maria de la Cruz y Gutierrez up to
the time of her death, she was in actual possession of the lot in question;
and
5. If there was fraud in securing OCT No. 16684 in the name of Maria de la
Cruz, married to Calixto Dimalanta, and Fermin de la Cruz, single. (pp. 3-4,
Intermediate Appellate Court Decision; pp. 46-47, Rollo)
After trial, the trial court, in a decision dated November 17, 1983 (ibid., pp.
34-42), ruled in favor of the petitioners. The. decretal portion of the said
decision, reads:
"WHEREFORE, judgment is hereby rendered in favor of the plaintiffs;
(a) ordering the above-named defendants to reconvey to the plaintiffs a
portion of 1,980 square meters of Lot No. 1488 covered by Original
Certificate of Title No. 16684 of the Register of Deeds of Pampanga, by
executing a deed of reconveyance and registering the same with the said
Office at their own expense;
(b) ordering the parties to cause the survey and division of Lot No. 1844 into
two equal parts in order that two separate titles, one for the plaintiffs and
the other for the defendants can be issued by the Register of Deeds of
Pampanga in their favor and one-half of the expenses therefore to be
shouldered by the plaintiffs, and the other half by the defendant;
(c) ordering that the land to be adjudicated to the plaintiffs should include
the portion where the existing house of the late Maria de la Cruz y Gutierrez
is situated;
(d) ordering the plaintiffs and the defendants to pay the corresponding
estate and inheritance taxes if the parcels of land inherited by them are
subject to the payment of the same;
(e) ordering the defendants to pay the costs of suit."
On appeal, considering the action as based on an implied trust, the then
Intermediate Appellate Court in its decision promulgated on June 17, 1986
(Ibid., pp. 44-53) reversed the decision of the trial court. The dispositive
portion reads: LLjur
"WHEREFORE, the Court is constrained to REVERSE the decision appealed
from. A new one is hereby entered dismissing the complaint."
A Motion for Reconsideration was filed, but the same was denied in a
resolution dated November 12, 1986 (Ibid., p. 66). Hence, the instant
petition.
Petitioners raised three (3) reasons warranting review, to wit:
I
RESPONDENT COURT ERRED WHEN IT RULED THAT THE ACTION FOR
RECONVEYANCE FILED BY HEREIN PETITIONERS WITH THE LOWER COURT HAD
ALREADY PRESCRIBED;
II
RESPONDENT COURT ERRED IN RULING THAT PETITIONERS WERE GUILTY OF
LACHES; and
III
132
RESPONDENT COURT ERRED IN RULING THAT THERE WAS NO EVIDENCE OF
FRAUD COMMITTED BY THE PREDECESSOR-IN-INTEREST OF PRIVATE
RESPONDENTS IN SECURING TITLE TO THE LOT TN QUESTION. (pp. 13, 20 and
22, Petition for Review; pp. 21, 28, and 30 Rollo)
The instant petition is impressed with merit.
The main issue in this case is whether or not petitioners' action for
reconveyance has already prescribed.
The answer is in the negative.
As aptly argued by petitioners, the Court of Appeals erred when it ruled that
their action has already prescribed; obviously on the wrong premise that
the action is one based on implied or constructive trust. As maintained by
petitioners, their action is one based on express trust and not on implied or
constructive trust. Petitioners' predecessor-in-interest, Maria de la Cruz y
Gutierrez, was an unlettered woman, a fact borne out by her affixing her
thumbmark in her answer in Cadastral Case No. 18, Exhibit "2-C". Because
of her mental weakness, in a prepared document for her, Exhibit "B-3", she
consented and authorized her niece Maria de la Cruz y Guevarra to
administer the lot in question. Such fact is corroborated by the testimony of
Daniel Lansay, the son of Maria de la Cruz y Gutierrez that Maria de la Cruz
y Guevarra was the one entrusted with the paying of land taxes.
Private respondents argue that said Exhibit "B-3" is a portion of the tax
declaration (Exhibit "B") which was prepared by the Office of the Municipal
Assessor Treasurer where the lot in question is located, and clearly not the
written instrument constituting an express trust required under Article 1443
of the Civil Code. This argument of private respondents, is untenable. It has
been held that under the law on Trusts, it is not necessary that the
document expressly state and provide for the express trust, for it may even
be created orally, no particular words are required for its creation (Article
1444, Civil Code). An express trust is created by the direct and positive acts
of the parties, by some writing or deed or will or by words evidencing an
intention to create a trust (Sotto v. Teves, 86 SCRA 154 [1978]). No particular
words are required for the creation of an express trust, it being sufficient that
a trust is clearly intended (Vda. de Mapa v. Court of Appeals, 154 SCRA 294
[1987]). Hence, petitioner's action, being one based on express trust, has
not yet prescribed. Be it noted that Article 1443 of the Civil Code which
states "No express trusts concerning an immovable or any interest therein
may be proved by parol evidence," refers merely to enforceability, not
validity of a contract between the parties. Otherwise stated, for purposes
of validity between the parties, an express trust concerning an immovable
does not have to be in writing. Thus, Article 1443 may be said to be an
extension of the Statute of Frauds. The action to compel the trustee to
convey the property registered in his name for the benefit of the cestui for
trust does not prescribe. If at all, it is only when the trustee repudiates the
trust that the period of prescription may run (Enriquez v. Court of Appeals,
104 SCRA 656 [1981]). LLphil
PREMISES CONSIDERED, the June l7, 1986 decision of the Intermediate
Appellate Court is hereby REVERSED and the November 17,1983 decision of
the trial court is hereby REINSTATED, except as to the latter court's finding
that this case deals with an implied trust.
SO ORDERED.
[G.R. No. 154096. August 22, 2008.]
IRENE MARCOS-ARANETA, DANIEL RUBIO, ORLANDO G. RESLIN, and JOSE G.
RESLIN, petitioners, vs. COURT OF APPEALS, JULITA C. BENEDICTO, and
FRANCISCA BENEDICTO-PAULINO, respondents.
DECISION
VELASCO, JR., J p:
The Case
This Petition for Review on Certiorari under Rule 45 assails and seeks to nullify
the Decision 1 dated October 17, 2001 of the Court of Appeals (CA) in CA-
G.R. SP No. 64246 and its Resolution 2 of June 20, 2002 denying petitioners'
motion for reconsideration. The assailed CA decision annulled and set aside
the Orders dated October 9, 2000, December 18, 2000, and March 15, 2001
of the Regional Trial Court (RTC), Branch 17 in Batac, Ilocos Norte which
admitted petitioners' amended complaint in Civil Case Nos. 3341-17 and
3342-17.
The Facts
Sometime in 1968 and 1972, Ambassador Roberto S. Benedicto, now
deceased, and his business associates (Benedicto Group) organized Far
East Managers and Investors, Inc. (FEMII) and Universal Equity Corporation
(UEC), respectively. As petitioner Irene Marcos-Araneta would later allege,
both corporations were organized pursuant to a contract or arrangement
whereby Benedicto, as trustor, placed in his name and in the name of his
associates, as trustees, the shares of stocks of FEMII and UEC with the
obligation to hold those shares and their fruits in trust and for the benefit of
Irene to the extent of 65% of such shares. Several years after, Irene, through
her trustee-husband, Gregorio Ma. Araneta III, demanded the
reconveyance of said 65% stockholdings, but the Benedicto Group refused
to oblige. ITSCED
In March 2000, Irene thereupon instituted before the RTC two similar
complaints for conveyance of shares of stock, accounting and receivership
against the Benedicto Group with prayer for the issuance of a temporary
restraining order (TRO). The first, docketed as Civil Case No. 3341-17,
covered the UEC shares and named Benedicto, his daughter, and at least
20 other individuals as defendants. The second, docketed as Civil Case No.
3342-17, sought the recovery to the extent of 65% of FEMII shares held by
Benedicto and the other defendants named therein.
Respondent Francisca Benedicto-Paulino, 3 Benedicto's daughter, filed a
Motion to Dismiss Civil Case No. 3341-17, followed later by an Amended
Motion to Dismiss. Benedicto, on the other hand, moved to dismiss 4 Civil
Case No. 3342-17, adopting in toto the five (5) grounds raised by Francisca
in her amended motion to dismiss. Among these were: (1) the cases
involved an intra-corporate dispute over which the Securities and
Exchange Commission, not the RTC, has jurisdiction; (2) venue was
improperly laid; and (3) the complaint failed to state a cause of action, as
there was no allegation therein that plaintiff, as beneficiary of the
purported trust, has accepted the trust created in her favor. HECTaA
To the motions to dismiss, Irene filed a Consolidated Opposition, which
Benedicto and Francisca countered with a Joint Reply to Opposition.
Upon Benedicto's motion, both cases were consolidated.
During the preliminary proceedings on their motions to dismiss, Benedicto
and Francisca, by way of bolstering their contentions on improper venue,
presented the Joint Affidavit 5 of Gilmia B. Valdez, Catalino A. Bactat, and
Conchita R. Rasco who all attested being employed as household staff at
the Marcos' Mansion in Brgy. Lacub, Batac, Ilocos Norte and that Irene did
not maintain residence in said place as she in fact only visited the mansion
twice in 1999; that she did not vote in Batac in the 1998 national elections;
and that she was staying at her husband's house in Makati City.
Against the aforesaid unrebutted joint affidavit, Irene presented her PhP5
community tax certificate 6 (CTC) issued on "11/07/99" in Curimao, Ilocos
Norte to support her claimed residency in Batac, Ilocos Norte.
In the meantime, on May 15, 2000, Benedicto died and was substituted by
his wife, Julita C. Benedicto, and Francisca. TEAICc
On June 29, 2000, the RTC dismissed both complaints, stating that these
partly constituted "real action", and that Irene did not actually reside in
Ilocos Norte, and, therefore, venue was improperly laid. In its dismissal order,
7 the court also declared "all the other issues raised in the different Motions
to Dismiss . . . moot and academic".
From the above order, Irene interposed a Motion for Reconsideration 8
which Julita and Francisca duly opposed.
Pending resolution of her motion for reconsideration, Irene filed on July 17,
2000 a Motion (to Admit Amended Complaint), 9 attaching therewith a
copy of the Amended Complaint 10 dated July 14, 2000 in which the names
of Daniel Rubio, Orlando G. Reslin, and Jose G. Reslin appeared as
additional plaintiffs. As stated in the amended complaint, the added
plaintiffs, all from Ilocos Norte, were Irene's new trustees. Parenthetically, the
amended complaint stated practically the same cause of action but, as
couched, sought the reconveyance of the FEMII shares only.
During the August 25, 2000 hearing, the RTC dictated in open court an order
denying Irene's motion for reconsideration aforementioned, but deferred
action on her motion to admit amended complaint and the opposition
thereto. 11
On October 9, 2000, the RTC issued an Order 12 entertaining the amended
complaint, dispositively stating:
WHEREFORE, the admission of the Amended Complaint being tenable and
legal, the same is GRANTED.
Let copies of the Amended Complaint be served to the defendants who
are ordered to answer within the reglementary period provided by the rules.
The RTC predicated its order on the following premises:
(1) Pursuant to Section 2, Rule 10 of the Rules of Court, 13 Irene may opt to
file, as a matter of right, an amended complaint.
133
(2) The inclusion of additional plaintiffs, one of whom was a Batac, an Ilocos
Norte resident, in the amended complaint setting out the same cause of
action cured the defect of improper venue.
(3) Secs. 2 and 3 of Rule 3 in relation to Sec. 2 of Rule 4 allow the filing of the
amended complaint in question in the place of residence of any of Irene's
co-plaintiffs.
In time, Julita and Francisca moved to dismiss the amended complaint, but
the RTC, by Order 14 dated December 18, 2000, denied the motion and
reiterated its directive for the two to answer the amended complaint.
In said order, the RTC stood pat on its holding on the rule on amendments
of pleadings. And scoffing at the argument about there being no
complaint to amend in the first place as of October 9, 2000 (when the RTC
granted the motion to amend) as the original complaints were dismissed
with finality earlier, i.e., on August 25, 2000 when the court denied Irene's
motion for reconsideration of the June 29, 2000 order dismissing the original
complaints, the court stated thusly: there was actually no need to act on
Irene's motion to admit, it being her right as plaintiff to amend her
complaints absent any responsive pleading thereto. Pushing its point, the
RTC added the observation that the filing of the amended complaint on
July 17, 2000 ipso facto superseded the original complaints, the dismissal of
which, per the June 29, 2000 Order, had not yet become final at the time
of the filing of the amended complaint.
Following the denial on March 15, 2001 of their motion for the RTC to
reconsider its December 18, 2000 order aforestated, Julita and Francisca, in
a bid to evade being declared in default, filed on April 10, 2001 their Answer
to the amended complaint. 15 But on the same day, they went to the CA
via a petition for certiorari, docketed as CA-G.R. SP No. 64246, seeking to
nullify the following RTC orders: the first, admitting the amended complaint;
the second, denying their motion to dismiss the amended complaint; and
the third, denying their motion for reconsideration of the second issuance.
TCaSAH
Inasmuch as the verification portion of the joint petition and the
certification on non-forum shopping bore only Francisca's signature, the CA
required the joint petitioners "to submit . . . either the written authority of
Julita C. Benedicto to Francisca B. Paulino authorizing the latter to represent
her in these proceedings, or a supplemental verification and certification
duly signed by . . . Julita C. Benedicto". 16 Records show the submission of
the corresponding authorizing Affidavit 17 executed by Julita in favor of
Francisca.
Later developments saw the CA issuing a TRO 18 and then a writ of
preliminary injunction 19 enjoining the RTC from conducting further
proceedings on the subject civil cases.
On October 17, 2001, the CA rendered a Decision, setting aside the assailed
RTC orders and dismissing the amended complaints in Civil Case Nos. 3341-
17 and 3342-17. The fallo of the CA decision reads:
WHEREFORE, based on the foregoing premises, the petition is hereby
GRANTED. The assailed Orders admitting the amended complaints are SET
ASIDE for being null and void, and the amended complaints a quo are,
accordingly, DISMISSED. 20
Irene and her new trustees' motion for reconsideration of the assailed
decision was denied through the equally assailed June 20, 2002 CA
Resolution. Hence, this petition for review is before us.
The Issues
Petitioners urge the setting aside and annulment of the assailed CA
decision and resolution on the following submissions that the appellate
court erred in: (1) allowing the submission of an affidavit by Julita as
sufficient compliance with the requirement on verification and certification
of non-forum shopping; (2) ruling on the merits of the trust issue which
involves factual and evidentiary determination, processes not proper in a
petition for certiorari under Rule 65 of the Rules of Court; (3) ruling that the
amended complaints in the lower court should be dismissed because, at
the time it was filed, there was no more original complaint to amend; (4)
ruling that the respondents did not waive improper venue; and (5) ruling
that petitioner Irene was not a resident of Batac, Ilocos Norte and that none
of the principal parties are residents of Ilocos Norte. 21 DIcSHE
The Court's Ruling
We affirm, but not for all the reasons set out in, the CA's decision.
First Issue: Substantial Compliance with the Rule on Verification and
Certification of Non-Forum Shopping
Petitioners tag private respondents' petition in CA-G.R. SP No. 64246 as
defective for non-compliance with the requirements of Secs. 4 22 and 5 23
of Rule 7 of the Rules of Court at least with regard to Julita, who failed to
sign the verification and certification of non-forum shopping. Petitioners
thus fault the appellate court for directing Julita's counsel to submit a written
authority for Francisca to represent Julita in the certiorari proceedings.
We are not persuaded.
Verification not Jurisdictional; May be Corrected
Verification is, under the Rules, not a jurisdictional but merely a formal
requirement which the court may motu proprio direct a party to comply
with or correct, as the case may be. As the Court articulated in Kimberly
Independent Labor Union for Solidarity, Activism and Nationalism (KILUSAN)-
Organized Labor Associations in Line Industries and Agriculture (OLALIA) v.
Court of Appeals:
[V]erification is a formal, not a jurisdictional requisite, as it is mainly intended
to secure an assurance that the allegations therein made are done in good
faith or are true and correct and not mere speculation. The Court may
order the correction of the pleading, if not verified, or act on the unverified
pleading if the attending circumstances are such that a strict compliance
with the rule may be dispensed with in order that the ends of justice may
be served. 24
Given this consideration, the CA acted within its sound discretion in ordering
the submission of proof of Francisca's authority to sign on Julita's behalf and
represent her in the proceedings before the appellate court. STECAc
Signature by Any of the Principal Petitioners is Substantial Compliance
Regarding the certificate of non-forum shopping, the general rule is that all
the petitioners or plaintiffs in a case should sign it. 25 However, the Court
has time and again stressed that the rules on forum shopping, which were
designed to promote the orderly administration of justice, do not interdict
substantial compliance with its provisions under justifiable circumstances. 26
As has been ruled by the Court, the signature of any of the principal
petitioners 27 or principal parties, 28 as Francisca is in this case, would
constitute a substantial compliance with the rule on verification and
certification of non-forum shopping. It cannot be overemphasized that
Francisca herself was a principal party in Civil Case No. 3341-17 before the
RTC and in the certiorari proceedings before the CA. Besides being an heir
of Benedicto, Francisca, with her mother, Julita, was substituted for
Benedicto in the instant case after his demise.
And should there exist a commonality of interest among the parties, or
where the parties filed the case as a "collective", raising only one common
cause of action or presenting a common defense, then the signature of
one of the petitioners or complainants, acting as representative, is sufficient
compliance. We said so in Cavile v. Heirs of Clarita Cavile. 29 Like Thomas
Cavile, Sr. and the other petitioners in Cavile, Francisca and Julita, as
petitioners before the CA, had filed their petition as a collective, sharing a
common interest and having a common single defense to protect their
rights over the shares of stocks in question.
Second Issue: Merits of the Case cannot be Resolved on Certiorari under
Rule 65
Petitioners' posture on the second issue is correct. As they aptly pointed out,
the CA, in the exercise of its certiorari jurisdiction under Rule 65, is limited to
reviewing and correcting errors of jurisdiction only. It cannot validly delve
into the issue of trust which, under the premises, cannot be judiciously
resolved without first establishing certain facts based on evidence.
Whether a determinative question is one of law or of fact depends on the
nature of the dispute. A question of law exists when the doubt or
controversy concerns the correct application of law or jurisprudence to a
certain given set of facts; or when the issue does not call for an examination
of the probative value of the evidence presented, the truth or falsehood of
facts being admitted. A question of fact obtains when the doubt or
difference arises as to the truth or falsehood of facts or when the query
invites the calibration of the whole evidence considering mainly the
credibility of the witnesses, the existence and relevancy of specific
surrounding circumstances, as well as their relation to each other and to
the whole, and the probability of the situation. 30
Clearly then, the CA overstepped its boundaries when, in disposing of
private respondents' petition for certiorari, it did not confine itself to
determining whether or not lack of jurisdiction or grave abuse of discretion
tainted the issuance of the assailed RTC orders, but proceeded to pass on
the factual issue of the existence and enforceability of the asserted trust. In
the process, the CA virtually resolved petitioner Irene's case for
reconveyance on its substantive merits even before evidence on the
matter could be adduced. Civil Case Nos. 3341-17 and 3342-17 in fact have
not even reached the pre-trial stage. To stress, the nature of the trust
allegedly constituted in Irene's favor and its enforceability, being
evidentiary in nature, are best determined by the trial court. The original
complaints and the amended complaint certainly do not even clearly
indicate whether the asserted trust is implied or express. To be sure, an
express trust differs from the implied variety in terms of the manner of
proving its existence. 31 Surely, the onus of factually determining whether
the trust allegedly established in favor of Irene, if one was indeed
established, was implied or express properly pertains, at the first instance, to
the trial court and not to the appellate court in a special civil action for
certiorari, as here. In the absence of evidence to prove or disprove the
constitution and necessarily the existence of the trust agreement between
Irene, on one hand, and the Benedicto Group, on the other, the appellate
court cannot intelligently pass upon the issue of trust. A pronouncement on
134
said issue of trust rooted on speculation and conjecture, if properly
challenged, must be struck down. So it must be here.
Third Issue: Admission of Amended Complaint Proper
As may be recalled, the CA veritably declared as reversibly erroneous the
admission of the amended complaint. The flaw in the RTC's act of admitting
the amended complaint lies, so the CA held, in the fact that the filing of the
amended complaint on July 17, 2000 came after the RTC had ordered with
finality the dismissal of the original complaints. According to petitioners,
scoring the CA for its declaration adverted to and debunking its posture on
the finality of the said RTC order, the CA failed to take stock of their motion
for reconsideration of the said dismissal order.
We agree with petitioners and turn to the governing Sec. 2 of Rule 10 of the
Rules of Court which provides:
SEC. 2. Amendments as a matter of right. A party may amend his
pleading once as a matter of right at any time before a responsive
pleading is served or in the case of a reply, at any time within ten (10) days
after it is served.
As the aforequoted provision makes it abundantly clear that the plaintiff
may amend his complaint once as a matter of right, i.e., without leave of
court, before any responsive pleading is filed or served. Responsive
pleadings are those which seek affirmative relief and/or set up defenses, 32
like an answer. A motion to dismiss is not a responsive pleading for purposes
of Sec. 2 of Rule 10. 33 Assayed against the foregoing perspective, the RTC
did not err in admitting petitioners' amended complaint, Julita and
Francisca not having yet answered the original complaints when the
amended complaint was filed. At that precise moment, Irene, by force of
said Sec. 2 of Rule 10, had, as a matter of right, the option of amending her
underlying reconveyance complaints. As aptly observed by the RTC, Irene's
motion to admit amended complaint was not even necessary. The Court
notes though that the RTC has not offered an explanation why it saw fit to
grant the motion to admit in the first place.
In Alpine Lending Investors v. Corpuz, the Court, expounding on the
propriety of admitting an amended complaint before a responsive
pleading is filed, wrote:
[W]hat petitioner Alpine filed in Civil Case No. C-20124 was a motion to
dismiss, not an answer. Settled is the rule that a motion to dismiss is not a
responsive pleading for purposes of Section 2, Rule 10. As no responsive
pleading had been filed, respondent could amend her complaint in Civil
Case No. C-20124 as a matter of right. Following this Court's ruling in Breslin
v. Luzon Stevedoring Co. considering that respondent has the right to
amend her complaint, it is the correlative duty of the trial court to accept
the amended complaint; otherwise, mandamus would lie against it. In
other words, the trial court's duty to admit the amended complaint was
purely ministerial. In fact, respondent should not have filed a motion to
admit her amended complaint. 34
It may be argued that the original complaints had been dismissed through
the June 29, 2000 RTC order. It should be pointed out, however, that the
finality of such dismissal order had not set in when Irene filed the amended
complaint on July 17, 2000, she having meanwhile seasonably sought
reconsideration thereof. Irene's motion for reconsideration was only
resolved on August 25, 2000. Thus, when Irene filed the amended complaint
on July 17, 2000, the order of dismissal was not yet final, implying that there
was strictly no legal impediment to her amending her original complaints.
35
Fourth Issue: Private Respondents did not Waive Improper Venue
Petitioners maintain that Julita and Francisca were effectively precluded
from raising the matter of improper venue by their subsequent acts of filing
numerous pleadings. To petitioners, these pleadings, taken together, signify
a waiver of private respondents' initial objection to improper venue. ICTaEH
This contention is without basis and, at best, tenuous. Venue essentially
concerns a rule of procedure which, in personal actions, is fixed for the
greatest convenience possible of the plaintiff and his witnesses. The ground
of improperly laid venue must be raised seasonably, else it is deemed
waived. Where the defendant failed to either file a motion to dismiss on the
ground of improper venue or include the same as an affirmative defense,
he is deemed to have waived his right to object to improper venue. 36 In
the case at bench, Benedicto and Francisca raised at the earliest time
possible, meaning "within the time for but before filing the answer to the
complaint", 37 the matter of improper venue. They would thereafter
reiterate and pursue their objection on venue, first, in their answer to the
amended complaints and then in their petition for certiorari before the CA.
Any suggestion, therefore, that Francisca and Benedicto or his substitutes
abandoned along the way improper venue as ground to defeat Irene's
claim before the RTC has to be rejected.
Fifth Issue: The RTC Has No Jurisdiction on the Ground of Improper Venue
Subject Civil Cases are Personal Actions
It is the posture of Julita and Francisca that the venue was in this case
improperly laid since the suit in question partakes of a real action involving
real properties located outside the territorial jurisdiction of the RTC in Batac.
This contention is not well-taken. In a personal action, the plaintiff seeks the
recovery of personal property, the enforcement of a contract, or the
recovery of damages. 38 Real actions, on the other hand, are those
affecting title to or possession of real property, or interest therein. In
accordance with the wordings of Sec. 1 of Rule 4, the venue of real actions
shall be the proper court which has territorial jurisdiction over the area
wherein the real property involved, or a portion thereof, is situated. The
venue of personal actions is the court where the plaintiff or any of the
principal plaintiffs resides, or where the defendant or any of the principal
defendants resides, or in the case of a non-resident defendant where he
may be found, at the election of the plaintiff.
In the instant case, petitioners are basically asking Benedicto and his Group,
as defendants a quo, to acknowledge holding in trust Irene's purported 65%
stockownership of UEC and FEMII, inclusive of the fruits of the trust, and to
execute in Irene's favor the necessary conveying deed over the said 65%
shareholdings. In other words, Irene seeks to compel recognition of the trust
arrangement she has with the Benedicto Group. The fact that FEMII's assets
include real properties does not materially change the nature of the action,
for the ownership interest of a stockholder over corporate assets is only
inchoate as the corporation, as a juridical person, solely owns such assets.
It is only upon the liquidation of the corporation that the stockholders,
depending on the type and nature of their stockownership, may have a
real inchoate right over the corporate assets, but then only to the extent of
their stockownership.
The amended complaint is an action in personam, it being a suit against
Francisca and the late Benedicto (now represented by Julita and
Francisca), on the basis of their alleged personal liability to Irene upon an
alleged trust constituted in 1968 and/or 1972. They are not actions in rem
where the actions are against the real properties instead of against persons.
40 We particularly note that possession or title to the real properties of FEMII
and UEC is not being disputed, albeit part of the assets of the corporation
happens to be real properties.
Given the foregoing perspective, we now tackle the determinative
question of venue in the light of the inclusion of additional plaintiffs in the
amended complaint.
Interpretation of Secs. 2 and 3 of Rule 3; and Sec. 2 of Rule 4
We point out at the outset that Irene, as categorically and peremptorily
found by the RTC after a hearing, is not a resident of Batac, Ilocos Norte, as
she claimed. The Court perceives no compelling reason to disturb, in the
confines of this case, the factual determination of the trial court and the
premises holding it together. Accordingly, Irene cannot, in a personal
action, contextually opt for Batac as venue of her reconveyance
complaint. As to her, Batac, Ilocos Norte is not what Sec. 2, Rule 4 of the
Rules of Court adverts to as the place "where the plaintiff or any of the
principal plaintiffs resides" at the time she filed her amended complaint.
That Irene holds CTC No. 17019451 41 issued sometime in June 2000 in
Batac, Ilocos Norte and in which she indicated her address as Brgy. Lacub,
Batac, Ilocos is really of no moment. Let alone the fact that one can easily
secure a basic residence certificate practically anytime in any Bureau of
Internal Revenue or treasurer's office and dictate whatever relevant data
one desires entered, Irene procured CTC No. 17019451 and appended the
same to her motion for reconsideration following the RTC's pronouncement
against her being a resident of Batac.
Petitioners, in an attempt to establish that the RTC in Batac, Ilocos Norte is
the proper court venue, asseverate that Batac, Ilocos Norte is where the
principal parties reside.
Pivotal to the resolution of the venue issue is a determination of the status
of Irene's co-plaintiffs in the context of Secs. 2 and 3 of Rule 3 in relation to
Sec. 2 of Rule 4, which pertinently provide as follows:
Rule 3
PARTIES TO CIVIL ACTIONS
SEC. 2. Parties in interest. A real party in interest is the party who stands to
be benefited or injured by the judgment in the suit, or the party entitled to
the avails of the suit. Unless otherwise authorized by law or these Rules, every
action must be prosecuted or defended in the name of the real party in
interest.
135

SEC. 3. Representatives as parties. Where the action is allowed to be
prosecuted or defended by a representative or someone acting in a
fiduciary capacity, the beneficiary shall be included in the title of the case
and shall be deemed to be the real party in interest. A representative may
be a trustee of an express trust, a guardian, an executor or administrator, or
a party authorized by law or these Rules. An agent acting in his own name
and for the benefit of an undisclosed principal may sue or be sued without
joining the principal except when the contract involves things belonging to
the principal. CcTIAH
Rule 4
VENUE OF ACTIONS
SEC. 2. Venue of personal actions. All other actions may be commenced
and tried where the plaintiff or any of the principal plaintiffs resides, or
where the defendant or any of the principal defendants resides, or in the
case of a non-resident defendant where he may be found, at the election
of the plaintiff.
Venue is Improperly Laid
There can be no serious dispute that the real party-in-interest plaintiff is
Irene. As self-styled beneficiary of the disputed trust, she stands to be
benefited or entitled to the avails of the present suit. It is undisputed too that
petitioners Daniel Rubio, Orlando G. Reslin, and Jose G. Reslin, all from Ilocos
Norte, were included as co-plaintiffs in the amended complaint as Irene's
new designated trustees. As trustees, they can only serve as mere
representatives of Irene.
Upon the foregoing consideration, the resolution of the crucial issue of
whether or not venue had properly been laid should not be difficult.
