G.R. No.
L-19342 May 25, 1972 decedent with money borrowed from the Philippine Trust Company in the amount of
LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. OÑA, MARIANO B.
OÑA, LUZ B. OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, 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 Buñales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oña
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. Oña 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 Oña, were still minors when the project of partition was
approved, Lorenzo T. Oña, 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
P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).
The project of partition also shows that the estate shares equally with Lorenzo T. Oña, the
administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the
latter with the approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).
Although the project of partition was approved by the Court on May 16, 1949, no attempt
was made to divide the properties therein listed. Instead, the properties remained under the
management of Lorenzo T. Oña 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:
XXX
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. Oña 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. Oña
who, as heretofore pointed out, invested them in real properties and securities. (See Exhibit
3, t.s.n., pp. 50, 102-104).
On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided
that petitioners formed an unregistered partnership and therefore, subject to the corporate
income tax, pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly,
he assessed against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate
income taxes for 1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50
and 86, BIR rec.). Petitioners protested against the assessment and asked for reconsideration
of the ruling of respondent that they have formed an unregistered partnership. Finding no
merit in petitioners' request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp.
1-4, Memorandum for Respondent, June 12, 1961).
The original assessment was as follows:
1955
Net income as per investigation ................ P40,209.89
Income tax due thereon ............................... 8,042.00
25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50
1956
Net income as per investigation ................ P69,245.23
Income tax due thereon ............................... 13,849.00
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25% surcharge was eliminated in line with the
ruling of the Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan.
6, 1958, so that the questioned assessment refers solely to the income tax proper for the
years 1955 and 1956 and the "Compromise for non-filing," the latter item obviously referring
to the compromise in lieu of the criminal liability for failure of petitioners to file the
corporate income tax returns for said years. (See Exh. 17, page 86, BIR records). (Pp. 1-3,
Annex C to Petition)
Petitioners have assigned the following as alleged errors of the Tax Court:
I. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS
FORMED AN UNREGISTERED PARTNERSHIP;
II. THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS
WERE CO-OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED
FROM TRANSACTIONS THEREFROM (sic);
III. THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE
LIABLE FOR CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN
UNREGISTERED PARTNERSHIP;
IV. ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED
PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY
THAT THEY INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN
COMMON AND THE LOANS RECEIVED USING THE INHERITED PROPERTIES AS
COLLATERALS;
V . ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE
COURT OF TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE
PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE PROFITS
ACCRUING FROM THE PROPERTIES OWNED IN COMMON, FROM THE DEFICIENCY TAX OF
THE UNREGISTERED PARTNERSHIP.
In other words, petitioners pose for our resolution the following questions: (1) Under the
facts found by the Court of Tax Appeals, should petitioners be considered as co-owners of
the properties inherited by them from the deceased Julia Buñales and the profits derived
from transactions involving the same, or, must they be deemed to have formed an
unregistered partnership subject to tax under Sections 24 and 84(b) of the National Internal
Revenue Code? (2) Assuming they have formed an unregistered partnership, should this not
be only in the sense that they invested as a common fund the profits earned by the
properties owned by them in common and the loans granted to them upon the security of
the said properties, with the result that as far as their respective shares in the inheritance
are concerned, the total income thereof should be considered as that of co-owners and not
of the unregistered partnership? And (3) assuming again that they are taxable as an
unregistered partnership, should not the various amounts already paid by them for the same
years 1955 and 1956 as individual income taxes on their respective shares of the profits
accruing from the properties they owned in common be deducted from the deficiency
corporate taxes, herein involved, assessed against such unregistered partnership by the
respondent Commissioner?
Pondering on these questions, the first thing that has struck the Court is that whereas
petitioners' predecessor in interest died way back on March 23, 1944 and the project of
partition of her estate was judicially approved as early as May 16, 1949, and presumably
petitioners have been holding their respective shares in their inheritance since those dates
admittedly under the administration or management of the head of the family, the widower
and father Lorenzo T. Oña, 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. Oña who used said properties in business by leasing or
selling them and investing the income derived therefrom and the proceed from the sales
thereof in real properties and securities," as a result of which said properties and
investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in
"building account" in 1949 to P175,028.68 in "investment account," P135.714.68 in "land
account" and P169,262.52 in "building account" in 1956. And all these became possible
because, admittedly, petitioners never actually received any share of the income or profits
from Lorenzo T. Oña 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. Oña.
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. Oña, 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. Oña
as a common fund in undertaking several transactions or in business, with the intention of
deriving profit to be shared by them proportionally, such act was tantamonut to actually
contributing such incomes to a common fund and, in effect, they thereby formed an
unregistered partnership within the purview of the above-mentioned provisions of the Tax
Code.
It is but logical that in cases of inheritance, there should be a period when the heirs can be
considered as co-owners rather than unregistered co-partners within the contemplation of
our corporate tax laws aforementioned. Before the partition and distribution of the estate of
the deceased, all the income thereof does belong commonly to all the heirs, obviously,
without them becoming thereby unregistered co-partners, but it does not necessarily follow
that such status as co-owners continues until the inheritance is actually and physically
distributed among the heirs, for it is easily conceivable that after knowing their respective
shares in the partition, they might decide to continue holding said shares under the common
management of the administrator or executor or of anyone chosen by them and engage in
business on that basis. Withal, if this were to be allowed, it would be the easiest thing for
heirs in any inheritance to circumvent and render meaningless Sections 24 and 84(b) of the
National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for
holding the appellants therein to be unregistered co-partners for tax purposes, that their
common fund "was not something they found already in existence" and that "it was not a
property inherited by them pro indiviso," but it is certainly far fetched to argue therefrom, as
petitioners are doing here, that ergo, in all instances where an inheritance is not actually
divided, there can be no unregistered co-partnership. As already indicated, for tax purposes,
the co-ownership of inherited properties is automatically converted into an unregistered
partnership the moment the said common properties and/or the incomes derived therefrom
are used as a common fund with intent to produce profits for the heirs in proportion to their
respective shares in the inheritance as determined in a project partition either duly executed
in an extrajudicial settlement or approved by the court in the corresponding testate or
intestate proceeding. The reason for this is simple. From the moment of such partition, the
heirs are entitled already to their respective definite shares of the estate and the incomes
thereof, for each of them to manage and dispose of as exclusively his own without the
intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in
connection therewith. If after such partition, he allows his share to be held in common with
his co-heirs under a single management to be used with the intent of making profit thereby
in proportion to his share, there can be no doubt that, even if no document or instrument
were executed for the purpose, for tax purposes, at least, an unregistered partnership is
formed. This is exactly what happened to petitioners in this case.
In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code,
providing that: "The sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or interest in any
property from which the returns are derived," and, for that matter, on any other provision of
said code on partnerships is unavailing. In Evangelista, supra, this Court clearly differentiated
the concept of partnerships under the Civil Code from that of unregistered partnerships
which are considered as "corporations" under Sections 24 and 84(b) of the National Internal
Revenue Code. Mr. Justice Roberto Concepcion, now Chief Justice, elucidated on this point
thus:
To begin with, the tax in question is one imposed upon "corporations", which, strictly
speaking, are distinct and different from "partnerships". When our Internal Revenue Code
includes "partnerships" among the entities subject to the tax on "corporations", said Code
must allude, therefore, to organizations which are not necessarily "partnerships", in the
technical sense of the term. Thus, for instance, section 24 of said Code exempts from the
aforementioned tax "duly registered general partnerships," which constitute precisely one of
the most typical forms of partnerships in this jurisdiction. Likewise, as defined in section
84(b) of said Code, "the term corporation includes partnerships, no matter how created or
organized." This qualifying expression clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in confirmity with the usual requirements of the
law on partnerships, in order that one could be deemed constituted for purposes of the tax
on corporation. Again, pursuant to said section 84(b),the term "corporation" includes,
among others, "joint accounts,(cuentas en participacion)" and "associations", none of which
has a legal personality of its own, independent of that of its members. Accordingly, the
lawmaker could not have regarded that personality as a condition essential to the existence
of the partnerships therein referred to. In fact, as above stated, "duly registered general co-
partnerships" — which are possessed of the aforementioned personality — have been
expressly excluded by law (sections 24 and 84[b]) from the connotation of the term
"corporation." ....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a partnership. Under the term "partnership" it includes not
only a partnership as known in common law but, as well, a syndicate, group, pool, joint
venture, or other unincorporated organization which carries on any business, financial
operation, or venture, and which is not, within the meaning of the Code, a trust, estate, or a
corporation. ... . (7A Merten's Law of Federal Income Taxation, p. 789; emphasis ours.)
The term "partnership" includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on. ... . (8 Merten's Law of Federal Income Taxation, p. 562
Note 63; emphasis ours.)
For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships — with the exception only of duly registered general copartnerships — within
the purview of the term "corporation." It is, therefore, clear to our mind that petitioners
herein constitute a partnership, insofar as said Code is concerned, and are subject to the
income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal
Revenue, G. R. Nos. L-24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against
a theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the segregation, for the purposes
of the corporate taxes in question, of their inherited properties from those acquired by them
subsequently, We consider as justified the following ratiocination of the Tax Court in denying
their motion for reconsideration:
In connection with the second ground, it is alleged that, if there was an unregistered
partnership, the holding should be limited to the business engaged in apart from the
properties inherited by petitioners. In other words, the taxable income of the partnership
should be limited to the income derived from the acquisition and sale of real properties and
corporate securities and should not include the income derived from the inherited
properties. It is admitted that the inherited properties and the income derived therefrom
were used in the business of buying and selling other real properties and corporate
securities. Accordingly, the partnership income must include not only the income derived
from the purchase and sale of other properties but also the income of the inherited
properties.
Besides, as already observed earlier, the income derived from inherited properties may be
considered as individual income of the respective heirs only so long as the inheritance or
estate is not distributed or, at least, partitioned, but the moment their respective known
shares are used as part of the common assets of the heirs to be used in making profits, it is
but proper that the income of such shares should be considered as the part of the taxable of the excess income taxes in the case of herein petitioners has already lapsed, it would not
income of an unregistered partnership. This, We hold, is the clear intent of the law. 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
Likewise, the third question of petitioners appears to have been adequately resolved by the
corporate taxes legally due from them. In principle, it is but proper not to allow any
Tax Court in the aforementioned resolution denying petitioners' motion for reconsideration
relaxation of the tax laws in favor of persons who are not exactly above suspicion in their
of the decision of said court. Pertinently, the court ruled this wise:
conduct vis-a-vis their tax obligation to the State.
In support of the third ground, counsel for petitioners alleges:
IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is
Even if we were to yield to the decision of this Honorable Court that the herein petitioners affirm with costs against petitioners.
have formed an unregistered partnership and, therefore, have to be taxed as such, it might
be recalled that the petitioners in their individual income tax returns reported their shares of
the profits of the unregistered partnership. We think it only fair and equitable that the
various amounts paid by the individual petitioners as income tax on their respective shares
of the unregistered partnership should be deducted from the deficiency income tax found by
this Honorable Court against the unregistered partnership. (page 7, Memorandum for the
Petitioner in Support of Their Motion for Reconsideration, Oct. 28, 1961.)

