EN BANC

July 30, 1979

PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "SYCIP, SALAZAR, FELICIANO, HERNANDEZ &
CASTILLO." LUCIANO E. SALAZAR, FLORENTINO P. FELICIANO, BENILDO G. HERNANDEZ. GREGORIO R. CASTILLO.
ALBERTO P. SAN JUAN, JUAN C. REYES. JR., ANDRES G. GATMAITAN, JUSTINO H. CACANINDIN, NOEL A. LAMAN,
ETHELWOLDO E. FERNANDEZ, ANGELITO C. IMPERIO, EDUARDO R. CENIZA, TRISTAN A. CATINDIG, ANCHETA K. TAN, and
ALICE V. PESIGAN, petitioners.

IN THE MATTER OF THE PETITION FOR AUTHORITY TO CONTINUE USE OF THE FIRM NAME "OZAETA, ROMULO, DE LEON,
MABANTA & REYES." RICARDO J. ROMULO, BENJAMIN M. DE LEON, ROMAN MABANTA, JR., JOSE MA, REYES, JESUS S.
J. SAYOC, EDUARDO DE LOS ANGELES, and JOSE F. BUENAVENTURA, petitioners.

RESOLUTION

MELENCIO-HERRERA, J.:ñé+.£ªwph!1

Two separate Petitions were filed before this Court 1) by the surviving partners of Atty. Alexander Sycip, who died on May 5, 1975, and
2) by the surviving partners of Atty. Herminio Ozaeta, who died on February 14, 1976, praying that they be allowed to continue using, in
the names of their firms, the names of partners who had passed away. In the Court's Resolution of September 2, 1976, both Petitions
were ordered consolidated.

Petitioners base their petitions on the following arguments:

1. Under the law, a partnership is not prohibited from continuing its business under a firm name which includes the name of a deceased
partner; in fact, Article 1840 of the Civil Code explicitly sanctions the practice when it provides in the last paragraph that: têñ.£îhqwâ£

The use by the person or partnership continuing the business of the partnership name, or the name of a deceased
partner as part thereof, shall not of itself make the individual property of the deceased partner liable for any debts
contracted by such person or partnership. 1

2. In regulating other professions, such as accountancy and engineering, the legislature has authorized the adoption of firm names
without any restriction as to the use, in such firm name, of the name of a deceased partner; 2 the legislative authorization given to those
engaged in the practice of accountancy — a profession requiring the same degree of trust and confidence in respect of clients as that
implicit in the relationship of attorney and client — to acquire and use a trade name, strongly indicates that there is no fundamental
policy that is offended by the continued use by a firm of professionals of a firm name which includes the name of a deceased partner, at
least where such firm name has acquired the characteristics of a "trade name." 3

3. The Canons of Professional Ethics are not transgressed by the continued use of the name of a deceased partner in the firm name of
a law partnership because Canon 33 of the Canons of Professional Ethics adopted by the American Bar Association declares
that: têñ.£îhqwâ£

... The continued use of the name of a deceased or former partner when permissible by local custom, is not unethical
but care should be taken that no imposition or deception is practiced through this use. ... 4

4. There is no possibility of imposition or deception because the deaths of their respective deceased partners were well-publicized in all
newspapers of general circulation for several days; the stationeries now being used by them carry new letterheads indicating the years
when their respective deceased partners were connected with the firm; petitioners will notify all leading national and international law
directories of the fact of their respective deceased partners' deaths. 5

5. No local custom prohibits the continued use of a deceased partner's name in a professional firm's name; 6 there is no custom or
usage in the Philippines, or at least in the Greater Manila Area, which recognizes that the name of a law firm necessarily Identifies the
individual members of the firm. 7

6. The continued use of a deceased partner's name in the firm name of law partnerships has been consistently allowed by U.S. Courts
and is an accepted practice in the legal profession of most countries in the world. 8

The question involved in these Petitions first came under consideration by this Court in 1953 when a law firm in Cebu (the Deen case)
continued its practice of including in its firm name that of a deceased partner, C.D. Johnston. The matter was resolved with this Court
advising the firm to desist from including in their firm designation the name of C. D. Johnston, who has long been dead."
The same issue was raised before this Court in 1958 as an incident in G. R. No. L-11964, entitled Register of Deeds of Manila vs.
China Banking Corporation. The law firm of Perkins & Ponce Enrile moved to intervene as amicus curiae. Before acting thereon, the
Court, in a Resolution of April 15, 1957, stated that it "would like to be informed why the name of Perkins is still being used although
Atty. E. A. Perkins is already dead." In a Manifestation dated May 21, 1957, the law firm of Perkins and Ponce Enrile, raising
substantially the same arguments as those now being raised by petitioners, prayed that the continued use of the firm name "Perkins &
Ponce Enrile" be held proper.