Sec. 2 of Rule 4 indicates quite clearly that when there is more than one
plaintiff in a personal action case, the residences of the principal parties
should be the basis for determining proper venue. According to the late
Justice Jose Y. Feria, "the word 'principal' has been added [in the uniform
procedure rule] in order to prevent the plaintiff from choosing the residence
of a minor plaintiff or defendant as the venue". 42 Eliminate the qualifying
term "principal" and the purpose of the Rule would, to borrow from Justice
Regalado, "be defeated where a nominal or formal party is impleaded in
the action since the latter would not have the degree of interest in the
subject of the action which would warrant and entail the desirably active
participation expected of litigants in a case". 43
Before the RTC in Batac, in Civil Case Nos. 3341-17 and 3342-17, Irene stands
undisputedly as the principal plaintiff, the real party-in-interest. Following
Sec. 2 of Rule 4, the subject civil cases ought to be commenced and
prosecuted at the place where Irene resides.
Principal Plaintiff not a Resident in Venue of Action
As earlier stated, no less than the RTC in Batac declared Irene as not a
resident of Batac, Ilocos Norte. Withal, that court was an improper venue
for her conveyance action.
The Court can concede that Irene's three co-plaintiffs are all residents of
Batac, Ilocos Norte. But it ought to be stressed in this regard that not one of
the three can be considered as principal party-plaintiffs in Civil Case Nos.
3341-17 and 3342-17, included as they were in the amended complaint as
trustees of the principal plaintiff. As trustees, they may be accorded, by
virtue of Sec. 3 of Rule 3, the right to prosecute a suit, but only on behalf of
the beneficiary who must be included in the title of the case and shall be
deemed to be the real party-in-interest. In the final analysis, the residences
of Irene's co-plaintiffs cannot be made the basis in determining the venue
of the subject suit. This conclusion becomes all the more forceful
considering that Irene herself initiated and was actively prosecuting her
claim against Benedicto, his heirs, assigns, or associates, virtually rendering
the impleading of the trustees unnecessary.
And this brings us to the final point. Irene was a resident during the period
material of Forbes Park, Makati City. She was not a resident of Brgy. Lacub,
Batac, Ilocos Norte, although jurisprudence 44 has it that one can have
several residences, if such were the established fact. The Court will not
speculate on the reason why petitioner Irene, for all the inconvenience and
expenses she and her adversaries would have to endure by a Batac trial,
preferred that her case be heard and decided by the RTC in Batac. On the
heels of the dismissal of the original complaints on the ground of improper
venue, three new personalities were added to the complaint doubtless to
insure, but in vain as it turned out, that the case stays with the RTC in Batac.
Litigants ought to bank on the righteousness of their causes, the superiority
of their cases, and the persuasiveness of arguments to secure a favorable
verdict. It is high time that courts, judges, and those who come to court for
redress keep this ideal in mind.
WHEREFORE, the instant petition is hereby DISMISSED. The Decision and
Resolution dated October 17, 2001 and June 20, 2002, respectively, of the
CA in CA-G.R. SP No. 64246, insofar as they nullified the assailed orders of
the RTC, Branch 17 in Batac, Ilocos Norte in Civil Case Nos. 3341-17 and
3342-17 on the ground of lack of jurisdiction due to improper venue, are
hereby AFFIRMED. The Orders dated October 9, 2000, December 18, 2000,
and March 15, 2001 of the RTC in Civil Case Nos. 3341-17 and 3342-17 are
accordingly ANNULLED and SET ASIDE and said civil cases are DISMISSED.
Costs against petitioners.
SO ORDERED.
136
Article 1444
[G.R. No. 160711. August 14, 2007.]
HEIRS OF MAXIMO LABANON, represented by ALICIA LABANON CAEDO
and the PROVINCIAL ASSESSOR OF COTABATO, petitioners, vs. HEIRS OF
CONSTANCIO LABANON, represented by ALBERTO MAKILANG,
respondents.
DECISION
VELASCO, JR., J p:
The Case
This Petition for Review on Certiorari under Rule 45 seeks the recall and
nullification of the May 8, 2003 Decision 1 of the Court of Appeals (CA) in
CA-G.R. CV No. 65617 entitled Heirs of Constancio Labanon represented
by Alberto Makilang v. Heirs of Maximo Labanon represented by Alicia
Labanon Caedo and the Provincial Assessor of Cotabato, which reversed
the August 18, 1999 Decision 2 of the Kidapawan City, Cotabato Regional
Trial Court (RTC), Branch 17, in Civil Case No. 865. Likewise assailed is the
October 13, 2003 Resolution 3 which disregarded petitioners' Motion for
Reconsideration.
The Facts
The CA culled the facts this way:
During the lifetime of Constancio Labanon, prior to the outbreak of WWII,
he settled upon a piece of alienable and disposable public agricultural
land situated at Brgy. Lanao, Kidapawan, Cotabato . . . Constancio
cultivated the said lot and introduced permanent improvements that still
exist up to the present. Being of very limited educational attainment, he
found it difficult to file his public land application over said lot. Constancio
then asked his brother, Maximo Labanon who was better educated to file
the corresponding public land application under the express agreement
that they will divide the said lot as soon as it would be feasible for them to
do so. The offer was accepted by Maximo. During the time of the
application it was Constancio who continued to cultivate the said lot in
order to comply with the cultivation requirement set forth under
Commonwealth Act 141, as amended, on Homestead applications. After
which, on June 6, 1941, due to industry of Constancio, Homestead
Application No. 244742 (E-128802) of his brother Maximo was approved with
Homestead Patent No. 67512. Eventually, Original Certificate of Title No. P-
14320 was issued by the Register of Deeds of Cotabato over said lot in favor
of Maximo Labanon. DSIaAE
On February 11, 1955, Maximo Labanon executed a document
denominated as "Assignment of Rights and Ownership" and docketed as
Doc. No. 20; Page No. 49; Book No. V; Series of 1955 of the Notarial Register
of Atty. Florentino Kintanar. The document was executed to safeguard the
ownership and interest of his brother Constancio Labanon. Pertinent portion
of which is reproduced as follows:
"That I, MAXIMO LABANON, of legal age, married to Anastacia Sagarino,
and a resident of Kidapawan, Cotabato, for and in consideration of the
expenses incurred by my elder brother CONSTANCIO LABANON also of
legal age, Filipino, widower and a resident of Kidapawan, Cotabato, for
the clearing, cultivation and improvements on the eastern portion . . . Lot
No. 1, Blk. 22, Pls-59 . . . which expenses have been incurred by my said
brother . . . before the outbreak of the last world war . . . I do hereby assign
transfer and convey my rights to, interests in and ownership on the said
eastern portion of said Lot No. 1, Block 22, Pls-59 ONE HUNDRED (100 M)
ALONG THE NATIONAL HIGHWAY, (DAVAO-COTABATO ROAD) by TWO
HUNDRED FIFTY METERS (250 M) going inside the land to cover an area of
TWO AND ONE HALF HECTARES (25,000 SQ. M.), more or less, adjoining the
school site of barrio Lanao, Kidapawan, Cotabato, to the said
CONSTANCIO LABANON, his heirs and assigns, can freely occupy for his own
use and benefit . . . .
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of February
1995 at Kidapawan, Cotabato.
(SGD) MAXIMO LABANON
With my marital consent.
(SGD) ANASTACIA SAGARINO
(Wife)" (p.16, rollo)
On April 25, 1962, Maximo Labanon executed a sworn statement reiterating
his desire that his elder brother Constancio, his heirs and assigns shall own
the eastern portion of the Lot, pertinent portion of which reads:
"That I am the same and identical person who is a homestead applicant
(HA-224742, E-128802) of a tract of land which is covered by Homestead
Patent No. 67512 dated June 6, 1941, known as Lot No. 1, Block 22, Pls-59,
situated in [B]arrio Lanao, Municipality of Kidapawan, Province of
Cotabato, Philippines, and containing an area of 5.0000 hectares, more or
less; HAaDTE
That I am the same and identical person who executed a deed of
ASSIGNMENT OF RIGHTS AND OWNERSHIP in favor of my brother Constancio
Labanon, now deceased, now for his heirs, for the eastern half portion of
the land above described, and which deed was duly notarized by notary
public Florentino P. Kintanar on February 11, 1955 at Kidapawan, Cotabato
and entered in his Notarial Register as Doc. No. 20, Page No. 49, Book No.
V, Series of 1955; and
That in order that I and the Heirs of Constancio Labanon will exercise our
respective rights and ownership over the aforementioned lot, and to give
force and effect to said deed of assignment, I hereby, by these presents,
request the Honorable Director of Lands and the Land Title Commission to
issue a separate title in my favor covering the western half portion of the
aforementioned lot and to the Heirs of Constancio Labanon a title for the
eastern half portion thereof.
IN WITNESS THEREOF, I have hereunto set my hand this 25th day of April,
1962, at Pikit, Cotabato, Philippines." (p. 9, records)
After the death of Constancio Labanon, his heirs executed an [e]xtra-
judicial settlement of estate with simultaneous sale over the aforesaid
eastern portion of the lot in favor of Alberto Makilang, the husband of
Visitacion Labanon, one of the children of Constancio. Subsequently, the
parcel of land was declared for taxation purposes in the name of Alberto
under TD No. 11593. However, in March 1991, the defendants heirs of
Maximo Labanon namely, Alicia L. Caniedo, Leopoldo Labanon, Roberto
Nieto and Pancho Labanon, caused to be cancelled from the records of
the defendant Provincial Assessor of Cotabato the aforesaid TD No. 11593
and the latter, without first verifying the legality of the basis for said
cancellation, did cancel the same. . . . Further, after discovering that the
defendant-heirs of Maximo Labanon were taking steps to deprive the heirs
of Constancio Labanon of their ownership over the eastern portion of said
lot, the latter, thru Alberto Makilang, demanded the owner's copy of the
certificate of title covering the aforesaid Lot to be surrendered to the
Register of Deeds of Cotabato so that the ownership of the heirs of
Constancio may be fully effected but the defendants refused and still
continue to refuse to honor the trust agreement entered into by the
deceased brothers. . . . 4 DaHISE
Thus, on November 12, 1991, petitioners filed a complaint 5 for Specific
Performance, Recovery of Ownership, Attorney's Fees and Damages with
Writ of Preliminary Injunction and Prayer for Temporary Restraining Order
against respondents docketed as Civil Case No. 865 before the Kidapawan
City RTC. After hearing, the trial court rendered its August 18, 1999 Decision,
the decretal portion of which reads:
Wherefore, prescinding from the foregoing facts and considerations the
Court finds and so holds that the [defendant-heirs] of Maximo Labanon
represented by Alicia Labanon Caniedo have proved by preponderance
of evidence that they are entitled to the reliefs set forth in their answer and
consequently judgment is hereby rendered as follows:
1. Ordering the dismissal of the complaint against the Heirs of Maximo
Labanon represented by Alicia Labanon Caniedo for lack of merit;
2. Ordering the dismissal of the case against the Provincial Assessor. The
claim of the plaintiff is untenable, because the duties of the Provincial
Assessor are ministerial. Moreover, the presumption of regularity in the
performance of his duty is in his favor;
3. Ordering the plaintiff to pay the defendants the amount of P20,000.00 as
exemplary damages, P10,000.00 for Attorney's Fees, P500.00 per
appearance in Court; and
4. To pay the costs of this suit.
IT IS SO ORDERED. 6
137
Aggrieved, respondents elevated the adverse judgment to the CA which
issued the assailed May 8, 2003 Decision in CA-G.R. CV No. 65617, the fallo
of which states:
WHEREFORE, the appeal is hereby GRANTED for being meritorious. The
assailed decision of the Regional Trial Court is hereby REVERSED and SET
ASIDE and a new one is hereby entered as follows:
1) Recognizing the lawful possession of the plaintiffs-appellants over the
eastern portion of the property in dispute;
2) Declaring the plaintiffs-appellants as owners of the eastern portion of the
property by reason of lawful possession; aCSHDI
3) Ordering the Provincial Assessor to reinstate TD No. 11593 and declaring
TD No. 243-A null and void;
4) Ordering the defendants-appellees to pay the plaintiffs-appellants the
amount of P20,000 as moral damages, P10,000 for attorney's fees, P500.00
per appearance in Court and
5) To pay the costs of the suit.
SO ORDERED.
The Issues
Surprised by the turn of events, petitioners brought this petition before us
raising the following issues, to wit:
1. Whether or not Original Certificate of Title No. 41320 issued on April 10,
1975 in the name of MAXIMO LABANON be now considered indefeasible
and conclusive; and
2. Whether or not the Trust Agreement allegedly made by Constancio
Labanon and Maximo Labanon prescribed. 6
The Court's Ruling
The petition must fail.
First Issue
Respondents are not precluded from challenging the validity of Original
Certificate of Title No. P-41320
Petitioners argue that respondents can no longer question Maximo
Labanon's ownership of the land after its registration under the principle of
indefeasibility of a Transfer Certificate of Title (TCT).
Such argument is inaccurate.
The principle of indefeasibility of a TCT is embodied in Section 32 of
Presidential Decree No. (PD) 1529, amending the Land Registration Act,
which provides:
Section 32. Review of decree of registration; Innocent purchaser for value.
The decree of registration shall not be reopened or revised by reason of
absence, minority, or other disability of any person adversely affected
thereby, nor by any proceeding in any court for reversing judgments,
subject, however, to the right of any person, including the government and
the branches thereof, deprived of land or of any estate or interest therein
by such adjudication or confirmation of title obtained by actual fraud, to
file in the proper Court of First Instance a petition for reopening and review
of the decree of registration not later than one year from and after the date
of the entry of such decree of registration, but in no case shall such petition
be entertained by the court where an innocent purchaser for value has
acquired the land or an interest therein, whose rights may be prejudiced.
Whenever the phrase "innocent purchaser for value" or an equivalent
phrase occurs in this Decree, it shall be deemed to include an innocent
lessee, mortgagee, or other encumbrancer for value. AIDcTE
Upon the expiration of said period of one year, the decree of registration
and the certificate of title issued shall become incontrovertible. Any person
aggrieved by such decree of registration in any case may pursue his
remedy by action for damages against the applicant or any other persons
responsible for the fraud.
Contrary to petitioners' interpretation, the aforequoted legal provision does
not totally deprive a party of any remedy to recover the property
fraudulently registered in the name of another. Section 32 of PD 1529 merely
precludes the reopening of the registration proceedings for titles covered
by the Torrens System, but does not foreclose other remedies for the
reconveyance of the property to its rightful owner. As elaborated in Heirs of
Clemente Ermac v. Heirs of Vicente Ermac:
While it is true that Section 32 of PD 1529 provides that the decree of
registration becomes incontrovertible after a year, it does not altogether
deprive an aggrieved party of a remedy in law. The acceptability of the
Torrens System would be impaired, if it is utilized to perpetuate fraud against
the real owners. 7
A more succinct explanation is found in Vda. De Recinto v. Inciong, thus:
The mere possession of a certificate of title under the Torrens system does
not necessarily make the possessor a true owner of all the property
described therein for he does not by virtue of said certificate alone become
the owner of the land illegally included. It is evident from the records that
the petitioner owns the portion in question and therefore the area should
be conveyed to her. The remedy of the land owner whose property has
been wrongfully or erroneously registered in another's name is, after one
year from the date of the decree, not to set aside the decree, but,
respecting the decree as incontrovertible and no longer open to review, to
bring an ordinary action in the ordinary court of justice for reconveyance
or, if the property has passed into the hands of an innocent purchaser for
value, for damages. 8 (Emphasis supplied.)
Undeniably, respondents are not precluded from recovering the eastern
portion of Original Certificate of Title (OCT) No. P-14320, with an area
subject of the "Assignment of Rights and Ownership" previously owned by
their father, Constancio Labanon. The action for Recovery of Ownership
before the RTC is indeed the appropriate remedy.
Second Issue
The trust agreement between Maximo Labanon and Constancio Labanon
may still be enforced
Former Vice-President and Senator Arturo Tolentino, a noted civilist,
explained the nature and import of a trust: ATICcS
Trust is the legal relationship between one person having an equitable
ownership in property and another person owning the legal title to such
property, the equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain powers by the
latter. 9
This legal relationship can be distinguished from other relationships of a
fiduciary character, such as deposit, guardianship, and agency, in that the
trustee has legal title to the property. 10 In the case at bench, this is exactly
the relationship established between the parties.
Trusts are classified under the Civil Code as either express or implied. Such
classification determines the prescriptive period for enforcing such trust.
Article 1444 of the New Civil Code on express trust provides that "[n]o
particular words are required for the creation of an express trust, it being
sufficient that a trust is clearly intended."
Civil law expert Tolentino further elucidated on the express trust, thus:
No particular form of words or conduct is necessary for the manifestation of
intention to create a trust. It is possible to create a trust without using the
word "trust" or "trustee". Conversely, the mere fact that these words are used
does not necessarily indicate an intention to create a trust. The question in
each case is whether the trustor manifested an intention to create the kind
of relationship which to lawyers is known as trust. It is immaterial whether or
not he knows that the relationship which he intends to create is called a
trust, and whether or not he knows the precise characteristics of the
relationship which is called a trust. 11
Correlatively, we ruled in Estate of Edward Miller Grimm v. Estate of Charles
Parsons and Patrick C. Parsons, that:
An express trust is created by the direct and positive acts of the parties, by
some writing or deed or by words evidencing an intention to create a trust;
the use of the word trust is not required or essential to its constitution, it being
sufficient that a trust is clearly intended. 12
In the instant case, such intention to institute an express trust between
Maximo Labanon as trustee and Constancio Labanon as trustor was
contained in not just one but two written documents, the Assignment of
138
Rights and Ownership as well as Maximo Labanon's April 25, 1962 Sworn
Statement. In both documents, Maximo Labanon recognized Constancio
Labanon's ownership and possession over the eastern portion of the
property covered by OCT No. P-14320, even as he recognized himself as
the applicant for the Homestead Patent over the land. Thus, Maximo
Labanon maintained the title over the property while acknowledging the
true ownership of Constancio Labanon over the eastern portion of the land.
The existence of an express trust cannot be doubted nor disputed. SCaDAE
On the issue of prescription, we had the opportunity to rule in Bueno v.
Reyes that unrepudiated written express trusts are imprescriptible:
While there are some decisions which hold that an action upon a trust is
imprescriptible, without distinguishing between express and implied trusts,
the better rule, as laid down by this Court in other decisions, is that
prescription does supervene where the trust is merely an implied one. The
reason has been expressed by Justice J.B.L. Reyes in J.M. Tuason and Co.,
Inc. vs. Magdangal, 4 SCRA 84, 88, as follows:
Under Section 40 of the old Code of Civil Procedure, all actions for recovery
of real property prescribed in 10 years, excepting only actions based on
continuing or subsisting trusts that were considered by section 38 as
imprescriptible. As held in the case of Diaz v. Gorricho, L-11229, March 29,
1958, however, the continuing or subsisting trusts contemplated in section
38 of the Code of Civil Procedure referred only to express unrepudiated
trusts, and did not include constructive trusts (that are imposed by law)
where no fiduciary relation exists and the trustee does not recognize the
trust at all. 13
This principle was amplified in Escay v. Court of Appeals this way: "Express
trusts prescribe 10 years from the repudiation of the trust (Manuel Diaz, et
al. vs. Carmen Gorricho et al., 54 O.G. p. 8429, Sec. 40, Code of Civil
Procedure)." 14
In the more recent case of Secuya v. De Selma, we again ruled that the
prescriptive period for the enforcement of an express trust of ten (10) years
starts upon the repudiation of the trust by the trustee. 15
In the case at bar, Maximo Labanon never repudiated the express trust
instituted between him and Constancio Labanon. And after Maximo
Labanon's death, the trust could no longer be renounced; thus,
respondents' right to enforce the trust agreement can no longer be
restricted nor prejudiced by prescription.
It must be noted that the Assignment of Rights and Ownership and Maximo
Labanon's Sworn Statement were executed after the Homestead Patent
was applied for and eventually granted with the issuance of Homestead
Patent No. 67512 on June 6, 1942. Evidently, it was the intent of Maximo
Labanon to hold the title over the land in his name while recognizing
Constancio Labanon's equitable ownership and actual possession of the
eastern portion of the land covered by OCT No. P-14320. ICHcaD
In addition, petitioners can no longer question the validity of the positive
declaration of Maximo Labanon in the Assignment of Rights and Ownership
in favor of the late Constancio Labanon, as the agreement was not
impugned during the former's lifetime and the recognition of his brother's
rights over the eastern portion of the lot was further affirmed and confirmed
in the subsequent April 25, 1962 Sworn Statement.
Section 31, Rule 130 of the Rules of Court is the repository of the settled
precept that "[w]here one derives title to property from another, the act,
declaration, or omission of the latter, while holding the title, in relation to the
property, is evidence against the former." Thus, petitioners have accepted
the declaration made by their predecessor-in-interest, Maximo Labanon,
that the eastern portion of the land covered by OCT No. P-14320 is owned
and possessed by and rightfully belongs to Constancio Labanon and the
latter's heirs. Petitioners cannot now feign ignorance of such
acknowledgment by their father, Maximo.
Lastly, the heirs of Maximo Labanon are bound to the stipulations embodied
in the Assignment of Rights and Ownership pursuant to Article 1371 of the
Civil Code that contracts take effect between the parties, assigns, and
heirs.
Petitioners as heirs of Maximo cannot disarrow the commitment made by
their father with respect to the subject property since they were merely
subrogated to the rights and obligations of their predecessor-in-interest.
They simply stepped into the shoes of their predecessor and must therefore
recognize the rights of the heirs of Constancio over the eastern portion of
the lot. As the old adage goes, the spring cannot rise higher than its source.
WHEREFORE, the petition is DENIED. The May 8, 2003 CA Decision and
October 13, 2003 Resolution in CA-G.R. CV No. 65617 are AFFIRMED with the
modifications that the Kidapawan City, Cotabato RTC, Branch 17 is
directed to have OCT No. P-14320 segregated and subdivided by the Land
Management Bureau into two (2) lots based on the terms of the February
11, 1955 Assignment of Rights and Ownership executed by Maximo
Labanon and Constancio Labanon; and after approval of the subdivision
plan, to order the Register of Deeds of Kidapawan City, Cotabato to
cancel OCT No. P-14320 and issue one title each to petitioners and
respondents based on the said subdivision plan.
Costs against petitioners. DaAIHC
SO ORDERED.
[G.R. No. 159810. October 9, 2006.]
ESTATE OF EDWARD MILLER GRIMM, represented by RAMON J. QUISUMBING
and RANDY GLEAVE LAWYER, as Judicial Administrators, petitioners, vs.
ESTATE OF CHARLES PARSONS and PATRICK C. PARSONS, G-P AND
COMPANY and MANILA GOLF & COUNTRY CLUB, INC., respondents.
DECISION
GARCIA, J p:
Because legal and situational ambiguities often lead to disagreements
even between or amongst the most agreeable of persons, it behooves all
concerned to put their financial affairs and proprietary interests in order
before they depart for the great beyond. Leaving legal loose ends hanging
or allowing clouds to remain on property titles when one can do something
about them before the proverbial thief in the night suddenly comes calling
only opens the door to bruising legal fights and similar distracting
inconveniences. So it was here.
In this petition for review under Rule 45 of the Rules of Court, the Estate of
Edward Miller Grimm, represented by its judicial administrators, assails and
seeks to set aside the Decision 1 dated September 8, 2003 of the Court of
Appeals (CA) in CA-G.R. CV No. 69990, reversing an earlier decision of the
Regional Trial Court (RTC) of Makati City in its Civil Case No. 92-2452.
At the core of the controversy is a stock certificate of the Manila Golf &
Country Club, Inc. ("MGCC" or the "Club", for short) covered by Membership
Certificate (MC) No. 1088 for 100 units, the playing rights over which the
Rizal Commercial Banking Corporation (RCBC), the court-appointed
receiver, had, in the meantime, leased out. The Club issued MC No. 1088 to
replace MC No. 590. Asserting clashing ownership claims over MC No. 1088,
albeit recorded in the name of Charles Parsons ("Parsons", hereinafter) are
petitioner Estate of Edward Miller Grimm and respondent G-P and
Company ("G-P & Co.", hereinafter).
Parsons and Edward Miller Grimm (Grimm), together with Conrado Y. Simon
(Simon), formed in 1952 a partnership for the stated purpose of engaging in
the import/export and real estate business. Per SEC Certificate #3305, 2 the
partnership was registered under the name G-P and Company.
Before September 1964, Parsons and Grimm each owned proprietary
membership share in MGCC, 3 as evidenced by MC No. 374 for 100 units in
the name of Parsons, and MC No. 590, also for 100 units, in the name of
Grimm. Per records, the Club issued MC No. 590 to Grimm on May 25, 1960.
4
After Grimm's demise on November 27, 1977, Parsons and Simon continued
with the partnership under the same name, G-P and Company, as
reflected in Articles of Partnership dated December 14, 1977. 5 The articles
of the partnership would later undergo another amendment to admit
Parsons' son, Patrick, in the partnership. 6 After Parsons died on May 12,
1988, Amended Articles of Partnership of G-P and Company was executed
139
on September 23, 1988 by and among Parsons' heirs, namely, Patrick,
Michael, Peter and Jose, all surnamed Parsons, albeit the amendment
appeared to have been registered with the SEC only on March 18, 1993. 7
The herein legal dispute started when brothers Patrick and Jose, both
surnamed Parsons, responding to a letter 8 from the Estate of Grimm,
rejected the existence of a trust arrangement between their father and
Grimm involving MC No. 1088. Thus spurned, the Estate of Grimm filed on
August 31, 1992 before the RTC of Makati City, a suit for recovery of MC No.
1088 with damages against the Estate of Parsons, Patrick Parsons and
MGCC. In its complaint, 9 docketed as Civil Case No. 92-2452 and
eventually raffled to Branch 135 of the court, the Estate of Grimm,
represented by its judicial administrator, Ramon J. Quisumbing, alleged,
among other things, the following: IaEHSD
1. That on September 7, 1964, Grimm transferred MC No. 590 in trust to
Parsons; on the same day, MGCC cancelled MC No. 590 and issued MC
No. 1088 in the name of Parsons;
2. That in separate letters dated February 28, 1968 addressed to MGCC,
both Grimm and Parsons stated that the transfer of MC No. 590 was
temporary. Enclosed in that Parsons' letter was MC No. 1088 which he was
turning over for safekeeping to the Club, thru E.C. Von Kauffmann and
Romeo Alhambra, then MGCC honorary secretary and assistant manager,
respectively;
3. That on June 9, 1978, or after Mr. Kauffman' death and Mr. Alhambra's
resignation, MGCC turned over the possession of MC No. 1088 to Parsons;
4. That in 1977, Grimm died; after a protracted proceedings, his estate was
finally settled in 1988, the year Parsons also died; aADSIc
5. That Patrick and Jose Parsons had, when reminded of the trust
arrangement between their late father and Grimm, denied the existence
of a trust over the Club share and refused to return the same; and
6. That MGCC had refused, despite demands, to cancel MC No. 1088 and
issue a new certificate in the name of the Estate of Grimm.
Attached to the complaint were the demand letters and other
communications which, to the Estate of Grimm, document the Grimm-
Parsons trust arrangement.
In his Answer with counterclaim, 10 Patrick Parsons averred that his father
was, with respect to MC No. 1088, a mere trustee of the true owner thereof,
G-P & Co., and alleged, by way of affirmative defense, that the claim set
forth in the complaint is unenforceable, barred inter alia by the dead man's
statute, prescription or had been waived or abandoned.
Herein respondent G-P & Co., echoing Patrick Parsons' allegation
respecting the ownership of MC No. 1088, moved to intervene and to
implead Far East Bank & Trust Co. (FEBTC), as transfer agent of MGCC, as
defendant-in-intervention. Attached to its motion was its COMPLAINT In
Intervention 11 therein alleging (a) that on September 1, 1964, Parsons
executed a Letter of Trust, infra, in which he acknowledged the beneficial
ownership of G-P & Co. over MC No. 374 and MC No. 1088; (b) that Parsons,
as required by the partnership, endorsed both certificates in blank; and (c)
that G-P & Co. carried said certificates amongst its assets in its books of
accounts and financial statements and paid the monthly dues of both
certificates to the Club when its membership privileges were not temporarily
assigned to others. In the same complaint-in-intervention, G-P & Co. cited
certain tax incidents as reasons why the transfer of MC No. 374 and MC No.
1088 from Parsons to the intervenor-partnership cannot as yet be
accomplished. caEIDA
After the usual reply and answer to counterclaims had been filed, the Estate
of Grimm filed an amended complaint to include Randy Gleave Lawyer,
the other judicial co-administrator, as representative of the Estate. On April
28, 1993, the trial court admitted the amended complaint.
After a lengthy trial, the trial court rendered its May 29, 2000 judgment 12
finding for the Estate of Grimm, as plaintiff a quo, disposing as follows:
1. Ordering defendants ESTATE OF CHARLES PARSONS and PATRICK C.
PARSONS:
1.1 to turn over [MC] No. 1088 to plaintiff ESTATE OF EDWARD MILLER GRIMM;
1.2 jointly and severally to pay damages to plaintiff ESTATE . . . in the amount
of P400,000.00 per annum from September 8, 1989 to November 12, 1998,
with legal interest thereon from the date of this Decision until fully paid;
1.3 Jointly and severally, to pay plaintiff ESTATE . . . attorney's fees in the
amount of P1,000,000.00 and the costs;
2. Ordering defendant [MGCC] and defendant-in-intervention [FEBTC] to
cancel [MC] No. 1088 and to issue a new Membership Certificate in lieu
thereof in the name of plaintiff ESTATE . . . .
3. Ordering Receiver RIZAL COMMERCIAL BANKING CORPORATION to turn
over to plaintiff ESTATE . . . all income derived from the lease of the playing
rights of [MC] No. 1088, less Receiver's fees and charges.
4. Ordering the dismissal of the counterclaim of the defendants . . .
[Parsons]; and
5. Ordering the dismissal of the complaint-in-intervention and the
supplemental counterclaim of intervenor G-P AND COMPANY.
SO ORDERED. (Words in bracket added.)