In other words, it is the position of petitioners that the taxable income of the partnership
must be reduced by the amounts of income tax paid by each petitioner on his share of
partnership profits. This is not correct; rather, it should be the other way around. The
partnership profits distributable to the partners (petitioners herein) should be reduced by
the amounts of income tax assessed against the partnership. Consequently, each of the
petitioners in his individual capacity overpaid his income tax for the years in question, but
the income tax due from the partnership has been correctly assessed. Since the individual
income tax liabilities of petitioners are not in issue in this proceeding, it is not proper for the
Court to pass upon the same.

Petitioners insist that it was error for the Tax Court to so rule that whatever excess they
might have paid as individual income tax cannot be credited as part payment of the taxes
herein in question. It is argued that to sanction the view of the Tax Court is to oblige
petitioners to pay double income tax on the same income, and, worse, considering the time
that has lapsed since they paid their individual income taxes, they may already be barred by
prescription from recovering their overpayments in a separate action. We do not agree. As
We see it, the case of petitioners as regards the point under discussion is simply that of a
taxpayer who has paid the wrong tax, assuming that the failure to pay the corporate taxes in Lorenzo Ona vs CIR case digest
question was not deliberate. Of course, such taxpayer has the right to be reimbursed what Facts:
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 Julia Buñales died leaving as heirs her surviving spouse, Lorenzo Oña and her five children. A
civil case was instituted for the settlement of her state, in which Oña was appointed
administrator and later on the guardian of the three heirs who were still minors when the common with his co-heirs under a single management to be used with the intent of making
project for partition was approved. This shows that the heirs have undivided ½ interest in 10 profit thereby in proportion to his share, there can be no doubt that, even if no document or
parcels of land, 6 houses and money from the War Damage Commission. instrument were executed, for the purpose, for tax purposes, at least, an unregistered
partnership is formed.
Although the project of partition was approved by the Court, no attempt was made to divide
the properties and they remained under the management of Oña who used said properties For purposes of the tax on corporations, our National Internal Revenue Code includes these
in business by leasing or selling them and investing the income derived therefrom and the partnerships —
proceeds from the sales thereof in real properties and securities. As a result, petitioners’
The term “partnership” includes a syndicate, group, pool, joint venture or other
properties and investments gradually increased. Petitioners returned for income tax
unincorporated organization, through or by means of which any business, financial
purposes their shares in the net income but they did not actually receive their shares
operation, or venture is carried on… (8 Merten’s Law of Federal Income Taxation, p. 562 Note
because this left with Oña who invested them.
63; emphasis ours.)
Based on these facts, CIR decided that petitioners formed an unregistered partnership and
with the exception only of duly registered general copartnerships — within the purview of
therefore, subject to the corporate income tax, particularly for years 1955 and 1956.
the term “corporation.” It is, therefore, clear to our mind that petitioners herein constitute a
Petitioners asked for reconsideration, which was denied hence this petition for review from
partnership, insofar as said Code is concerned, and are subject to the income tax for
CTA’s decision.
corporations. Judgment affirmed.
Issue:

W/N there was a co-ownership or an unregistered partnership

W/N the petitioners are liable for the deficiency corporate income tax

Held:

Unregistered partnership. The Tax Court found that instead of actually distributing the estate
of the deceased among themselves pursuant to the project of partition, the heirs allowed
their properties to remain under the management of Oña and let him use their shares as
part of the common fund for their ventures, even as they paid corresponding income taxes
on their respective shares.

Yes. 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 G.R. No. L-45425 April 29, 1939
corresponding testate or intestate proceeding. The reason 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
JOSE GATCHALIAN, ET AL., plaintiffs-appellants,
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 vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.
Guillermo B. Reyes for appellants.
Office of the Solicitor-General Tuason for appellee.
IMPERIAL, J.:
The plaintiff brought this action to recover from the defendant Collector of Internal Revenue
the sum of P1,863.44, with legal interest thereon, which they paid under protest by way of
income tax. They appealed from the decision rendered in the case on October 23, 1936 by
the Court of First Instance of the City of Manila, which dismissed the action with the costs
against them.
The case was submitted for decision upon the following stipulation of facts:
Come now the parties to the above-mentioned case, through their respective undersigned
attorneys, and hereby agree to respectfully submit to this Honorable Court the case upon
the following statement of facts:
1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that defendant is
the Collector of Internal Revenue of the Philippines;
2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase one
sweepstakes ticket valued at two pesos (P2), subscribed and paid therefor the amounts as
follows:
1. Jose Gatchalian ....................................................................................................P0.18
2. Gregoria Cristobal ............................................................................................... .18
3. Saturnina Silva .................................................................................................... .08
4. Guillermo Tapia ................................................................................................... .13
5. Jesus Legaspi ...................................................................................................... .15
6. Jose Silva ............................................................................................................. .07
7. Tomasa Mercado ................................................................................................ .08
8. Julio Gatchalian ................................................................................................... .13
9. Emiliana Santiago ................................................................................................ .13
10. Maria C. Legaspi ............................................................................................... .16
11. Francisco Cabral ............................................................................................... .13
12. Gonzalo Javier .................................................................................................... .14
13. Maria Santiago ................................................................................................... .17
14. Buenaventura Guzman ...................................................................................... .13
15. Mariano Santos ................................................................................................. .14
Total ........................................................................................................
2.00
3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in the
ordinary course of business, from one of the duly authorized agents of the National Charity
Sweepstakes Office one ticket bearing No. 178637 for the sum of two pesos (P2) and that the
said ticket was registered in the name of Jose Gatchalian and Company;
4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-
mentioned ticket bearing No. 178637 won one of the third prizes in the amount of P50,000
and that the corresponding check covering the above-mentioned prize of P50,000 was
drawn by the National Charity Sweepstakes Office in favor of Jose Gatchalian & Company
against the Philippine National Bank, which check was cashed during the latter part of
December, 1934 by Jose Gatchalian & Company;
 defendant on May 13, 1935 issued a warrant of distraint and levy against the property of the
plaintiffs, a copy of which warrant marked Exhibit I is enclosed and made a part hereof;
5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo
David to file the corresponding income tax return covering the prize won by Jose Gatchalian
& Company and that on December 29, 1934, the said return was signed by Jose Gatchalian, a
10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs,
copy of which return is enclosed as Exhibit A and made a part hereof;
the said plaintiffs on June 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus
Legaspi, paid under protest the sum of P601.51 as part of the tax and penalties to the
municipal treasurer of Pulilan, Bulacan, as evidenced by official receipt No. 7454879 which is
6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian &
attached and marked Exhibit J and made a part hereof, and requested defendant that
Company requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer
plaintiffs be allowed to pay under protest the balance of the tax and penalties by monthly
of Pulilan, Bulacan, giving to said Jose Gatchalian & Company until January 20, 1935 within
installments;
which to pay the said amount of P1,499.94, a copy of which letter marked Exhibit B is
enclosed and made a part hereof;

11. That plaintiff's request to pay the balance of the tax and penalties was granted by
defendant subject to the condition that plaintiffs file the usual bond secured by two solvent
7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a reply,
persons to guarantee prompt payment of each installments as it becomes due;
a copy of which marked Exhibit C is attached and made a part hereof, requesting exemption
from payment of the income tax to which reply there were enclosed fifteen (15) separate
individual income tax returns filed separately by each one of the plaintiffs, copies of which
12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed
returns are attached and marked Exhibit D-1 to D-15, respectively, in order of their names
and made a part hereof, to guarantee the payment of the balance of the alleged tax liability
listed in the caption of this case and made parts hereof; a statement of sale signed by Jose
by monthly installments at the rate of P118.70 a month, the first payment under protest to
Gatchalian showing the amount put up by each of the plaintiffs to cover up the attached and
be effected on or before July 31, 1935;
marked as Exhibit E and made a part hereof; and a copy of the affidavit signed by Jose
Gatchalian dated December 29, 1934 is attached and marked Exhibit F and made part
thereof;
13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the
sum of P602.51, a copy of which protest is attached and marked Exhibit L, but that
defendant in his letter dated August 1, 1935 overruled the protest and denied the request
8. That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G
for refund of the plaintiffs;
is enclosed, denied plaintiffs' request of January 20, 1935, for exemption from the payment
of tax and reiterated his demand for the payment of the sum of P1,499.94 as income tax and
gave plaintiffs until February 10, 1935 within which to pay the said tax;
14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance
with the terms and conditions of bond filed by them, the defendant in his letter dated July
23, 1935, copy of which is attached and marked Exhibit M, ordered the municipal treasurer
9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the
of Pulilan, Bulacan to execute within five days the warrant of distraint and levy issued against
defendant, notwithstanding subsequent demand made by defendant upon the plaintiffs
the plaintiffs on May 13, 1935;
through their attorney on March 23, 1935, a copy of which marked Exhibit H is enclosed,
15. That in order to avoid annoyance and embarrassment arising from the levy of their 2. Buenaventura Guzman ............................... .13 - Do -
property, the plaintiffs on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria
3. Maria Santiago ............................................ .17 - Do -
Santiago and Emiliano Santiago, paid under protest to the municipal treasurer of Pulilan,
Bulacan the sum of P1,260.93 representing the unpaid balance of the income tax and 4. Gonzalo Javier .............................................. .14 - Do -
penalties demanded by defendant as evidenced by income tax receipt No. 35811 which is
attached and marked Exhibit N and made a part hereof; and that on September 3, 1936, the 5. Francisco Cabral .......................................... .13 - Do -
plaintiffs formally protested to the defendant against the payment of said amount and 6. Maria C. Legaspi .......................................... .16 - Do -
requested the refund thereof, copy of which is attached and marked Exhibit O and made part
hereof; but that on September 4, 1936, the defendant overruled the protest and denied the 7. Emiliana Santiago ......................................... .13 - Do -
refund thereof; copy of which is attached and marked Exhibit P and made a part hereof; and 8. Julio Gatchalian ............................................ .13 - Do -

9. Jose Silva ...................................................... .07 - Do -

16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand 10. Tomasa Mercado ....................................... .08 - Do -
eight hundred and sixty three pesos and forty-four centavos (P1,863.44) paid under protest
by them but that defendant refused and still refuses to refund the said amount 11. Jesus Legaspi ............................................. .15 - Do -
notwithstanding the plaintiffs' demands.
12. Guillermo Tapia ........................................... .13 - Do -

13. Saturnina Silva ............................................ .08 - Do -

17. The parties hereto reserve the right to present other and additional evidence if
14. Gregoria Cristobal ....................................... .18 - Do -
necessary.
15. Jose Gatchalian ............................................ .18 - Do -

Exhibit E referred to in the stipulation is of the following tenor:

2.00 Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts of whatever
To whom it may concern:
prize that might be won by said ticket.