On June 16, 1958, this Court resolved: têñ.£îhqwâ£

After carefully considering the reasons given by Attorneys Alfonso Ponce Enrile and Associates for their continued
use of the name of the deceased E. G. Perkins, the Court found no reason to depart from the policy it adopted in
June 1953 when it required Attorneys Alfred P. Deen and Eddy A. Deen of Cebu City to desist from including in their
firm designation, the name of C. D. Johnston, deceased. The Court believes that, in view of the personal and
confidential nature of the relations between attorney and client, and the high standards demanded in the canons of
professional ethics, no practice should be allowed which even in a remote degree could give rise to the possibility of
deception. Said attorneys are accordingly advised to drop the name "PERKINS" from their firm name.

Petitioners herein now seek a re-examination of the policy thus far enunciated by the Court.

The Court finds no sufficient reason to depart from the rulings thus laid down.

A. Inasmuch as "Sycip, Salazar, Feliciano, Hernandez and Castillo" and "Ozaeta, Romulo, De Leon, Mabanta and Reyes" are
partnerships, the use in their partnership names of the names of deceased partners will run counter to Article 1815 of the Civil Code
which provides: têñ.£îhqwâ£

Art. 1815. Every partnership shall operate under a firm name, which may or may not include the name of one or more
of the partners.

Those who, not being members of the partnership, include their names in the firm name, shall be subject to the
liability, of a partner.

It is clearly tacit in the above provision that names in a firm name of a partnership must either be those of living partners and. in the
case of non-partners, should be living persons who can be subjected to liability. In fact, Article 1825 of the Civil Code prohibits a third
person from including his name in the firm name under pain of assuming the liability of a partner. The heirs of a deceased partner in a
law firm cannot be held liable as the old members to the creditors of a firm particularly where they are non-lawyers. Thus, Canon 34 of
the Canons of Professional Ethics "prohibits an agreement for the payment to the widow and heirs of a deceased lawyer of a
percentage, either gross or net, of the fees received from the future business of the deceased lawyer's clients, both because the
recipients of such division are not lawyers and because such payments will not represent service or responsibility on the part of the
recipient. " Accordingly, neither the widow nor the heirs can be held liable for transactions entered into after the death of their lawyer-
predecessor. There being no benefits accruing, there ran be no corresponding liability.

Prescinding the law, there could be practical objections to allowing the use by law firms of the names of deceased partners. The public
relations value of the use of an old firm name can tend to create undue advantages and disadvantages in the practice of the profession.
An able lawyer without connections will have to make a name for himself starting from scratch. Another able lawyer, who can join an old
firm, can initially ride on that old firm's reputation established by deceased partners.

B. In regards to the last paragraph of Article 1840 of the Civil Code cited by petitioners, supra, the first factor to consider is that it is
within Chapter 3 of Title IX of the Code entitled "Dissolution and Winding Up." The Article primarily deals with the exemption from
liability in cases of a dissolved partnership, of the individual property of the deceased partner for debts contracted by the person or
partnership which continues the business using the partnership name or the name of the deceased partner as part thereof. What the
law contemplates therein is a hold-over situation preparatory to formal reorganization.

Secondly, Article 1840 treats more of a commercial partnership with a good will to protect rather than of a professional partnership, with
no saleable good will but whose reputation depends on the personal qualifications of its individual members. Thus, it has been held that
a saleable goodwill can exist only in a commercial partnership and cannot arise in a professional partnership consisting of
lawyers. 9têñ.£îhqwâ£

As a general rule, upon the dissolution of a commercial partnership the succeeding partners or parties have the right
to carry on the business under the old name, in the absence of a stipulation forbidding it, (s)ince the name of a
commercial partnership is a partnership asset inseparable from the good will of the firm. ... (60 Am Jur 2d, s 204, p.
115) (Emphasis supplied)