In gist, the trial court predicated its ruling on the postulate that the
temporary transfer of Grimm's original share in MGCC covered by MC
No. 590 whence MC No. 1088 descended to Parsons, created a trust
relationship between the two.
Therefrom, only herein respondents G-P & Co., Patrick Parsons and the
Parsons Estate appealed to the CA, albeit MGCC would, in its brief,
reiterate its readiness to issue the corresponding replacement certificate to
whosoever is finally adjudged owner of MC No. 1088.
On September 8, 2003, in CA-G.R. CV No. 69990, the appellate court
rendered its herein assailed Decision, 13 disposing as follows:
WHEREFORE, the Decision of the lower court dated May 29, 2000 is hereby
REVERSED and SET ASIDE, and another one rendered:
1. Dismissing the complaint filed by . . . Estate of Edward Miller Grimm for
lack of merit; SCEHaD
2. Ordering . . . Manila Golf and Country Club, Inc., and defendant-in-
intervention Far East Bank & Trust Company, as transfer agent, to
immediately effect the reconveyance of [MC] No. 1088 to Intervenor-
appellant G-P and Company;
3. Ordering Rizal Commercial Banking Corporation, as receiver, to
immediately turn over to intervenor-appellant G-P and Company all
income derived from the lease of the playing rights of said Membership
Certificate, less receiver's fees;
4. Ordering [the] . . . Estate of Edward Miller Grimm to pay appellants the
amount of P800,000.00 as attorney's fees;
5. Ordering . . . Estate of Edward Miller Grimm to pay appellants the costs of
suit.
SO ORDERED. (Words in bracket added.)
Hence, this petition for review on the lone submission that the CA erred in
finding that respondent G-P & Co. is the beneficial owner of MC No. 1088.
In their comment to the petition, the respondents urge the outright dismissal
thereof on the ground that it raises only purely factual and evidentiary issues
which are beyond the office of an appeal by certiorari. As argued further,
the factual findings of the CA are conclusive on the parties.
It should be made clear right off that respondent Patrick Parsons, in his
individual capacity, and the Estate of Parsons (collectively, the Parsons) are
not claiming beneficial ownership over MC No. 1088. The same goes for
respondent MGCC which went to state on record that "[T]he ownership of
[MC] No. 1088 (previously No. 590) does not belong to the Club and it does
not stand to gain . . . from the determination of its real owner." 14
We GRANT the petition.
The respondents' formulation of the grounds for the dismissal of the instant
petition is a statement of the general rule. A resolution of the petition would
140
doubtless entail a review of the facts and evidentiary matters against which
the appealed decision is cast, a procedure which is ordinarily outside the
province of the Court and the office of a certiorari review under Rule 45 of
the Rules of Court. For, the rule of long standing is that the Court will not set
aside the factual determinations of the CA lightly nor will it embark in the
evaluation of evidence adduced during trial. This rule, however, admits of
several exceptions. Among these are when the factual conclusions of the
CA are manifestly erroneous; are contrary to those of the trial court; when
the judgment of the CA is based on misapprehension of facts or overlooked
certain relevant facts not disputed by the parties which, if properly
considered, would justify a different conclusion. 15 Decidedly, this case falls
within the recognized exceptions to the rule on the finality of factual
findings or conclusions of the CA. aEAcHI
The principal issue tendered in this case turns on who between petitioner
Estate of Grimm and respondent G.P. & Co. beneficially owns MC No. 1088.
Corollary thereto owing to the presentation by respondents of a LETTER
OF TRUST that Parsons allegedly executed in favor of G-P and Company
with respect to MC No. 1088 is the question of whether or not the transfer
of MC No. 590 effected on September 7, 1964 by Grimm in favor of Parsons
resulted, as the petitioner would have it, in the formation of a trust relation
between the two. Thus formed, the trust relationship would preclude the
trustee from disposing of the trust property, save when repudiation of the
trust had effectively supervened.
The trial court found the September 7, 1964 Grimm-to-Parsons certificate
transfer to be only temporary and without valuable consideration to
accommodate a third person and thus adjudged Grimm to be the real
owner of MC No. 590, as later replaced by MC No. 1088. According to the
trial court, such transfer created a trust, with Parsons, as trustee, and Grimm,
as the beneficial owner of the share thus transferred, adding that Parsons,
as mere trustee, is without right to transfer the replacement certificate to G-
P & Co.
On the other hand, the CA, while eschewing the alternative affirmative
defenses interposed below by respondents, nonetheless ruled for
respondent G-P & Co. Citing Article 1448 of the Civil Code, 16 the appellate
court held that respondent G-P & Co. pertains the beneficial ownership of
MC No. 1088, an implied trust in its favor having been created when MC
No. 590 and MC No. 374 were acquired for and placed in the names of
Grimm and Parsons, respectively, albeit the partnership paid for the price
therefor. To the appellate court, the fact that these certificates were
carried, as of December 31, 1974, November 27, 1977 and December 31,
1978 in the books 17 of G-P & Co. as investment assets only proves one thing:
the company paid the acquisition costs for the membership certificates. If
Grimm was the real owner of said share, he should have, according to the
appellate court, objected to its inclusion in the partnership assets during his
lifetime. Completing its ratiocination, the CA wrote:
. . . . A trust, which derives its strength from the confidence one reposes on
another especially between the partners and the company, does not lose
that character simply because of what appears in a legal document. The
transfer therefore of Grimm's [MC] No. 590 on September 7, 1964 in favor of
Charles Parsons resulted merely in the change of the person of trustee but
not of the beneficial owner, the G-P and Company.
The CA's ruling does not commend itself for acceptance. As it were, the
assailed decision started on the wrong foot and thus had to limp all along
to arrive at a strained and erroneous conclusion. We shall explain. HScCEa
A party in whose favor a legal presumption exists may rely on and invoke
such legal presumption to establish a fact in issue. He need not introduce
evidence to prove that fact. For, a presumption is prima facie proof of the
fact presumed and to the party against whom it operates rests the burden
of overthrowing by substantial and credible evidence the presumption. 18
Under the law on evidence, it is presumed that "there was sufficient
consideration for a contract." 19
Inasmuch as Grimm's name appeared on MC No. 590 as registered owner
thereof, he is deemed to have paid sufficient consideration for it. The onus
of proving otherwise would fall on respondents G-P & Co. and/or the
Parsons. Without so much of an explanation, however, the CA minimized
the value of MC No. 590 as arguably the best evidence of ownership.
Corollarily, the appellate court devalued the rule on legal presumption and
faulted petitioner Estate of Grimm for not presenting evidence to prove that
Grimm paid for his original acquisition of MC No. 590. Wrote the CA:
Contrary to the findings of the lower court, [petitioner] failed to establish [its]
right over the said shares. . . . Not a single evidence of proof of payment for
the said shares was ever presented by the [petitioner] to establish
ownership. (Words in bracket added.) 20
Ironically, while the CA held it against the petitioner for failing to adduce
proof of payment by Grimm for his MC No. 590, it nonetheless proceeded
to declare respondent G-P & Co. to be the beneficial owner of said
certificate even if it, too, had not presented proof for such payment.
Respondent G-P & Co., in its complaint-in-intervention (should have been
answer-in-intervention), did not allege paying for MC No. 590. Surely,
payment cannot be validly deduced, as the CA did, from the bare fact of
such membership certificate being listed in the books of respondent G-P &
Co. as partnership investment assets. For one, the self-serving book entries
in question are, as correctly dismissed by the trial court, not evidentiary of
ownership. Else, anyone can lay a claim, or worse, acquire ownership over
a share of stock by the simple expedience of listing, without more, the same
in the partnership or corporate books. The sheer absurdity of the notion
need no belaboring.
For another, what appears or what respondent company uniformly entered
as investments are: "Manila Golf & Country Club, Inc. 2 shares." No
reference was made whatsoever in the books or financial statements
about MC No. 590, (MC. No. 1088) and MC. No. 374. In the absence of the
number reference or other similar identifying details, the CA's categorical
conclusion that one of the "2 shares" referred to is MC No. 1088 is at best
speculative. This observation becomes all the more valid given that Michael
Parsons had in his name two (2) Club share certificates. Exhibit "X-4," a
September 21, 1964 letter from Parsons to Mr. Kaufmann made specific
reference to Michael's shares:
Under the circumstance, please disregard . . . the previous letter which
Michael wrote in connection with the shares in his name . . . .
In the case of the two shares in the name of Michael, please leave the two
in his name . . . .
As matter now stands, in summary, I shall retain my shares in my name and
continue playing under such shares; Michael will retain two shares . . .
assigning one to Mr. Stoner; and Pete Grimm will assign his playing rights to
Mr. Daikichi Yoshida. 21
And for a significant third, respondent G-P & Co. is not the same G-P & Co.
that Parsons, Grimm and Simon organized in 1952, the former being an
entity that came into existence only on September 23, 1988. It is thus well-
nigh impossible for respondent company to have participated in a
transaction that occurred years before it acquired juridical personality. In
the concrete, it is not physically possible for respondent G-P & Co. to have
paid the price for the purchase of Grimm's MC No. 590, the same having
been acquired in 1960 or some 28 years before the respondent company
was established by the execution of the Articles of Partnership on
September 23, 1988. The trial court depicted the incongruity of the situation
in the following fashion: ScaCEH
Intervenor [respondent G-P & Co.] is not the same partnership originally
formed by Grimm, Parsons and Simon. When Grimm died on November 27,
1977, the original partnership was dissolved. The death of a partner causes
dissolution of a partnership [Article 1829, Civil Code]. A new partnership was
formed with Parsons and Simon as partners. Besides this new partnership
formed after the death of Grimm, there were five (5) others formed [Exhibit
DD, EE, FF, GG, HH and II] carrying the name, G-P and Company. 22 (Words
in bracket in the original)
Independent of the cited Article 1829 of the Civil Code on the matter of
partnership dissolution, however, it bears to state that Parsons and Simon
executed on December 13, 1977 a joint affidavit 23 wherein they declared
the dissolution of the original 3-man G-P & Co., owing to the death of
Grimm. The registration on December 14, 1977 of a new Articles of
Partnership of G-P & Co. followed the execution by Parsons and Simon of
said affidavit. 24
It may be, as respondents rationalize, that the succeeding G-P & Co.
partnerships merely continued with the business started by the original G-P
& Co. 25 This element of continuity, assuming to be true, does not, however,
detract from the fact that the partnerships of the same name formed after
Grimm's demise are entities altogether different and with personalities
distinct from the original partnership.
141
This brings us to the next issue of whether or not the transfer to Parsons of
MC No. 590, as replaced by MC No. 1088, partook of the nature of a trust
transaction.
Trust is the legal relationship between one having an equitable ownership
in property and another person owning the legal title to such property, the
equitable ownership of the former entitling him to the performance of
certain duties and the exercise of certain powers by the latter. 26 Trust
relations between parties may be express, as when the trust is created by
the intention of the trustor. 27 An express trust is created by the direct and
positive acts of the parties, by some writing or deed or by words evidencing
an intention to create a trust; the use of the word trust is not required or
essential to its constitution, it being sufficient that a trust is clearly intended.
28 Implied trust comes into existence by operation of law, either through
implication of an intention to create a trust as a matter of law or through
the imposition of the trust irrespective of, and even contrary to any such
intention. 29
Judging from their documented acts immediately before and subsequent
to the actual transfer on September 7, 1964 of MC No. 590, Parsons, as
transferee, and Grimm, as transferor, indubitably contemplated a trust
arrangement. Consider:
There can be no quibbling, owing to the letter exchanges between the
Club, in particular its Honorary Secretary E.C. Von Kauffman, and Parsons,
that the reason Grimm transferred his MC No. 590 to Parsons was because
of the latter's wish to accommodate one Daikichi Yoshida. Earlier, Parsons
recommended to Club management the approval of Mr. Yoshida's
"Application For Waiting List Eligible To [Club] Proprietary Membership." 30 In
a letter of August 10, 1964 31 to the MGCC's Board of Directors, Parsons
endorsed the application of Yoshida as Club member. While the Club's
response does not appear in its files, it is quite apparent that Parsons
addressed a letter to Kauffman requesting that Yoshida be taken in as a
Company assignee. In his reply-letter 32 of August 29, 1964, Kauffman
explained why he cannot, under Club rules, favorably act on Parsons'
specific request, but suggested a viable solution, as follows:
Reference to your letter dated August 25th, there is a hitch . . . of assigning
the playing rights to Mr. Daikichi Yoshida, as a company assignee.
xxx xxx xxx
The only solution that I see is that you transfer Pete Grimm's 100 units to your
name and leave the other 100 units in your name, then you may assign the
playing rights of one of the certificates for 100 units to Mr. Yoshida. Mr.
Yoshida was approved by the Board but not as a Company assignee.
(Emphasis added.)
Parsons' response to Kauffman's August 29, 1964 letter partly reads as
follows:
Thank you for your letter of the 29th . . . .
Under the circumstances, please disregard the previous letter which I wrote
with reference to Pete Grimm's and my shares . . . .
xxx xxx xxx
As matter now stands, in summary, I shall retain in my name and continue
playing under such shares . . . . And Pete Grimm will assign his playing rights
to Mr. Daikichi Yoshida. CITcSH
The conclusion easily deductible from the foregoing exchanges is that,
given existing Club restrictions, the simplest way to accommodate and
qualify Yoshida for Club membership was for Grimm to transfer his 100-unit
share to Parsons who will then assign the playing rights of that share to
Yoshida. 33 The RTC aptly described the relevant factual situation, viz.:
With these exchanges between Parsons and Kauffman . . ., it is apparent
that since the shares held by Parsons and Grimm are individual shares and
not company shares, their shares may not be assigned . . . . The proposal of
Parsons that "Pete Grimm will assign his playing rights to . . . Yoshida" was
rejected by Kauffman in his letter dated September 5, 1964 [Exhibit X-5/27]
that "Pete Grimm's assignment to him (Yoshida) cannot be made as the
rules are that only members who holds (sic) 200 units may assign 100 units to
an individual." A letter of the same date . . . [Exhibit X-6/28] was sent by
Kauffman to Mr. Yoshida informing him of his election to the Club
apologizing for the delay . . . . Kauffman wrote further ". . . Mr. Charles
Parsons has made arrangement for to play (sic) as assignee of extra
membership which he now holds."
The election of Yoshida as assignee of a proprietary member and the
resignation of Grimm were approved by the Club's Board . . . on August 27,
1964. Kauffman and Parsons were still discussing the ways . . . Mr Yoshida
can be accommodated . . . as of September 5, 1964, but the resignation of
Grimm and election of Yoshida was already approved . . . more than a
week before. 34 (Words in bracket in the original; Underscoring added.)
Even on the above factual perspective alone, it is not difficult to
characterize, as did the trial court, the certificate transfer from Grimm to
Parsons, as temporary, there being no evidence whatsoever that the
transfer was for value. Such transfer was doubtless meant only to
accommodate Yoshida whose stay in the country was obviously
temporary. As it were, Yoshida's application 35 for Club membership
juxtaposed with the August 10, 1964 endorsement-letter 36 of Parsons,
yielded the information that he (Yoshida) is the manager of the Manila
Liaison Office of Mitsubishi Shoji Kaisha desiring to acquire Company
membership in the name of his employer Mitsubishi to enable future
representatives to avail themselves of Club facilities. Since Club
membership did not seem possible at the time, Yoshida had to come in as
an assignee of a proprietary member.
Other compelling evidence attest to the temporary nature of the transfer
in question. The trial court cited two in its Decision. Wrote that court:
Even a witness for the (respondents) intervenor and the Parsons, Celso
Jamias, Chief Accountant of G-P and Company, confirmed that the
transfer of the share to Parsons was temporary. In a letter [Exhibit 7-GG]
dated 10 August 1991 addressed to Atty. Patricia Cecilia B. Bisda, counsel
for G-P and Company, Jamais wrote:
". . . please be informed that the accommodation for Mr. Yoshida to have
playing rights has not bearing on the ownership of the share. The share of .
. . Grimm (EMG) was transferred to Mr. Charles Parsons (CP) to
accommodate Mr. Yoshida due to Manila Golf club requirements.
Atty. Patricia Cecilia B. Bisda . . . echoed the view of Jamias, in a letter
[Exhibit Y] dated 30 August 1991 addressed to . . . (the) then General
Manager of the Club: She wrote:
"Also, we would like to clarify . . . . That the accommodation of Mr. Yoshida
to enjoy the playing rights has no bearing to the ownership of the shares.
The share of Edward Grimm was transferred to Charles Parsons to
accommodate D. Yoshida due to club requirements." 37
Any lingering doubt, however, as to the temporary nature of the Grimm-to-
Parsons transfer should, in our view, be put to rest by what MGCC records-
file contained and the testimony of its former records custodian, Romeo
Alhambra. In his affidavit of May 12, 1989, 38 Alhambra stated that
"[A]ccording to Club records, the transfer of [MC] # 580 was only
temporary, and that Mr. Grimm was and, according to club records, is in
fact the owner of [MC] # 1088" and that after the transfer, "Mr. Charles
Parsons endorsed the share certificate and turned it over to . . . Kauffmann
. . . for safekeeping." Forming parts of the same records were letters both
dated February 28, 1968 the day the share certificate transfer was
effected separately submitted by Grimm and Parsons, to inform MGCC
of the temporary nature of the transfer. In his letter, Grimm stated that MC
No. 1088 "is still my property and I wish it recorded as such in the Club's file."
39 Parsons' letter 40 was just as simple as it was revealing, thus:
Reference to the transfer of [MC] #590 in the name of Mr. E.M. Grimm to
my name, for which I now have the new Certification No. 1088 . . ., please
be advised that this transfer was made on a temporary basis and that said
new certificate is still the property of Mr. E.M. Grimm and I enclose the
certificate duly endorsed by me for safekeeping. DTaAHS
At bottom then, documented events immediately before and after the
February 28, 1968 share certificate conveyance in question veritably
confirm the trust arrangement Parsons had or intended to have with Grimm
and vice versa, vis--vis MC No. 1088. If, as herein respondent G-P & Co.
posits at every turn, Parsons was its trustee, then the latter's act of endorsing
MC No. 1088 in blank and then delivering the same to the Club for
safekeeping instead of directly to the G-P & Co. was without sense.
The trial court correctly described the relationship that was formed
between Grimm and Parsons, and the consequence of such relationship,
as follows:
142
Since the transfer of Grimm's share to Parsons was temporary, a trust was
created with Parsons as the trustee, and Grimm, the beneficial owner of the
share. The duties of trustees have been said, in general terms, to be: "to
protect and preserve the trust property, and to see to it that it is employed
solely for the benefit of the cestui que trust." . . . Parsons as a mere trustee,
it is not within his rights to transfer the share to G-P and Company (sic).
The Court has, to be sure, considered the Letter of Trust 41 dated September
1, 1964 largely because, in respondents' own words, it "provides the answer
to the question of who the real owner of MC #1088 is." 42 In the Letter he
purportedly signed, Parsons declared holding MC No. 374 and MC No. 1088
as "NOMINEE IN TRUST for and in behalf of G-P AND COMPANY . . . or its
nominee." This piece of document is not, however, a winning card for the
respondents. The trial court mentioned two compelling reasons why not,
both reasons bearing on the due execution and genuineness of the
document. Wrote the court:
This "LETTER OF TRUST" was purportedly signed by Parsons on September 1,
1964. But the transfer of [MC] No. 590 was recorded (and MC No. 1088
issued) only on September 7, 1964 in the Club's Proprietary Membership
Card No. 144 [Exhibit 8]. With the testimony of Celso B. Jamias, a long time
employee of G-P and Company, the doubt as to the genuineness of the
signature of Parsons on the "LETTER OF TRUST" was brought to light. Jamias
was cross-examined on the signatures of Parsons on several documents
including the signature of the LETTER OF TRUST":
Q: How about the signature appearing on Exhibit CC-1 . . . ?
A: This is Charles Parsons, sir.
Q: You are familiar with the signature?
A: Yes, sir.
Q: I'm showing you Exhibit I which is a letter of trust dated September 1,
1964, comparing those signatures which you identified above the printed
name C. Parsons there are, two signatures, the signatures you identified
earlier and the one appearing on the letter of trust are similar in the sense
that the "s" of Parsons is elevated and it slopes down, is that correct?
xxx xxx xxx
A: Based on how I see, this doesn't seem to be the signature of Parsons, it
looks like but it is not, sir. [TSN, May 4, 1999, pp 5-6]. (Words in parenthesis
added.)
And lest it be overlooked, Parsons had previously acknowledged Grimm to
be the owner of MC No. 1088, after his earlier repeated declarations that
the transfer of the replaced MC No. 580 was temporary. Parsons was thus
in contextually in estoppel to deny, thru the Letter of Trust aforementioned,
hypothetically assuming its authenticity, Grimm's ownership of the
replacement certificate.
Summing up, the Court finds the evidence adduced and admitted by the
trial court more than adequately supporting a conclusion that MC No. 1088
was issued to and held by Parsons as the trustee thereof of Grimm or his
estate. The fact that respondent G-P & Co. may have paid, starting 1992,
as evidence discloses, the membership fees due on MC No. 1088 does not
make Grimm less of a beneficial owner. Such payment, needless to stress,
is not a mode of acquiring ownership.
Parenthetically, the CA is observed to have said that in the settlement of
the estate of Parsons, MC No. 1088 was not included in the list of stocks
owned by him. And from this inconsequential event, the appellate court
would conclude that the estate administrator recognized Parsons to be a
mere trustee of such certificate. While the decision does quite say so, the
implication is that Parsons was the trustee of G-P & Co. SDcITH
We cannot agree with this non-sequitur approach which, at bottom, clearly
tends to lower the evidentiary bar for respondents. Needless to stress, it is
not for the CA and all courts for that matter to compensate for a burden of
proof not discharged or a quantum of evidence not met.
The Court cannot, for two reasons, also lend cogency to the CA's
observation that the heirs of Grimm may have had waived, abandoned or
denounced their rights to the trust property when, for P100,000.00, they
executed a Deed of Acknowledgment of Satisfaction of Partnership
Interests. 43 Firstly, the deed, as a quitclaim instrument, did not mention any
share certificate at all, which is only logical since MC No. 1088 was not a
partnership asset in the first place. Secondly, the intention to waive a known
right must be clear and unequivocal. In this case, the intent to renounce
beneficial ownership of MC No. 1088 cannot reasonably be drawn from the
tenor of the quitclaim document. For perspective, what the heirs of Grimm
stated in the Deed of Acknowledgment is that the amount of P100,000.00
they received "represents the total liquidation and complete settlement . .
. of the entire partnership interests pertaining to the late Edward Miller
Grimm as partner in G-P AND COMPANY." If, to borrow from Thompson v.
Court of Appeals, 44 we apply the standard norm on how a waiver must be
formulated, then clearly the general terms of the aforementioned deed
merely indicate a clearance from general accountability, not specifically
an abandonment of ownership of the disputed share. For:
. . . . Settled is the rule that a waiver to be valid and effective must, in the
first place, be couched in clear and unequivocal terms which leave no
doubt as to the intention of a party to give up a right or benefit which legally
pertains to him. . . . A waiver may not be attributed to a person when the
terms thereof do not explicitly and clearly evidence an intent to abandon
a right vested in such person. If we apply the standard rule that waiver must
be cast in clear and unequivocal terms, then clearly the general terms of
the cited release and quitclaim indicates merely a clearance from general
accountability, not specifically a waiver of Amcham's beneficial ownership
of the disputed shares. 45
In all, the facts and circumstances attendant militate against the CA's
finding pointing to G-P & Co. as the beneficial owner of MC No. 1088. What
the evidence adduced instead proved beyond cavil is that Grimm or his
estate is such owner. We therefore reverse.
WHEREFORE, the herein assailed decision of the Court of Appeals is
REVERSED and SET ASIDE, and the Decision of the Regional Trial Court of
Makati City in Civil Case No. 92-2452 is REINSTATED.
Costs against the respondents.
SO ORDERED.
[G.R. No. 136021. February 22, 2000.]
BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO SECUYA, CORAZON
SECUYA, RUFINA SECUYA, BERNARDINO SECUYA, NATIVIDAD SECUYA
GLICERIA SECUYA and PURITA SECUYA, petitioners, vs. GERARDA M. VDA. DE
SELMA, respondent.
PANGANIBAN, J p:
In an action for quieting of title, the plaintiffs must show not only that there
is a cloud or contrary interest over the subject real property, but that they
have a valid title to it. In the present case, the action must fail, because
petitioners failed to show the requisite title. LLphil
The Case
Before us is a Petition for Review seeking to set aside the July 30, 1998
Decision of the Court of Appeals (CA) in CA-G.R. CV No. 38580, 1 which
affirmed the judgment 2 of the Regional Trial Court (RTC) of Cebu City. The
CA ruled:
"WHEREFORE, [there being] no error in the appealed decision, the same is
hereby AFFIRMED in toto." 3
The decretal portion of the trial court Decision reads as follows:
"WHEREFORE, in view of all the foregoing [evidence] and considerations,
this court hereby finds the preponderance of evidence to be in favor of the
defendant Gerarda Selma as judgment is rendered:
"1. Dismissing this Complaint for Quieting of Title, Cancellation of Certificate
of Title of Gerarda vda. de Selma and damages;
"2. Ordering the plaintiffs to vacate the premises in question and turn over
the possession of the same to the defendant Gerarda Selma;
"3. Requiring the plaintiffs to pay defendant the sum of P20,000 as moral
damages, according to Art. 2217, attorney's fees of P15,000.00, litigation
expenses of P5,000.00 pursuant to Art. 2208 No. 11 and to pay the costs of
this suit.
SO ORDERED". 4
143

Likewise challenge is the October 14, 1998 CA Resolution which denied
petitioner's Motion for Reconsideration. 5
The Facts
The present Petition is rooted in an action for quieting of title filed before the
RTC by Benigna, Miguel, Marcelino, Corazon, Rufina, Bernardino, Natividad,
Gliceria and Purita all surnamed Secuya against Gerarda M. vda. de
Selma. Petitioners asserted ownership over the disputed parcel of land,
alleging the following facts:
"xxx xxx xxx
"8. The parcel of land subject of this case is a PORTION of Lot 5679 of the
Talisay-Minglanilla Friar Lands Estate, referred to and covered [o]n Page
279, Friar Lands Sale Certificate Register of the Bureau of Lands (Exh. "K").
The property was originally sold, and the covering patent issued, to Maxima
Caballero Vda. de Cario (Exhs. "K-1"; "K-2). Lot 5679 has an area of 12,750
square meters, more or less;
"9. During the lifetime of Maxima Caballero, vendee and patentee of Lot
5679, she entered into that AGREEMENT OF PARTITION dated January 5,
1938 with Paciencia Sabellona, whereby the former bound herself and
parted [with] one-third (1/3) portion of Lot 5679 in favor of the latter (Exh.
"D"). Among others, it was stipulated in said agreement of partition that the
said portion of one-third so ceded will be located adjoining the municipal
road (par. 5, Exh. "D");
"10. Pacencia Sabellona took possession and occupation of that one-third
portion of Lot 5679 adjudicated to her. Later, she sold the three thousand
square meter portion thereof to Dalmacio Secuya on October 20, 1953, for
a consideration of ONE THOUSAND EIGHT HUNDRED FIFTY PESOS (P1,850.00),
by means of a private document which was lost (p. 8, tsn., 8/8/89-Calzada).
Such sale was admitted and confirmed by Ramon Sabellona, only heir of
Paciencia Sabellona, per that instrument denominated CONFIRMATION OF
SALE OF UNDIVIDED SHARES, dated September 28, 1976 (Exh. "B");
"11. Ramon Sabellona was the only [or] sole voluntary heir of Paciencia
Sabellona, per that KATAPUSAN NGA KABUT-ON UG PANUGON Nl
PACIENCIA SABELLONA (Last Will and Testament of Paciencia Sabellona),
dated July 9, 1954, executed and acknowledged before Notary Public
Teodoro P. Villarmina (Exh. "C"). Pursuant to such will, Ramon Sabellona
inherited all the properties left by Paciencia Sabellona;
"12. After the purchase [by] Dalmacio Secuya, predecessor-in-interest of
plaintiffs, of the property in litigation on October 20, 1953, Dalmacio,
together with his brothers and sisters he being single took physical
possession of the land and cultivated the same. In 1967, Edilberto Superales
married Rufina Secuya, niece of Dalmacio Secuya. With the permission and
tolerance of the Secuyas, Edilberto Superales constructed his house on the
lot in question in January 1974 and lived thereon continuously up to the
present (p. 8., tsn. 7/25/88 Daclan). Said house is inside Lot 5679-C-12-B,
along lines 18-19-20 of said lot, per Certification dated August 10, 1985, by
Geodetic Engineer Celestino R. Orozco (Exh. "F");
"13. Dalmacio Secuya died on November 20, 1961. Thus his heirs brothers,
sisters, nephews and nieces are the plaintiffs in Civil Case No. CEB-4247
and now the petitioners;
"14. In 1972, defendant-respondent Gerarda Selma bought a 1,000 square-
meter portion of Lot 5679, evidenced by "Exhibit "P". Then on February 19,
1975, she bought the bigger bulk of Lot 5679, consisting of 9,302 square
meters, evidenced by that deed of absolute sale, marked as Exhibit "5". The
land in question, a 3,000-square meter portion of Lot 5679, is embraced and
included within the boundary of the later acquisition by respondent Selma;
"15. Defendant-respondent Gerarda Selma lodged a complaint, and had
the plaintiffs-petitioners summoned, before the Barangay Captain of the
place, and in the confrontation and conciliation proceedings at the
Lupong Tagapayapa, defendant-respondent Selma was asserting
ownership over the land inherited by plaintiffs-petitioners from Dalmacio
Secuya of which they had long been in possession . . . in concept of owner.