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

(Sgd.) JOSE GATCHALIAN

Purchaser Amount Address

1. Mariano Santos ........................................... P0.14 Pulilan, Bulacan. And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:
RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED JANUARY 2.00
19, 1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.
50,000

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be
Name Exhibit reduced to the two following: (1) Whether the plaintiffs formed a partnership, or merely a
community of property without a personality of its own; in the first case it is admitted that
No. Purchase
the partnership thus formed is liable for the payment of income tax, whereas if there was
Price Price merely a community of property, they are exempt from such payment; and (2) whether they
should pay the tax collectively or whether the latter should be prorated among them and
Won Expenses Net paid individually.
prize

1. Jose Gatchalian .......................................... D-1 P0.18 P4,425 P 480 3,945 The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last
2. Gregoria Cristobal ...................................... D-2 .18 4,575 2,000 2,575 amended by section 2 of Act No. 3761, reading as follows:

3. Saturnina Silva ............................................. D-3 .08 1,875 360 1,515

4. Guillermo Tapia .......................................... D-4 .13 3,325 360 2,965 SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net
income received in the preceding calendar year from all sources by every corporation, joint-
5. Jesus Legaspi by Maria Cristobal ......... D-5 .15 3,825 720 3,105 stock company, partnership, joint account (cuenta en participacion), association or insurance
6. Jose Silva .................................................... D-6 .08 1,875 360 1,515 company, organized in the Philippine Islands, no matter how created or organized, but not
including duly registered general copartnership (compañias colectivas), a tax of three per
7. Tomasa Mercado ....................................... D-7 .07 1,875 360 1,515 centum upon such income; and a like tax shall be levied, assessed, collected, and paid
annually upon the total net income received in the preceding calendar year from all sources
8. Julio Gatchalian by Beatriz Guzman ....... D-8 .13 3,150 240 2,910
within the Philippine Islands by every corporation, joint-stock company, partnership, joint
9. Emiliana Santiago ...................................... D-9 .13 3,325 360 2,965 account (cuenta en participacion), association, or insurance company organized, authorized,
or existing under the laws of any foreign country, including interest on bonds, notes, or other
10. Maria C. Legaspi ...................................... D-10 .16 4,100 960 3,140
interest-bearing obligations of residents, corporate or otherwise: Provided, however, That
11. Francisco Cabral ...................................... D-11 .13 3,325 360 2,965 nothing in this section shall be construed as permitting the taxation of the income derived
from dividends or net profits on which the normal tax has been paid.
12. Gonzalo Javier .......................................... D-12 .14 3,325 360 2,965

13. Maria Santiago .......................................... D-13 .17 4,350 360 3,990

The gain derived or loss sustained from the sale or other disposition by a corporation, joint-
14. Buenaventura Guzman ........................... D-14 .13 3,325 360 2,965 stock company, partnership, joint account (cuenta en participacion), association, or
15. Mariano Santos ........................................ D-15 .14 3,325 360 2,965 insurance company, or property, real, personal, or mixed, shall be ascertained in accordance
with subsections (c) and (d) of section two of Act Numbered Two thousand eight hundred
and thirty-three, as amended by Act Numbered Twenty-nine hundred and twenty-six.

The foregoing tax rate shall apply to the net income received by every taxable corporation,
joint-stock company, partnership, joint account (cuenta en participacion), association, or
insurance company in the calendar year nineteen hundred and twenty and in each year
thereafter.

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

Having organized and constituted a partnership of a civil nature, the said entity is the one
bound to pay the income tax which the defendant collected under the aforesaid section 10
(a) of Act No. 2833, as amended by section 2 of Act No. 3761. There is no merit in plaintiff's
contention that the tax should be prorated among them and paid individually, resulting in
their exemption from the tax.

Jose Gatchalian, et.al. plaintiffs-appellants, vs. The Collector of Internal Revenue,

In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to defendant-appellee. Case digest
the plaintiffs appellants. So ordered.

• A distraint warrant is a document served by the sheriff that indicates the amount of
overdue taxes, the due date and instructions prohibiting the removal or destruction of any
property within the business.
Facts:
• Plaintiffs purchased, in the ordinary course of business, from one of the duly
authorized agents of the National CharitySweepstakes Office one ticket for the sum of two
pesos (P2), said ticket was registered in the name of Jose Gatchalian and Company.
• The ticket won one of the third-prizes in the amount of P50,000.
• Jose Gatchalian was required to file the corresponding income tax return covering
the prize won.
• Defendant-Collector made an assessment against Jose Gatchalian and Co. requesting
the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan.
• Plaintiffs, however through counsel made a request for exemption. It was denied.
• According to the stipulation facts the plaintiffs organized a partnership of a civil
nature because each of them put up money to buy a sweepstakes ticket for the sole purpose
of dividing equally the prize which they may win, as they did in fact in the amount of
P50,000.
• The partnership was not only formed, but upon the organization thereof and the
winning of the prize, Jose Gatchalian personally appeared in the office of the Philippines
Charity Sweepstakes, in his capacity as co-partner, as such collection the prize, the office
issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner,
in the same capacity, collected the said check.
• All these circumstances repel the idea that the plaintiffs organized and formed a
community of property only.

• Plaintiffs failed to pay the amount due, hence a warrant of distraint and levy was
issued.

• Plaintiffs paid under protest a part of the tax and penalties to avoid the effects of the
warrant.

• A request that the balance be paid by plaintiffs in installments was made. This was
granted on the condition that a bond be filed.

• Plaintiffs failed in their installment payments.

• Hence a request for execution of the warrant of distraint and levy was made.

• Plaintiffs paid under protest to avoid the execution.

• A claim for refund was made by the plaintiffs, which was dismissed, hence the
appeal.

249 Phil. 478

Issue: Whether the plaintiffs formed a partnership or community of property. If a

partnership, hence liable for income tax.
REGALADO, J.:

Held: Yes. The plaintiffs formed a formed a partnership.