On the other hand, têñ.£îhqwâ£

 ... a professional partnership the reputation of which depends or; the individual skill of the members, such as
partnerships of attorneys or physicians, has no good win to be distributed as a firm asset on its dissolution, however
intrinsically valuable such skill and reputation may be, especially where there is no provision in the partnership
agreement relating to good will as an asset. ... (ibid, s 203, p. 115) (Emphasis supplied)

C. A partnership for the practice of law cannot be likened to partnerships formed by other professionals or for business. For one thing,
the law on accountancy specifically allows the use of a trade name in connection with the practice of accountancy. 10 têñ.£îhqwâ£

A partnership for the practice of law is not a legal entity. It is a mere relationship or association for a particular
purpose. ... It is not a partnership formed for the purpose of carrying on trade or business or of holding
property." 11 Thus, it has been stated that "the use of a nom de plume, assumed or trade name in law practice is
improper. 12

The usual reason given for different standards of conduct being applicable to the practice of law from those pertaining
to business is that the law is a profession.

Dean Pound, in his recently published contribution to the Survey of the Legal Profession, (The Lawyer from Antiquity
to Modern Times, p. 5) defines a profession as "a group of men pursuing a learned art as a common calling in the
spirit of public service, — no less a public service because it may incidentally be a means of livelihood."

xxx xxx xxx

Primary characteristics which distinguish the legal profession from business are:

1. A duty of public service, of which the emolument is a byproduct, and in which one may attain the highest eminence
without making much money.

2. A relation as an "officer of court" to the administration of justice involving thorough sincerity, integrity, and reliability.

3. A relation to clients in the highest degree fiduciary.

4. A relation to colleagues at the bar characterized by candor, fairness, and unwillingness to resort to current
business methods of advertising and encroachment on their practice, or dealing directly with their clients. 13

"The right to practice law is not a natural or constitutional right but is in the nature of a privilege or franchise. 14 It is limited to persons of
good moral character with special qualifications duly ascertained and certified. 15 The right does not only presuppose in its possessor
integrity, legal standing and attainment, but also the exercise of a special privilege, highly personal and partaking of the nature of a
public trust." 16

D. Petitioners cited Canon 33 of the Canons of Professional Ethics of the American Bar Association" in support of their petitions.

It is true that Canon 33 does not consider as unethical the continued use of the name of a deceased or former partner in the firm name
of a law partnership when such a practice is permissible by local custom but the Canon warns that care should be taken that no
imposition or deception is practiced through this use.

It must be conceded that in the Philippines, no local custom permits or allows the continued use of a deceased or former partner's
name in the firm names of law partnerships. Firm names, under our custom, Identify the more active and/or more senior members or
partners of the law firm. A glimpse at the history of the firms of petitioners and of other law firms in this country would show how their
firm names have evolved and changed from time to time as the composition of the partnership changed. têñ.£îhqwâ£

The continued use of a firm name after the death of one or more of the partners designated by it is proper only where
sustained by local custom and not where by custom this purports to Identify the active members. ...

There would seem to be a question, under the working of the Canon, as to the propriety of adding the name of a new
partner and at the same time retaining that of a deceased partner who was never a partner with the new one. (H.S.
Drinker, op. cit., supra, at pp. 207208) (Emphasis supplied).

The possibility of deception upon the public, real or consequential, where the name of a deceased partner continues to be used cannot
be ruled out. A person in search of legal counsel might be guided by the familiar ring of a distinguished name appearing in a firm title.

E. Petitioners argue that U.S. Courts have consistently allowed the continued use of a deceased partner's name in the firm name of law
partnerships. But that is so because it is sanctioned by custom.
In the case of Mendelsohn v. Equitable Life Assurance Society (33 N.Y.S. 2d 733) which petitioners Salazar, et al. quoted in their
memorandum, the New York Supreme Court sustained the use of the firm name Alexander & Green even if none of the present ten
partners of the firm bears either name because the practice was sanctioned by custom and did not offend any statutory provision or
legislative policy and was adopted by agreement of the parties. The Court stated therein: têñ.£îhqwâ£