Such claim of defendant-respondent Selma is a cloud on the title of
plaintiffs-petitioners, hence, their complaint (Annex "C")." 6
Respondent Selma's version of the facts, on the other hand, was
summarized by the appellate court as follows:
"She is the registered owner of Lot 5679-C-120 consisting of 9,302 square
meters as evidenced by TCT No. T-35678 (Exhibit "6", Record, p. 324), having
bought the same sometime in February 1975 from Cesaria Caballero as
evidenced by a notarized Deed of Sale (Exhibit "5", Record, p. 323) and
ha[ve] been in possession of the same since then. Cesaria Caballero was
the widow of Silvestre Aro, registered owner of the mother lot, Lot No. 5679
with an area of 12,750 square meters of the Talisay-Minglanilla Friar Lands
Estate, as shown by Transfer Certificate of Title No. 4752 (Exhibit 10", Record,
p. 340). Upon Silvestre Aro's demise, his heirs executed an Extrajudicial
Partition and Deed of Absolute Sale" (Exhibit "11", Record, p. 341) wherein
one-half plus one-fifth of Lot No. 5679 was adjudicated to the widow,
Cesaria Caballero, from whom defendant-appellee derives her title." 7
The CA Ruling
In affirming the trial court's ruling, the appellate court debunked petitioners'
claim of ownership of the land and upheld Respondent Selma's title thereto.
It held that respondent's title can be traced to a valid TCT. On the other
hand, it ruled that petitioners anchor their claim on an "Agreement of
Partition" which is void for being violative of the Public Land Act. The CA
noted that the said law prohibited the alienation or encumbrance of land
acquired under a free patent or homestead patent, for a period of five
years from the issuance of the said patent.
Hence, this Petition. 8
The Issues
In their Memorandum, petitioners urge the Court to resolve the following
questions: dctai
"1. Whether, or not there was a valid transfer or conveyance of one-third
(1/3) portion of Lot 5679 by Maxima Caballero in favor of Paciencia
Sabellona, by virtue of [the] Agreement of Partition dated January 5, 1938[;]
and
"2. Whether or not the trial court, as well as the appellate court, committed
grave abuse of discretion amounting to lack of jurisdiction in not making a
finding that respondent Gerarda M. vda. de Selma [was] a buyer in bad
faith with respect to the land, which is a portion of Lot 5679." 9
For a clearer understanding of the above matters, we will divide the issues
into three: first, the implications of the Agreement of Partition; second, the
validity of the Deed of Confirmation of Sale executed in favor of the
petitioners; and third, the validity of private respondent's title.
The Court's Ruling
The Petition fails to show any reversible error in the assailed Decision.
Preliminary Matter:
The Action for Quieting of Title
In an action to quiet title, the plaintiffs or complainants must demonstrate a
legal or an equitable title to, or an interest in, the subject real property. 10
Likewise, they must show that the deed, claim, encumbrance or
proceeding that purportedly casts a cloud on their title is in fact invalid or
inoperative despite its prima facie appearance of validity or legal efficacy.
11 This point is clear from Article 476 of the Civil Code, which reads:
"Whenever there is cloud on title to real property or any interest therein, by
reason of any instrument, record, claim, encumbrance or proceeding
which is apparently valid or effective but is in truth and in fact invalid,
ineffective, voidable or unenforceable, and may be prejudicial to said title,
an action may be brought to remove such cloud or to quiet title."
"An action may also be brought to prevent a cloud from being cast upon
title to real property or any interest therein."
In the case at bar, petitioners allege that TCT No. 5679-C-120, issued in the
name of Private Respondent Selma, is a cloud on their title as owners and
possessors of the subject property, which is a 3,000 square-meter portion
of Lot No. 5679-C-120 covered by the TCT. But the underlying question is, do
petitioners have the requisite title that would enable them to avail
themselves of the remedy of quieting of title?
Petitioners anchor their claim of ownership on two documents: the
Agreement of Partition executed by Maxima Caballero and Paciencia
Sabellona and the Deed of Confirmation of Sale executed by Ramon
Sabellona. We will now examine these two documents.
First Issue:
The Real Nature of the "Agreement of Partition"
144
The duly notarized Agreement of Partition dated January 5, 1938, is worded
as follows:
"AGREEMENT OF PARTITION
"I, MAXIMA CABALLERO, Filipina, of legal age, married to Rafael Cario, now
residing and with postal address in the Municipality of Dumaguete, Oriental
Negros, depose the following and say:
"1. That I am the applicant of vacant lot No. 5679 of the Talisay-Minglanilla
Estate and the said application has already been indorsed by the District
Land Officer, Talisay, Cebu, for private sale in my favor;
"2. That the said Lot 5679 was formerly registered in the name of Felix Abad
y Caballero and the sale certificate of which has already been cancelled
by the Hon. Secretary of Agriculture and Commerce;
"3. That for and in representation of my brother, Luis Caballero, who is now
the actual occupant of said lot I deem it wise to have said lot paid by me,
as Luis Caballero has no means o[r] any way to pay the government;
"4. That as soon as the application is approved by the Director of Lands,
Manila, in my favor, I hereby bind myself to transfer the one-third (1/3)
portion of the above mentioned lot in favor of my aunt, Paciencia
Sabellona y Caballero, of legal age, single, residing and with postal address
in Tungkop, Minglanilla, Cebu. Said portion of one-third (1/3) will be
subdivided after the approval of said application and the same will be paid
by her to the government [for] the corresponding portion;
"5. That the said portion of one-third (1/3) will be located adjoining the
municipal road;
"6. I, Paciencia Sabellona y Caballero, hereby accept and take the portion
herein adjudicated to me by Mrs. Maxima Caballero of Lot No. 5679 Talisay-
Minglanilla Estate and will pay the corresponding portion to the
government after the subdivision of the same;
"IN WITNESS WHEREOF, we have hereunto set our hands this 5th day of
January, 1988, at Talisay, Cebu." 12
The Agreement: An Express Trust,
Not a Partition
Notwithstanding its purported nomenclature, this Agreement is not one of
partition, because there was no property to partition and the parties were
not co-owners. Rather, it is in the nature of a trust agreement.
Trust is the right to the beneficial enjoyment of property, the legal title to
which is vested in another. It is a fiduciary relationship that obliges the
trustee to deal with the property for the benefit of the beneficiary. 13 Trust
relations between parties may either be express or implied. An express trust
is created by the intention of the trustor or of the parties. An implied trust
comes into being by operation of law. 14
The present Agreement of Partition involves an express trust. Under Article
1444 of the Civil Code, "[n]o particular words are required for the creation
of an express trust, it being sufficient that a trust is clearly intended." That
Maxima Caballero bound herself to give one third of Lot No. 5629 to
Paciencia Sabellona upon the approval of the former's application is clear
from the terms of the Agreement. Likewise, it is evident that Paciencia
acquiesced to the covenant and is thus bound to fulfill her obligation
therein.
As a result of the Agreement, Maxima Caballero held the portion specified
therein as belonging to Paciencia Sabellona when the application was
eventually approved and a sale certificate was issued in her name. 15 Thus,
she should have transferred the same to the latter, but she never did so
during her lifetime. Instead, her heirs sold the entire Lot No. 5679 to Silvestre
Aro in 1955.
From 1954 when the sale certificate was issued until 1985 when petitioners
filed their Complaint, Paciencia and her successors-in-interest did not do
anything to enforce their proprietary rights over the disputed property or to
consolidate their ownership over the same. In fact, they did not even
register the said Agreement with the Registry of Property or pay the requisite
land taxes. While petitioners had been doing nothing, the disputed
property, as part of Lot No. 5679, had been the subject of several sales
transactions 16 and covered by several transfer certificates of title.
The Repudiation of the Express Trust
While no time limit is imposed for the enforcement of rights under express
trusts, 17 prescription may, however, bar a beneficiary's action for recovery,
if a repudiation of the trust is proven by clear and convincing evidence and
made known to the beneficiary. 18
There was a repudiation of the express trust when the heirs of Maxima
Caballero failed to deliver or transfer the property to Paciencia Sabellona,
and instead sold the same to a third person not privy to the Agreement. In
the memorandum of incumbrances of TCT No. 3087, 19 issued in the name
of Maxima, there was no notation of the Agreement between her and
Paciencia. Equally important, the Agreement was not registered; thus, it
could not bind third persons. Neither was there any allegation that Silvestre
Aro, who purchased the property from Maxima's heirs, knew of it.
Consequently, the subsequent sales transactions involving the land in
dispute and the titles covering it must be upheld, in the absence of proof
that the said transactions were fraudulent and irregular. LLphil
Second Issue:
The Purported Sale to Dalmacio Secuya
Even granting that the express trust subsists, petitioners have not proven that
they are the rightful successors-in-interest of Paciencia Sabellona.
The Absence of the Purported Deed of Sale
Petitioners insist that Paciencia sold the disputed property to Dalmacio
Secuya on October 20, 1953, and that the sale was embodied in a private
document. However, such document, which would have been the best
evidence of the transaction, was never presented in court, allegedly
because it had been lost. While a sale of a piece of land appearing in a
private deed is binding between the parties, it cannot be considered
binding on third persons, if it is not embodied in a public instrument and
recorded in the Registry of Property. 20
Moreover, while petitioners could not present the purported deed
evidencing the transaction between Paciencia Sabellona and Dalmacio
Secuya, petitioners' immediate predecessor-in-interest, private respondent
in contrast has the necessary documents to support her claim to the
disputed property.
The Questionable Value of the Deed
Executed Ramon Sabellona
To prove the alleged sale of the disputed property to Dalmacio, petitioners
instead presented the testimony of Miguel Secuya, one of the petitioners;
and a Deed 21 confirming the sale executed by Ramon Sabellona,
Paciencia's alleged heir. The testimony of Miguel was a bare assertion that
the sale had indeed taken place and that the document evidencing it had
been destroyed. While the Deed executed by Ramon ratified the
transaction, its probative value is doubtful. His status as heir of Paciencia
was not affirmatively established. Moreover, he was not presented in court
and was thus not quizzed on his knowledge or lack thereof of the 1953
transaction.
Petitioners' Failure to Exercise Owner's
Rights to the Property
Petitioners insist that they had been occupying the disputed property for
forty-seven years before they filed their Complaint for quieting of title.
However, there is no proof that they had exercised their rights and duties as
owners of the same. They argue that they had been gathering the fruits of
such property; yet, it would seem that they had been remiss in their duty to
pay land taxes. If petitioners really believed that they owned the property,
they should have been more vigilant in protecting their rights thereto. As
noted earlier, they did nothing to enforce whatever proprietary rights they
had over the disputed parcel of land.
Third Issue:
The Validity of Private Respondent's Title
Petitioners debunk Private Respondent Selma's title to the disputed
property, alleging that she was aware of their possession of the disputed
properties. Thus, they insist that she could not be regarded as a purchaser
in good faith who is entitled to the protection of the Torrens system.
Indeed, a party who has actual knowledge of facts and circumstances that
would move a reasonably cautious man to make an inquiry will not be
protected by the Torrens system. In Sandoval v. Court of Appeals, 22 we
held:
"It is settled doctrine that one who deals with property registered under the
Torrens system need not go beyond the same, but only has to rely on the
title.
145
"The aforesaid principle admits of an unchallenged exception: that a
person dealing with registered land has a right to rely on the Torrens
certificate of title and to dispense without the need of inquiring further
except when the party has actual knowledge of facts and circumstances
that would impel a reasonably cautious man to make such inquiry or when
the purchaser has knowledge of a defect or the lack of title in his vendor or
of sufficient facts to induce a reasonably prudent man to inquire into the
status of title of the property in litigation. The presence of anything which
excites or arouses suspicion should then prompt the vendee to look beyond
the certificate and investigate the title of the vendor appearing on the face
of the certificate. One who falls within the exception can neither be
denominated an innocent purchaser for value nor a purchaser in good
faith; and hence does not merit the protection of the law."

Granting arguendo that private respondent knew that petitioners, through

Superales and his family, were actually occupying the disputed lot, we must
stress that the vendor, Cesaria Caballero, assured her that petitioners were
just tenants on the said lot. Private respondent cannot be faulted for
believing this representation, considering that petitioners' claim was not
noted in the certificate of the title covering Lot No. 5679.

Moreover, the lot, including the disputed portion, had been the subject of
several sales transactions. The title thereto had been transferred several
times, without any protestation or complaint from the petitioners. In any
case, private respondent's title is amply supported by clear evidence, while
petitioners' claim is barren of proof.

Clearly, petitioners do not have the requisite title to pursue an action for
quieting of title.

WHEREFORE, the Petition is hereby DENIED and the assailed Decision

AFFIRMED. Costs against petitioners.

SO ORDERED.

146
Article 1447
[G.R. No. 165696. April 30, 2008.]
ALEJANDRO B. TY, petitioner, vs. SYLVIA S. TY, in her capacity as
Administratrix of the Intestate Estate of Alexander Ty, respondent.
DECISION
AZCUNA, J p:
This is a petition for review on certiorari under Rule 45 of the Rules of Court
against the Decision 1 of the Court of Appeals (CA) in CA-G.R. No. 66053
dated July 27, 2004 and the Resolution therein dated October 18, 2004.
The facts are stated in the CA Decision:
On May 19, 1988, Alexander Ty, son of Alejandro B. Ty and Bella Torres, died
of cancer at the age of 34. He was survived by his wife, Sylvia Ty, and his
only daughter, Krizia Katrina Ty. A few months after his death, a petition for
the settlement of his intestate estate was filed by Sylvia Ty in the Regional
Trial Court of Quezon City.
Meanwhile, on July 20, 1989, upon petition of Sylvia Ty, as Administratrix, for
settlement and distribution of the intestate estate of Alexander in the
County of Los Angeles, the Superior Court of California ordered the
distribution of the Hollywood condominium unit, the Montebello lot, and the
1986 Toyota pick-up truck to Sylvia Ty and Krizia Katrina Ty.
On November 23, 1990, Sylvia Ty submitted to the intestate Court in Quezon
City an inventory of the assets of Alexander's estate, consisting of shares of
stocks and a schedule of real estate properties, which included the
following:
1. EDSA Property a parcel of land with an area of 1,728 square meters
situated in EDSA, Greenhills, Mandaluyong, Metro Manila, registered in the
name of Alexander Ty when he was still single, and covered by TCT No.
0006585;
2. Meridien Condominium A residential condominium with an area of
167.5 square meters situated in 29 Annapolis Street, Greenhills,
Mandaluyong, Metro Manila, registered in the name of the spouses
Alexander Ty and Sylvia Ty, and covered by Condominium Certificate of
Title No. 3395;
3. Wack-Wack Property A residential land with an area of 1,584 square
meters situated in Notre Dame, Wack-Wack, Mandaluyong, Metro Manila,
registered in the name of the spouses Alexander Ty and Sylvia Ty, and
covered by TCT No. 62670.
On November 4, 1992, Sylvia Ty asked the intestate Court to sell or mortgage
the properties of the estate in order to pay the additional estate tax of
P4,714,560.02 assessed by the BIR.
Apparently, this action did not sit well with her father-in-law, the plaintiff-
appellee, for on December 16, 1992, Alejandro Ty, father of the deceased
Alexander Ty, filed a complaint for recovery of properties with prayer for
preliminary injunction and/or temporary restraining order. Docketed as Civil
Case No. 62714, of the Regional Trial Court of Pasig, Branch 166, the
complaint named Sylvia Ty as defendant in her capacity as [Administratrix]
of the Intestate Estate of Alexander Ty.
Forthwith, on December 28, 1992, defendant Sylvia Ty, as Administratrix of
the Intestate Estate of Alexander Ty, tendered her opposition to the
application for preliminary injunction. She claimed that plaintiff Alejandro
Ty had no actual or existing right, which entitles him to the writ of preliminary
injunction, for the reason that no express trust concerning an immovable
may be proved by parol evidence under the law. In addition, Sylvia Ty
argued that the claim is barred by laches, and more than that, that
irreparable injury will be suffered by the estate of Alexander Ty should the
injunction be issued.
To the aforementioned opposition, plaintiff filed a reply, reiterating the
arguments set forth in his complaint, and denying that his cause of action
is barred by laches.
In an order dated February 26, 1993, the Regional Trial Court granted the
application for a writ of preliminary injunction.
As to the complaint for recovery of properties, it is asserted by plaintiff
Alejandro Ty that he owns the EDSA property, as well as the Meridien
Condominium, and the Wack-Wack property, which were included in the
inventory of the estate of Alexander Ty. Plaintiff alleged that on March 17,
1976, he bought the EDSA property from a certain Purificacion Z. Yujuico;
and that he registered the said property in the name of his son, Alexander
Ty, who was to hold said property in trust for his brothers and sisters in the
event of his (plaintiffs) sudden demise. Plaintiff further alleged that at the
time the EDSA property was purchased, his son and name-sake was still
studying in the United States, and was financially dependent on him.
As to the two other properties, plaintiff averred that he bought the Meridien
Condominium sometime in 1985 and the Wack-Wack property sometime in
1987; that titles to the aforementioned properties were also placed in the
name of his son, Alexander Ty, who was also to hold these properties in trust
for his brothers and sisters. Plaintiff asserted that at [the] time the subject
properties were purchased, Alexander Ty and Sylvia Ty were earning
minimal income, and were thus financially incapable of purchasing said
properties. To bolster his claim, plaintiff presented the income tax returns of
Alexander from 1980-1984, and the profit and loss statement of defendant's
Joji San General Merchandising from 1981-1984.
Plaintiff added that defendant acted in bad faith in including the subject
properties in the inventory of Alexander Ty's estate, for she was well aware
that Alexander was simply holding the said properties in trust for his siblings.
In her answer, defendant denied that the subject properties were held in
trust by Alexander Ty for his siblings. She contended that, contrary to
plaintiff's allegations, Alexander purchased the EDSA property with his own
money; that Alexander was financially capable of purchasing the EDSA
property as he had been managing the family corporations ever since he
was 18 years old, aside from the fact that he was personally into the business
of importing luxury cars. As to the Meridien Condominium and Wack-Wack
property, defendant likewise argued that she and Alexander Ty, having
been engaged in various profitable business endeavors, they had the
financial capacity to acquire said properties.
By way of affirmative defenses, defendant asserted that the alleged verbal
trust agreement over the subject properties between the plaintiff and
Alexander Ty is not enforceable under the Statute of Frauds; that plaintiff is
barred from proving the alleged verbal trust under the Dead Man's Statute;
that the claim is also barred by laches; that defendant's title over the
subject properties cannot be the subject of a collateral attack; and that
plaintiff and counsel are engaged in forum-shopping.
In her counterclaim, defendant prayed that plaintiff be sentenced to pay
attorney's fees and costs of litigation.
On November 9, 1993, a motion for leave to intervene, and a complaint-in-
intervention were filed by Angelina Piguing-Ty, legal wife of plaintiff
Alejandro Ty. In this motion, plaintiff-intervenor prayed that she be allowed
to intervene on the ground that the subject properties were acquired
during the subsistence of her marriage with the plaintiff, hence said
properties are conjugal. On April 27, 1994, the trial court issued an Order
granting the aforementioned motion.
During the hearing, plaintiff presented in evidence the petition filed by
defendant in Special Proceedings No. Q-88-648; the income tax returns and
confirmation receipts of Alexander Ty from 1980-1984; the profit and loss
statement of defendant's Joji San General Merchandising from 1981-1984;
the deed of sale of the EDSA property dated March 17, 1976; the TCT's and
CCT of the subject properties; petty cash vouchers, official receipts and
checks to show the plaintiff paid for the security and renovation expenses
of both the Meridien Condominium and the Wack-Wack property; checks
issued by plaintiff to defendant between June 1988 November 1991 to
show that plaintiff provided financial support to defendant in the amount
of P51,000.00; and the articles of incorporations of various corporations, to
prove that he, plaintiff, had put up several corporations.
Defendant for her presented in evidence the petition dated September 6,
1988 in Special Proceedings No. Q-88-648; the TCTs and CCT of the subject
properties; the deed of sale of stock dated July 27, 1988 between the ABT
Enterprises, Incorporated, and plaintiff; the transcript of stenographic notes
dated January 5, 1993 in SEC Case No. 4361; the minutes of the meetings,
and the articles of incorporation of various corporations; the construction
agreement between the defendant and the Home Construction, for the
renovation of the Wack-Wack property; the letters of Home Construction to
defendant requesting for payment of billings and official receipts of the
same, to show that defendant paid for the renovation of the Wack-Wack
property; the agreement between Drago Daic Development International,
Incorporated, and the spouses Alexander Ty and Sylvia Ty, dated March,
1987, for the sale of the Wack-Wack property covered by TCT No. 55206 in
favor of the late Alexander Ty and the defendant; a photograph of Krizia S.
Ty; business cards of Alexander Ty; the Order and the Decree No. 10 of the
Superior Court of California, dated July 20, 1989; the agreement between
Gerry L. Contreras and the Spouses Alexander Ty and Sylvia Ty, dated
January 26, 1988, for the Architectural Finishing and Interior Design of the
Wack-Wack property; official receipts of the Gercon Enterprises; obituaries
147
published in several newspapers; and a letter addressed to Drago Daic
dated February 10, 1987.
Furthermore, the following findings of facts of the court a quo, the Regional
Trial Court of Pasig City, Branch 166 (RTC), in Civil Case No. 62714, were
adopted by the CA, thus:
We adopt the findings of the trial court in respect to the testimonies of the
witnesses who testified in this case, thus:
"The gist of the testimony of defendant as adverse witness for the plaintiff:
"Defendant and Alexander met in Los Angeles, USA in 1975. Alexander was
then only 22 years old. They married in 1981. Alexander was born in 1954.
He finished high school at the St. Stephen High School in 1973. Immediately
after his graduation from high school, Alexander went to the USA to study.
He was a full-time student at the Woodberry College where he took up a
business administration course. Alexander graduated from the said college
in 1977. He came back to the Philippines and started working in the Union
Ajinomoto, Apha Electronics Marketing Corporation and ABT Enterprises.
After their marriage in 1981, Alexander and defendant lived with plaintiff at
the latter's residence at 118 Scout Alcaraz St.[,] Quezon City. Plaintiff has
been engaged in manufacturing and trading business for almost 50 years.
Plaintiff has established several corporations. While in the USA, Alexander
stayed in his own house in Montebello, California, which he acquired during
his college days. Alexander was a stockholder of companies owned by
plaintiff's family and got yearly dividend therefrom. Alexander was an
officer in the said companies and obtained benefits and bonuses
therefrom. As stockholder of Ajinomoto, Royal Porcelain, Cartier and other
companies, he obtained stock dividends. Alexander engaged in buy and
sell of cars. Defendant cannot give the exact amount how much Alexander
was getting from the corporation since 1981. In 1981, defendant engaged
in retail merchandising i.e., imported jewelry and clothes. Defendant leased
two (2) units at the Greenhills Shoppesville. Defendant had dividends from
the family business which is real estate and from another corporation which
is Perway. During their marriage, defendant never received allowance from
Alexander. The Wack-Wack property cost P5.5 million. A Car Care Center
was established by Alexander and defendant was one of the stockholders.
Defendant and Alexander spent for the improvement of the Wack-Wack
property. Defendant and Alexander did not live in the condominium unit
because they followed the Chinese tradition and lived with plaintiff up to
the death of Alexander. Defendant and Alexander started putting
improvements in the Wack-Wack property in 1988, or a few months before
Alexander died.
"The gist of the testimony of Conchita Sarmiento:
"In 1966, Conchita Sarmiento was employed in the Union Chemicals as
secretary of plaintiff who was the president. Sarmiento prepared the checks
for the school expenses and allowances of plaintiff's children and their
spouses. Sarmiento is familiar with the Wack-Wack property. Plaintiff bought
the Wack-Wack property and paid the architect and spent for the
materials and labor in connection with the construction of the Wack-Wack
property (Exhs. 'M' to 'Z' inclusive; Exhs. 'AA' to 'ZZ', inclusive; Exhs. 'AAA' to
'ZZZ', inclusive; Exhs. 'AAAA' to 'FFFF', inclusive). Plaintiff entrusted to
Alexander the supervision of the construction of the Wack-Wack property,
so that Exhibit 'M' shows that the payment was received from Alexander.
Plaintiff visited the Wack-Wack property several times and even pointed the
room which he intended to occupy. Sarmiento was told by plaintiff that it
was very expensive to maintain the house. The documents, referring to the
numerous exhibits, were in the possession of plaintiff because they were
forwarded to him for payment. Sarmiento knows the residential
condominium unit because in 1987 plaintiff purchased the materials and
equipments for its renovation, as shown by Exhs. 'GGGG' to 'QQQQ'
inclusive. Plaintiff supported defendant after the death of Alexander, as
shown by Exhs. 'RRRR' to 'TTTT' inclusive. Sarmiento was plaintiff's secretary
and assisted him in his official and personal affairs. Sarmiento knew that
Alexander was receiving a monthly allowance in the amount of P5,000.00
from Alpha.
"The gist of the testimony of the plaintiff:
Plaintiff is 77 years old and has been engaged in business for about 50 years.
Plaintiff established several trading companies and manufacturing firms.
The articles of incorporation of the companies are shown in Exhs. 'UUUUU'
(Manila Paper Mills, Inc.); 'UUUUU-1' (Union Chemicals, Inc.); 'UUUUU-2'
(Starlight Industrial Company Inc.); 'UUUUU-3' (Hitachi Union, Inc.); 'UUUUU-4'
(Philippine Crystal Manufacturing Corp.). Alexander completed his
elementary education in 1969 at the age of 15 years and finished high
school education in 1973. Alexander left in 1973 for the USA to study in the
Woodberry College in Los Angeles. Alexander returned to the Philippines in
1977. When Alexander was 18 years old, he was still in high school, a full-
time student. Alexander did not participate in the business operation. While
in High School Alexander, during his free time attended to his hobby about
cars Mustang, Thunderbird and Corvette. Alexander was not employed.
Plaintiff took care of Alexander's financial needs. Alexander was plaintiff's
trusted son because he lived with him from childhood until his death. In 1977
when Alexander returned to the Philippines from the USA, he did not seek
employment. Alexander relied on plaintiff for support. After Alexander
married defendant, he put up a Beer Garden and a Car Care Center.
Plaintiff provided the capital. The Beer Garden did not make money and
was closed after Alexander's death. Defendant and Alexander lived with
plaintiff in Quezon City and he spent for their needs. Plaintiff purchased with
his own money the subject properties. The EDSA property was for investment
purposes. When plaintiff accompanied Alexander to the USA in 1973, he
told Alexander that he will buy some properties in Alexander's name, so that
if something happens to him, Alexander will distribute the proceeds to his
siblings. When the EDSA property was bought, Alexander was in the USA.
Plaintiff paid the real estate taxes. With plaintiff's permission, Alexander put
up his Beer Garden and Car Care Center in the EDSA property. It was
Alexander who encouraged plaintiff to buy the condominium unit because
Alexander knew the developer. The condominium unit was also for
investment purposes. Plaintiff gave Alexander the money to buy the
condominium unit. After sometime, Alexander and defendant asked
plaintiff's permission for them to occupy the condominium unit. Plaintiff
spent for the renovation of the condominium unit. It was Alexander who
encouraged plaintiff to buy the Wack-Wack property. Plaintiff spent for the
renovation of the condominium unit. It was Alexander who encouraged
plaintiff to buy the Wack-Wack property. Plaintiff paid the price and the
realty taxes. Plaintiff spent for the completion of the unfinished house on the
Wack-Wack property. Plaintiff bought the Wack-Wack property because
he intended to transfer his residence from Quezon City to Mandaluyong.
During the construction of the house on the Wack-Wack property plaintiff
together with Conchita Sarmiento, used to go to the site. Plaintiff even told
Sarmiento the room which he wanted to occupy. Alexander and
defendant were not in a financial position to buy the subject properties
because Alexander was receiving only minimal allowance and defendant
was only earning some money from her small stall in Greenhills. Plaintiff paid
for defendant's and Alexander income taxes (Exhs. 'B', 'C', 'D', 'E', and 'F').
Plaintiff kept the Income Tax Returns of defendant and Alexander in his files.
It was one of plaintiff's lawyers who told him that the subject properties were
included in the estate of Alexander. Plaintiff called up defendant and told
her about the subject properties but she ignored him so that plaintiff was
saddened and shocked. Plaintiff gave defendant monthly support of
P51,000.00 (Exhs. 'RRRR' to 'TTTTT', inclusive) P50,000.00 for defendant and
P1,000.00 for the yaya. The Wack-Wack property cost about P5.5 million.
"The gist of the testimony of Robert Bassig:
"He is 73 years old and a real estate broker. Bassig acted as broker in the
sale of the EDSA property from Purificacion Yujuico to plaintiff. In the Deed
of Sale (Exh. 'G') it was the name of Alexander that was placed as the
vendee, as desired by plaintiff. The price was paid by plaintiff. Bassig never
talked with Alexander. He does not know Alexander.
"The gist of the testimony of Tom Adarne as witness for defendant:
Adarne is 45 years old and an architect. He was a friend of Alexander.
Adarne was engaged by defendant for the preparation of the plans of the
Wack-Wack property. The contractor who won the bidding was Home
Construction, Inc. The Agreement (Exh. '26') was entered into by defendant
and Home Construction, Inc. The amount of P955,555.00 (Exh. '26-A') was
for the initial scope of the work. There were several letter-proposals made
by Home Construction (Exhs. '27-34-A', inclusive). There were receipts issued
by Home Construction, Inc. (Exhs. '35', '36' and '37'). The proposal were
accepted and performed. The renovation started in 1992 and was finished
in 1993 or early 1994.
"The gist of the testimony of Rosanna Regalado:
"Regalado is 43 years old and a real estate broker. Regalado is a close
friend of defendant. Regalado acted as broker in the sale of the Wack-
Wack property between defendant and Alexander and the owner. The
sale Agreement (Exh. '38') is dated March 5, 1987. The price is P5.5 million in
Far East Bank and Trust Company manager's checks. The four (4) checks
mentioned in paragraph 1 of the Agreement were issued by Alexander but
she is not sure because it was long time ago.