The extensive discussion and exhaustive disquisition in the decision[1] of the respondent
Court[2] should have written finis to this case without further recourse to Us. The
assignment of errors and arguments raised in the respondent Court by herein private
respondent, as the petitioner therein, having been correctly and justifiedly sustained by said
court without any reversible error in its conclusions, the present petition must fail.
The assailed decision details the facts and proceedings which spawned the present
controversy as follows:
"Petitioner brought an action in the City Court of Dipolog for collection of a sum of P5,217.25
based on promissory notes executed by the herein private respondent Nobio Sardane in
favor of the herein petitioner. Petitioner bases his right to collect on Exhibits B, D, E, F, and G
executed on different dates and signed by private respondent Nobio Sardane. Exhibit B is a
printed promissory note involving P1,117.25 and dated May 13, 1972. Exhibit C is likewise a
printed promissory note and denotes on its face that the sum loaned was P1,400.00. Exhibit
D is also a printed promissory note dated May 31, 1977 involving an amount of P100.00.
Exhibit E is what is commonly known to the layman as 'vale' which reads: 'Good for: two
hundred pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the following tenor: 'Received
from Mr. Romeo Acojedo the sum Pesos: Two Thousand Two Hundred (P2,200.00.) ONLY, to
be paid on or before December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H are both
'vales' involving the same amount of one hundred pesos, and dated August 25, 1972 and
September 12, 1972 respectively.
"It has been established in the trial court that on many occasions, the petitioner demanded
the payment of the total amount of P5,217.25. The failure of the private respondent to pay
the said amount prompted the petitioner to seek the services of lawyer who made a letter
(Exhibit l) formally demanding the return of the sum loaned.' Because of the failure of the
private respondent to heed the demands extrajudicially made by the petitioner, the latter
was constrained to bring an action for collection of sum of money.
"During the scheduled day for trial, private respondent failed to appear and to file an
answer. On motion by the petitioner, the City Court of Dipolog issued an order dated May 18,
1976 declaring the private respondent in default and allowed the petitioner to present his
evidence ex-parte. Based on petitioner's evidence, the City Court of Dipolog rendered
judgment by default in favor of the petitioner.
"Private respondent filed a motion to lift the order of default which was granted by the City
Court in an order dated May 24, 1976, taking into consideration that the answer was filed
within two hours after the hearing of the evidence presented ex-parte by the petitioner.
"After the trial on the merits, the City Court of Dipolog rendered its decision on September
14, 1976, the dispositive portion of which reads:
'IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and
against the defendant as follows:
(a)
Ordering the defendant to pay unto the plaintiff the sum of Five Thousand Two Hundred
Seventeen Pesos and Twenty-five centavos (P5,217.25) plus legal interest to commence from
April 23, 1976 when this case was filed in court; and
(b)
Ordering the defendant to pay the plaintiff the sum of P200.00 as attorney's fee and to pay
the cost of this proceeding.'"[3]
Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte
which reversed the decision of the lower court by dismissing the complaint and ordered the
plaintiff-appellee Acojedo to pay said defendant-appellant P500.00 each for actual damages,
moral damages, exemplary damages and attorney's fees, as well as the costs of suit. Plaintiff-
appellee then sought the review of said decision by petition to the respondent Court.
The assignment of errors in said petition for review can be capsulized into two decisive
issues, firstly, whether the oral testimony for the therein private respondent Sardane that a
partnership existed between him and therein petitioner Acojedo are admissible to vary the
meaning of the abovementioned promissory notes; and, secondly, whether because of the
failure of therein petitioner to cross-examine therein private respondent on his sur-rebuttal
testimony, there was a waiver of the presumption accorded in favor of said petitioner by
Section 8, Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the pleadings of the parties
herein put in issue the imperfection or ambiguity of the documents in question", hence "the
appellant can avail of the parol evidence rule to prove his side of the case, that is, the said
amount taken by him from appellee is or was not his personal debt to appellee, but
expenses of the partnership between him and appellee".
Consequently, said trial court concluded that the promissory notes involved were merely
receipts for the contributions to said partnership and, therefore, upheld the claim that there
was ambiguity in the promissory notes, hence parol evidence was allowable to vary or
contradict the terms of the represented loan contract.
The parol evidence rule in Rule 130 provides:
"Sec. 7. Evidence of written agreements. - When the terms of an agreement have been
reduced to writing, it is to be considered as containing all such terms, and, therefore, there
can be, between the parties and their successors in interest, no evidence of the terms of the
agreement other than the contents of the writing except in the following cases:
(a) Where a mistake or imperfection of the writing or its failure to express the true intent
and agreement of the parties, or the validity of the agreement is put in issue by the
pleadings;
(b) When there is an intrinsic ambiguity in the writing."
As correctly pointed out by the respondent Court the exceptions to the rule do not apply in
this case as there is no ambiguity in the writings in question, thus:
"In the case at bar, Exhibits B, C, and D are printed promissory notes containing a promise to
pay a sum certain in money, payable on demand and the promise to bear the costs of
litigation in the event of the private respondent's failure to pay the amount loaned when
demanded extrajudicially. Likewise, the vales denote that the private respondent is obliged
to return the sum loaned to him by the petitioner. On their face, nothing appears to be
vague or ambiguous, for the terms of the promissory notes clearly show that it was
incumbent upon the private respondent to pay the amount involved in the promissory notes
if and when the petitioner demands the same. It was clearly the intent of the parties to
enter into a contract of loan for how could an educated man like the private respondent be
deceived to sign a promissory note yet intending to make such a writing to be mere receipts
of the petitioner's supposed contribution to the alleged partnership existing between the
parties?
"It has been established in the trial court that the private respondent has been engaged in
business for quite a long period of time -- as owner of the Sardane Trucking Service, entering
into contracts with the government for the construction of wharfs and seawall; and a
member of the City Council of Dapitan (TSN, July 20, 1976, pp. 57-58). It indeed puzzles us
how the private respondent could have been misled into signing a document containing
terms which he did not mean them to be. x x x "
xxx xxx xxx
"The private respondent admitted during the cross-examination made by petitioner's
counsel that he was the one who was responsible for the printing of Exhibits B, C and D (TSN,
July 28, 1976, p. 64). How could he purportedly rely on such a flimsy pretext that the
promissory notes were receipts of the petitioner's contribution?"[4]
The Court of Appeals held, and We agree, that even if evidence aliunde other than the
promissory notes may be admitted to alter the meaning conveyed thereby, still the evidence
is insufficient to prove that a partnership existed between the private parties hereto.
As manager of the basnig Sardaco, naturally some degree of control over the operations and
maintenance thereof had to be exercised by herein petitioner. The fact that he had received
50% of the net profits does not conclusively establish that he was a partner of the private
respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a
person of a share of the profits of a business is prima facie evidence that he is a partner in
the business, no such inference shall be drawn if such profits were received in payment as
wages of an employee. Furthermore, herein petitioner had no voice in the management of
the affairs of the basnig. Under similar facts, this Court in the early case of Fortis vs.
Gutierrez Hermanos,[5] in denying the claim of the plaintiff therein that he was a partner in
the business of the defendant, declared:
"This contention cannot be sustained. It was a mere contract of employment. The plaintiff
had no voice nor vote in the management of the affairs of the company. The fact that the
compensation received by him was to be determined with reference to the profits made by
the defendant in their business did not in any sense make him a partner therein. x x x ".
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al.[6] which involved the
same factual and legal milieu.
There are other considerations noted by respondent Court which negate herein petitioner's
pretension that he was a partner and not a mere employee indebted to the present private
respondent. Thus, in an action for damages filed by herein private respondent against the
North Zamboanga Timber Co., Inc. arising from the operations of the business, herein
petitioner did not ask to be joined as a party plaintiff. Also, although he contends that herein
private respondent is the treasurer of the alleged partnership, yet it is the latter who is
demanding an accounting. The advertence of the Court of First Instance to the fact that the
casco bears the name of herein petitioner disregards the finding of the respondent Court
that it was just a concession since it was he who obtained the engine used in the Sardaco
from the Department of Local Government and Community Development. Further, the use
by the parties of the pronoun "our" in referring to "our basnig", "our catch", "our deposit",
or "our boseros" was merely indicative of the camaraderie, and not evidentiary of a
partnership, between them.
The foregoing factual findings, which belie the further claim that the aforesaid promissory
notes do not express the true, intent and agreement of the parties, are binding on Us since
there is no showing that they fall within the exceptions to the rule limiting the scope of
appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable documents in Rule 8, for ready
reference, reads:
"Sec. 8. How to contest genuineness of such documents. - When an action or defense is
founded upon a written instrument, copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and due execution of the instrument
shall be deemed admitted unless the adverse party, under oath, specifically denies them,
and sets forth what he claims to be the facts; but this provision does not apply when the
adverse party does not appear to be a party to the instrument or when compliance with an
order for the inspection of the original instrument is refused."
The record shows that herein petitioner did not deny under oath in his answer the
authenticity and due execution of the promissory notes which had been duly pleaded and
attached to the complaint; thereby admitting their genuineness and due execution. Even in
the trial court, he did not at all question the fact that he signed said promissory notes and
that the same were genuine. Instead, he presented parol evidence to vary the import of the
promissory notes by alleging that they were mere receipts of his contribution to the alleged
partnership.
His arguments on this score reflect a misapprehension of the rule on parol evidence as
distinguished from the rule on actionable documents. As the respondent Court correctly
explained to herein petitioner, what he presented in the trial Court was testimonial evidence
that the promissory notes were receipts of his supposed contributions to the alleged
partnership which testimony, in the light of Section 7, Rule 130, could not be admitted to
vary or alter the explicit meaning conveyed by said promissory notes. On the other hand, the
presumed genuineness and due execution of said promissory notes were not affected,
pursuant to the provisions of Section 8, Rule 8, since such aspects were not at all questioned
but, on the contrary, were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po,[7] which was
reiterated in Central Surety & Insurance Co. vs. C. N. Hodges, et al.[8] does not sustain his
thesis that the herein private respondent had "waived the mantle of protection given him by
Rule 8, Sec. 8". It is true that such implied admission of genuineness and due execution may
be waived by a party but only if he acts in a manner indicative of either an express or tacit
waiver thereof. Petitioner, however, either overlooked or ignored the fact that, as held in Yu
Chuck, and the same is true in other cases of identical factual settings, such a finding of
waiver is proper where a case has been tried in complete disregard of the rule and the
plaintiff having pleaded a document by copy, presents oral evidence to prove the due
execution of the document and no objections are made to the defendant's evidence in
refutation. This situation does not obtain in the present case hence said doctrine is obviously
inapplicable.
Neither did the failure of herein private respondent to cross-examine herein petitioner on
the latter's sur-rebuttal testimony constitute a waiver of the aforesaid implied admission. As
found by the respondent Court, said sur-rebuttal testimony consisted solely of the denial of
the testimony of herein private respondent and no new or additional matter was introduced
in that sur-rebuttal testimony to exonerate herein petitioner from his obligations under the
aforesaid promissory notes.
On the foregoing premises and considerations, the respondent Court correctly reversed and
set aside the appealed decision of the Court of First Instance of Zamboanga del Norte and
affirmed in full the decision of the City Court of Dipolog City in Civil Case No. A-1838, dated
September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of the respondent Court, herein
petitioner, as the private respondent therein, raised a third unresolved issue that the
petition for review therein should have been dismissed for lack of jurisdiction since the
lower Court's decision did not affirm in full the judgment of the City Court of Dipolog, and
which he claimed was a sine qua non for such a petition under the law then in force. He
raises the same point in his present appeal and We will waive the procedural technicalities in
order to put this issue at rest.
Parenthetically, in that same motion for reconsideration he had sought affirmative relief
from the respondent Court praying that it sustain the decision of the trial Court, thereby
invoking and submitting to its jurisdiction which he would now assail. Furthermore, the
objection that he raises is actually not one of jurisdiction but of procedure.[9]
At any rate, it will be noted that petitioner anchors his said objection on the provisions of
Section 29, Republic Act 296 as amended by Republic Act 5433 effective September 9, 1968.
Subsequently, the procedure for appeal to the Court of Appeals from decisions of the then
courts of first instance in the exercise of their appellate jurisdiction over cases originating
from the municipal courts was provided for by Republic Act 6031, amending Section 45 of
the Judiciary Act effective August 4, 1969. The requirement for affirmance in full of the
inferior court's decision was not adopted or reproduced in Republic Act 6031. Also, since
Republic Act 6031 failed to provide for the procedure or mode of appeal in the cases therein
contemplated, the Court of Appeals en banc provided therefor in its Resolution of August 12,
1971, by requiring a petition for review but which also did not require for its availability that
the judgment of the court of first instance had affirmed in full that of the lower court. Said
mode of appeal and the procedural requirements thereof governed the appeal taken in this
case from the aforesaid Court of First Instance to the Court of Appeals in 1977.[10] Herein
petitioner's plaint on this issue is, therefore, devoid of merit.
WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs
against herein petitioner.
SO ORDERED.
Sardane vs CA and Romeo J. Acojedo case digest
Facts: Acojedo brought an action in the City Court of Dipolog for collection of a sum of
P5,217.25 based on promissory notes executed by the herein private respondent Nobio
Sardane in favor of the herein petitioner.
It has been established in the trial court that on many occasions, Acoejdo demanded the
payment of the total amount of P5,217.25. Due to failure to pay upon extrajudicial demand
(demand letter from a lawyer), Acojedo sought to collect by filing this case.
City Court of Dipolog issued an order dated May 18, 1976 declaring the private respondent
in default and allowed the petitioner to present his evidence ex-parte. The City Court of
Dipolog rendered judgment by default in favor of the petitioner.
Private respondent filed a motion to lift the order of default which was granted.
CITY COURT OF DIPOLOG After the trial on the merits, the City Court of Dipolog rendered its
decision in favor of Acojedo and against Sardaje as follows:
(a) Ordering the Sardaje to pay unto the plaintiff the sum of (P5,217.25) plus legal interest to
commence from April 23, 1976 when this case was filed in court;
(b) pay the plaintiff the sum of P200.00 as attorney's fee and to pay the cost of this
proceeding. 3
APPEAL TO CFI: Sardane appealed to the Court of First Instance of Zamboanga del Norte
which reversed the decision. He said that he is a partner and that the PNotes are evidence of
his share in the common fund. CFI concluded that the promissory notes involved were
merely receipts for the contributions to said partnership and, therefore, upheld the claim
that there was ambiguity in the promissory notes, hence parol evidence was allowable to
vary or contradict the terms of the represented loan contract.
CA: Acojedo then sought the review of said decision by petition to the CA. The issue on
whether the oral testimony for the therein private respondent Sardane that a partnership
existed between him and therein petitioner Acojedo are admissible to vary the meaning of
the abovementioned promissory notes was raised in this appeal.
CA said that the exceptions to the rule do not apply in this case as there is no ambiguity in
the writings in question, thus the issue is.
ISSUE: WON a partnership exists between Acojedo and Sardane primarily based on the
Promissory notes presented as evidence? NO
HELD:
ON THE PROMISSORY NOTES: In the case at bar, the promissory notes containing a promise
to pay a sum certain in money, payable on demand and the promise to bear the costs of
litigation in the event of the private respondent's failure to pay the amount loaned when
demanded extrajudicially.
THE PNotes clearly denote that the Sardane is obliged to return the sum loaned to him. On
their face, nothing appears to be vague or ambigous, for the terms of the promissory notes
clearly show that it was incumbent upon the private respondent to pay the amount involved
in the promissory notes if and when the petitioner demands the same.
It was clearly the intent of the parties to enter into a contract of loan for how could an
educated man like the private respondent be deceived to sign a promissory note yet
intending to make such a writing to be mere receipts of the petitioner's supposed
contribution to the alleged partnership existing between the parties?
OTHER EVIDENCE: It has been established in the trial court that, the private respondent has
been engaged in business for quite a long period of time--as owner of the Sardane Trucking
Service, entering into contracts with the government for the construction of wharfs and
seawall; and a member of the City Council of Dapitan. It indeed puzzles the COURT how
Sardane could have been misled into signing a document containing terms which he did not
mean them to be. .
Court of Appeals held, and SC agrees, that even if evidence aliunde other than the
promissory notes may be admitted to alter the meaning conveyed thereby, still the evidence
is insufficient to prove that a partnership existed between the private parties hereto.
As manager of the basnig Sarcado he naturally has some degree of control over the
operations, and maintenance thereof had to be exercised by herein petitioner.
 The fact that he had received 50% of the net profits does not conclusively establish
that he was a partner of the private respondent herein.
 petitioner had no voice in the management of the affairs of the basnig.
Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the
profits of a business is prima facie evidence that he is a partner in the business, no such
inference shall be drawn if such profits were received in payment as wages of an employee.
In Fortis vs. Gutierrez Hermanos, in denying the claim of the plaintiff therein that he was a
partner in the business of the defendant, declared:
This contention cannot be sustained. It was a mere contract of employment. The plaintiff
had no voice nor vote in the management of the affairs of the company. The fact that the
compensation received by him was to be determined with reference to the profits made by
the defendant in their business did not in any sense make him a partner therein. ...
Bastida vs. Menzi & Co., Inc., et al. which involved the same factual and legal milieu.
There are other considerations noted by respondent Court which negate herein petitioner's
pretension that he was a partner and not a mere employee indebted to the present private
respondent.
• Thus, in an action for damages herein petitioner did not ask to be joined as a party
plaintiff.