The practice sought to be proscribed has the sanction of custom and offends no statutory provision or legislative
policy. Canon 33 of the Canons of Professional Ethics of both the American Bar Association and the New York State
Bar Association provides in part as follows: "The continued use of the name of a deceased or former partner, when
permissible by local custom is not unethical, but care should be taken that no imposition or deception is practiced
through this use." There is no question as to local custom. Many firms in the city use the names of deceased
members with the approval of other attorneys, bar associations and the courts. The Appellate Division of the First
Department has considered the matter and reached The conclusion that such practice should not be prohibited.
(Emphasis supplied)

xxx xxx xxx

Neither the Partnership Law nor the Penal Law prohibits the practice in question. The use of the firm name herein is
also sustainable by reason of agreement between the partners. 18

Not so in this jurisdiction where there is no local custom that sanctions the practice. Custom has been defined as a rule of conduct
formed by repetition of acts, uniformly observed (practiced) as a social rule, legally binding and obligatory. 19 Courts take no judicial
notice of custom. A custom must be proved as a fact, according to the rules of evidence. 20 A local custom as a source of right cannot
be considered by a court of justice unless such custom is properly established by competent evidence like any other fact. 21 We find
such proof of the existence of a local custom, and of the elements requisite to constitute the same, wanting herein. Merely because
something is done as a matter of practice does not mean that Courts can rely on the same for purposes of adjudication as a juridical
custom. Juridical custom must be differentiated from social custom. The former can supplement statutory law or be applied in the
absence of such statute. Not so with the latter.

Moreover, judicial decisions applying or interpreting the laws form part of the legal system. 22 When the Supreme Court in the Deen and
Perkins cases issued its Resolutions directing lawyers to desist from including the names of deceased partners in their firm designation,
it laid down a legal rule against which no custom or practice to the contrary, even if proven, can prevail. This is not to speak of our civil
law which clearly ordains that a partnership is dissolved by the death of any partner. 23 Custom which are contrary to law, public order
or public policy shall not be countenanced. 24

The practice of law is intimately and peculiarly related to the administration of justice and should not be considered like an ordinary
"money-making trade." têñ.£îhqwâ£

... It is of the essence of a profession that it is practiced in a spirit of public service. A trade ... aims primarily at
personal gain; a profession at the exercise of powers beneficial to mankind. If, as in the era of wide free opportunity,
we think of free competitive self assertion as the highest good, lawyer and grocer and farmer may seem to be freely
competing with their fellows in their calling in order each to acquire as much of the world's good as he may within the
allowed him by law. But the member of a profession does not regard himself as in competition with his professional
brethren. He is not bartering his services as is the artisan nor exchanging the products of his skill and learning as the
farmer sells wheat or corn. There should be no such thing as a lawyers' or physicians' strike. The best service of the
professional man is often rendered for no equivalent or for a trifling equivalent and it is his pride to do what he does in
a way worthy of his profession even if done with no expectation of reward, This spirit of public service in which the
profession of law is and ought to be exercised is a prerequisite of sound administration of justice according to law.
The other two elements of a profession, namely, organization and pursuit of a learned art have their justification in
that they secure and maintain that spirit. 25

In fine, petitioners' desire to preserve the Identity of their firms in the eyes of the public must bow to legal and ethical impediment.

ACCORDINGLY, the petitions filed herein are denied and petitioners advised to drop the names "SYCIP" and "OZAETA" from their
respective firm names. Those names may, however, be included in the listing of individuals who have been partners in their firms
indicating the years during which they served as such.

SO ORDERED.

Teehankee, Concepcion, Jr., Santos, Fernandez, Guerrero and De Castro, JJ., concur

Fernando, C.J. and Abad Santos, J., took no part.

 Separate Opinions

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices being of the contrary view, as explained
in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned did not participate in the
disposition of these petitions, as the law office of Sycip, Salazar, Feliciano, Hernandez and Castillo started with the partnership of
Quisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-law of the undersigned, and
the most junior partner then, Norberto J. Quisumbing, being his brother- in-law. For the record, the undersigned wishes to invite the
attention of all concerned, and not only of petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-Herrera: 'Those
names [Sycip and Ozaeta] may, however, be included in the listing of individuals wtes

AQUINO, J., dissenting:

I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, in their petition of June 10, 1975,
prayed for authority to continue the use of that firm name, notwithstanding the death of Attorney Alexander Sycip on May 5, 1975 (May
he rest in peace). He was the founder of the firm which was originally known as the Sycip Law Office.

On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta & Reyes, in their petition of August
13, 1976, prayed that they be allowed to continue using the said firm name notwithstanding the death of two partners, former Justice
Roman Ozaeta and his son, Herminio, on May 1, 1972 and February 14, 1976, respectively.