"The gist of the testimony of Sylvia Ty:
"She is 40 years old, businesswoman and residing at 675 Notre Dame, Wack-
Wack Village, Mandaluyong City. Sylvia and Alexander have a daughter
named Krizia Katrina Ty, who is 16 years old. Krizia is in 11th grade at Brent
International School. Alexander was an executive in several companies as
shown by his business cards (Exhs. '40', '40-A', '40-B', '40-C', '40-D', '40-E', '40-
F', and '40-G'). Before defendant and Alexander got married, the latter
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acquired a condominium unit in Los Angeles, USA, another property in
Montebello, California and the EDSA property. The properties in the USA
were already settled and adjudicated in defendant's favor (Exhs. '41' and
'41-A'). Defendant did not bring any property into the marriage. After the
marriage, defendant engaged in selling imported clothes and eventually
bought four (4) units of stall in Shoppesville Greenhills and derived a monthly
income of P50,000.00. the price for one (1) unit was provided by
defendant's mother. The other three (3) units came from the house and lot
at Wack-Wack Village. The P3.5 million manager's check was purchased by
Alexander. The sale Agreement was signed by Alexander and defendant
(Exhs. '38-A' and '38-B'). After the purchase, defendant and Alexander
continued the construction of the property. After Alexander's death,
defendant continued the construction. The first architect that defendant
and Alexander engaged was Gerry Contreras (Exhs. '42', '42-A' and '42-A-1'
to '42-A-7'). The post-dated checks issued by Alexander were changed with
the checks of plaintiff. After the death of Alexander, defendant engaged
the services of Architect Tom Adarne. Home Construction, Inc. was
contracted to continue the renovation. Defendant and Alexander made
payments to Contreras from January to May 1998 (Exhs. '43', '43-A' to '43-H',
inclusive). A general contractor by the name of Nogoy was issued some
receipts (Exhs. '43-J' and '43-K'). a receipt was also issued by Taniog (Exh.
'43-L'). the payments were made by defendant and Alexander from the
latter's accounts. The Agreement with Home Construction Inc. (Exhs. '26')
shows defendant's signature (Exh. '26-A'). the additional works were
covered by the progress billings (Exhs. '27' to '34-A'). Defendant paid them
from her account. The total contract amount was P5,049,283.04. The total
expenses, including the furnishings, etc. reached the amount of P8 to 10
million and were paid from defendant's and Alexander's funds. After the
death of Alexander, plaintiff made payments for the renovation of the
house (Exh. 'M') which plaintiff considered as advantages but plaintiff did
not make any claim for reimbursement from the estate of Alexander.
Defendant's relationship with plaintiff became strained when he asked her
to waive her right over the Union Ajinomoto shares. Alexander was a friend
of Danding Cojuangco and was able to import luxury cars. Alexander
made a written offer to purchase the Wack-Wack property. Alexander
graduated from the Woodberry College in 1978 or 1979 and returned to the
Philippines in 1979 defendant returned to the Philippines about six (6)
months later. Plaintiff was financially well off or wealthy. Alexander was very
close to plaintiff and he was the most trusted son and the only one who
grew up in plaintiff's house. Plaintiff observed Chinese traditions. Alexander
was not totally dependent on plaintiff because he had his own earnings.
Upon his return from the USA, Alexander acquired the properties in the USA
while studying there. At the time of his death, Alexander was vice president
of Union Ajinomoto. Defendant could not say how much was the
compensation of Alexander from Union Ajinomoto. Defendant could not
also say how much did Alexander earn as vice president of Royal Porcelain
Corporation. Alexander was the treasurer of Polymark Paper Industries.
Alexander was the one handling everything for plaintiff in Horn Blower Sales
Enterprises, Hi-Professional Drilling, Round Consumer, MVR Picture Tubes, ABT
Enterprises. Plaintiff supported defendant and her daughter in the amount
of P51,000.00 per month from 1988-1990. Defendant did not offer to
reimburse plaintiff the advances he made on the renovation of the Wack-
Wack property because their relationship became strained over the
Ajinomoto shares. Defendant could not produce the billings which were
indicated in the post-dated checks paid to Architect Contreras. After the
birth of her child, defendant engaged in the boutique business. Defendant
could not recall how much she acquired the boutique (for). In 1983 or 1984
defendant started to earn P50,000.00 a month. The properties in the USA
which were acquired by Alexander while still single were known to plaintiff
but the latter did not demand the return of the titles to him. The Transfer
Certificates of Title of the Wack-Wack and EDSA properties were given to
defendant and Alexander. The Condominium Certificate of Title was also
given to defendant and Alexander. The plaintiff did not demand the return
of the said titles.
"The gist of the testimony of Atty. Mario Ongkiko:
"Atty. Ongkiko prepared the Deed of Sale of the EDSA property. There was
only one Deed of Sale regarding the said property. The plaintiff was not the
person introduced to him by Yujuico as the buyer. 3
On January 7, 2000, the RTC rendered its decision, disposing as follows:
WHEREFORE, judgment is hereby rendered:
1. Declaring plaintiff as the true and lawful owner of the subject properties,
as follows:
A. A parcel of land with an area of 1728 square meters, situated along EDSA
Greenhills, Mandaluyong City, covered by TCT No. 006585.
B. A residential land with an area of 1584 square meters, together with the
improvements thereon, situated in Notre Dame, Wack-Wack Village,
Mandaluyong City, covered by TCT No. 62670.
C. A residential condominium unit with an area of 167.5 square meters,
situated in 29 Annapolis St., Greenhills, Mandaluyong City, covered by
Condominium Certificate Title No. 3395.
2. Ordering the defendant to transfer or convey the subject properties in
favor of plaintiff and the Register of Deeds for Mandaluyong City to transfer
and issue in the name of plaintiff the corresponding certificates of title.
3. Ordering the defendant to pay plaintiff the amount of P100,000.00, as
moral damages and P200,000.00, as attorney's fees plus the cost of the suit.
SO ORDERED. 4
Respondent herein, Sylvia S. Ty, appealed from the RTC Decision to the CA,
assigning the following as errors:
I.
THE TRIAL COURT ERRED IN HOLDING THAT APPELLEE PURCHASED THE EDSA
PROPERTY BUT PLACED TITLE THERETO IN THE NAME OF ALEXANDER T. TY, SO
THAT AN EXPRESS TRUST WAS CREATED BETWEEN APPELLEE, AS TRUSTOR AND
ALEXANDER AS TRUSTEE IN FAVOR OF THE LATTER'S SIBLINGS, AS
BENEFICIARIES EVEN WITHOUT ANY WRITING THEREOF; ALTERNATIVELY, THE
TRIAL COURT ERRED IN ANY CASE IN HOLDING THAT AN IMPLIED TRUST
EXISTED BETWEEN APPELLEE AND ALEXANDER TY IN FAVOR OF APPELLEE
UNDER THE SAME CIRCUMSTANCES.
II.
THE TRIAL COURT ERRED IN HOLDING THAT APPELLEE PURCHASED THE WACK-
WACK AND MERIDIEN CONDOMINIUM PROPERTIES BUT PLACED ITS TITLES
THERETO IN THE NAMES OF SPOUSES ALEXANDER AND APPELLANT BECAUSE
HE WAS FINANCIALLY CAPABLE OF PAYING FOR THE PROPERTIES WHILE
ALEXANDER OR HIS WIFE, APPELLANT SYLVIA S. TY, WERE INCAPABLE. HENCE,
A RESULTING TRUST WAS CREATED BETWEEN APPELLEE AND HIS SON,
ALEXANDER, WITH THE FORMER, AS OWNER-TRUSTOR AND BENEFICIARY AND
THE LATTER AS TRUSTEE CONCERNING THE PROPERTIES.
III.
THE TRIAL COURT ERRED IN AWARDING MORAL DAMAGES OF P100,000 AND
ATTORNEY'S FEES OF P200,000 IN FAVOR OF APPELLEE AND AGAINST
DEFENDANT-APPELLANT IN HER CAPACITY AS ADMINISTRATRIX OF THE
INTESTATE ESTATE OF ALEXANDER TY, INSTEAD OF AWARDING APPELLANT IN
HER COUNTERCLAIM ATTORNEY'S FEES AND EXPENSES OF LITIGATION
INCURRED BY HER IN DEFENDING HER HUSBAND'S ESTATE AGAINST THE
UNJUST SUIT OF HER FATHER-IN-LAW, HEREIN APPELLEE, WHO DISCRIMINATED
AGAINST HIS GRAND DAUGHTER KRIZIA KATRINA ON ACCOUNT OF HER SEX.
The arguments in the respective briefs of appellant and appellee are
summarized by the CA Decision, as well as other preliminary matters raised
and tackled, thus:
In her Brief, defendant-appellant pointed out that, based on plaintiff-
appellee's testimony, he actually intended to establish an express trust; but
that the trial court instead found that an implied trust existed with respect
to the acquisition of the subject properties, citing Art. 1448 of the Civil Code
of the Philippines.
It is defendant-appellant's contention that the trial court erred: In applying
Art. 1448 on implied trust, as plaintiff-appellee did not present a shred of
evidence to prove that the money used to acquire said properties came
from him; and in holding that both she and her late husband were
financially incapable of purchasing said properties. On the contrary,
defendant-appellant claimed that she was able to show that she and her
late husband had the financial capacity to purchase said properties.
Defendant-appellant likewise questioned the admission of the testimony of
plaintiff-appellee, citing the Dead Man's Statute; she also questioned the
admission of her late husband's income tax returns, citing Section 71 of the
NIRC and the case of Vera v. Cusi, Jr.
On July 10, 2001, plaintiff-appellee filed his appellee's Brief, whereunder he
argued: That the trial court did not err in finding that the subject properties
are owned by him; that the said properties were merely registered in
Alexander's name, in trust for his siblings, as it was plaintiff-appellee who
actually purchased the subject properties he having the financial capacity
to acquire the subject properties, while Alexander and defendant-
appellant had no financial capacity to do so; that defendant-appellant
should be sentenced to pay him moral damages for the mental anguish,
serious anxiety, wounded feelings, moral shock and similar injury by him
suffered, on account of defendant-appellant's wrongful acts; and that
defendant appellant should also pay for attorney's fees and litigation
expenses by him incurred in litigating this case.
In a nutshell, it is plaintiff-appellee's thesis that in 1973, when he
accompanied his son, Alexander, to America, he told his son that he would
put some of the properties in Alexander's name, so that if death overtakes
him (plaintiff-appellee), Alexander would distribute the proceeds of the
property among his siblings. According to plaintiff-appellee, the three
properties subject of this case are the very properties he placed in the
149
name of his son and name-sake; that after the death of Alexander, he
reminded his daughter-in-law, the defendant appellant herein, that the
subject properties were only placed in Alexander's name for Alexander to
hold trust for his siblings; but that she rejected his entreaty, and refused to
reconvey said properties to plaintiff-appellee, thereby compelling him to
sue out a case for reconveyance.
On September 5, 2001, defendant-appellant filed her reply Brief and a
motion to admit additional evidence. Thereafter, several motions and
pleadings were filed by both parties. Plaintiff-appellee filed a motion for
early resolution dated May 17, 2002 while defendant-appellant filed a
motion to resolve dated August 6, 2003 and a motion to resolve incident
dated August 12, 2003.
Plaintiff-appellee then filed a comment on the motion to resolve incident,
to which defendant-appellant tendered a reply. Not to be outdone, the
former filed a rejoinder.
Thus, on February 13, 2004, this Court issued a resolution, to set the case for
the reception of additional evidence for the defendant-appellant.
In support of her motion to admit additional evidence, defendant-
appellant presented receipts of payment of real estate taxes for the years
1987 to 2004, obviously for the purpose of proving that she and her late
husband in their own right were financially capable of acquiring the
contested properties. Plaintiff-appellee however did not present any
countervailing evidence.
Per resolution of March 25, 2004, this Court directed both parties to submit
their respective memorandum of authorities in amplification of their
respective positions regarding the admissibility of the additional evidence.
Defendant-appellant in her memorandum prayed that the additional
evidence be considered in resolving the appeal in the interest of truth and
substantial justice. Plaintiff-appellee, on the other hand, in his
memorandum, argued that the additional evidence presented by the
defendant-appellant is forgotten evidence, which can no longer be
admitted, much less considered, in this appeal. Thereafter, the case was
submitted for decision.
Before taking up the main issue, we deem it expedient to address some
collateral issues, which the parties had raised, to wit: (a) the admissibility of
the additional evidence presented to this Court, (b) the admissibility of
plaintiff's testimony, (c) the admissibility of the income tax return, and (d)
laches.
On the propriety of the reception of additional evidence, this Court falls
backs (sic) upon the holding of the High Court in Alegre v. Reyes, 161 SCRA
226 (1961) to the effect that even as there is no specific provision in the
Rules of Court governing motions to reopen a civil case for the reception of
additional evidence after the case has been submitted for decision, but
before judgment is actually rendered, nevertheless such reopening is
controlled by no other principle than that of the paramount interest of
justice, and rests entirely upon the sound judicial discretion of the court. At
any rate, this Court rules that the tax declaration receipts for the EDSA
property for the years 1987-1997, and 1999; for the Wack-Wack property for
the years 1986-1987, 1990-1999; and for the Meridien Condominium for the
years 1993-1998 cannot be admitted as they are deemed forgotten
evidence. Indeed, these pieces of evidence should have been presented
during the hearing before the trial court.
However, this Court in the interest of truth and justice must hold, as it hereby
holds, that the tax declaration receipts for the EDSA property for the years
2000-2004; the Wack-Wack property for the years 2000-2004; and the
Meridien Condominium for the years 2000-2001 may be admitted to show
that to this date, it is the defendant-appellant, acting as an administratrix,
who has been paying the real estate taxes on the aforestated properties.
As regards the admissibility of plaintiff-appellee's testimony, this Court
agrees with the trial court that:
"Defendant's argument to the effect that plaintiff's testimony proving that
the deceased Alexander Ty was financially dependent on him is
inadmissible in evidence because he is barred by the Dead Man's Statute
(Rule 130, Sec. 20, Rules of Court) for making such testimony, is untenable.
A reading of pages 10 to 45 of the TSN, taken on November 16, 1998, which
contain the direct-examination testimony of plaintiff, and pages 27, 28, 30,
34, 35, 37, 39, 40 of the TSN, taken on January 15, 1999; page 6 of the TSN
taken on December 11, 1998, pages 8, 10, 11, 12, 14, 23 24 of TSN, taken on
taken on February 19, 1999; and pages 4,5,6,7,8,11,25 and 27 of the TSN
taken on March 22, 1999, will show that defendant's lawyer did not object
to the plaintiff as witness against defendant, and that plaintiff was
exhaustively cross-examined by defendant's counsel regarding the
questioned testimony, hence, the same is not covered by the Dead Man's
Statute (Marella v. Reyes, 12 Phil. 1; Abrenica v. Gonda and De Gracia, 34
Phil. 739; Tongco v. Vianzon, 50 Phil. 698).
A perusal of the transcript of stenographic notes will show that counsel for
defendant-appellant was not able to object during the testimony of
plaintiff-appellee. The only time that counsel for defendant-appellant
interposed his objection was during the examination of Rosemarie Ty, a
witness (not a party) to this case. Thus the Dead Man's Statute cannot
apply.
With regard to the income tax returns filed by the late Alexander Ty, this
Court holds that the same are admissible in evidence. Neither Section 71 of
the NIRC nor the case of Vera v. Cusi applies in this case. The income tax
returns were neither obtained nor copied from the Bureau of Internal
Revenue, nor produced in court pursuant to a court order; rather these
were produced by plaintiff-appellee from his own files, as he was the one
who kept custody of the said income tax returns. Hence, the trial court did
not err in admitting the income tax returns as evidence.
Anent the issue of laches, this Court finds that the plaintiff-appellee is not
guilty of laches. There is laches when: (1) the conduct of the defendant or
one under whom he claims, gave rise to the situation complained of; (2)
there was delay in asserting a right after knowledge defendant's conduct
and after an opportunity to sue; (3) defendant had no knowledge or notice
that the complainant would assert his right; and (4) there is injury or
prejudice to the defendant in the event relief is accorded to the
complainant. These conditions do not obtain here.
In this case, there was no delay on the part of plaintiff-appellee in instituting
the complaint for recovery of real properties. The case was files four years
after Alexander's death; two years after the inventory of assets of
Alexander's estate was submitted to the intestate court; and one month
after defendant-appellant filed a motion to sell or mortgage the real estate
properties. Clearly, such length of time was not unreasonable. 5
The CA then turned to "the critical, crucial and pivotal issue of whether a
trust, express or implied, was established by the plaintiff-appellee in favor of
his late son and name-sake Alexander Ty".
The CA proceeded to distinguish express from implied trust, then found that
no express trust can be involved here since nothing in writing was presented
to prove it and the case involves real property. It then stated that it
disagrees with the court a quo's application of Art. 1448 of the Civil Code
on implied trust, the so-called purchase money resulting trust, stating that
the very Article provides the exception that obtains when the person to
whom the title is conveyed is the child, legitimate or illegitimate, of the one
paying the price of the sale, in which case no trust is implied by law, it being
disputably presumed that there is a gift in favor of the child.
The CA therefore reasoned that even assuming that plaintiff-appellee paid
at least part of the price of the EDSA property, the law still presumes that
the conveyance was a discretion (a gift of devise) in favor of Alexander.
As to plaintiff-appellee's argument that there was no donation as shown by
his exercise of dominion over the property, the CA held that no credible
evidence was presented to substantiate the claim.
Regarding the residence condominium and the Wack-Wack property, the
CA stated that it did not agree either with the findings of the trial court that
an implied trust was created over these properties.
The CA went over the testimonies of plaintiff-appellee and the witness
Conchita Sarmiento presented to show that spouses Alexander and Sylvia
S. Ty were financially dependent of plaintiff-appellee and did not have the
financial means or wherewithals to purchase these properties. It stated:
Consider this testimony of plaintiff-appellee:
Q During the time that Alex was staying with you, did you ever come to
know that Alexander and his wife did go to the States?
A Yes, sir. But I do not know the exact date. But they told me they want to
go to America for check up.
Q Was that the only time that Alexander went to the States?
A Only that time, sir. Previously, he did not tell me. That last he come (sic) to
me and tell [sic] me that he will go to America for check up. That is the only
thing I know.
Q Would you say for the past five years before his death Alex and his wife
were going to the States at least once a year?
A I cannot say exactly. They just come to me and say that I [sic] will go to
"bakasyon". They are already grown people. They don't have to tell me
where they want to go.
Q You are saying that Alexander did not ask you for assistance whenever
he goes to the States?
A Sometimes Yes.
Q In what form?
A I gave him peso, sir.
150

Q For what purpose?
A Pocket money, sir.
There is no evidence at all that it was plaintiff-appellee who spent for the
cancer treatment abroad of his son. Nor is there evidence that he paid for
the trips abroad of Alexander and the defendant-appellant. Admittedly,
he only gave his son Alexander pocket money once in a while. Simply put,
Alexander was not financially dependent upon the plaintiff-appellee, given
that Alexander could afford the costs of his cancer treatment abroad, this
on top of the trips he made to the United States at least once a year for five
successive years without the support of his father.
The fact that Alexander stayed with his father, the plaintiff-appellee in this
case, even after he married Sylvia and begot Krizia, does not at all prove
that Alexander was dependent on plaintiff-appellee. Neither does it
necessarily mean that it was plaintiff-appellee who was supporting
Alexander's family. If anything, plaintiff-appellee in his testimony admitted
that Alexander and his family went to live with him in observance of Chinese
traditions.
In addition, the income tax returns of Alexander from 1980-1984, and the
profit and loss statement of defendant-appellant's Joji San General
Merchandising from 1981-1984, are not enough to prove that the spouses
were not financially capable of purchasing the said properties. Reason:
These did not include passive income earned by these two, such as interests
on bank deposits, royalties, cash dividends, and earnings from stock trading
as well as income from abroad as was pointed out by the defendant-
appellant. More importantly, the said documents only covered the years
1980-1984. The income of the spouses from 1985 to 1987 was not shown.
Hence, it is entirely possible that at the time the properties in question were
purchased, or acquired, Alexander and defendant-appellant had
sufficient funds, considering that Alexander worked in various capacities in
the family corporations, and his own business enterprises, while defendant-
appellant had thriving businesses of her own, from which she acquired
commercial properties.
And this is not even to say that plaintiff-appellee is this case failed to
adduce conclusive, incontrovertible proof that the money use to purchase
the two properties really came from him; or that he paid for the price of the
two properties in order to have the beneficial interest or estate in the said
properties.
A critical examination of the testimony of plaintiff-appellee's witness,
Conchita Sarmiento, must also show that this witness did not have actual
knowledge as to who actually purchased the Wack-Wack property and
the Meridien Condominium. Her testimony that plaintiff-appellee visited the
Wack-Wack property and paid for the costs of the construction of the
improvements over the said property, in the very nature of things, does not
prove that it was the plaintiff-appellee who in fact purchased the Wack-
Wack property. 6
On the other hand, the CA found defendant-appellant's evidence
convincing:
In contrast, Rosana Regalado had actual knowledge of the transaction she
testified to, considering that she was the real estate broker who negotiated
the sale of the Wack-Wack property between its previous owner Drago
Daic and the spouses Alexander and Sylvia Ty. In her testimony, she
confirmed that the checks, which were issued to pay for the purchase price
of the Wack-Wack property, were signed and issued by Alexander, thereby
corroborating the testimony of defendant-appellant on this point.
Significantly, during the trial, Conchita Sarmiento identified some receipts
wherein the payor was the late Alexander Ty. Apparently, prior to the death
of Alexander, it was Alexander himself who was paying for the construction
of the Wack-Wack property; and that the only time plaintiff-appellee paid
for the costs of the construction was when Alexander died.
Quite compelling is the testimony of defendant-appellant in this respect:
Q And after the death and burial of your husband, will you tell this
Honorable Court what happened to the construction of this residence in
Wack-Wack?
A Well, of course, during the period I was mourning and I was reorganizing
myself and my life, so I was not mainly focused on the construction, so it
took a couple of months before I realized that the post-dated checks issued
by my husband was changed through checks by my father-in-law Mr.
Alejandro Ty.
Q And did you had [sic] any conversation with Mr. Alejandro Ty regarding
as to why he did that?
A Yes, sir, that was the beginning of our misunderstanding, so I decided to
hire a lawyer and that is Atty. Ongkiko, to be able to settle my estate and
to protect myself from with the checks that they changed that my husband
issued to Architect Gerry Contreras.
Q Was there any point in time that you yourself took over the construction?
A Yes, sir, right after a year of that property after I was more settled.
Q And did you engaged [sic] the services of any professional or
construction company for the purpose?
A Yes, sir.
Q Who was that?
A Architect Tom Adarme.
Q What is his first name, if you recall?
A Architect Tommy Adarme.
Q And was there any company or office which helped Architect Adarme
in the continuation of the construction?
A Yes, I also signed a contract with Architect Adarme and he hired Home
Construction to finish the renovation and completion of the construction in
Wack-Wack, sir.
Q Do you have any document to show that you yourself overtook
personally the continuation of the construction of your residence?
A Yes, sir I have the whole construction documents and also the documents
through Arch. Gerry Contreras, that contract that we signed.
In other words, plaintiff-appellee took over the management of the
construction of the Wack-Wack property only because defendant-
appellant was still in mourning. And, If ever plaintiff-appellee did pay for the
costs of the construction after the death of Alexander, it would be
stretching logic to absurd proportions to say that such fact proved that he
owns the subject property. If at all, it only shows that he is entitled to
reimbursement for what he had spent for the construction. 7
Accordingly, the CA concluded, as follows:
Going by the records, we hold that plaintiff-appellee in this case was not
able to show by clear preponderance of evidence that his son and the
defendant-appellant were not financially capable of purchasing said
property. Neither was plaintiff-appellee able to prove by clear
preponderance of evidence (i.e., credible documentary evidence) that
the money used to purchase the said properties really came from him. (And
even if we assume that it came from him, it would still not establish an
implied trust, as it would again be considered a donation, or a gift, by
express mandate of the saving clause of Art. 1448 of the Civil Code, as
heretofore stated).
If anything, what is clear from the evidence at bench is that Alexander and
the defendant-appellant were not exactly bereft of the means, the
financial capability or resources, in their own right, to purchase, or acquire,
the Meridien Condominium and the Wack-Wack property.
The evidence on record shows that Alexander Ty was 31 years old when he
purchased the Meridien Condominium and was 33 years old when he
purchased the Wack-Wack property. In short, when he purchased these
properties, he had already been working for at least nine years. He had a
car care business and a beer garden business. He was actively engaged in
the business dealings of several family corporations, from which he received
emoluments and other benefits. As a matter of fact, Alexander and plaintiff-
appellee had common interest in various family corporations of which they
were stockholders, and officers and directors, such as: International Paper
Industries, Inc.; Agro-Industries Specialists Services, Inc.; Hi-Professional
Drillings and Manufacturing, Inc.; MVR-TV Picture Tube, Inc.; Crown
Consumer Products, Inc.; Philippine Crystal Manufacturing Corporation;
and Union Emporium, Inc.
Furthermore, at the time of his death, the son Alexander was Vice-President
of Union Ajinomoto (Exh. "40"); Executive Vice-President of Royal Porcelain
Corporation (Exh. "40-A"); Treasurer of Polymart Paper Industries, Inc. (Exh.
"40-B"); General Manager of Hornblower Sales Enterprises and
Intercontinental Paper Industries, Inc. (Exh. "40-C"); President of High
Professional Drilling and Manufacturing, Inc. (Exh. "40-D"); President of
Crown Consumer Products, Inc. (Exh. "40-E"); (Executive Vice-President of
MVR-TV Picture Tube, Inc. (Exh. "40-F"); and Director of ABT Enterprise, Inc.
(Exh. "40-G"). He even had a controlling interest in ABT Enterprises, which has
a majority interest in Union Ajinomoto, Inc.
151
What is more, the tax declaration receipts for the Wack-Wack property
covering the years 2000-2004, and the tax declaration receipts for the
Meridien Condominium covering the years 2000-2001, showed that to his
date it is still the estate of Alexander that is paying for the real estate taxes
thereon.
In the context of this formidable circumstances, we are constrained to
overturn the judgment of the trial court, which made these findings:
Based on the facts at hand and the applicable law, the ineluctable
conclusion is that a fiduciary relationship or an implied trust existed between
plaintiff and Alexander Ty with the former as the owner, trustor and
beneficiary and the latter as the trustee, concerning the subject real
properties. The death of Alexander automatically extinguished the said
fiduciary relationship, hence, plaintiff's instant action to recover the subject
properties from the intestate estate of Alexander Ty is meritorious.
We do not agree. To belabor a point, we are not persuaded that an implied
trust was created concerning the subject properties. On the assumption, as
elsewhere indicated, the plaintiff-appellee at the very least, paid for part
of its purchase price, the EDSA property is presumed to be a gift, or
donation, in favor of Alexander Ty, defendant-appellant's late husband,
following the saving clause or exception in Art. 1448 of the Civil Code. To
repeat, it is the saving clause, or exception, not the general rule, that should
here apply, the late Alexander Ty being the son of Plaintiff-appellee.
Nor are we convinced, given the state of the evidence on record, that the
plaintiff-appellee paid for the price of the Meridien Condominium and the
Wack-Wack property. Therefore, the general rule announced in the first
sentence of Art. 1448 of the Civil Code has no application in this case. Or,
if the article is to be applied at all, it should be the exception, or the saving
clause, that ought to apply here, the deceased Alexander Ty being the
son, as stated, of plaintiff-appellee.
To sum up: Since plaintiff-appellee has erected his case upon Art. 1448 of
the Civil Code, a prime example of an implied trust, viz.: that it was he who
allegedly paid for the purchase price of some of the realties subject of this
case, legal title or estate over which he allegedly granted or conveyed
unto his son and namesake, Alexander Ty, for the latter to hold these realties
in trust for his siblings in case of his (plaintiff-appellee's) demise, plaintiff-
appellee is charged with the burden of establishing the existence of an
implied trust by evidence described or categorized as "sufficiently strong",
"clear and satisfactory", or "trustworthy". As will be presently discussed. Sad
to say, plaintiff-appellee has miserably failed to discharge that burden. For,
if the records are any indication, the evidence adduced by plaintiff-
appellee on this score, can hardly merit the descriptive attributes
"sufficiently strong", or "clear and satisfactory", or "trustworthy".
If only to emphasize and reiterate what the Supreme Court has in the past
declared about implied trusts, these case law rulings are worth mentioning
when the property was purchased and did so for the purpose of having the
Where a trust is to be established by oral proof, the testimony supporting it
must be sufficiently strong to prove that the right of the alleged beneficiary
with as much certainty as if a document were shown. A trust cannot be
established, contrary to the recitals of a Torrens title, upon vague and
inconclusive proof.
As a rule, the burden of proving the existence of a trust is on the party
asserting its existence, and such proof must be clear and satisfactorily show
the existence of the trust and its elements. While implied trusts may be
proved by oral evidence, the evidence must be trustworthy and received
by the courts with extreme caution and should not be made to rest on
loose, equivocal or indefinite declarations. Trustworthy evidence is required
because oral evidence can easily be fabricated.
The route to the reversal of the trial court's finding that an implied trust had
been constituted over the subject realties is, thus, indubitably clear.
As a final point, this Court finds that the plaintiff-appellee is not entitled to
moral damages, attorney's fees and costs of litigation, considering that the
instant case is clearly a vexatious and unfounded suit by him filed against
the estate of the late Alejandro Ty. Hence, all these awards in the judgment
a quo are hereby DELETED. 8
The CA therefore reversed and set aside the judgment appealed from and
entered another one dismissing the complaint.