• Also, although he contends that herein private respondent is the treasurer of the
alleged partnership, yet it is the latter who is demanding an accounting. Among others.

WHEREFORE, the judgment of the respondent Court of Appeals is AFFIRMED, with costs
against herein petitioner.

135 Phil. 433

CASTRO, J.:

This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order
of May 21, 1956, all of the Court of First Instance of Davao, in civil case 629. The basic action
is for specific performance, and damages resulting from an alleged breach of contract.
In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the
then sitio of Malalag (now the municipality of Malalag), municipality of Padada, Davao. No
action was taken thereon by the authorities concerned. During the Japanese occupation, he
filed another fishpond application for the same area, but because of the conditions then
prevailing, it was not acted upon either. On December 12, 1945 he filed a third fishpond
application for the same area, which, after a survey, was found to contain 178.76 hectares.
Upon investigation conducted by a representative of the Bureau of Forestry, it was
discovered that the area applied for was still needed for firewood production. Hence, on
May 13, 1946 this third application was disapproved.
Despite the said rejection, Casteel did not lose interest. He filed a motion for
reconsideration. While this motion was pending resolution, he was advised by the district
forester of Davao City that no further action would be taken on his motion, unless he filed a
new application for the area concerned. So he filed on May 27, 1947 his fishpond
application 1717.
Meanwhile, several applications were submitted by other persons for portions of the area
covered by Casteel's application.
On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares
of land found inside the area applied for by Casteel; he was later granted fishpond permit F-
289-C covering 9.3 hectares certified as available for fishpond purposes by the Bureau of
Forestry.
Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the
land applied for by Casteel. Alejandro Cacam's fishpond application 1276, filed on December
26, 1946, was given due course on December 9, 1947 with the issuance to him of fishpond
permit F-539-C to develop 30 hectares of land comprising a portion of the area applied for
by Casteel, upon certification of the Bureau of Forestry that the area was likewise available
for fishpond purposes. On November 17, 1948 Felipe Deluao filed his own fishpond
application for the area covered by Casteel's application.
Because of the threat poised upon his position by the above applicants who entered upon
and spread themselves within the area, Casteel realized the urgent necessity of expanding
his occupation thereof by constructing dikes and cultivating marketable fishes, in order to
prevent old and new squatters from usurping the land. But lacking financial resources at
that time, he sought financial aid from his uncle Felipe Deluao who then extended loans
totaling more or less P27,000 with which to finance the needed improvements on the
fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already occupied
by rival applicants, Casteel immediately filed the corresponding protests. Consequently, two
administrative cases ensued involving the area in question, to wit: DANR Case 353, entitled
"Fp. Ap. No. 661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp. A.
No. 763, Victorio D. Carpio, applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No.
661 (now Fp. A. No. 1717), Nicanor Casteel, applicant-protestant versus Fp. Permit No. 289-
C, Leoncio Aradillos, Fp. Permit No. 539-C, Alejandro Cacam, Permitees-Respondents. "
However, despite the finding made in the investigation of the above administrative cases
that Casteel had already introduced improvements on portions of the area applied for by
him in the form of dikes, fishpond gates, clearings, etc., the Director of Fisheries
nevertheless rejected Casteel's application on October 25, 1949, required him to remove all
the improvements which he had introduced on the land, and ordered that the land be leased
through public auction. Failing to secure a favorable resolution of his motion for
reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture and
Natural Resources.
In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up
in our discussion of the appellant's third assignment of error.
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part,
and Nicanor Casteel as party of the second part, executed a contract - denominated a
"contract of service" - the salient provisions of which are as follows:
"That the Party of the First Part in consideration of the mutual covenants and agreements
made herein to the Party of the Second Part, hereby enter into a contract of service,
whereby the Party of the First Part hires and employs the Party of the Second Part on the
following terms and conditions, to wit:
"That the Party of the First Part will finance as she has hereby financed the sum of TWENTY
SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second Part
who renders only his services for the construction and improvements of a fishpond at barrio
Malalag, Municipality of Padada, Province of Davao, Philippines;
"That the Party of the Second Part will be the Manager and sole buyer of all the produce of
the fish that will he produced from said fishpond;
"That the Party of the First Part will be the administrator of the same she having financed
the construction and improvement of said fishpond;
"That this contract was the result of a verbal agreement entered into between the Parties
sometime in the month of November, 1947, with all the abovementioned conditions
enumerated; x x x"
On the same date the above contract was entered into, Inocencia Deluao executed a special
power of attorney in favor of Jesus Donesa, extending to the latter the authority "To
represent me in the administration of the fishpond at Malalag, Municipality of Padada,
Province of Davao, Philippines, which has been applied for fishpond permit by Nicanor
Casteel, but rejected by the Bureau of Fisheries, and to supervise, demand, receive, and
collect the value of the fish that is being periodically realized from it x x x."
On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over
the same area in the two administrative cases (DANR Cases 353 and 353-B) and asked for
reinvestigation of the application of Nicanor Casteel over the subject fishpond. However, by
letter dated March 15, 1950 sent to the Secretary of Commerce and Agriculture and Natural
Resources (now Secretary of Agriculture and Natural Resources), Deluao withdrew his
petition for reinvestigation.
On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision
in DANR Case 353, the dispositive portion of which reads as follows:
"In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor
Casteel should be, as hereby it is, reinstated and given due course for the area indicated in
the sketch drawn at the back of the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio
shall remain rejected."
On the same date, the same official issued a decision in DANR Case 353-B, the dispositive
portion stating as follows:
"WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No. F-
539-C of Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor
Casteel is required to pay the improvements introduced there on by said permittees in
accordance with the terms and dispositions contained elsewhere in this decision. x x x"
Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative, (encargado), Jesus
Donesa, from the premises.
Alleging violation of the contract of service (exhibit A) entered into between Inocencia
Deluao and Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an
action in the Court of First instance of Davao for specific performance and damages against
Nicanor Casteel and Juan Depra (who, they alleged, instigated Casteel to violate his
contract), praying, inter alia, (a) that Casteel be ordered to respect and abide by the terms
and conditions of said contract and that Inocencia Deluao be allowed to continue
administering the said fishpond and collecting the proceeds from the sale of the fishes
caught from time to time; and (b) that the defendants be ordered to pay jointly and severally
to plaintiffs the sum of P20,000 in damages.
On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary
injunction, praying among other things, that during the pendency of the case and upon their
filing the requisite bond as may be fixed by the court, a preliminary injunction be issued to
restrain Casteel from doing the acts complained of, and that after trial the said injunction be
made permanent. The lower court on April 26, 1951 granted the motion, and, two days
later, it issued a preliminary mandatory injunction addressed to Casteel, the dispositive
portion of which reads as follows:
"POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado y
todos sus abogados, agentes, mandatarios y demas personas que obren en su ayuda, desista
de impedir a la demandante Inocencia R. Deluao que continue administrando
personalmente la pesqueria objeto de esta causa y que la misma continue recibiendo los
productos de la venta de los pescados provenientes de dicha pesqueria, y que, asimismo, se
prohibe a dicho demandado Nicanor Casteel a desahuciar mediante fuerza al encargado de
los demandantes llamado Jesus Donesa de la pesqueria objeto de la demanda de autos."
On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others,
that he was the owner, lawful applicant and occupant of the fishpond in question. This
motion, opposed by the plaintiffs on June 15, 1951, was denied by the lower court in its
order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on January
8, 1952, denying the material averments of the plaintiffs' complaint. A reply to the
defendants' amended answer was filed by the plaintiffs on January 31, 1952.
The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On
June 4, 1951 the plaintiffs opposed his motion.
The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the
plaintiffs' complaint failed to state a claim upon which relief may be granted. The motion,
opposed by the plaintiffs on October 12, 1951, was denied for lack of merit by the lower
court in its order of October 22, 1951. The defendants' motion for reconsideration filed on
October 31, 1951 suffered the same fate when it was likewise denied by the lower court in
its order of November 12, 1951.
After the issues were joined, the case was set for trial. Then came a series of
postponements. The lower court (Branch I, presided by Judge Enrique A. Fernandez) finally
issued on March 21, 1956 an order in open court, reading as follows:
"Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of
this case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in the morning.
"This case was filed on April 3, 1951 and under any circumstance this Court will not entertain
any other transfer of hearing of this case and if the parties will not be ready on that day set
for hearing, the court will take the necessary steps for the final determination of this case."
(emphasis supplied)
On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956,
issued by the office of the Clerk of Court (thru the special deputy Clerk of Court) of the Court
of First Instance of Davao, setting the hearing of the case for May 2 and 3, 1956 before Judge
Amador Gomez of Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion
for postponement. Acting on this motion, the lower court (Branch II, presided by Judge
Gomez) issued an order dated April 27, 1956, quoted as follows:
"This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956.
The motion is filed by the counsel for the defendants and has the conformity of the counsel
for the plaintiffs.
"An examination of the records of this case shows that this case was initiated as early as
April 1951 and that the same has been under advisement of the Honorable Enrique A.
Fernandez, Presiding Judge of Branch No. I, since September 24, 1953, and that various
incidents have already been considered and resolved by Judge Fernandez on various
occasions. The last order issued by Judge Fernandez on this case was issued on March 21,
1956, wherein he definitely states that the Court will not entertain any further
postponement of the hearing of this case.
"CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and
termination of any incident referring to this case should be referred back to Branch I, so that
the same may be disposed of therein." (underlining supplied)
A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with
Judge Fernandez presiding), when informed about the defendants' motion for
postponement filed on April 26, 1956, issued an order reiterating its previous order handed
down in open court on March 21, 1956 and directing the plaintiffs to introduce their
evidence ex parte, there being no appearance on the part of the defendants or their counsel.
On the basis of the plaintiffs' evidence, a decision was rendered on May 4, 1956 the
dispositive portion of with reads as follows:
however, was denied by the lower court in its order of May 21, 1956, the pertinent portion
of which reads as follows:
"The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this
case has been transferred or not, but to inquire from the presiding Judge, particularly
because his motion asking the transfer of this case was not set for hearing and was not also
acted upon.

"Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as
"EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del
follows:
demandado Nicanor Casteel:
'Upon petition of the plaintiff without any objection on the part of the defendants, the
"(a) Declara permanents el interdicto prohibitorio expedido contra el demandado;
hearing of this case is hereby transferred to May 2 and 3, 1956, at 8:30 o'clock in the
"(b) Ordena al demandado entregue la demandante la posesion y administracion de la morning.
mitad (1/2) del 'fishpond' en cuestion con todas las mejoras existentes dentro de la misma;

"(c) Condena al demandado a pagar a la demandante la suma de P200.00 mensualmente

'This case was filed on April 3, 1951, and under any circumstance this Court will not entertain
en concepto de daños a contar de la fecha de la expiracion de los 30 dias de la promulgacion
any other transfer of the hearing of this case, and if the parties will not be ready on the day
de esta decision hasta que entregue la posesion y administracion de la porcion del 'fishpond'
set for hearing, the Court will take necessary steps for the final disposition of this case.'
en conflicto;

"(d) Condena al demandado a pagar a la demandante la suma de P2,000.00 valor de los

peseado beneficiados mas los intereses legales de la fecha de la incoacion de la demanda de
autos hasta el completo pago de la obligacion principal;
"(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos
incurridos por aquella durante la pendencia de esta causa;
"(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma
de P2,000.00;
"(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en
cuanto se refiere al demandado Juan Depra;
"In view of the order above-quoted, the Court will not accede to any transfer of this case and
the duty of Atty. Ruiz is no other than to be present in the Sala of this Court and to call the
attention of the same to the existence of his motion for transfer.
"Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well
taken, the same is hereby denied."
Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the
case to us for final determination on the ground that it involves only questions of law.