They alleged that the said law firm was a continuation of the Ozaeta Law Office which was established in 1957 by Justice Ozaeta and
his son and that, as to the said law firm, the name Ozaeta has acquired an institutional and secondary connotation.

Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceased partner as part of the partnership
name, is cited to justify the petitions. Also invoked is the canon that the continued use by a law firm of the name of a deceased partner,
"when permissible by local custom, is not unethical" as long as "no imposition or deception is practised through this use" (Canon 33 of
the Canons of Legal Ethics).

I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads of the two firms (as the case
may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when they served as partners should
be stated therein.

Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to retain the clients who had
customarily sought the legal services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to the names of those
respected and esteemed law practitioners. That is a legitimate motivation.

The retention of their names is not illegal per se. That practice was followed before the war by the law firm of James Ross.
Notwithstanding the death of Judge Ross the founder of the law firm of Ross, Lawrence, Selph and Carrascoso, his name was retained
in the firm name with an indication of the year when he died. No one complained that the retention of the name of Judge Ross in the
firm name was illegal or unethical.

# Separate Opinions

FERNANDO, C.J., concurring:

The petitions are denied, as there are only four votes for granting them, seven of the Justices being of the contrary view, as explained
in the plurality opinion of Justice Ameurfina Melencio-Herrera. It is out of delicadeza that the undersigned did not participate in the
disposition of these petitions, as the law office of Sycip, Salazar, Feliciano, Hernandez and Castillo started with the partnership of
Quisumbing, Sycip, and Quisumbing, the senior partner, the late Ramon Quisumbing, being the father-in-law of the undersigned, and
the most junior partner then, Norberto J. Quisumbing, being his brother- in-law. For the record, the undersigned wishes to invite the
attention of all concerned, and not only of petitioners, to the last sentence of the opinion of Justice Ameurfina Melencio-Herrera: 'Those
names [Sycip and Ozaeta] may, however, be included in the listing of individuals wtes

AQUINO, J., dissenting:

I dissent. The fourteen members of the law firm, Sycip, Salazar, Feliciano, Hernandez & Castillo, in their petition of June 10, 1975,
prayed for authority to continue the use of that firm name, notwithstanding the death of Attorney Alexander Sycip on May 5, 1975 (May
he rest in peace). He was the founder of the firm which was originally known as the Sycip Law Office.

On the other hand, the seven surviving partners of the law firm, Ozaeta, Romulo, De Leon, Mabanta & Reyes, in their petition of August
13, 1976, prayed that they be allowed to continue using the said firm name notwithstanding the death of two partners, former Justice
Roman Ozaeta and his son, Herminio, on May 1, 1972 and February 14, 1976, respectively.

They alleged that the said law firm was a continuation of the Ozaeta Law Office which was established in 1957 by Justice Ozaeta and
his son and that, as to the said law firm, the name Ozaeta has acquired an institutional and secondary connotation.

Article 1840 of the Civil Code, which speaks of the use by the partnership of the name of a deceased partner as part of the partnership
name, is cited to justify the petitions. Also invoked is the canon that the continued use by a law firm of the name of a deceased partner,
"when permissible by local custom, is not unethical" as long as "no imposition or deception is practised through this use" (Canon 33 of
the Canons of Legal Ethics).

I am of the opinion that the petition may be granted with the condition that it be indicated in the letterheads of the two firms (as the case
may be) that Alexander Sycip, former Justice Ozaeta and Herminio Ozaeta are dead or the period when they served as partners should
be stated therein.

Obviously, the purpose of the two firms in continuing the use of the names of their deceased founders is to retain the clients who had
customarily sought the legal services of Attorneys Sycip and Ozaeta and to benefit from the goodwill attached to the names of those
respected and esteemed law practitioners. That is a legitimate motivation.

The retention of their names is not illegal per se. That practice was followed before the war by the law firm of James Ross.
Notwithstanding the death of Judge Ross the founder of the law firm of Ross, Lawrence, Selph and Carrascoso, his name was retained
in the firm name with an indication of the year when he died. No one complained that the retention of the name of Judge Ross in the
firm name was illegal or unethical.

FIRST DIVISION

G.R. No. L-49982 April 27, 1988

ELIGIO ESTANISLAO, JR., petitioner,

vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS ESTANISLAO, EMILIO and LEOCADIO SANTIAGO, respondents.