On October 18, 2004 the CA resolved to deny therein plaintiff-appellee's
motion for reconsideration. 9
Hence, this petition.
Petitioner submits the following grounds:
IN REVERSING THE TRIAL COURT'S JUDGMENT, THE COURT OF APPEALS
1. MADE FACTUAL FINDINGS GROUNDED ON MANIFESTLY MISTAKEN
INFERENCES, SPECULATIONS, SURMISES, OR CONJECTURES OR PREMISED ON
THE ABSENCE OF, OR ARE CONTRADICTED BY, THE EVIDENCE ON RECORD,
AND WITHOUT CITATIONS OF THE SPECIFIC EVIDENCE ON WHICH THEY ARE
BASED.
2. RULED THAT THERE WAS A "PRESUMED DONATION", WHICH IS A MATTER
NEVER RAISED AS AN ISSUE IN THE CASE AS IT, IN FACT, CONFLICTS WITH THE
PARTIES' RESPECTIVE THEORIES OF THE CASE, AND THUS DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL
FOR THIS HONORABLE COURT'S EXERCISE OF ITS POWER OF SUPERVISION.
3. APPLIED THE PROVISION ON PRESUMPTIVE DONATION IN FAVOR OF A
CHILD IN ARTICLE 1448 OF THE CIVIL CODE DESPITE AB TY'S EXPRESS
DECLARATION THAT HE DID NOT INTEND TO DONATE THE SUBJECT
PROPERTIES TO ALEXANDER AND THUS DECIDED A QUESTION OF SUBSTANCE
NOT THERETOFORE DETERMINED BY THIS HONORABLE COURT.
4. REQUIRED THAT THE IMPLIED TRUST BE PROVEN WITH DOCUMENTARY
EVIDENCE AND THUS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN
ACCORD WITH LAW AND JURISPRUDENCE. 10
The Court disposes of the petition, as follows:
The EDSA Property
Petitioner contends that the EDSA property, while registered in the name of
his son Alexander Ty, is covered by an implied trust in his favor under Article
1448 of the Civil Code. This, petitioner argues, is because he paid the price
beneficial interest of the property.
Article 1448 of the Civil Code provides:
Art. 1448. There is an implied trust when property is sold, and the legal estate
is granted to one party but the price is paid by another for the purpose of
having the beneficial interest of the property. The former is the trustee, while
the latter is the beneficiary. However, if the person to whom the title is
conveyed is a child, legitimate or illegitimate, of one paying the price of
the sale, no trust is implied by law, it being disputably presumed that there
is a gift in favor of the child.
The CA conceded that at least part of the purchase price of the EDSA
property came from petitioner. However, it ruled out the existence of an
implied trust because of the last sentence of Article 1448: . . . However, if
the person to whom the title is conveyed is a child, legitimate or illegitimate,
of the one paying the price of the sale, no trust is implied by law, it being
disputably presumed that there is a gift in favor of the child.
Petitioner now claims that in so ruling, the CA departed from jurisprudence
in that such was not the theory of the parties.
Petitioner, however, forgets that it was he who invoked Article 1448 of the
Civil Code to claim the existence of an implied trust. But Article 1448 itself,
in providing for the so-called purchase money resulting trust, also provides
the parameters of such trust and adds, in the same breath, the proviso:
"However, if the person to whom the title is conveyed is a child, legitimate
or illegitimate, of the one paying the price of the sale, NO TRUST IS IMPLIED
BY LAW, it being disputably presumed that there is a gift in favor of the
child". (Emphasis supplied.)
Stated otherwise, the outcome is the necessary consequence of
petitioner's theory and argument and is inextricably linked to it by the law
itself.
The CA, therefore, did not err in simply applying the law.
Article 1448 of the Civil Code is clear. If the person to whom the title is
conveyed is the child of the one paying the price of the sale, and in this
case this is undisputed, NO TRUST IS IMPLIED BY LAW. The law, instead,
disputably presumes a donation in favor of the child.
On the question of whether or not petitioner intended a donation, the CA
found that petitioner failed to prove the contrary. This is a factual finding
which this Court sees no reason the record to reverse.
The net effect of all the foregoing is that respondent is obliged to collate
into the mass of the estate of petitioner, in the event of his death, the EDSA
property as an advance of Alexander's share in the estate of his father, 11
to the extent that petitioner provided a part of its purchase price.
The Meridien Condominium and the Wack-Wack property.
Petitioner would have this Court overturn the finding of the CA that as
regards the Meridien Condominium and the Wack-Wack property,
petitioner failed to show that the money used to purchase the same came
from him.
Again, this is clearly a factual finding and petitioner has advanced no
convincing argument for this Court to alter the findings reached by the CA.
The appellate court reached its findings by a thorough and painstaking
review of the records and has supported its conclusions point by point,
providing citations from the records. This Court is not inclined to reverse the
same.
Among the facts cited by the CA are the sources of income of Alexander
Ty who had been working for nine years when he purchased these two
properties, who had a car care business, and was actively engaged in the
business dealings of several family corporations, from which he received
emoluments and other benefits. 12
The CA, therefore, ruled that with respect to the Meridien Condominium
and the Wack-Wack property, no implied trust was created because there
was no showing that part of the purchase price was paid by petitioner and,
152
on the contrary, the evidence showed that Alexander Ty had the means to
pay for the same.
WHEREFORE, the petition is PARTLY GRANTED in that the Decision of the
Court of Appeals dated July 27, 2004 and its Resolution dated October 18,
2004, in CA-G.R. No. 66053, are AFFIRMED, with the MODIFICATION that
respondent is obliged to collate into the mass of the estate of petitioner, in
the event of his death, the EDSA property as an advance of Alexander Ty's
share in the estate of his father, to the extent that petitioner provided a part
of its purchase price.
No costs.
SO ORDERED.
[G.R. No. 110115. October 8, 1997.]
RODOLFO TIGNO AND SPOUSES EDUALINO and EVELYN CASIPIT, petitioners,
vs. COURT OF APPEALS AND EDUARDO TIGNO, respondents.
PANGANIBAN, J p:
In denying this petition, the Court takes this occasion to apply the principles
of implied trust. As an exception to the general rule barring factual reviews
in petitions under Rule 45, the Court wades into the transcript of
stenographic notes only to find that the Court of Appeals, indeed, correctly
overturned the trial court's findings of facts.
The Case
Petitioners challenge the Decision 1 of Respondent Court of Appeals 2 in
CA-G.R. CV No. 29781 promulgated on October 15, 1992 and its Resolution
3 promulgated on May 5, 1993. The dispositive portion of the assailed
Decision reads: 4
"WHEREFORE, in view of the foregoing, the decision appealed from is
hereby REVERSED and another one ENTERED as follows:
1. Declaring plaintiff-appellant Eduardo M. Tigno as the true and lawful
owner of the lands described in the complaint;
2. Declaring the Deed of Sale executed by defendant-appellee Rodolfo M.
Tigno in favor of defendant-appellee spouses Edualino Casipit and Avelina
Estrada as null and void and of no effect; and
3. Ordering defendant-appellee Rodolfo M. Tigno to vacate the parcels of
land described in the complaint and surrender possession thereof to
plaintiff-appellant Eduardo M. Tigno.
With costs against defendants-appellees."
Petitioners' subsequent motion for reconsideration was "denied for lack of
merit" in the assailed Resolution. 5
The Facts
Respondent Court adequately recited the facts of the case as follows: 6
"The facts from the standpoint of plaintiff-appellant's (herein private
respondent's) evidence are summarized in his brief, to wit:
'Sometime in January, 1980, Bienvenido Sison, Remedios Sison and the heirs
of Isaac Sison, namely: Manuel Sison, Gerardo Sison and Adelaida Sison
appointed Dominador Cruz as agent to sell three (3) parcels of land
adjoining each other located at Padilla St., Lingayen, Pangasinan (TSN,
Sept. 5, 1989, pp. 6-8). These parcels of land belonging to the abovenamed
persons are more particularly described as follows:
Bienvenido Sison:
'A parcel of fishpond situated at Padilla Street, Lingayen, Pangasinan, with
an area of 3006.67 square meters, more or less, bounded on the North by
Padilla Street, on the South by Lots 1105, 1106, 1107, 1108, etc., on the East
by alley, and on the West by Alejandro Vinluan and Thomas Caldito;' (Exh.
B)
Heirs of Isaac Sison (i.e. Manuel, Gerardo and Adelaida Sison)
'A parcel of fishpond, situated at Padilla Street, Lingayen, Pangasinan, with
an area of 3006.66 square meters, more or less, bounded on the North by
Padilla Street; On the South by Bienvenido Sison, on the East by Alley, and
on the West by Mariano Sison;' (Exh. A)
Remedios Sison
'A parcel of unirrigated riceland (now fishpond) situated in Poblacion,
Lingayen, Pangasinan, containing an area of 3006.66 square meters, more
or less, bounded on the North by Padilla Street; on the East by Path; on the
South by Dionisio and Domingo Sison; and on the West by Path;' (Exh. C)
Sometime in April 1980, Rodolfo Tigno learned that the abovedescribed
properties were for sale. Accordingly, he approached Cruz and told the
latter to offer these parcels of land to his brother, Eduardo Tigno, herein
appellant (TSN, Sept. 5, 1989, p. 9). cdll
Pursuant thereto, Cruz and Rodolfo Tigno went to appellant's Makati office
to convince the latter to buy the properties earlier described. At first,
appellant was reluctant, but upon Rodolfo Tigno's prodding, appellant was
finally convinced to buy them (TSN, Sept. 5, 1989, pp. 9-11). In that meeting
between Cruz and appellant at the latter's office, it was agreed that each
parcel of land would cost Ten Thousand Pesos (P10,000.00) [TSN, Oct. 16,
1989, p. 9].
Having reached an agreement of sale, appellant then instructed Cruz to
bring the owners of these parcels of land to his ancestral house at Guilig
Street, Lingayen, Pangasinan on May 2, 1980, as he will be there to attend
the town fiesta (TSN, Sept. 5, 1989, p. 13).
After leaving appellant's office, Cruz and Rodolfo Tigno went to Manila City
Hall to visit the latter's uncle, Epifanio Tigno, who works there. At the Manila
City Hall, Cruz and Rodolfo Tigno intimated to Epifanio Tigno that appellant
has agreed to buy the 3 parcels of land abovedescribed (TSN, Sept. 5, 1989,
p. 19; TSN, Sept. 29, 1989, pp. 8-10).
After leaving Manila City Hall, Cruz and Rodolfo Tigno left for Lingayen,
Pangasinan (TSN, Sept. 5, 1989, p. 15).
On May 2, 1980, Cruz, together with Bienvenido Sison, Manuel Sison,
Adelaida Sison and Remedios Sison went to appellant's house at Guilig
Street, Lingayen, Pangasinan. At around 5:00 o'clock in the afternoon, the
abovenamed persons and appellant went to Atty. Modesto Manuel's
house at Defensores West Street, Lingayen, Pangasinan for the preparation
of the appropriate deeds of sale (TSN, Sept. 5, 1989, pp. 15-17).'
At Atty. Manuel's house, it was learned that Bienvenido Sison failed to bring
the tax declarations relating to his property. Also, Remedios Sison had
mortgaged her property to a certain Mr. Tuliao, which mortgage was then
existent. Further, Manuel Sison did not have a Special Power of Attorney
from his sister in the United States of America to evidence her consent to
the sale. In view thereof, no deed of sale was prepared on that day (TSN,
Sept. 5, 1989, pp. 17-19).
However, despite the fact that no deed of sale was prepared by Atty.
Manuel, Remedios Sison, Bienvenido Sison and Manuel Sison asked
appellant to pay a fifty percent (50%) downpayment for the properties. The
latter acceded to the request and gave Five Thousand Pesos (P5,000.00)
each to the 3 abovenamed persons for a total of Fifteen Thousand Pesos
(P15,000.00) (TSN, Sept. 5, 1989, pp. 19-20). This was witnessed by Cruz and
Atty. Manuel. After giving the downpayment, appellant instructed Cruz and
Atty. Manuel to place the name of Rodolfo Tigno as 'vendee' in the deeds
of sale to be subsequently prepared. This instruction was given to enable
Rodolfo Tigno to mortgage these properties at the Philippine National Bank
(PNB), Lingayen Branch, for appropriate funds needed for the
development of these parcels of land as 'fishponds' (TSN, Sept. 27, 1989, pp.
16-23).
On May 6, 1980, May 12, 1980 and June 12, 1980, the appropriate deeds of
sale (Exhs. A, B, C) were finally prepared by Atty. Manuel and signed by
Bienvenido Sison, the heirs of Isaac Sison (Manuel, Gerardo and Adelaida
Sison), and Remedios Sison, respectively. In all these deeds of sale, Rodolfo
Tigno was named as 'vendee' pursuant to the verbal instruction of herein
appellant. Cruz, the agent in the sale, signed in these three (3) deeds of
sale as a witness (Exhs. A-2, B-1 and C-1).
Sometime in the second week of July 1980, Cruz brought and showed these
deeds of sale to appellant in his Makati office. After seeing these
documents, appellant gave Cruz a Pacific Bank check in the amount of
Twenty Six Thousand Pesos (P26,000.00) representing the following:
a) P15,000.00 as the balance for the three (3) parcels of land;
153

b) P6,000.00 representing Cruz's commission as agent; and
c) P5,000.00 for capital gains tax, registration and other incidental expense.
(TSN, Sept. 5, 1989, pp. 39-41).
Upon encashment of this check at PNB, Lingayen Branch, Cruz paid
Remedios Sison, Manuel Sison and Bienvenido Sison, through Adelaida
Sison, the balance due them from appellant (TSN, Sept. 5, 1989, pp. 42-43).
On April 29, 1989, Rodolfo Tigno, without the knowledge and consent of
appellant, sold to Spouses Edualino Casipit and Avelina Casipit 508.56
square meters of the land previously owned by Bienvenido Sison (Exh. E). At
the time of sale, the Casipits were aware that the portion of the land they
bought was owned by appellant, not Rodolfo Tigno (TSN, Oct. 16, 1989, pp.
30-31; TSN, Nov. 6, 1989, p. 10).
On May 16, 1989, appellant learned that Rodolfo Tigno is 'negotiating' a
portion of his land to the Casipits. Accordingly, appellant sent a letter (Exh.
D) to the Casipits advising them to desist from the intended sale, not
knowing that the sale was already consummated as early as April 29, 1989.
A few days thereafter, upon learning that the sale was already
consummated, appellant confronted the Casipits and Rodolfo Tigno and
asked them to annul the sale, but his request was not heeded (TSN, Oct. 16,
1989, pp. 29-32).' (pp. 12-B to 12-j, rollo)
On May 24, 1989, the plaintiff filed Civil Case No. 16673 for 'Reconveyance,
Annulment of Document, Recovery of Possession and Damages' against
Rodolfo M. Tigno and defendant spouses Edualino Casipit and Avelina
Estrada. The complaint alleged, among others, that plaintiff purchased the
three (3) parcels of land in question so that his brother Rodolfo Tigno, who
was then jobless, could have a source of income as a caretaker of the
fishponds; that plaintiff and Rodolfo agreed that the latter would secure a
loan from the Philippine National Bank at Lingayen using said lands as
collateral; that considering the busy schedule of plaintiff, then as executive
vice-president of an American firm based in Makati, Metro Manila, it was
made to appear in the deeds of sale that Rodolfo M. Tigno was the vendee
so that the latter could, as he actually did, secure a loan from the PNB
without need of plaintiff's signature and personal presence, the loan
proceeds to be used as seed capital for the fishponds; that there being trust
and confidence as brothers between plaintiff and defendant, the former
instructed the Notary Public, who prepared the Deeds of Sale, to put in said
Deeds the name of Rodolfo M. Tigno as vendee.
The plaintiff further averred in said Complaint that some time on May 16,
1989, when he was in Lingayen, Pangasinan, he came to know from friends
that Rodolfo was negotiating the sale to defendant spouses of a portion of
one of the parcels of land; that after requesting in writing the defendant-
spouses to desist from buying the land, and after confronting Rodolfo
himself, plaintiff found out upon verification with the of Deeds of Lingayen,
that Rodolfo had already sold on April 29, 1989 said portion of 508.56 square
meters to his co-defendant spouses who had previous knowledge that
plaintiff, and not Rodolfo Tigno, is the real owner of said lands; that there
being a violation of trust and confidence by defendant Rodolfo, plaintiff
demanded from said defendants the reconveyance of said lands, the
surrender of the possession thereof to him and the cancellation of the Deed
of Sale of said portion of 508.56 square meters, but all the demands were
unjustifiably refused.
In their Answer (pp. 8-11, records), defendants denied the material
allegations of the complaint and alleged, by way of special and affirmative
defense, that Rodolfo M. Tigno became the absolute and exclusive owner
of the parcels of land having purchased the same after complying with all
legal requirements for a valid transfer and that in selling a portion thereof
to his co-defendants, he was merely exercising his right to dispose as owner;
and that defendant spouses Casipit acquired the portion of 508.56 square
meters in good faith and for value, relying upon the validity of the vendor's
ownership."
After trial on the merits, the trial court 7 dismissed the complaint and
disposed as follows: 8
"Wherefore, in the light of the facts and circumstances discussed above,
the court hereby renders judgment against the plaintiff and in favor of the
defendants.
1. Ordering the dismissal of the plaintiff's complaint for lack of basis in fact
and in law;
2. Ordering the plaintiff to pay the defendants the sum of three thousand
(P3,000.00) pesos as atty's fees and further to pay the costs of the
proceedings."
As earlier stated, Respondent Court reversed the trial court. Hence, this
petition for review.
The Issues
Petitioners raise the following issues: 9
"I Evidence of record definitely show that the receipts of payments of
Petitioner Rodolfo Tigno for the fishponds in question are authenticated,
contrary to the decision of the Court of Appeals
II Documents and circumstances substantiate ownership of petitioner
Rodolfo Tigno
III No fiduciary relationship existed between Petitioner Rodolfo Tigno and
Private Respondent Eduardo Tigno"
The main issue is whether the evidence on record proves the existence of
an implied trust between Petitioner Rodolfo Tigno and Private Respondent
Eduardo Tigno. In petitions for review under Rule 45, this Court ordinarily
passes upon questions of law only. However, in the present case, there is a
conflict between the factual findings of the trial court and those of the
Respondent Court. Hence, this Court decided to take up and rule on such
factual issue, as an exception to the general rule. A corollary question is
whether Petitioners Edualino and Evelyn Casipit are purchasers in good
faith and for value of a portion of the lots allegedly held in trust and whether
they may thus acquire ownership over the said property.
The Court's Ruling
The petition has no merit.
First Issue: Was an Implied Trust Created?
Implied trusts are those which are deducible by operation of law from the
nature of the transaction as matters of equity, independently of the
particular intention of the parties. 10 An implied trust arises where a person
purchases land with his own money and takes conveyance thereof in the
name of another. In such a case, the property is held on resulting trust in
favor of the one furnishing the consideration for the transfer, unless a
different intention or understanding appears. The trust which results under
such circumstances does not arise from a contract or an agreement of the
parties, but from the facts and circumstances; that is to say, the trust results
because of equity and it arises by implication or operation of law. 11 The
species of implied trust raised by private respondent was extensively
discussed by the Court, through the learned Mr. Justice Hilario G. Davide,
Jr., in Morales, et al. vs. Court of Appeals, et al.: 12
"A trust is the legal relationship between one person having an equitable
ownership in property and another person owning the legal title to such
property, the equitable ownership of the former entitling him to the
performance of certain duties and the exercise of certain powers by the
latter. 13 The characteristics of a trust are:
1. It is a relationship;
2. it is a relationship of fiduciary character;
3. it is a relationship with respect to property, not one involving merely
personal duties;
4. it involves the existence of equitable duties imposed upon the holder of
the title to the property to deal with it for the benefit of another; and
5. it arises as a result of a manifestation of intention to create the
relationship. 14
Trusts are either express or implied. Express trusts are created by the
intention of the trustor or of the parties, while implied trusts come into being
by operation of law. 15 In turn, implied trusts are either resulting or
constructive trusts. Resulting trusts are based on the equitable doctrine that
valuable consideration and not legal title determines the equitable title or
interest and are presumed always to have been contemplated by the
parties. They arise from the nature or circumstances of the consideration
involved in a transaction whereby one person thereby becomes invested
with legal title but is obligated in equity to hold his legal title for the benefit
154
of another. On the other hand, constructive trusts are created by the
construction of equity in order to satisfy the demands of justice and prevent
unjust enrichment. They arise contrary to intention against one who, by
fraud, duress or abuse of confidence, obtains or holds the legal right to
property which he ought not, in equity and good conscience, to hold. 16
A resulting trust is exemplified by Article 1448 of the Civil Code, which reads:
Art. 1448. There is an implied trust when property is sold, and the legal estate
is granted to one party but the price is paid by another for the purpose of
having the beneficial interest of the property. The former is the trustee, while
the latter is the beneficiary. However, if the person to whom the title is
conveyed is a child, legitimate or illegitimate, of the one paying the price
of the sale, no trust is implied by law, it being disputably presumed that there
is a gift in favor of the child. aisadc
The trust created under the first sentence of Article 1448 is sometimes
referred to as a purchase money resulting trust. 17 The trust is created in
order to effectuate what the law presumes to have been the intention of
the parties in the circumstances that the person to whom the land was
conveyed holds it as trustee for the person who supplied the purchase
money. 18
To give rise to a purchase money resulting trust, it is essential that there be:
1. an actual payment of money, property or services, or an equivalent,
constituting valuable consideration;
2. and such consideration must be furnished by the alleged beneficiary of
a resulting trust. 19
There are recognized exceptions to the establishment of an implied
resulting trust. The first is stated in the last part of Article 1448 itself. Thus,
where A pays the purchase money and title is conveyed by absolute deed
to A's child or to a person to whom A stands in loco parentis and who makes
no express promise, a trust does not result, the presumption being that a gift
was intended. Another exception is, of course, that in which an actual
contrary intention is proved. Also where the purchase is made in violation
of an existing statute and in evasion of its express provision, no trust can
result in favor of the party who is guilty of the fraud. 20
As a rule, the burden of proving the existence of a trust is on the party
asserting its existence, and such proof must be clear and satisfactorily show
the existence of the trust and its elements. 21 While implied trusts may be
proved by oral evidence, 22 the evidence must be trustworthy and
received by the courts with extreme caution, and should not be made to
rest on loose, equivocal or indefinite declarations. Trustworthy evidence is
required because oral evidence can easily be fabricated. 23 "
In Chiao Liong Tan v. Court of Appeals, we ruled: 24
"A certificate of registration of a motor vehicle in one's name indeed
creates a strong presumption of ownership. For all practical purposes, the
person in whose favor it has been issued is virtually the owner thereof unless
proved otherwise. In other words, such presumption is rebuttable by
competent proof.
The New Civil Code recognizes cases of implied trust other than those
enumerated therein. ( fn: Art. 1447, New Civil Code) Thus, although no
specific provision could be cited to apply to the parties herein, it is
undeniable that an implied trust was created when the certificate of
registration of the motor vehicle was placed in the name of petitioner
although the price thereof was not paid by him but by private respondent.
The principle that a trustee who puts a certificate of registration in his name
cannot repudiate the trust by relying on the registration is one of the well-
known limitations upon a title. A trust, which derives its strength from the
confidence one reposes on another especially between brothers, does not
lose that character simply because of what appears in a legal document.
Even under the Torrens System of land registration, this Court in some
instances did away with the irrevocability or indefeasibility of a certificate
of title to prevent injustice against the rightful owner of the property. ( fn:
Bornales v. IAC, G.R. No. 75336, 166 SCRA 524 [1988]; Amerol v.
Bagumbayan, G.R. No. L-33261, 154 SCRA 403 [1987]; Cardiente v. IAC, G.R.
No. 73651, 155 SCRA 689 [1987].)"
In this petition, petitioners deny that an implied trust was constituted
between the brothers Rodolfo and Eduardo. They contend that, contrary
to the findings of Respondent Court, their Exhibit 16 25 and Exhibit 17 26
were fully authenticated by Dominador Cruz, an "instrumental witness."
Hence, he should not be allowed to vary the plain content of the two
documents indicating that Rodolfo Tigno was the vendee.
We are not persuaded. Witness Dominador Cruz did not authenticate the
genuineness of Exhibit 16: 27
"ATTY. BERMUDEZ:
As Exhibit '16' dated June 12, 1980 signed by Remedios Sison, is that the
document executed by Remedios Sison?
ATTY. VIRAY:
That is only a xerox copy, we object, Your Honor.
ATTY. BERMUDEZ:
At any rate there was a receipt, is this the receipt?
A Maybe this or maybe not, sir.
ATTY. BERMUDEZ:
Q I am showing to you another document, which we respectfully request
that the same be marked as Exhibit '17.'"
In any event, these two exhibits are proof merely of the receipt of money
by the seller; they do not show that Rodolfo paid the balance of the
purchase price. 28 On the other hand, Witness Dominador Cruz was
unshakable in testifying that Private Respondent Eduardo, though not
named in the receipts or in the deeds of sale, was definitely the real buyer:
29
"COURT: (The Court will ask few questions.)
Q Do you know if there [is] a document executed between the brothers to
show the real vendee in these three deeds of absolute sale is Eduardo
Tigno?
A I don't know of any document because according to Eduardo Tigno it
will be placed in the name of his brother, Rodolfo Tigno so that it can be
used as collateral.
COURT:
Q Being the agent of this transaction did you not try to advice Eduardo
Tigno to be safe for him a document will have to be executed showing that
he is really the vendee?
A I also explained that matter to him I know that matter to happen in the
long run they will have dispute but Eduardo Tigno said he is his brother, he
have [sic] trust and confidence in his brother, sir.
COURT:
Q When did you give that advice?
A Before the preparation of the documents, sir.
Q Do you know already that it will be in the name of Rofolfo [sic] Tigno
before the execution?
A Yes, sir. During the time we have conversation on May 2, 1980, he
instructed me to place the name of Rodolfo Tigno in the document, Atty.
Manuel was present when he gave that advice, sir.
COURT:
Q What did Atty. Manuel advised [sic]?
A The reason for [sic] Eduardo Tigno have trust and confidence on his elder
brother, Rodolfo Tigno.
COURT: (Propounding questions)
Q So there is nothing written that will show that the money or purchase price
came from Eduardo Tigno, is that correct?
155

A None, sir. It's by trust and confidence.
Q Considering that you know that the money came from Eduardo Tigno,
why did you consent that the deed of absolute sale in the name of Rodolfo
Tigno and not Eduardo Tigno?
A Because Atty. Manuel called for Rodolfo Tigno because the document
was in the name of Rodolfo Tigno, sir.
Q The document is already defective, why did you not ask the preparation
of the document to be executed by Rodolfo Tigno accordingly that the
real owner who sold to you is the brother, Eduardo Tigno?
A I did not think of it, what I know is that the real owner is Eduardo Tigno, sir,
and has the power to disposed.
COURT:
Q Eduardo Tigno is the real owner, why did you agree that Rodolfo Tigno to
execute the document?
A Yes, sir. Atty. Manuel called for Rodolfo Tigno so I consented."
Aside from the "trust and confidence" reposed in him by his brother,
Petitioner Rodolfo was named as vendee in the deeds of sale to facilitate
the loan and mortgage the brothers were applying for to rehabilitate the
fishponds. Be it remembered that private respondent was a Makati-based
business executive who had no time to follow up the loan application at
the PNB branch in Lingayen, Pangasinan and, at the same time, to tend the
fish farm on a daily basis. Atty. Modesto Manuel, who prepared and
notarized the deeds of sale, unhesitatingly affirmed the unwritten
agreement between the two brothers: 30
"ATTY. VIRAY:
Will you please tell the Court what is the reason, if ever there was, why the
plaintiff, Eduardo Tigno, instructed you to put the name of Rodolfo Tigno as
vendee in the papers?
ATTY. BERMUDEZ:
We object, Your Honor. The best witness to that is the plaintiff, Your Honor.
COURT:
Q Do you know the reason why Eduardo Tigno requested you to place the
name of his brother as vendee?
WITNESS:
A Eduardo Tigno requested me to place the name of his brother as vendee
so that the brother can use the lands as collateral for possible loan at the
PNB (Philippine National Bank), sir.
COURT:
Go ahead.
ATTY. VIRAY:
Q When was that when the plaintiff instructed you to place the name of his
brother, the defendant, Rodolfo Tigno as vendee in the documents so that
the defendant, Rodolfo Tigno, could use the properties as collateral for
possible loan to the PNB?
WITNESS:
A It was sometimes during a fiesta in Guilig when Eduardo Tigno and
Dominador Cruz, I think that was May 2, 1980, when Eduardo Tigno and
Dominador Cruz and some of the vendors went to my house and they
requested me to prepare the deeds of sale, sir."
In his direct examination, Atty. Manuel convincingly explained why
Petitioner Rodolfo was named as vendee: 31
"ATTY. VIRAY:
Q When the plaintiff Eduardo Tigno instructed you to place the name of his
brother as the vendee in the deeds of sale you were to prepare, what did
you tell him or did you give any advice?
A Yes, sir. I certainly did, sir.
Q What advice?
A Why will I put the name of your brother as vendee when you were here
as real buyer who will give the money to the vendors? Why not you, I told
him, sir.
Q What else did you tell him?
A I remember he is to make Special Power of Attorney in order his brother
(sic) will execute the loan to the PNB, sir.
Q What did the plaintiff, Eduardo Tigno, tell you when you said it would be
best to execute the Special Power of Attorney instead of placing the name
directly in the deeds of sale, what is his answer?