"(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas. Casteel raises the following issues:
"(i) Con las costas contra del demandado, Casteel."

The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter
alia, lack of knowledge of the order of the court a quo setting the case for trial. The petition,
"(1) Whether the lower court committed gross abuse of discretion when it ordered reception calendar. And this duty devolved upon the clerk of court and not upon the "special deputy
of the appellees' evidence in the absence of the appellant at the trial on May 2, 1956, thus clerk of court" who purportedly signed the notice of hearing.
depriving the appellant of his day in court and of his property without due process of law;

"(2) Whether the lower court committed grave abuse of discretion when it denied the
It is of no moment that the motion for postponement had the conformity of the appellees'
verified petition for relief from judgment filed by the appellant on May 11, 1956 in
counsel. The postponement of hearings does not depend upon agreement of the parties,
accordance wit Rule 38, Rules of Court; and
but upon the court's discretion.[3]
"(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary
injunction against defendant-appellant, and in not dismissing appellees' complaint."
The record further discloses that Casteel was represented by a total of 12 lawyers, none of
1. The first and second issues must be resolved against the appellant.
whom had ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March 21,
1956 intransferably setting the case for hearing for May 2 and 3, 1956, was sufficient notice
to all the appellant's eleven other counsel of record. This is a well-settled rule in our
The record indisputably shows that in the order given in open court on March 21, 1956, the
jurisdiction.[4]
lower court set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and
emphatically stated that, since the case had been pending since April 3, 1951, it would not
entertain any further motion for transfer of the scheduled hearing.
It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant
himself, to appear before Judge Fernandez on the scheduled dates of hearing. Parties and
their lawyers have no right to presume that their motions for postponement will be granted.
An order given in open court is presumed received by the parties on the very date and time
[5] For indeed, the appellant and his 12 lawyers cannot pretend ignorance of the recorded
of promulgations,[1] and amounts to a legal notification for all legal purposes.[2] The order
fact that since September 24, 1953 until the trial held on May 2, 1956, the case was under
of March 21, 1956, given in open court, was a valid notice to the parties, and the notice of
the advisement of Judge Fernandez who presided over Branch I. There was, therefore, no
hearing dated April 21, 1956, or one month thereafter, was a superfluity. Moreover, as
necessity to "re-assign" the same to Branch II because Judge Fernandez had exclusive control
between the order of March 21, 1956, duly promulgated by the lower court, thru Judge
of said case, unless he was legally inhibited to try the case - and he was not.
Fernandez, and the notice of hearing signed by a "special deputy clerk of court" setting the
hearing in another branch of the same court, the former's order was the one legally binding.
This is because the incidents of postponements and adjournments are controlled by the
There is truth in the appellant's contention that it is the duty of the clerk of court - not of the
court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule 22) of
Court - to prepare the trial calendar. But the assignment or reassignment of cases already
the Rules of Court.
pending in one sala to another sala, and the setting of the date of trial after the trial calendar
has been prepared, fall within the exclusive control of the presiding judge.

Much less had the clerk of court the authority to interfere with the order of the court or
to transfer the case from one sala to another without authority or order from the court
The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of
where the case originated and was being tried. He had neither the duty nor prerogative to
the clerk of court of the Court of First Instance of Davao was located directly below Branch I.
re-assign the trial of the case to a different branch of the same court. His duty as such clerk
If the appellant and his counsel had exercised due diligence, there was no impediment to
of court, in so far as the incident in question was concerned, was simply to prepare the trial
their going upstairs to the second storey of the Court of First Instance building in Davao on
May 2, 1956 and checking if the case was scheduled for hearing in the said sala. The
appellant after all admits that on May 2, 1956 his counsel went to the office of the clerk of
court.
The appellant's statement that parties as a matter of right are entitled to notice of trial, is
correct. But he was properly accorded this right. He was notified in open court on March
21, 1956 that the case was definitely and intransferably set for hearing on May 2 and 3, 1956
before Branch I. He cannot argue that, pursuant to the doctrine in Siochivs. Tirona,[6] his
counsel was entitled to a timely notice of the denial of his motion for post ponement. In the
cited case the motion for postponement was the first one filed by the defendant; in the case
at bar, there had already been a series of postponements. Unlike the case at bar, the Siochi
case was not intransferably set for hearing. Finally, whereas the cited case did not pend for a
long time, the case at bar was only finally and intransferably set for hearing on March 21,
1956 - after almost five years had elapsed from the filing of the complaint on April 3, 1951.
The pretension of the appellant and his 12 counsel of record that they lacked ample time to
prepare for trial is unacceptable because between March 21, 1956 and May 2, 1956, they
had one month and ten days to do so. In effect, the appellant had waived his right to appear
at the trial and therefore he cannot be heard to complain that he has been deprived of his
property without due process of law.[7] Verily, the constitutional requirements of due
process have been fulfilled in this case: the lower court is a competent court; it lawfully
acquired jurisdiction over the person of the defendant (appellant) and the subject matter of
the action; the defendant (appellant) was given an opportunity to be heard; and judgment
was rendered upon lawful hearing.[8]
2. Finally, the appellant contends that the lower court incurred in error in ordering the
issuance ex parte of a writ of preliminary injunction against him, and in not dismissing the
appellee's complaint. We find this contention meritorious.
Apparently, the court a quo relied on exhibit A - the so-called "contract of service" - and the
appellees' contention that it created a contract of co-ownership and partnership between
Inocencia Deluao and the appellant over the fishpond in question.
Too well-settled to require any citation of authority is the rule that everyone is conclusively
presumed to know the law. It must be assumed, conformably to such rule, that the parties
entered into the so-called "contract of service" cognizant of the mandatory and prohibitory
laws governing the filing of applications for fishpond permits. And since they were aware of
the said laws, it must likewise be assumed - in fairness to the parties - that they did not
intend to violate them. This view must perforce negate the appellees' allegation that exhibit
A created a contract of co-ownership between the parties over the disputed fishpond. Were
we to admit the establishment of a co-ownership violative of the prohibitory laws which will
hereafter be discussed, we shall be compelled to declare altogether the nullity of the con -
tract. This would certainly not serve the cause of equity and justice, considering that rights
and obligations have already arisen between the parties. We shall therefore construe the
contract as one of partnership, divided into two parts - namely, a contract of partnership, to
exploit the fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a
contract of partnership to divide the fishpond between them after such award. The first is
valid, the second illegal.
It is well to note that when the appellee Inocencia Deluao and the appellant entered into the
so-called "contract of service" on November 25, 1949, there were two pending applications
over the fishpond. One was Casteel's which was appealed by him to the Secretary of
Agriculture and Natural Resources after it was disallowed by the Director of Fisheries on
October 25, 1949. The other was Felipe Deluao's application over the same area which was
likewise rejected by the Director of Fisheries on November 29, 1949, refiled by Deluao and
later on withdrawn by him by letter dated March 15, 1950 to the Secretary of Agriculture
and Natural Resources. Clearly, although the fishpond was then in the possession of Casteel,
neither he nor Felipe Deluao was the holder of a fishpond permit over the area. But be that
as it may, they were not however precluded from exploiting the fishpond pending resolution
of Casteel's appeal or the approval of Deluao's application over the same area - whichever
event happened first. No law, rule or regulation prohibited them from doing so. Thus,
rather than let the fishpond remain idle, they cultivated it.
The evidence preponderates in favor of the view that the initial intention of the parties was
not to form a co-ownership but to establish a partnership - Inocencia Deluao as capitalist
partner and Casteel as industrial partner - the ultimate undertaking of which was to divide
into two equal parts such portion of the fishpond as might have been developed by the
amount extended by the plaintiffs-appellees, with the further provision that Casteel should
reimburse the expenses incurred by the appellees over one-half of the fishpond that would
pertain to him. This can be gleaned, among others, from the letter of Casteel to Felipe
Deluao on November 15, 1949, which states, inter alia:
"* * * [W]ith respect to your allowing me to use your money, same will redound to your be-
nefit because you are the ones interested in half of the work we have done so far, besides I
did not insist on our being partners in my fishpond permit, but it was you 'Tatay' Eping the
one who wanted that we be partners and it so happened that we became partners because I
am poor, but in the midst of my poverty it never occurred to me to be unfair to you.
Therefore so that each of us may be secured, let us have a document prepared to the effect
that we are partners in the fishpond that we caused to be made here in Balasino, but it does
not mean that you will treat me as one of your 'Bantay' (caretaker) on wage basis but not
earning wages at all, while the truth is that we are partners. In the event that you are not
amenable to my proposition and consider me as 'Bantay" (caretaker) instead, do not blame
me if I withdraw all my cases and be left without even a little and you likewise."
(underscoring supplied)[9]
Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing
their partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which,
although denominated a "contract of service," was actually the memorandum of their
partnership agreement. That it was not a contract of the services of the appellant, was
admitted by the appellees themselves in their letter[10] to Casteel dated December 19, 1949
wherein they stated that they did not employ him in his (Casteel's) claim but because he
used their money in developing and improving the fishpond, his right must he divided
between them. Of course, although exhibit A did not specify any wage or share appertaining
to the appellant as industrial partner, he was so entitled - this being one of the conditions he
specified for the execution of the document of partnership.[11]
Further exchanges of letters between the parties reveal the continuing intent to divide the
fishpond. In a letter[12] dated March 24, 1950, the appellant suggested that they divide the
fishpond and the remaining capital, and offered to pay the Deluaos a yearly installment of
P3,000 - presumably as reimbursement for the expenses of the appellees for the
development and improvement of the one-half that would pertain to the appellant. Two
days later, the appellee Felipe Deluao replied,[13] expressing his concurrence in the
appellant's suggestion and advising the latter to ask for a reconsideration of the order of the
Director of Fisheries disapproving his (appellant's) application, so that if a favorable decision
was secured, then they would divide the area.
Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further
need to maintain his petition for the reinvestigation of Casteel's application. Thus by
letter[14] dated March 15, 1950 addressed to the Secretary of Agriculture and Natural
Resources, he withdrew his petition on the alleged ground that he was no longer interested
in the area, but stated however that he wanted his interest to be protected and his capital to
be reimbursed by the highest bidder.
The arrangement under the so-called "contract of service" continued until the decisions both
dated September 15, 1950 were issued by the Secretary of Agriculture and Natural
Resources in DANR Cases 353 and 353-B. This development, by itself, brought about the
dissolution of the partnership. Moreover, subsequent events likewise reveal the intent of
both parties to terminate the partnership because each refused to share the fishpond with
the other.
Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a
partnership, ". . . any event which makes it unlawful for the business of the partnership to be
carried on or for the members to carry it on in partnership." The approval of the appellant's
fishpond application by the decisions in DANR Cases 353 and 353-B brought to the fore
several provisions of law which made the continuation of the partnership unlawful and
therefore caused its ipso facto dissolution.
Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the
permittee) from transferring or subletting the fishpond granted to him, without the previous
consent or approval of the Secretary of Agriculture and Natural Resources.[15] To the same
effect is Condition No. 3 of the fishpond permit which states that "The permittee shall not
transfer or sublet all or any area herein granted or any rights acquired therein without the
previous consent and approval of this Office." Parenthetically, we must observe that in DANR
Case 353-B, the permit granted to one of the parties therein, Leoncio Aradillos, was
cancelled not solely for the reason that his permit covered a portion of the area included in
the appellant's prior fishpond application, but also because, upon investigation, it was
ascertained thru the admission of Aradillos himself that due to lack of capital, he allowed
one Lino Estepa to develop with the latter's capital the area covered by his fishpond permit
F-289-C with the understanding that he (Aradillos) would be given a share in the produce
thereof.[16]
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise
provides that
"The lessee shall not assign, encumber, or sublet his rights without the consent of the
Secretary of Agriculture and Commerce, and the violation of this condition shall avoid the
contract; Provided, That assignment, encumbrance, or subletting for purposes of speculation
shall not be permitted in any case: Provided, further, That nothing contained in this section
shall be understood or construed to permit the assignment, encumbrance, or subletting of
lands leased under this Act, or under any previous Act, to persons, corporations, or as -
sociations which under this Act, are not authorized to lease public lands."
Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural
Resources issued in August 1937, prohibits a transfer or sublease unless first approved by
the Director of Lands and under such terms and conditions as he may prescribe. Thus, it
states:
"When a transfer or sub-lease of area and improvement may be allowed. - If the permittee
or lessee had, unless otherwise specifically provided, held the permit or lease and actually
operated and made improvements on the area for at least one year, he/she may request
permission to sub-lease or transfer the area and improvements under certain conditions.
"(a) Transfer subject to approval. - A sublease or transfer shall only be valid when first ap-
proved by the Director under such terms and conditions as may be prescribed, otherwise it
shall be null and void. A transfer not previously approved or reported shall be considered
sufficient cause for the cancellation of the permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as provided in subsection (r) of Sec. 33 of
this Order."
Since the partnership had for its object the division into two equal parts of the fishpond
between the appellees and the appellant after it shall have been awarded to the latter, and
therefore it envisaged the unauthorized transfer of one-half thereof to parties other than
the applicant Casteel, it was dissolved by the approval of his application and the award to
him of the fishpond. The approval was an event which made it unlawful for the business of
the partnership to be carried on or for the members to carry it on in partnership.
The appellees, however, argue that in approving the appellant's application, the Secretary of
Agriculture and Natural Resources likewise recognized and/or confirmed their property right
to one-half of the fishpond by virtue of the contract of service, exhibit A. But the
untenability of this argument would readily surface if one were to consider that the
Secretary of Agriculture and Natural Resources did not do so for the simple reason that he
does not possess the authority to violate the aforementioned prohibitory laws nor to exempt
anyone from their operation.
However, assuming in gratis argumenti that the approval of Casteel's application, coupled
with the foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of
their partnership, succeeding events reveal the intent of both parties to terminate the
partnership by refusing to share the fishpond with the other.
On December 27, 1950 Casteel wrote[17] the appellee Inocencia Deluao, expressing his
desire to divide the fishpond so that he could administer his own share, such division to be
subject to the approval of the Secretary of Agriculture and Natural Resources. By letter
dated December 29, 1950,[18] the appellee Felipe Deluao demurred to Casteel's proposition
because there were allegedly no appropriate grounds to support the same and, moreover,
the conflict over the fishpond had not been finally resolved.
The appellant wrote on January 4, 1951 a last letter[19] to the appellee Felipe Deluao
wherein the former expressed his determination to administer the fishpond himself because
the decision of the Government was in his favor and the only reason why administration had
been granted to the Deluas was because he was indebted to them. In the same letter, the
appellant forbade Felipe Deluao from sending the couple's encargado, Jesus Donesa, to the
fishpond. In reply thereto, Felipe Deluao wrote a letter[20] dated January 5, 1951 in which
he reiterated his refusal to grant the administration of the fishpond to the appellant, stating
as a ground his belief "that only the competent agencies of the government are in a better
position to render any equitable arrangement relative to the present case; hence, any action
we may privately take may not meet the procedure of legal order."
Inasmuch as the erstwhile partners articulated in the aforecited letters their respective
resolutions not to share the fishpond with each other - in direct violation of the undertaking
for which they have established their partnership - each must be deemed to have expressly
withdrawn from the partnership, thereby causing its dissolution pursuant to art. 1830(2) of
the Civil Code which provides, inter alia, that dissolution is caused "by the express will of any
partner at any time."
In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive
and administrative powers with regard to the survey, classification, lease, sale or any other
form of concession or disposition and management of the lands of the public domain, and,
more specifically, with regard to the grant or withholding of licenses, permits, leases and
contracts over portions of the public domain to be utilized as fishponds.[21] Thus, we held in
Pajo, et al. vs. Ago, et al. (L-15414, June 30, 1960), and reiterated in Ganitanaovs. Secretar of
Agriculture and Natural Resources, et al. (L-21167, March 31, 1966), that
"* * * [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Re-
sources) by law regarding the disposition of public lands such as granting of licenses,
permits, leases, and contracts, or approving, rejecting, reinstating, or cancelling applications,
or deciding conflicting applications, are all executive and administrative in nature. It is a
well-recognized principle that purely administrative and discretionary functions may not be
interfered with by the courts (Coloso v. Board of Accountancy, G.R. No. L-5750, April 20,
1953). In general, courts have no supervising power over the proceedings and actions of the
administrative departments of the government. This is generally true with respect to acts
involving the exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-559)
Findings of fact by an administrative board or official, following a hearing, are binding upon
the courts and will not be disturbed except where the board or official has gone beyond his
statutory authority, exercised unconstitutional powers or clearly acted arbitrarily and
without regard to his duty or with grave abuse of discretion. * * *" (emphasis supplied)
In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the
appellant's fishpond application 1717 and awarded to him the possession of the area in
question. In view of the finality of the Secretary's decision in DANR Cases 353 and 353-B,
and considering the absence of any proof that the said official exceeded his statutory
authority, exercised unconstitutional powers, or acted with arbitrariness and in disregard of
his duty, or with grave abuse of discretion, we can do no less than respect and maintain
unfettered his official acts in the premises. It is a salutary rule that the judicial department
should not dictate to the executive department what to do with regard to the administration
and disposition of the public domain which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the land de-
partment and compel the latter to do an act which involves the exercise or judgment and
discretion.[22]
Therefore, with the view that we take of this case, and even assuming that the injunction
was properly issued because present all the requisite grounds for its issuance, its continua-
tion, and, worse, its declaration as permanent, was improper in the face of the knowledge
later acquired by the lower court that it was the appellant's application over the fishpond
which was given due course. After the Secretary of Agriculture and Natural Resources
approved the appellant's application, he became to all intents and purposes the legal
permittee of the area with the corresponding right to possess, occupy and enjoy the same.
Consequently, the lower court erred in issuing the preliminary mandatory injunction. We
cannot overemphasize that an injunction should not be granted to take property out of the
possession and control of one party and place it in the hand of another whose title has not
been clearly established by law.[23]
However, pursuant to our holding that there was a partnership between the parties for the
exploitation of the fishpond before it was awarded to Casteel, this case should be remanded
to the lower court for the reception of evidence relative to an accounting from November
25, 1949 to September 15, 1950, in order for the court to determine (a) the profits realized
by the partnership, (b) the share (in the profits) of Casteel as industrial partner, (c) the share
(in the profits) of Deluao as capitalist partner, and (d) whether the amounts totaling about
P27,000 advanced by Deluao to Casteel for the development and improvement of the
fishpond have already been liquidated. Besides, since the appellee Inocencia Deluao
continued in possession and enjoyment of the fishpond even after it was awarded to Casteel,
she did so no longer in the concept of a capitalist partner but merely as creditor of the
appellant, and therefore, she must likewise submit in the lower court an accounting of the
proceeds of the sales of all the fishes harvested from the fishpond from September 16, 1950
until Casteel shall have been finally given the possession and enjoyment of the same. In the
event that the appellee Deluao has received more than her lawful credit of P27,000 (or
whatever amounts have been advanced to Casteel), plus 6% interest thereon per annum,
then she should reimburse the excess to the appellant.
ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby
rendered: (1) dissolving the injunction issued against the appellant, (2) placing the latter
back in possession of the fishpond in litigation, and (3) remanding this case to the court of
origin for the reception of evidence relative to the accounting that the parties must perforce
render in the premises, at the termination of which the court shall render judgment
accordingly. The appellant's counterclaim is dismissed. No pronouncement as to costs.
Concepcion, C.J., Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Fernando, and
Capistrano, JJ., concur.
DELUAO v. CASTEEL case digest
FACTS:
In 1940 Nicanor Casteel unsuccessfully registered a fishpond in a big tract of swampy land,
178.76 hectares, in the then sitio of Malalag, municipality of Padada, Davao for 3
consecutive times because the Bureau of Fisheries did not act upon his previous
applications.
Despite the said rejection, Casteel did not lose interest. Because of the threat poised upon
his position by the other applicants who entered upon and spread themselves within the
area, Casteel realized the urgent necessity of expanding his occupation thereof by
constructing dikes and cultivating marketable fishes. But lacking financial resources at that
time, he sought financial aid from his uncle Felipe Deluao.
Moreover, upon learning that portions of the area applied for by him were already occupied
by rival applicants, Casteel immediately filed a protest. Consequently, two administrative
cases ensued involving the area in question.
However, despite the finding made in the investigation of the above administrative cases,
the Director of Fisheries nevertheless rejected Casteel's application on October 25, 1949,
required him to remove all the improvements which he had introduced on the land, and
ordered that the land be leased through public auction
On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part,
and Nicanor Casteel as party of the second part, executed a contract — denominated a
"contract of service". On the same date the above contract was entered into, Inocencia
Deluao executed a special power of attorney in favor of Jesus Donesa

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe
Deluao on November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over
the same area in the two administrative cases and asked for reinvestigation of the
application of Nicanor Casteel over the subject fishpond.

The Secretary of Agriculture and Natural Resources rendered a decision ordering Casteel to
be reinstated in the area and that he shall pay for the improvement made thereupon.