A He acceded to my advised [sic], sir. All right, make the deeds of sale, he
said, agreeable to the deed of sale to my advised but when I told him that
it would take the document probably by the middle of June; he back [sic]
out, sir, because he told me he is going abroad and he may not be around
and then he instructed me to place the name of his brother as the vendee
not the plaintiff anymore, sir.
Q In other words, Mr. Witness, at first he was agreeable and that he would
execute Special Power of Attorney?
A Yes, sir.
Q Since he was going to the United States and he could not wait the
preparation of the documents he just instructed you to go ahead with the
first instruction, is that what you mean, Mr. Witness?
A Yes, sir." (Emphasis supplied.)
This testimony of Atty. Manuel was corroborated by Dominador Cruz who
was the real estate agent cum witness in all three deeds of sale. As a
witness, he pointed out that Petitioner Rodolfo was named as the vendee
in the deeds of sale upon the order of private respondent: 32
"ATTY. VIRAY:
Q When you said Atty. Manuel was not able to prepare the deed of sale
on May 2, 1980, what then happened in the house of Atty. Manuel?
A When Atty. Manuel was not able to prepare the document, my cousins
wanted to get advance payment, one half of ten thousand pesos, sir,
each.
ATTY. VIRAY:
Q Did Eduardo Tigno agreed [sic] to the request of your cousins to get one
half of the price of their land?
A He agreed to give five thousand pesos each but he prepared temporary
receipt fpr [sic] five thousand pesos, sir.
Q Who prepared the receipt?
A Atty. Manuel, sir.
Q By the way, how much all in all did Eduardo Tigno give on May 2, 1980 as
advanced consideration?
A P15,000.00, sir.
Q You mean to say five thousand pesos for each parcel of land?
A Yes, sir.
Q After the plaintiff, Eduardo Tigno paid the advanced payment for five
thousand pesos for each parcel of land, what else happened?
156
A When the three of us, I, Atty. Manuel and Eduardo Tigno were talking, I
heard Eduardo Tigno said to Attyl. [sic] Manuel that the deed of sale will be
placed in the name of my brother, Rodolfo because we will mortgage the
land with the P.N.B., the proceeds will be used in the development of the
fishpond. He requested that the buyer of the fishpond will be placed in the
name of the brother of Eduardo Tigno.
Q Who is that brother of Eduardo Tigno?
A Rodolfo Tigno.
xxx xxx xxx
Q How about the balance of the purchase price of the property, is there
any instruction made by Eduardo Tigno with respect to the payment
thereof?
A With respect to the balance after the preparation of the document they
will bring it to Eduardo Tigno for him to pay the balance, sir.
Q By the way, was the deed of sale to these parcels of land finally
executed?
A Yes, sir."
From the foregoing, it is clear that the name of Rodolfo Tigno appeared in
the deeds of sale not for the purpose of transferring ownership to him but
only to enable him to hold the property in trust for his brother, herein private
respondent.
In the face of the credible and straightforward testimony of the two
witnesses, Cruz and Manuel, the probative value, if any, of the tax
declarations being in the name of Petitioner Rodolfo is utterly minimal to
show ownership. Suffice it to say that these documents, by themselves, are
not conclusive evidence of ownership. 33
Contrary to petitioners' insistence, no delay may be imputed to private
respondent. When private respondent went to Pangasinan to pay the taxes
on his property in Bugallon, he learned from his relatives that his brother was
negotiating the sale of a portion of the fishponds to Spouses Casipit. Failing
to find his brother, he immediately wrote a letter dated May 16, 1989
addressed to the Casipits advising them to desist from buying the property
because he was the real owner. On May 18, 1989, he confronted Petitioner
Edualino Casipit about the impending sale, only to learn that the sale had
already been consummated as early as April 29, 1989. 34 Failing to
convince petitioners to annul the sale, private respondent instituted this
case on May 24, 1989 35 or five (5) days after learning from Edualino of the
consummation of the sale. 36 Before the institution of this case, private
respondent had no reason to sue. Indeed, he filed this case after only five
days from learning of the infidelity of his brother. Clearly, no delay may be
attributed to private respondent. liblex
We agree with the detailed disquisitions of the Court of Appeals on this
point: 37
"The trial court's conclusion that defendant-appellee is the true buyer and
owner of the lands in question, mainly relying on the Deeds of Sale where
defendant Rodolfo's name appears as vendee, and on the Tax
Declarations and Tax payment receipts in his name, must inevitably yield to
the clear and positive evidence of plaintiff. Firstly, as has thus been fully
established, the only reason why defendant Rodolfo was made to appear
as the buyer in the Deeds of Sale was to facilitate their mortgage with the
PNB Branch at Lingayen to generate seed capital for the fishponds, out of
which Rodolfo could derive income. With Rodolfo's name as vendee, there
would be no need anymore for the personal presence of plaintiff-appellant
who was very busy with his work in Manila. Moreover, aside from the fact
that plaintiff was to travel abroad for thirty (30) days sometime in June, 1980,
he could not have executed a Special Power of Attorney in favor of
Rodolfo, as the Deeds of Sale were not yet prepared on May 2, 1980. Thus,
to enable Rodolfo to mortgage the lands, his name was put as vendee in
view of the mutural [sic] trust and confidence existing between said parties
who are brothers. Secondly, it is well-settled that the tax declarations or the
payments of real estate taxes on the land are not conclusive evidence of
ownership of the declarant or payor (De Guzman v. CA, et al., L-47378, Feb.
27, 1987, and cases cited therein; Cited in II Regalado REMEDIAL LAW
COMPENDIUM, p. 563 [1988]). Since defendant Rodolfo is named as
vendee in the Deeds of Sale, it is only natural that Tax Declarations and the
corresponding tax payment receipts be in his name so as to effect payment
thereof."
Petitioners contend that there was no "fiduciary relationship" created
between the brothers Tigno. Petitioners argue that Rodolfo Tigno "had
exercised all the acts of dominion and ownership over the fishponds in
question," as nobody "shared in the produce of the fishponds for the past
nine (9) years." Therefore, Petitioner Rodolfo, "being the real purchaser" of
the parcels of land, "could validly transfer the ownership of a portion" to
Spouses Casipit. 38
We firmly reject these contentions and need only to cite Respondent
Court's incisive findings:
"After a careful examination of the evidence on record, we hold that an
implied trust was created in favor of the plaintiff [private respondent herein]
within the meaning of Article 1448 of the Civil Code, which provides:
'Art. 1448. There is an implied trust when property is sold, and the legal estate
is granted to one party but the price is paid by another for the purpose of
having the beneficial interest of the property. The former is the trustee, while
the latter is the beneficiary. . . .'
An implied trust arises where a person purchases land with his own money
and takes conveyance thereof in the name of another. In such case, the
property is held on a resulting trust in favor of the one furnishing the
consideration for the transfer, unless a different intention or understanding
appears. (Lim vs. Court of Appeals, 65 SCRA 160)
In the earlier case of Heirs of Candelaria, et al. v. Romero, et al., 109 Phil.
500, the Supreme Court elucidated on implied trust:
'The trust alleged to have been created in our opinion, is an implied trust.
As held, in effect, by this Court in the case of Martinez v. Grio (42 Phil. 35),
where property is taken by a person under an agreement to hold it for or
convey it to another or the grantor, a resulting or implied trust arises in favor
of the person for whose benefit the property was intended.
xxx xxx xxx
'It is also the rule that an implied trust arises where a person purchases land
with his own money and takes a conveyance thereof in the name of
another. In such a case, the property is held on a resulting trust in favor of
the one furnishing the consideration for the transfer, unless a different
intention or understanding appears. The trust which results under such
circumstances does not arise from contract or agreement on the parties,
but from the facts and circumstances, that is to say, it results because of
equity and arises by implication or operation of law.'
We disagree with the trial court's ruling that if, indeed, a trust has been
established, it is an express trust which cannot be proved by parol
evidence. It must be noted that Article 1441 of the Civil Code defines both
express trust and implied trust in general terms, thus:
'Art. 1441. Trusts are either express or implied. Express trust are created by
the intention of the trustor or of the parties. Implied trust come into being by
operation of law.'
Specific instances or examples of implied trusts are given in the Civil Code,
one of which is described under Article 1448 quoted heretofore. Since
Article 1448 is a specific provision, it prevails over and qualifies Article 1441,
which is a general provision, under the rule generalia specialibus non
derogant. (Alcantara, Statutes, 1990 Ed., p. 101).
Therefore, since this case involves an implied trust falling under Article 1448,
parol evidence is allowed to prove its existence pursuant to Article 1457,
Civil Code, which states:
'Art. 1457. An implied trust may be proved by oral evidence.'
xxx xxx xxx
On the other hand, the record is replete with clear and convincing
evidence to show that (1) plaintiff Eduardo Tigno is the real buyer and true
owner of the lands in question and (2) defendant Rodolfo M. Tigno is merely
a trustee constituted over said lands on behalf of plaintiff.
It was established thru plaintiff's testimony that plaintiff paid P5,000.00 each,
as first installment, to the three vendors for a total of P15,000.00 (TSN, Sept.
157
5, 1989, pp. 19-20), which was witnessed by Dominador Cruz and Atty.
Manuel. Later, he gave a check to Dominador Cruz, the agent, in the
amount of P26,000.00, representing the following:
'a) P15,000.00 as the balance for the three (3) parcels of land;
b) P6,000.00 representing Cruz's commission as agent;
c) P5,000.00 for capital gains tax, registration and other incidental
expenses. (TSN, Sept. 5, 1989, pp. 39-41).
When this check was encashed, Cruz paid the three vendors the balance
due them (TSN, Sept. 5, 1989, pp. 42-43). That plaintiff was able to pay these
amounts is believable, because plaintiff had the financial means to pay
said amounts. At the time of the sale in 1980, plaintiff was an executive of
Meryll Lynch, Pierce, Fennon S. Smith Phil., Inc., where he received
P311,700.79 in 1980 alone, as shown by his Certificate of Income Tax
Withheld on Wages for said year (Exhibit G for plaintiff)."
Indeed, by express provision of the Civil Code, 39 oral evidence is
admissible to establish a trust relation between the Tigno brothers. Private
respondent explained how this trust was created: 40
"ATTY. VIRAY
Q When you said Dominador Cruz was able to bring the vendors at Guilig
street, Lingayen, what happened there?
A They came to our family home at Guilig street and we went to the house
of Atty. Modesto Manuel, sir.
Q Why did you go to the house of Atty. Manuel?
A For the executionof [sic] the deed of sale of the property I am going to
buy, sir.
Q Was the deed of sale finished on that day?
A No, sir.
Q What was the reason?
A The vendors did not bring the tax declarations, secondly, the other heirs
failed to get the power of attorney from their sister in United States.
Q When the deed of sale were not executed on that day, what transpired?
A The vendors requested for advance payment of P5,000.00 each for the
three parcels of land.
Q Did you agree to the request of the vendors for the advance payment
of P5,000.00 each for the three parcels of land?
A Yes, sir.
Q Did you comply?
A Yes, sir.
Q How much all in all?
A P15,000.00 in cash, sir.
Q Was there any receipt signed evidencing receipt for that?
A There was receipt for the P15,000.00.
Q Where is that receipt now?
A I gave all the papers to him in my brown envelope, I trust [sic] him.
Q Do you remember in whose name the vendors allegedly to have
received the P15,000.00?
A In my name, received from Eduardo Tigno.
Q After giving the P15,000.00 advance payment which you said the deed
of sale were not executed because of some requirement were not
available, what happened next?
A I talked to Atty. Manuel separately from the vendors, and I told him to
prepare the deed of sale at that time and I told him to place my older
brother, Rodolfo Tigno as vendee because I have plan to mortgage the
property in PNB, Lingayen, sir.
xxx xxx xxx
Q Aside from instructing Atty. Manuel to place the name of your brother,
Rodolfo Tigno, did you also instruct Dominador Cruz for the payment of the
balance?
A Yes, sir.
Q What was your instruction to Dominador Cruz?
A I told Dominador Cruz, I am leaving for United States, I will be back first
week of July, after the completion of the papers, see me on the second
week of July and I will give the whole payment of the property.
Q And was the deed of sale covering the three parcels of land completed?
A Yes, sir.
Q Did Dominador Cruz bring the documents to you in your office in Makati?
A Yes, sir.
Q When was that?
A First week of July 1980, sir.
Q Did you give the payment of the balance?
A Yes, sir. After going over the documents, I issued to him a check payable
in the sum of P26,000.00."
The previously quoted testimonies of Modesto Manuel and Dominador Cruz
substantially corroborate private respondent's testimony. cdphil
On the other hand, Petitioner Rodolfo, although in possession of the deeds
of sale in his name, failed to present a single witness to corroborate his claim
that he bought the property partly with his own money and partly with the
money he allegedly borrowed from a certain Jose Manaoat. His failure to
present Manaoat gives rise to a presumption that the latter's testimony, if
given, would have been unfavorable to the former. 41 Respondent Court
did not give credence to the financial capacity of Petitioner Rodolfo Tigno:
42
"Defendant Rodolfo's denial of plaintiff's evidence, and his bare testimony
that he was the real buyer, without corroboration by other witnesses,
cannot be given credence and do not deserve belief. It was unlikely that
he had the financial means to pay for the lands in the total amount of
P53,000.00. As testified to by Arnulfo Peralta (TSN, Sept. 29, 1988, pp. 36-37),
Rodolfo was jobless then, and at one time or another was even supported
financially by plaintiff, as testified to by plaintiff (TSN, Oct. 16, 1989, pp. 11-
12), which in fact was confirmed by Rodolfo during his cross-examination
(TSN, Oct. 18, 1989, pp. 6-7). If indeed he was engaged in some piggery, as
he claimed, his financial capability is rendered doubtful by the fact that no
evidence, other than his bare testimony, was presented to show his income,
like an income tax return. His bare testimony that he borrowed P20,000.00
from Jose Manaoat to raise partly the amount of P53,000.00 lacks credibility.
Manaoat, who was in the best position to testify that Rodolfo borrowed
money from him, was never presented, which would gives rise to the
presumption that his testimony would be adverse to defendant, if
presented. (Sec. 3[e] Rule 131, Rules of Court)."
From the foregoing, it is ineludible that Article 1448 of the Civil Code finds
application in this case. Although the deeds of sale were in the name of
Petitioner Rodolfo, the purchase price was paid by private respondent who
was the real owner of the property. Petitioner Rodolfo is the trustee, and
private respondent is the beneficiary.
Second Issue: Are Petitioners Casipit Purchasers
in Good Faith?
158
Spouses Edualino and Evelyn Casipit contend that they "are purchasers in
good faith" and for valuable consideration; thus, they cannot be deprived
of the land they bought from Rodolfo Tigno. 43
This posturing is unacceptable. First, unrebutted is the emphatic testimony
of private respondent that Edualino was invited on May 2, 1980 to a picnic
in the fishpond. At the picnic, private respondent informed Petitioner
Edualino Casipit that he was the owner of the property. On this point,
private respondent testified: 44
"ATTY. VIRAY:
Q You said Edualino Casipit very well knew that the property is owned by
you, what made you say that the defendant Edualino Casipit very well
knew that you are the owner of the property he bought?
A Way back in 1980 when I gave the advance payment to the vendors, I
invited my friends and right there in the fishpond, we had small picnic and
that my father, and Boy Casipit were there.
ATTY. VIRAY:
Q What if you invited them, sign that from that time you were the one who
bought the parcels of land?
A Yes, sir."
Second, also uncontested is the testimony of Dominador Cruz that he met
Edualino on April 24, 1989, or five (5) days before the consummation of the
sale between Rodolfo and Spouses Casipit. During that meeting, Cruz told
Edualino that he bought from private respondent a portion of the subject
property for the purpose of building a dike. Thereafter, Edualino asked Cruz
to buy a portion of the property from private respondent. 45
Third, and in any event, Spouses Casipit did not acquire absolute ownership
over the property since the apparent vendor, Petitioner Rodolfo, did not
have the right to transfer ownership thereof. Be it remembered that the
fishponds were not registered under the Torrens system. Again, we cite
public respondent's ruling, which we find totally persuasive: 46
"It is our well-considered opinion, however, that whether or not defendant-
appellee spouses are in good faith is entirely immaterial, because no valid
sale in the first place was made between defendant-appellees covering
the portion of land in question. The fact is, as established by the evidence
on record, that defendant Rodolfo M. Tigno is not the owner of the lands in
question, but a mere trustee thereof, and could not have transferred
ownership of said lands, by way of sale, to his co-defendant-appellee
spouses. As a matter of basic principle in the law on sales, a person cannot
transfer ownership, by way of sale, of something over which he has no right
to transfer. Thus, Article 1459 of the Civil Code provides:
'Art. 1459. The thing must be licit and the vendor must have a right to transfer
the ownership thereof at the time it is delivered.' (Emphasis supplied)
Since defendant-appellee is not the owner of the lands in question, which
are not registered under the Torrens system, he could not by way of sale
have transferred, as he has no right to transfer, ownership of a portion
thereof, at the time of delivery."
WHEREFORE, premises considered, the petition is hereby DENIED and the
assailed Decision and Resolution are AFFIRMED in toto. Costs against
petitioners.
SO ORDERED.
[G.R. No. 108525. September 13, 1994.]
SPOUSES RICARDO AND MILAGROS HUANG, petitioners, vs. COURT OF
APPEALS, JUDGE PEDRO N. LAGGUI, Presiding Judge, RTC, Makati, Br. 60, and
SPOUSES DOLORES AND ANICETO SANDOVAL, respondents.
BELLOSILLO, J p:
Sometime in 1965 respondent Dolores Sandoval wanted to buy two (2) lots
in Dasmarias Village, Makati, but was advised by petitioner Milagros
Huang, wife of her brother, petitioner Ricardo Huang, that the policy of the
subdivision owner forbade the acquisition of two (2) lots by a single
individual. Consequently, Dolores purchased Lot 21 and registered it in her
name. She also purchased the adjacent lot, Lot 20, but heeding the advice
of Milagros, the deed of sale was placed in the name of Ricardo and
registered in his name under TCT No. 204783. Thereafter, Dolores
constructed a residential house on Lot 21. Ricardo also requested her
permission to construct a small residential house on Lot 20 to which she
agreed inasmuch as she was then the one paying for apartment rentals of
the Huang spouses. She also allowed Ricardo to mortgage Lot 20 to the
Social Security System to secure the payment of his loan of P19,200.00 to be
spent in putting up the house. However, she actually financed the
construction of the house, the swimming pool and the fence thereon on
the understanding that the Huang spouses would merely hold title in trust
for her beneficial interest. LLphil
On 19 March 1968, to protect her rights and interests as the lawful owner of
Lot 20 and its improvements, Dolores requested the Huangs to execute in
her favor a deed of absolute sale with assumption of mortgage over the
property. The latter obliged.
On 15 March 1980, the Huang spouses leased the house to Deltron-Sprague
Electronics Corporation for its various executives as official quarters without
first securing the permission of Dolores. Dolores tolerated the lease of the
property as she did not need it at that time. But, after sometime, the lessees
started prohibiting the Sandoval family from using the swimming pool and
the Huangs then began challenging the Sandovals' ownership of the
property.
On 26 August 1980, Dolores lodged a complaint before the Office of the
Barangay Captain praying that the spouses Ricardo and Milagros Huang
be made to execute the necessary request to the SSS for the approval of
the deed of sale with assumption of mortgage, as well as for the release in
her favor of the owner's duplicate certificate of title in its possession so that
the deed could be duly annotated on the title and/or a new certificate of
title issued in her name. But no amicable settlement was reached, so that
on 16 December 1980 the Lupong Tagapayapa issued a certification that
the controversy was ripe for judicial action.
On 22 December 1980, Ricardo and Milagros Huang filed a complaint
against the spouses Dolores and Aniceto Sandoval in the that Court of First
Instance of Rizal, docketed as Civil Case No. 39702, seeking the nullity of
the deed of sale with assumption of mortgage and/or quieting of title to Lot
20. They alleged that the Sandovals made them sign blank papers which
turned out to be a deed of sale with assumption of mortgage over Lot 20.
Meanwhile, on 19 February 1981, Dolores paid the balance of Ricardo's
loan to the SSS and requested the release to her of TCT No. 204783 and the
real estate mortgage thereon, but SSS refused. On the same date, she filed
a complaint against the Huang spouses and the SSS before the same trial
court, docketed as Civil Case No. 40288, praying among other things that:
(a) the SSS be restrained from releasing the owner's copy of TCT No. 204783
to the Huangs; (b) the SSS be ordered instead to release to her said title as
well as the mortgage thereon; and, (c) the Register of Deeds of Rizal be
ordered to register the deed of sale, cancel TCT No. 204783 and issue
another one in her name. Cdpr
Both cases were consolidated and jointly tried. On the basis of the
evidence presented, the trial court found that it was indeed Dolores who
bought Lot 20 but had it registered in the name of Ricardo; and, it was she
who built the house and swimming pool thereon and the fence enclosing
Lots 20 and 21. As regards the deed of sale with assumption of mortgage,
the trial court found that it was signed voluntarily by the Huang spouses so
much so that their claim that they were misled into signing it was
unbelievable. Thus, on 23 November 1988, judgment was rendered in favor
of the Sandoval spouses thus:
In Civil Case No. 39702 (1) The complaint of the Huang spouses was
dismissed; (2) The Sandovals were declared owners of Lot 20 and all the
improvements thereon; (3) The deed of sale with assumption of mortgage
was declared valid; (4) The Huang spouses and all persons acting in their
behalf were ordered to vacate the property and turn over the possession
to the Sandovals; (5) The Huang spouses were ordered jointly and severally
to (a) deliver to the Sandoval spouses all the rentals and other income from
Lot 20 which they received, and (b) pay to the Sandovals P5,000.00 as
exemplary damages, P10,000.00 as attorney's fees, and the costs of suit;
and, (6) The Register of Deeds of Rizal was ordered to (a) register the deed
of sale with assumption of mortgage; (b) cancel TCT No. 204783, and (c)
issue, in lieu thereof, a transfer certificate of title in the name of "Dolores
159
Sandoval married to Aniceto Sandoval" upon compliance with all the legal
requirements.
In Civil Case No. 40288 (1) Ricardo, Milagros or the SSS who has custody
of the owner's copy of TCT No. 204783 was ordered to surrender it to the
Registry of Deeds of Rizal within ten (10) days from the finality of the
decision, otherwise, for failure to do so, the title shall be deemed annulled
and the Register of Deeds shall issue another owner's copy thereof in favor
of the Sandovals, and (2) SSS was ordered to execute a discharge of the
mortgage annotated on TCT No. 204783 and deliver it to Dolores within ten
(10) days from the finality of the decision. 1
The Huang spouses filed a motion for reconsideration and new trial and/or
rehearing but it was denied by the trial court in its order of 26 July 1989. 2
On appeal to the Court of Appeals, the decision of the trial court was
affirmed. 3 The motion to reconsider the decision was denied. 4 Hence the
instant recourse. llcd
Petitioners assert that the finding of the Court of Appeals of a resulting or
implied trust between them and Dolores is not supported by evidence. On
the contrary, the deed of sale with assumption of mortgage has all the
elements of an equitable mortgage. Granting arguendo that a resulting or
implied trust exists between the parties, its enforcement is already barred
by prescription. Petitioners argue that when the suit in the trial court was
filed by Dolores on 19 February 1981 more than ten (10) years had already
lapsed since TCT No. 204783 was issued on 11 October 1967. They also
contend that jurisprudence has established the rule that the prescriptive
period for an action for reconveyance based on fraud is ten (10) years, and
that a resulting or implied trust is totally incompatible with the deed of sale
with assumption of mortgage, hence, the existence of said deed cannot
be vaguely dismissed as a mere security. It is the position of petitioners that
the terms of the contract are rendered conclusive upon the parties and
evidence aliunde is not admissible to vary, contradict or dispute a
complete and enforceable agreement embodied in a document.
The exhaustive decision of the trial court based as it is on a painstaking
review of the entire records deserves our affirmance. Indeed, we find no
reason to disturb the factual conclusions therein.
Ricardo claimed that he bought Lot 20 with his own money on installment:
the first installment of P19,341.00 was paid on 5 November 1965, and the
second installment of P39,279.75 was paid on 4 April 1966. He said that the
money came from his salary as employee of the Universal Textile Mills, his
commission as rice sales agent, his involvement in politics and other
undeclared income. LexLib
But Ricardo's pretense was easily unmasked by the following
circumstances: (1) His annual income as employee of Textile Mills was only
P6,795.05 in 1964, 5 P6,295.05 in 1965 6 and P7,154.15 in 1966; 7 as of 10 June
1967, he was only receiving a monthly salary of P600.00; 8 (2) His commission
as rice sales agent of Dolores was earned in connection with a 1973
transaction, and so he could not have used this commission in 1965 and
1966 for the purchase of Lot 20; (3) He never bothered to explain how he
made money out of politics and how much he realized from it; and, (4)
There is no evidence on the source, nature and amount of his undeclared
income. The only logical conclusion then is that the money which was used
to buy Lot 20 did not belong to him.
On the part of Dolores, she was able to prove by overwhelming evidence
that she purchased Lot 20 with her own funds. She testified that Milagros
informed her that she could not buy two (2) lots in the village in her name;
instead, she suggested that one of the lots be bought in the name of
Ricardo. This testimony was never refuted by Ricardo. Moreover, the
Agreements to Purchase and Sell Lots 20 9 and 21 10 were both executed
on 5 November 1965 and the first installments for both lots were paid on the
same date, while the second installments were paid on 4 April 1966. These
facts suggest that the lots were bought in a single transaction by only one
person.
Dolores also testified that she gave the amount corresponding to the first
installments for both lots to Milagros. Dolores was able to establish that she
withdrew P19,500.00 from her deposit at the National City Bank of New York
11 and issued a Prudential Bank check for P19,341.00. 12 In payment of the
second installments for the two lots, she withdrew P24,000.00 from the First
National City Bank 13 and issued a check for P54,927.90. 14 Viewed
together with the foregoing circumstances is the admission of Ricardo
himself that Dolores constructed the swimming pool on Lot 20 and enclosed
Lots 20 and 21 with a fence at her own expense. prcd
Aside from Lot 20, Ricardo also asserted ownership of the house thereon
which he claimed to have started constructing on 13 December 1967 and
that it was "semi-accomplished" by 8 March 1968.
Weighed against the testimony of Dolores that for the cost of labor alone in
the construction of the house she spent P45,000.00 while the other expenses
are listed in Exhs. "20," "21" and "21-A" to "J," Ricardo could not have spent
therefor because, as previously shown, his income was not sufficient
enough. Neither could the P19,200.00 loan which he obtained from the SSS
suffice. Dolores even had to shell out P5,062.68 on 7 May 1968 to pay for
arrears in the rental of the apartment being occupied by the Huangs from
November 1966 to February 1968; electric bills from March 1965 to
December 1967; and, water bills up to February 1966, 15 to prevent the
Huangs from being ejected from their apartment. Dolores' ownership of the
house is confirmed further by the presence of her personal properties
therein, e.g., chandelier, 16 furniture, 17 (c) Tai-ping rugs 18 and Sacred
Heart statue. 19
As a whole, spouses Huang's evidence failed to help them in their bid to
establish ownership over Lot 20 and its improvements. They should know the
Chinese proverb that "one simply cannot attain his purpose of chewing
food well if he were to do it by means of loose teeth."
Regarding the deed of sale with assumption of mortgage, Ricardo alleged
that Dolores and his cousin, Rene Javier, pressured and misled him into
signing it because of his P30,000.00 indebtedness to Dolores; the deed was
"blank" in the sense that it did not have a title when he signed it; he did not
read its contents; and, he did not acknowledge it before a notary public.
Ricardo's version of the circumstances under which he signed the deed in
question is incredible. Human experience argues against the claim that a
highly educated and mature man like Ricardo would sign a deed of sale
without reading or knowing its contents. Ricardo graduated with the
degree of Bachelor of Science in Architecture in 1955, and when he signed
the deed he was about 39 years old. There is no evidence on record that
Dolores "pressured" Ricardo to sign the deed. In fact, Milagros signed the
document at the instance of Ricardo himself. The deed, which was duly
notarized, enjoys the presumption of regularity in its execution. The claim of
Ricardo that he was indebted to Dolores in the amount of P30,000.00, which
he used in his pretense that he was coerced by her, was never established.
On the contrary, the testimony of Dolores is more in accord with reason and
clearly disproves Ricardo's gratuitous allegations. She testified that she
asked Ricardo and Milagros to sign the deed of sale for her and her
children's protection because time would come when they would want the
property for themselves. Besides, according to her, the Huang spouses read
the contents of the deed and signed it before the notary public without
any compulsion from her. We are therefore drawn to the inevitable
conclusion that the Huang spouses voluntarily signed the deed before the
notary public with full knowledge of its contents and in recognition of
Dolores' ownership over Lot 20 and its improvements. LLpr
We shall discuss the merit, nay, the demerit of the Huang petition. First, there
is need to define the basic concepts in a trust relationship. Trust is a fiduciary
relationship with respect to property which involves the existence of
equitable duties imposed upon the holder of the title to the property to deal
with it for the benefit of another. 20 A person who establishes a trust is called
the trustor; one in whom confidence is reposed as regards property for the
benefit of another person is known as the trustee; and the person for whose
benefit the trust has been created is referred to as the beneficiary 21 or
cestui que trust. Trust is either express or implied. Express trust is created by
the intention of the trustor or of the parties. Implied trust comes into being
by operation of law. 22 The latter kind is either constructive or resulting trust.