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further
administering the fishpond, and ejected the latter's representative (encargado), Jesus
Donesa, from the premises.
[ G.R. No. 21639, September 25, 1924 ]
ISSUE:
ALBERT F. KIEL, PLAINTIFF AND APPELLEE, VS. ESTATE OF P. S. SABERT, DEFENDANT AND
Whether the reinstatement of Casteel over the subject land constitute a dissolution of the APPELLANT.
partnership between him and Deluao

HELD:
DECISION
Yes, the reinstatement of Casteel dissolved his partnership with Deluao.
MALCOLM, J.:
The Supreme Court ruled that the arrangement under the so-called "contract of service"
continued until the decision both dated Sept. 15, 1950 were issued by the Secretary of
Agriculture and Natural Resources in DANR Cases 353 and 353-B. This action relates to the legal right of Albert F. Kiel to secure from the estate of P. S. Sabert
This development, by itself, brought about the dissolution of the partnership. Since the the sum of P20,000, on a claim first presented to the commissioners and disallowed, then on
partnership had for its object the division into two equal parts of the fishpond between the appeal to the Court of First Instance allowed, and ultimately the subject-matter of the appeal
appellees and the appellant after it shall have been awarded to the latter, and therefore it taken to this court.
envisaged the unauthorized transfer of one half thereof to parties other than the applicant
Casteel, it was dissolved by the approval of his application and the award to him of the
fishpond. A skeletonized statement of the case and the facts based on the complaint, the findings of
the trial judge, and the record, may be made in the following manner:
The approval was an event which made it unlawful for the members to carry it on in
partnership. Moreover, subsequent events likewise reveal the intent of both parties to
terminate the partnership because each refused to share the fishpond with the other.
In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain public lands
situated in the municipality of Parang, Province of Cotabato, known as Parang Plantation
Company. Kiel subsequently took over the interest of Milfeil. In 1910, Kiel and P. S. Sabert
entered into an agreement to develop the Parang Plantation Company. Sabert was to furnish
the capital to run the plantation and Kiel was to manage it. They were to share and share
alike in the property. It seems that this partnership was formed so that the land could be
acquired in the name of Sabert, Kiel being a German citizen and not deemed eligible to
acquire public lands in the Philippines.
By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed the
plantation. During the World War, he was deported from the Philippines.
On August 16, 1919, five persons, including P. S. Sabert, organized the Nituan Plantation
Company, with a subscribed capital of P40,000. On April 10, 1922, P. S. Sabert transferred all
of his rights in two parcels of land situated in the municipality of Parang, Province of
Cotabato, embraced within his homestead application No. 21045 and his purchase
application No. 1048, in consideration of the sum of Pl, to the Nituan Plantation Company.
In this same period, Kiel appears to have tried to secure a settlement from Sabert. At least in
a letter dated June 6, 1918, Sabert wrote Kiel that he had offered "to sell all property that I
have for P40,000 or take in a partner who is willing to develop the plantation, to take up the
K. & S. debt no matter which way I will straiten out with you." But Sabert's death came
before any amicable arrangement could be reached and before an action by Kiel against
Sabert could be decided. So these proceedings against the estate of Sabert.
In this court, the defendant-appellant assigns the following errors:
"The lower court erred
"(1) In finding this was an action to establish a resulting trust in land.
"(2) In finding a resulting trust in land could have been established in public lands in favor of
plaintiff herein who was an alien subject at the same time said alleged resulting trust was
created.
" (3) In finding a resulting trust in land had been established by the evidence in the case.
"(4) In admitting the testimony of the plaintiff herein.
"(5) In admitting the testimony of William Milfeil, John
C. Beyersdorfer, Frank R. Lasage, Oscar C. Butler and Stephen Jurika with reference to alleged
statements and declarations of the deceased P. S. Sabert.
"(6) In finding any copartnership existed between plaintiff and the deceased Sabert.
"(7) In rendering judgment for the plaintiff herein."
Errors 1, 2, and 3, relating to resulting trusts. These three errors discussing the same subject
may be resolved together. In effect, as will soon appear, we reach the conclusion that both
parties were in error in devoting so much time to the elaboration of these questions, and
that a ruling on the same is not needed.
It is conceivable, that the facts in this case could have been so presented to the court by
means of allegations in the complaint, as to disclose characteristics of a resulting trust. But
the complaint as framed asks for a straight money judgment against an estate. In no part of
the complaint did plaintiff allege any interest in land, claim any interest in land, or pretend to
establish a resulting trust in land. That the plaintiff did not care to press such an action is
demonstrated by the relation of the fact of alienage with the rule, that a trust will not be
created when, for the purpose of evading the law prohibiting one from taking or holding real
property, he takes a conveyance thereof in the name of a third person. (26 R. C. L., 1214-
1222; Leggett vs. Dubois [1835], 5 Paige, N. Y., 114; 28 Am. Dec, 413.)
The parties are wrong in assuming that the trial judge found that this was an action to
establish a resulting trust in land. In reality, all that the trial judge did was to ground one
point of his decision on an authority coming from the Supreme Court of California, which
discussed the subject of resulting trusts.
Error 4, relating to the admission of testimony of the plaintiff herein. Well taken.
The Code of Civil Procedure in section 383, No. 7, names as incompetent witnesses, parties
to an action or proceeding against an executor or administrator of a deceased person upon a
claim or demand against the estate of such deceased person, who "cannot testify as to any
matter of fact occurring before the death of such deceased person." But the trial judge,
misled somewhat by the decision of the Supreme Court of California in the case of Myers vs.
Reinstein ([1885], 67 Cal., 89), permitted this testimony to go in, whereas if the decision had
been read more carefully, it would have been noted that "the action was not on a claim or
demand against the estate of Reinstein." Here this is exactly the situation which confronts
us.
The case of Maxilom vs. Tabotabo ([1907], 9 Phil., 390), is squarely on all fours with the case
at bar. It was there held that "A party to an action against an executor or administrator of a
deceased person, upon a claim against the estate of the latter, is absolutely prohibited by
law from giving testimony concerning such claim or demand as to anything that occurred
before the death of the person against whose estate the action is prosecuted."
Error 5, relating to the testimony of five witnesses with reference to alleged statements and
declarations of the deceased P. S. Sabert. Not well taken.
By section 282 of the Code of Civil Procedure, the declaration, act, or omission of a deceased
person having sufficient knowledge of the subject, against his pecuniary interest, is
admissible as evidence to that extent against his successor in interest. By section 298, No. 4,
of the same Code, evidence may be given upon a trial of the following facts: " * * * the act or
declaration of a deceased person, done or made against his interests in respect to his real
property." (See Leonardo vs. Santiago [1907], 7 Phil., 401.) The testimony of these witnesses
with reference to the acts or declarations of Sabert was, therefore, properly received for
whatever they might be worth.
Error 6, relating to the existence of a copartnership between Kiel and Sabert, Not well taken.
No partnership agreement in writing was entered into by Kiel and Sabert. The question
consequently is whether or not the alleged verbal copartnership formed by Kiel and Sabert
has been proved, if we eliminate the testimony of Kiel and only consider the relevant
testimony of other witnesses. In performing this task, we are not unaware of the rule of
partnership that the declarations of one partner, not made in the presence of his copartner,
are not competent to prove the existence of a partnership between them as against such
other partner, and that the existence of a partnership cannot be established by general
reputation, rumor, or hearsay. (Mechem on Partnership, sec. 65; 20 R. C. L., sec. 53;
Owensboro Wagon Company vs. Bliss [1901], 132 Ala., 253.)
The testimony of the plaintiff's witnesses, together with the documentary evidence, leaves
the firm impression with us that Kiel and Sabert did enter into a partnership, said that they
were to share equally. Applying the tests as to the existence of partnership, we feel that
competent evidence exists establishing the partnership. Even more primary than any of the
rules of partnership above announced, is the injunction to seek out the intention of the
parties, as gathered from the facts and as ascertained from their language and conduct, and
then to give this intention effect. (Giles V6. Vette [1924], 263 U. S., 553.)
Error 7, relating to the judgment rendered for the plaintiff. Well taken in part.
The judgment handed down, it will be remembered, permitted the plaintiff to recover from
the estate the full amount claimed, presumably on the assumption that Sabert having
sold.the property to the Nituan Plantation Company for P40,000, Kiel should have one-half
of the same, or P20,000. There is, however, extant in the record absolutely no evidence as to
the precise amount received by Sabert from the sale of this particular land. If it is true that
Sabert sold all his land to the Nituan Plantation Company for P40,000, although this fact was
not proven, what part of the P40,000 would correspond to the property which belonged to
Kiel and Sabert under their partnership agreement? It impresses us further that Kiel under
the facts has no standing in court to ask for any part of the land and in fact he does not do
so; his only legal right is to ask for what is in effect an accounting with reference to its
improvements and income as of 1917 when Sabert became the trustee of the estate on
behalf of Kiel.

As we have already intimated, we do not think that Kiel is entitled to any share in the land
itself, but we are of the opinion that he has clearly shown his right to one-half of the value of
the improvements and personal property on the land as of the date upon which he left the
plantation.

Such improvements and personal property include buildings, coconut palms, and other
plantings, cattle and other animals, implements, fences, and other constructions, as well as
outstanding collectible credits, if any, belonging to the partnership. The value of these
improvements and of the personal property cannot be ascertained from the record and the
case must therefore be remanded for further proceedings.

In resume, we disregard errors 1, 2, and 3, we find well taken, errors 4 and 7, and we find not
well taken, errors 5 and 6.

The judgment appealed from is set aside and the record is returned to the lower court
where the plaintiff, if he so desires, may proceed further to prove his claim against the estate
of P. S. Sabert. Without costs. So ordered.

Johnson, Street, Avancem, Villamor, Ostrand, and Romualdez, JJ., concur.

 Albert F. Kiel commenced to work on certainpublic lands situated in the municipality of
Parang, Cotabato, known as ParangPlantation Company. In 11!, Kiel and P. "."abert entered
into an agreement to de#elopthe plantation. "abert was to furnish thecapital and Kiel was to
manage it. It seemsthat this partnership was formed so that theland could be ac$uired in the
name of "abert, Kiel being a %erman citi&en and notdeemed eligible to ac$uire public lands
in thePhilippines. 'uring the (orld (ar, Kiel was deportedfrom the Philippines. Fi#e persons,
includingP. ". "abert, organi&ed the )ituan PlantationCompany, to which "abert transferred
all therights and interests of the Parang PlantationCompany. Kiel appears to ha#e tried
tosecure a settlement from "abert. *ut"abert+s death came before any
amicablearrangement could be reached and before anaction by Kiel against "abert could
bedecided. "o these proceedings against theestate of "abert.

Issue

(hat is the nature of the proceeding Is thisan action to establish a resulting trust in theland
of "abert

NOHeld

-he court held that a ruling on the issue of establishing trust is not needed. )ote thatthe
complaint as framed asks for a straightmoney udgment against an estate.

In nopart of the complaint did plainti allegeany interest in land claim any interestin land
or pretend to establish aresulting trust in land

. -his is not anaction to establish trust in the land, because

a trust !ill not be created !hen for thepurpose of evading the la! prohibitingone from ta"ing
or holding realproperty he ta"es a conveyance thereof in the name of a third person.

Also, no partnership agreement in writingwas entered into by Kiel and "abert. -hus thereal
issue is whether or not the alleged#erbal copartnership formed by Kiel and"abert has been
pro#ed. -he court held thatdeclarations of one partner, not made in thepresence of his
copartner, are not competentto pro#e the e/istence of a partnershipbetween them, and that
the e/istence of apartnership cannot be established by generalreputation, rumor, or
hearsay.Although we feel that competent e#idencee/ists establishing the partnership,

Kielunder the facts had no standing in courtto as" for any part of the land and infact he does
not do so. His only legalright is to as" for !hat is in eect anaccounting !ith reference to
itsimprovements and income
Kiel vs. Estate of SabertFacts
 when "abertbecame the trustee of the estate on behalf of Kiel. Kiel is not entitled to any
share in the landitself, but he has clearly shown his right toone0half of the #alue of the
impro#ementsand personal property on the land. -he #alueof these impro#ements and of
the personalproperty cannot be ascertained from therecord and the case must therefore
beremanded for further proceedings