A constructive trust is imposed where a person holding title to property is
subject to an equitable duty to convey it to another on the ground that he
would be unjustly enriched if he were permitted to retain it. The duty to
convey the property arises because it was acquired through fraud, duress,
undue influence or mistake, or through breach of a fiduciary duty, or
through the wrongful disposition of another's property. On the other hand,
a resulting trust arises where a person makes or causes to be made a
disposition of property under circumstances which raise an inference that
he does not intend that the person taking or holding the property should
have the beneficial interest in the property. 23 It is founded on the
presumed intention of the parties, and as a general rule, it arises where, and
only where such may be reasonably presumed to be the intention of the
parties, as determined from the facts and circumstances existing at the
time of the transaction out of which it is sought to be established. 24
160
In the present case, Dolores provided the money for the purchase of Lot 20
but the corresponding deed of sale and transfer certificate of title were
placed in the name of Ricardo Huang because she was advised that the
subdivision owner prohibited the acquisition of two (2) lots by a single
individual. Guided by the foregoing definitions, we are in conformity with
the common finding of the trial court and respondent court that a resulting
trust was created. Ricardo became the trustee of Lot 20 and its
improvements for the benefit of Dolores as owner. The pertinent law is Art.
1448 of the New Civil Code which provides that there is an implied trust
when property is sold and the legal estate is granted to one party but the
price is paid by another for the purpose of having the beneficial interest of
the property. A resulting trust arises because of the presumption that he
who pays for a thing intends a beneficial interest therein for himself. 25
Petitioners' assertion that the deed of sale with assumption of mortgage has
all the elements of an equitable mortgage must outrightly be rejected as it
was apparently never brought to the attention of the trial court nor averred
before respondent court. Well settled is the rule that, ordinarily, issues not
raised in the trial court, let alone in the Court of Appeals, cannot be raised
for the first time before this Court 26 as it would be offensive to the basic
rule of fair play, justice and due process. 27
Petitioners raise the issue of prescription. But the action to compel the
trustee to convey the property registered in his name for the benefit of the
cestui que trust does not prescribe. 28 If at all, it is only when the trustee
repudiates the trust that the period of prescription commences to run. 29
The prescriptive period is ten (10) years from the repudiation of the trust. It is
ten (10) years because just as a resulting trust is an offspring of the law, so is
the corresponding obligation to convey the property and the title thereto
to the true owner. In this context, and vis-a-vis prescription, Art. 1144 of the
New Civil Code, which is the law applicable, provides: "The following
actions must be brought within ten years from the time the right of action
accrues: (a) Upon a written contract; (b) Upon an obligation created by
law; (c) Upon a judgment." 30
Thus, the reckoning point is repudiation of the trust by the trustee because
from that moment his possession becomes adverse, which in the present
case gave rise to a cause of action by Dolores against the Huang spouses.
31 However, before the period of prescription may start, it must be shown
that: (a) the trustee has performed unequivocal acts of repudiation
amounting to an ouster of the cestui que trust; (b) such positive acts of
repudiation have been made known to the cestui que trust; and, (c) the
evidence thereon is clear and conclusive. In Laguna v. Levantino 32 and
Valdez v. Olorga, 33 we held that acts which may be adverse to strangers
may not be sufficiently adverse to the cestui que trust. A mere silent
possession of the trustee unaccompanied by acts amounting to an ouster
of the cestui que trust cannot be construed as an adverse possession. Mere
perception of rents and profits by the trustee, and erecting fences and
buildings adapted for the cultivation of the land held in trust, are not
equivalent to unequivocal acts of ouster of the cestui que trust. LLphil
We agree with the trial court that the action filed by Dolores has not
prescribed. Firstly, Ricardo has not performed any unequivocal act of
repudiation amounting to an ouster of Dolores. The only acts which may be
considered as indicative of his intention not to respect the trust anymore
were his leasing the house without the prior knowledge of Dolores; his refusal
to carry out the demand of Dolores that he must ask the lessees to vacate
the house; and, his refusal to give the necessary papers to Dolores to enable
her to get the title from the SSS. Secondly, the foregoing acts are not
positive acts of repudiation; and, thirdly, the evidence on such acts is
unclear and inconclusive. But even if the foregoing acts were manifest acts
of repudiation made known to Dolores, the fact remains that they were
done at the earliest only on 15 March 1980 when Ricardo leased Lot 20 and
its improvements to Deltron. Dolores' complaint before the trial court was
filed on 19 February 1981, or within the 10-year prescriptive period.
Petitioners are of the mistaken notion that the 10-year prescriptive period is
counted from the date of issuance of the Torrens certificate of title. This rule
applies only to the remedy of reconveyance which has its basis on Sec. 53,
par. 3, P.D. No. 1529, otherwise known as the Property Registration Decree,
34 and Art. 1456 of the Civil Code. 35 Reconveyance is available in case of
registration of property procured by fraud thereby creating a constructive
trust between the parties, a situation which does not obtain in this case.
Without expressly stating so, petitioners' line of argument invokes Rule 130,
Sec. 7, of the Rules of Court then prevailing which states: "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." LexLib
The Huangs were less than candid to the Court when they merely invoked
the general rule and completely ignoring the exceptions that are also
explicitly provided therein: (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; and, (b)
when there is an intrinsic ambiguity in the writing. In the present case, parol
evidence is admissible because the deed of sale with assumption of
mortgage failed to express the true intent and agreement of the parties.
We concur with the finding of the appellate court that the deed was
executed by the parties as security for the protection of the rights and
interests of Dolores as the true and lawful owner of Lot 20 and its
improvements.
Petitioners state prefatorily in their petition that this case involves sibling
oppression. It does not. Rather, it is a battle between greed and thirst for
justice, between a fortunate sister and a less fortunate brother, with the
latter taking advantage of the former's bounty.
WHEREFORE, the petition is DENIED. The decision of respondent Court of
Appeals dated 28 September 1992 and its resolution dated 8 January 1993,
both sustaining the decision of the Regional Trial Court, are AFFIRMED, with
costs against petitioners.
SO ORDERED.
[G.R. No. 108121. May 10, 1994.]
HERMINIA L. RAMOS and HEIRS OF HERMINIO RAMOS, petitioners, vs. HON.
COURT OF APPEALS, SPOUSES HILARIO CELESTINO and LYDIA CELESTINO,
respondents.
DAVIDE, JR., J p:
Invoking Rule 45 of the Rules of Court, petitioners seek the review and
reversal of the decision of the Court of Appeals of 30 September 1991 1 and
its Resolution of 15 December 1992 2 in CA-G.R. CV No. 26544. 3 The
challenged decision affirmed the joint decision 4 of Branch 95 of the
Regional Trial Court (RTC) of Quezon City in Civil Case No. Q-49272 and LRC
Case No. Q-3387(86), the dispositive portion of which reads as follows:
"WHEREFORE, in LRC Case No. Q-3387 (86), the Court hereby renders
judgment dismissing said case with the petition and claims therein for lack
of jurisdiction thereover; and in Civil Case No. Q-49272, the Court hereby
renders judgment dismissing defendant's counterclaim for lack of merit and
declaring plaintiffs to be the lawful owners of the subject parcel of land
designated as Lot 25, Block 86 of the subdivision plan Psd-68807, with an
area of 400 square meters, more or less, situated in Sikatuna Village, Diliman,
Quezon City, and covered by Transfer Certificate of Title No. 204173 of the
Registry of Deeds for Quezon City, as well as ordering defendants: (a) to
execute a deed of absolute sale in favor of plaintiffs, conveying and
transferring the ownership of said parcel of land; (b) to remove whatever
improvements defendants have erected on said parcel of land; (c) to
vacate said parcel of land and deliver possession thereof to plaintiffs; and,
(d) jointly and severally to pay plaintiffs the sum of P20,000.00 as attorney's
fees, as well as to pay the costs of suit. Further, finding no satisfactory
warrant therefor, the Court also hereby dismisses the rest of plaintiff's claims."
5
Civil Case No. Q-49272 was an action for reconveyance filed by the
spouses Hilario and Lydia Celestino against Herminia Ramos and the heirs
of Herminio Ramos praying that the plaintiffs be declared the lawful owners
of Lot No. 25, Block 86 of the subdivision plan Psd-68807 located at Sikatuna
Village, Diliman, Quezon City, and that the defendants be ordered to
execute a deed of absolute sale over the lot in favor of the plaintiffs,
remove whatever improvements they have constructed thereon, vacate
the lot and deliver its possession to the plaintiffs, and to pay actual, moral,
and exemplary damages, attorney's fees, and the costs of the suit. 6 LRC
Rec. Case No. Q-3387(86) was a petition to declare void the order issued
on 22 August 1985 by Branch 104 of the RTC of Quezon City in LRC Case No.
Q-3150(85) 7 ordering the cancellation of Transfer Certificate of Title (TCT)
No. 204173 upon petition of Herminia Ramos. cdrep
The facts, as found by the trial court and adopted by the respondent Court
of Appeals, are as follows:
161

"From the evidence adduced at the joint trial of these related cases, the
Court finds that petitioner/plaintiff Lydia Celestino (referred to as Lydia
hereinafter), married to plaintiff Hilario Celestino, was employed in the
economic research department of the Central Bank of the Philippines from
1949 to 1983, while the late Herminio Ramos (Herminio, hereinafter) the
deceased spouse of respondent/defendant Herminia L. Ramos (Herminia
hereinafter) and predecessor-in-interest of Herminia and the rest of
defendants was employed during his lifetime in the same department of
the Central Bank until his retirement sometime in 1972.
Sometime in 1961, the now defunct People's Homesite & Housing
Corporation (PHHC) awarded the rights to buy certain parcels of land to
employees of the Central Bank. As a Central Bank employee, Herminio was
awarded the rights to buy the parcel of land designated as Lot 25, Block 86
of the subdivision plan Psd-68807, with an area of some 400 square meters,
and situated in what is now known as Sikatuna Village in Diliman, Quezon
City. For the price of P3,800.00 payable in installments, Herminio then sold
and transferred to Lydia his said rights to buy said property, and Lydia paid
said price in several installments, the last installment being paid on May 21,
1962 (Exhs. A thru C). Having acquired the rights to buy the property, Lydia
assumed the obligation of paying to the PHHC the purchase price thereof.
Thus, Lydia paid to the PHHC the monthly amortizations of P34.11 per month
over a period of some 10 years ending sometime in 1974 when she paid the
last monthly amortization, thereby effecting the full payment of the
purchase of the subject land. During said period and thereafter, Lydia's
friend, Cynthia Camacho, who was then residing at the back of the subject
property, acted as the property's caretaker for Lydia, even as Lydia also
had the land fenced.
When the corresponding transfer certificate of title Transfer Certificate of
Title (TCT) No. 204173 of the Registry of Deeds for Quezon City was issued
after the full payment of the purchase price, the certificate was in the name
of 'HERMINIO T. RAMOS, of legal age, Filipino, married to Herminia L. Ramos'
(Exhs. 1-A & 6-A). Herminio and Herminia knew of and consented to the
delivery to Lydia of said title certificate's owner's duplicate copy (Exh. D,
also Exh. 1), and said copy since then has been in Lydia's possession and
custody. On or about November 26, 1974, Herminio, together with Herminia,
executed in Lydia's favor an irrevocable special power of attorney (Exh. E),
in sum empowering Lydia to sell, mortgage, or lease the subject property
and to dispose of the proceeds thereof in any manner she wants. Said
special power of attorney was executed upon the advice of a realty
expert, one Isidro Gonzales, as a practical means of giving assurance to
Lydia that Herminio, together with his spouse Herminia, was in good faith
and recognized the existing implied trust relationship between them over
the subject land, particularly in view of the restriction annotated on the title
certificate in sum to the effect that within one year from said certificate's
issuance no transfer or alienation of the property shall be made without the
PHHC's written consent (Exh. 1-B). Cdpr
On August 22, 1985, Branch 104 of the Regional Trial Court of the National
Capital Judicial Region in Quezon City (referred to as RTC Branch 104
hereinafter) issued in its LTC Case No. Q-3150 (85) an Order (Exh. 9), in sum
cancelling and declaring null and void 'the owner's duplicate copy of
Transfer Certificate of Title No. 204173 that was lost' and ordering the
Register of Deeds of Quezon City 'to issue, upon payment of the required
fees, another owner's duplicate copy which shall contain annotations in,
and memorandum of the fact that it is issued in the place of the lost
certificate of title, in all respect be entitled to like faith and credit as the
original duplicate for all purposes of Presidential Decree No. 1529' and,
accordingly, another owner's duplicate copy of TCT No. 204173, with a
memorandum of said Order of RTC Branch 104 was issued by the Register
of Deeds of Quezon City (Exhs. 6 and 6-B). Said Order was issued upon
Herminia's petition, in sum claiming that the original owner's duplicate copy
was lost and missing.
After having belatedly learned of the issuance of said Order of RTC Branch
104, Lydia on March 21, 1986 filed her petition herein, docketed as LRC
Case No. Q-3387 (86), in sum praying that said Order of August 22, 1985 in
LRC Case No. Q-3150 (85) be declared null and void and without legal
effect and that the new owner's duplicate copy issued and delivered to
Herminia be cancelled, on the ground that Herminia secured such new
owner's duplicate copy thru fraud and misrepresentation because she well
knew that the supposedly 'lost' owner's duplicate copy was in Lydia's
possession and custody.
Sometime later, after having verified that Herminio had passed away in the
early part of 1985 and that Herminia and his successors-in-interest were
disputing the ownership of the subject property and building thereon, Lydia
together with her spouse Hilario Celestino filed the complaint herein,
docketed as Civil Case No. Q-49272, engaging the services of counsel for
the prosecution thereof." 8
The trial court's decision is premised on the following findings and
conclusion: LLpr
"The Court, upon the evidence adduced, finds that an implied or resulting
trust was created by operation of law when the subject property was sold
by the PHHC, with the legal title being vested in Herminio as the
corresponding TCT was issued in his name, but with the beneficial title,
however, being vested in Lydia as she was the one who paid the purchase
price of the property out of her funds after Herminio had earlier sold and
transferred to her his rights to buy the property and she had fully paid him
the purchase price for said rights; accordingly, it appearing that instead of
recognizing and abiding by said trust, Herminia and the other defendants
(who as Herminio's successor-in-interest merely stepped into his shoes upon
his death) have repudiated the trust by claiming the property for
themselves soon after Herminio's death in 1985, Lydia and her spouse Hilario
were fully warranted in bringing their said complaint herein, seeking as it
does, the enforcement of the trust thru defendants' execution of the
corresponding conveyance deed to the end that the true beneficial title
may be reflected in the corresponding title certificate; and, again, since it
was because of defendant's unwarranted repudiation of the trust that
plaintiffs were compelled to bring their complaint in Civil Case No. Q-49272
and engage their counsel's services therefor, the Court finds that aside from
the principal relief sought in the complaint and the costs, recovery by
plaintiffs from defendants of the sum of P20,000.00 as reasonable attorney's
fees is just and equitable. . . .
The fact that Herminia knew of and consented to the subject transaction
between Herminio and Lydia is amply indicated by the special power of
attorney, Exh. E, executed in Lydia's favor by Herminio and Herminia
sometime on November 26, 1974. No reasonable explanation can be
gleaned from the evidence adduced for Herminio's and Herminia's
execution of said special power of attorney other than the fact that they
recognized that it was Lydia who paid the purchase price of the subject
property to the PHHC out of her own funds and that she was the beneficial
owner thereof. Of course, Herminia would have the Court find that the
signature appearing over her printed name in Exh. E is not her signature.
But, certainly, Herminia's bare claim cannot prevail against the notary
public's certificate in the acknowledgment portion of the document, in sum
asserting that both Herminio and Herminia personally appeared before the
notary public, that they are the same persons who executed the special
power of attorney, and that they acknowledged to the notary public that
they understood the contents of the document and that they executed the
same as their voluntary act and deed; and, indeed, Herminia's specimen
signatures (Exh. 2 thru 5), presented at the trial, cannot properly be
described as bearing no marked similarity, nay, identity, with the signature
appearing over her printed name Exh. E. LexLib
Then, again, the fact that Herminia apparently secured the tax declarations
and paid the realty taxes and penalties on the subject property only after
Herminio's death in 1985 (Exhs. 7 thru 8-1), tends to indicate that Herminia
herself never regarded Herminio and herself as the subject property's
owners in fee simple but, rather, merely as trustees for Lydia that is, until
Herminia, together with the other defendants, repudiated the trust soon
after Herminio's death in 1985." 9
The defendants appealed from the decision to the Court of Appeals which
docketed the appeal as CA-G.R. CV No. 26544. In their brief, the
defendants-appellants contended that the trial court erred in holding that
(1) Herminia Ramos knew of and consented to the transaction between her
husband and Lydia Celestino as evidenced by the special power of
attorney; (2) the alleged special power of attorney showed that the Ramos
spouses recognized that it was Lydia Celestino who paid the purchase price
of the lot to the PHHC out of her own funds; (3) an implied or resulting trust
was created when the property was sold by the People's Homesite and
Housing Corporation (PHHC) and issued to Herminio Ramos with the
beneficial title vesting in Lydia Celestino since she was the one who paid
the purchase price out of her own funds; (4) the plaintiff's action for
reconveyance had not prescribed or been barred by laches; (5) the
plaintiffs are the lawful owners of the lot, and the defendants are obligated
to execute a deed of absolute sale in favor of the former, remove their
improvements on the lot, and vacate the premises and deliver the
possession of the lot to the former; and (6) attorney's fees are due the
plaintiffs. 10
162
In connection with the first three assigned errors, the appellants maintained
in the alternative that even assuming for the sake of argument that
Herminio Ramos sold his rights over the lot in question to Lydia Celestino, the
transaction was unenforceable or void ab initio and no trust was created
in view of the following considerations: the alleged sale was not evidenced
by any document, note, or memorandum as required by the Statute of
Frauds (Article 1403 (2) (e), Civil Code); no document was introduced to
prove the alleged express trust as required in Article 1443 of the Civil Code;
the transaction in question did not give rise to an implied trust under the
Civil Code; Lydia Celestino is not qualified to acquire the lot in question from
the PHHC, a fact she admitted in her testimony; the PHHC did not give its
consent to the alleged sale, contrary to the conditions annotated at the
back of TCT No. 204173 to the effect that the vendee (Herminio Ramos)
cannot sell or encumber the said parcel of land or any part thereof without
the written consent of the PHHC; the cause, object, or purpose of the
alleged transaction (sale of right over the lot) is contrary to law or the public
policy that the award of lands should only be to those who are not yet
owners of land in Quezon City, or to morals since the transaction
circumvented the policy; and Herminio Ramos had no right to sell the land
or any portion thereof without the consent of his wife. 11
As aforestated, the Court of Appeals, in its Decision of 30 September 1991,
affirmed the decision of the trial court. In rejecting the appellants' first three
assigned errors, it held that (a) the petitioners were unable to overcome the
presumption of the authenticity and genuineness of the special power of
attorney, a public document duly acknowledged before a notary public;
12 (b) the Statute of Frauds applies only to executory contracts, while the
action instituted by the appellees was "for reconveyance based on
resulting trust arising from a fully executed sale with nothing left to be done
except the formal execution of the deed of conveyance"; "the
documentary evidence showing the sale of Herminia [sic] Ramos' right to
purchase the lot is well-nigh conclusive"; 13 (c) neither the private
respondents nor the trial court made any reference to an express trust
under Article 1437 of the Civil Code; what is present in this case is a resulting
trust under Article 1448 14 of the Civil Code wherein "the legal title to the lot
was taken and given to Herminia Ramos and Herminio Ramos; while the
beneficial ownership thereof remained with the plaintiff"; 15 and (d)
"restriction of the sale of the property without the approval of the PHHC
within one year from the issuance of the title does not militate against and
is not element of a resulting trust." 16
As regards the fourth assigned error, the Court of Appeals ruled that the
appellees' cause of action for reconveyance had not yet prescribed for
"the trust was a continuing and subsisting one" which the special power of
attorney recognized; the rule of prescription of implied or resulting trust does
not apply where a fiduciary relation exists and the trustee recognizes the
trust; and if at all, there was a repudiation of the trust, it "came about only
after the death of Herminio when defendants tried to claim the property for
themselves in 1985." 17
The appellants then filed a Motion for Reconsideration and for Leave to
Submit Additional Evidence, dwelling at length on the admissibility and
authenticity of the special power of attorney by reiterating that Herminia
Ramos' signature thereon is a forgery and alleging that the copy thereof
was not admissible in evidence as it was a mere photocopy and therefore
not the best evidence; and that they were able to obtain a certification
from the Clerk of Court of the RTC of Manila that Atty. Ulpiano P. Mosalla,
before whom the special power of attorney was acknowledged, was not
a duly commissioned notary public for and in the City of Manila. They further
reiterated the issues of prescription, the absence of marital consent on the
part of Herminia Ramos to the sale of her husband's right over the lot, and
the disqualification of Lydia Celestino to purchase the lot. 18
In its Resolution of 15 December 1992, 19 the Court of Appeals denied the
aforesaid motion for reconsideration with leave to submit additional
evidence. prcd
Hence this petition which was filed on 28 December 1992.
On 13 December 1993, after the submission of the comment to the petition,
the reply thereon, and the rejoinder to the latter, we gave due course to
the petition and directed the parties to submit their simultaneous
memoranda, which they complied with.
Petitioners (defendants-appellants below) maintain that the Court of
Appeals erred in holding that (a) petitioner Herminia Ramos' signature on
the special power of attorney is genuine; (b) there was an implied trust in
this case; and (c) the action for reconveyance had not yet prescribed.
As we see it, the second assigned error unravels the core and decisive issue
in this case, i.e., the validity of the transaction involving the lot in question
between Herminio Ramos and Lydia Celestino. The petitioners reiterate their
thesis before the trial court and the Court of Appeals that no trust was
established in this case because (1) there is a restriction expressly imposed
by the PHHC in the sale of the land to Herminio Ramos, to wit:
"Within a period of one year from the issuance of TCT by virtue of this deed
no transfer or alienation whatsoever of the property subject thereof
whether in whole or in part shall be made or registered w/out the written
consent of the vendor and such transfer or alienation may be made only in
favor of person qualified to acquire land under the laws of the Philippines."
20
and (2) even assuming arguendo that Herminio Ramos sold his rights over
the lot, the sale was null and void for being contrary to the public policy of
awarding PHHC lots to Central Bank employees who are not residential
landowners. Private respondent Lydia Celestino, Herminio's vendee, was
disqualified to acquire any PHHC lot because she already owned a
residential lot in Quezon City. This issue was raised in the petitioners' special
and affirmative defenses in their answer, 21 but the trial court did not meet
or resolve it squarely. It assumed that the transaction was valid. The Court
of Appeals likewise did not tackle this issue in its Decision of 30 September
1991 and Resolution of 15 December 1992. Just like the trial court, it merely
assumed the validity of the transaction.
The assumption, however, is without basis. As correctly pointed out by the
petitioners, which the private respondents failed to rebut, Lydia Celestino
had candidly admitted in her testimony that although she was a Central
Bank employee, she was not qualified to acquire any PHHC lot under the
agreement entered into between the PHHC and the Central Bank because
she is already the owner of a lot in Quezon City. Thus, on cross-examination
she declared:
"Q Mrs. witness, you stated that the lots what you call Central Bank Village
were awarded to the employees of the Central Bank but you were not one
of the awardees. Why?
A I have here in Quezon City a property in my name and we are not
allowed to get another property.
Q So in other words, you are not qualified?
A Yes, sir." 22
On further cross-examination, she elaborated on her disqualification. Thus:
LLphil
"ATTY. ESPONAS (continuing):
Q You previously testified that the reason you are not one of the awardees
of a lot in that subdivision of the Central Bank, the reason was you were not
qualified, is it not?
A I was not qualified.
Q And the reason why you were not qualified is because you already own
a property in Quezon City, is it not?
A I was only telling the truth. Yes.
Q And again the qualification in order to be qualified or be entitled to an
award in that subdivision of the central bank, you must not be an owner of
a lot in Quezon City.
xxx xxx xxx
A Yes, sir, you must not be an owner.
Q And up to now you are an owner of a lot in Quezon City?
A Yes, the same house that I claimed then.
xxx xxx xxx
Q Up to now you are still not qualified to own a lot in that subdivision?
xxx xxx xxx
163
WITNESS:
I am not qualified up to now." 23
Her disqualification is the probable reason why she did not submit for
approval by the PHHC the transfer in her favor of Herminio Ramos' right to
buy the lot in question. The PHHC's approval was necessary for the validity
of the transfer. In Ibay vs. Intermediate Appellate Court, 24 which also
involved a transfer of the right of an awardee of a PHHC lot to a party
disqualified to acquire a PHHC lot, this Court stated:
"There is no need to quibble on or belabor further this point. As squarely
ruled by the respondent Court, Exhibit "1" is not to be considered a deed of
sale of the property but merely a transfer of Rosita Abando's rights as an
applicant to one-half (1/2) of the lot. This is so because at the date of its
execution, Rosita was not yet the owner of the lot. The document itself
explicitly states that the PHHC is the registered owner of the property. The
approval of the PHHC is necessary for the transfer to be valid and effective.
In the case at bar, not only did the transfer lack the requisite approval, the
same was categorically disapproved by the latter, per its letter of 15
February 1960, because petitioner, under the policy of the PHHC, is no
longer qualified to acquire another PHHC lot. Resolution No. 82 of the PHHC,
adopted by its Board of Directors on 23 May 1951, provided that 'the sale
of more than one lot per person shall not be permitted.' 25 This policy is
supported by the law. One of the purposes of the PHHC was to acquire,
develop, improve, subdivide, lease and sell lands and construct, lease and
sell buildings or any interest therein in the cities and populous towns in the
Philippines with the object of providing decent housing for those who may
be found unable otherwise to provide themselves therewith." cdll
The same awareness of the fatal flaw of the transfer is the most logical
explanation why Lydia Celestino took no further action to secure a new
transfer certificate of title despite the fact that she had always been in the
possession of TCT No. 204173 which was issued to Herminio Ramos on 21
November 1974 yet. 26 Instead of requiring Herminio Ramos to execute a
deed of sale in her favor and to obtain the PHHC's conformity thereto, she
was satisfied with the special power of attorney, executed five days after
the issuance of the title, or on 26 November 1974, authorizing her to "SELL,
MORTGAGE, LEASE, LET, or RENT" this lot. 27 Such authority is inconsistent with
Lydia Celestino's claim of ownership because the grantor therein, Herminio
Ramos, solemnly declared that he is "the owner in fee simple" of the lot
described in TCT No. 204173.
Finally, it was only on 21 March 1986, more than fifteen years after Herminio
Ramos allegedly sold to her his rights over the lot and about twelve years
after the certificate of title on the lot was issued to Herminio Ramos, when
Lydia Celestino first publicly revealed, by filing LRC Case No. Q-3387(86),
that Herminio sold to her his rights thereon. All these merely suggest that
Lydia did everything to hide her disqualification to own the lot until she
could no longer avoid the dangerous precipice where she was brought by
her clandestine transaction with Herminio Ramos.
The inevitable conclusion then is that Lydia Celestino, knowing of her finality of this decision the sum of P3,800.00 and all the installments the latter
disqualification to acquire a lot from the PHHC at the subdivision reserved had paid to the PHHC for the purchase price of the lot in question, with 6%
for qualified Central Bank employees, tried to get one through the per annum interest thereon computed from the date of the filing of the
backdoor. Otherwise stated, she wanted to get indirectly that which she complaint in Civil Case No. Q-49272 until payment. Let a copy of this
could not do so directly. Having acted with evident bad faith, she did not decision be furnished the National Housing Authority for its information and
come to court with clean hands when she asked for the reconveyance of appropriate action as it may deem necessary in the premises.
the property on the basis of a resulting trust under Article 1448 of the Civil
Code. SO ORDERED.
A resulting trust is an "intent-enforcing" trust, based on a finding by the court
that in view of the relationship of the parties their acts express an intent to
Benigna Secuya vs De Selma, GR No 136021, February 22, 2000
have a trust, even though they did not use language to that effect. The trust supra, p. 143
is said to result in law from the acts of the parties. However, if the purpose
of the payor of the consideration in having title placed in the name of
another was to evade some rule of the common or statute law, the courts
will not assist the payor in achieving his improper purpose by enforcing a
resulting trust for him in accordance with the "clean hands" doctrine. The
court generally refuses to give aid to claims from rights arising out of an
illegal transaction, such as where the payor could not lawfully take title to
land in his own name and he used the grantee as a mere dummy to hold
for him and enable him to evade the land laws, 28 e.g., an alien who is
ineligible to hold title to land, who pays for it and has the title put in the
name of a citizen.
Otherwise stated, as an exception to the law on trusts, "[a] trust or a
provision in the terms of a trust is invalid if the enforcement of the trust or
provision would be against public policy, even though its performance
does not involve the commission of a criminal or tortious act by the trustee."
29 The parties must necessarily be subject to the same limitations on
allowable stipulations in ordinary contracts, i.e., their stipulations must not
be contrary to law, morals, good customs, public order, or public policy. 30
What the parties then cannot expressly provide in their contracts for being
contrary to law and public policy, they cannot impliedly or implicitly do so
in the guise of a resulting trust. llcd
Although the contract should be voided for being contrary to public policy,
we deem it equitable to allow the private respondents to recover what they
had paid for the land with legal interest thereon commencing from the
date of the filing of the complaint in Civil Case No. Q-49272. Thus, she is
entitled to the return of the amount she had paid to Herminio in the sum of
P3,800.00 and the refund of the installments she had paid to the PHHC
(P34.11 monthly for a period of ten years), with legal interest thereon.
The foregoing discussions render unnecessary the resolution of the other
issues raised by the parties.
WHEREFORE, the instant petition is GRANTED and the respondent Court of
Appeals' Decision of 30 September 1991 and Resolution of 17 December
1992 in CA-G.R. CV No. 26544 as well as the joint decision of the Regional
Trial Court of Quezon City, Branch 95, in Civil Case No. Q-49272 and LRC
Case No. Q-3387(86) of 23 February 1990 are REVERSED and SET ASIDE. The
latter two cases are ordered DISMISSED. However, the petitioners are
ordered to refund to the private respondents within thirty days from the
164