Agustin O. Benitez for petitioner.

Benjamin C. Yatco for private respondents.

GANCAYCO, J.:

By this petition for certiorari the Court is asked to determine if a partnership exists between members of the same family arising from
their joint ownership of certain properties.

Petitioner and private respondents are brothers and sisters who are co-owners of certain lots at the corner of Annapolis and Aurora
Blvd., QuezonCity which were then being leased to the Shell Company of the Philippines Limited (SHELL). They agreed to open and
operate a gas station thereat to be known as Estanislao Shell Service Station with an initial investment of P 15,000.00 to be taken from
the advance rentals due to them from SHELL for the occupancy of the said lots owned in common by them. A joint affidavit was
executed by them on April 11, 1966 which was prepared byAtty. Democrito Angeles 1 They agreed to help their brother, petitioner
herein, by allowing him to operate and manage the gasoline service station of the family. They negotiated with SHELL. For practical
purposes and in order not to run counter to the company's policy of appointing only one dealer, it was agreed that petitioner would
apply for the dealership. Respondent Remedios helped in managing the bussiness with petitioner from May 3, 1966 up to February 16,
1967.

On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL wherein it was reiterated that the P
15,000.00 advance rental shall be deposited with SHELL to cover advances of fuel to petitioner as dealer with a proviso that said
agreement "cancels and supersedes the Joint Affidavit dated 11 April 1966 executed by the co-owners." 2
For sometime, the petitioner submitted financial statements regarding the operation of the business to private respondents, but therafter
petitioner failed to render subsequent accounting. Hence through Atty. Angeles, a demand was made on petitioner to render an
accounting of the profits.

The financial report of December 31, 1968 shows that the business was able to make a profit of P 87,293.79 and that by the year
ending 1969, a profit of P 150,000.00 was realized. 3

Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal against petitioner praying among
others that the latter be ordered:

1. to execute a public document embodying all the provisions of the partnership agreement entered into between
plaintiffs and defendant as provided in Article 1771 of the New Civil Code;

2. to render a formal accounting of the business operation covering the period from May 6, 1966 up to December 21,
1968 and from January 1, 1969 up to the time the order is issued and that the same be subject to proper audit;

3. to pay the plaintiffs their lawful shares and participation in the net profits of the business in an amount of no less
than P l50,000.00 with interest at the rate of 1% per month from date of demand until full payment thereof for the
entire duration of the business; and

4. to pay the plaintiffs the amount of P 10,000.00 as attorney's fees and costs of the suit (pp. 13-14 Record on
Appeal.)

After trial on the merits, on October 15, 1975, Hon. Lino Anover who was then the temporary presiding judge of Branch IV of the trial
court, rendered judgment dismissing the complaint and counterclaim and ordering private respondents to pay petitioner P 3,000.00
attorney's fee and costs. Private respondent filed a motion for reconsideration of the decision. On December 10, 1975, Hon. Ricardo
Tensuan who was the newly appointed presiding judge of the same branch, set aside the aforesaid derision and rendered another
decision in favor of said respondents.

The dispositive part thereof reads as follows:

WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby reconsidered and a new judgment is
hereby rendered in favor of the plaintiffs and as against the defendant:

(1) Ordering the defendant to execute a public instrument embodying all the provisions of the partnership agreement
entered into between plaintiffs and defendant as provided for in Article 1771, Civil Code of the Philippines;

(2) Ordering the defendant to render a formal accounting of the business operation from April 1969 up to the time this
order is issued, the same to be subject to examination and audit by the plaintiff,

(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the net profits of the business in the
amount of P 150,000.00, with interest thereon at the rate of One (1%) Per Cent per month from date of demand until
full payment thereof;

(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of attorney's fees of plaintiffs' counsel;
as well as the costs of suit. (pp. 161-162. Record on Appeal).

Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly committed by the trial court. In due
course, a decision was rendered by the Court of Appeals on November 28,1978 affirming in toto the decision of the lower court with
costs against petitioner. *

A motion for reconsideration of said decision filed by petitioner was denied on January 30, 1979. Not satisfied therewith, the petitioner
now comes to this court by way of this petition for certiorari alleging that the respondent court erred:

1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional Cash Pledge Agreement
(Exhs. "B-2","6", and "L"); and

2. In declaring that a partnership was established by and among the petitioner and the private respondents as
regards the ownership and or operation of the gasoline service station business.

Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the Additional Cash Pledge Agreement
of May 20, 1966 (Exhibit 6) which are herein reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:

(1) That we are the Lessors of two parcels of land fully describe in Transfer Certificates of Title Nos. 45071 and
71244 of the Register of Deeds of Quezon City, in favor of the LESSEE - SHELL COMPANY OF THE PHILIPPINES
LIMITED a corporation duly licensed to do business in the Philippines;

(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE LIMITED advanced rentals in the total
amount of FIFTEEN THOUSAND PESOS (P l5,000.00) Philippine Currency, so that we can use the said amount to
augment our capital investment in the operation of that gasoline station constructed ,by the said company on our two
lots aforesaid by virtue of an outstanding Lease Agreement we have entered into with the said company;

(3) That the and SHELL COMPANY OF THE PHILIPPINE LIMITED out of its benevolence and desire to help us in
aumenting our capital investment in the operation of the said gasoline station, has agreed to give us the said amount
of P 15,000.00, which amount will partake the nature of ADVANCED RENTALS;

(4) That we have freely and voluntarily agreed that upon receipt of the said amount of FIFTEEN THOUSAND PESOS
(P l6,000.00) from he SHELL COMPANY OF THE PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS
to us be applied as monthly rentals for the sai two lots under our Lease Agreement starting on the 25th of May, 1966
until such time that the said of P 15,000.00 be applicable, which time to our estimate and one-half months from May
25, 1966 or until the 10th of October, 1966 more or less;

(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF THE PHILIPPINES LIMITED
execute an instrument for us to sign embodying our conformity that the said amount that it will generously grant us as
requested be applied as ADVANCED RENTALS; and

(6) FURTHER AFFIANTS SAYETH NOT.,

(b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:

WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as doc. Nos. 491 & 1407, Page Nos.
99 & 66, Book Nos. V & III, Series of 1963 in the Notarial Registers of Notaries Public Rosauro Marquez, and R.D.
Liwanag, respectively) executed in favour of SHELL by the herein CO-OWNERS and another Lease Agreement
dated 19th March 1964 . . . also executed in favour of SHELL by CO-OWNERS Remedios and MARIA ESTANISLAO
for the lease of adjoining portions of two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the CO OWNERS
RECEIVE a total monthly rental of PESOS THREE THOUSAND THREE HUNDRED EIGHTY TWO AND 29/100 (P
3,382.29), Philippine Currency;

WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station constructed on the leased land, and
as Dealer under the Cash Pledge Agreement dated llth May 1966, he deposited to SHELL in cash the amount of
PESOS TEN THOUSAND (P 10,000), Philippine Currency, to secure his purchase on credit of Shell petroleum
products; . . .

WHEREAS, said DEALER, in his desire, to be granted an increased the limit up to P 25,000, has secured the
conformity of his CO-OWNERS to waive and assign to SHELL the total monthly rentals due to all of them to
accumulate the equivalent amount of P 15,000, commencing 24th May 1966, this P 15,000 shall be treated as
additional cash deposit to SHELL under the same terms and conditions of the aforementioned Cash Pledge
Agreement dated llth May 1966.

NOW, THEREFORE, for and in consideration of the foregoing premises,and the mutual covenants among the CO-
OWNERS herein and SHELL, said parties have agreed and hereby agree as follows:

l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to all CO-OWNERS, collectively,
under the above describe two Lease Agreements, one dated 13th November 1963 and the other dated 19th March
1964 to enable DEALER to increase his existing cash deposit to SHELL, from P 10,000 to P 25,000, for such
purpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign to SHELL the monthly rental of P
3,382.29 payable to them respectively as they fall due, monthly, commencing 24th May 1966, until such time that the
monthly rentals accumulated, shall be equal to P l5,000.

2. The above stated monthly rentals accumulated shall be treated as additional cash deposit by DEALER to SHELL,
thereby in increasing his credit limit from P 10,000 to P 25,000. This agreement, therefore, cancels and supersedes
the Joint affidavit dated 11 April 1966 executed by the CO-OWNERS.

3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to purchase from SHELL petroleum
products, on credit, up to the amount of P 25,000.
 4. This increase in the credit shall also be subject to the same terms and conditions of the above-mentioned Cash
Pledge Agreement dated llth May 1966. (Exhs. "B-2," "L," and "6"; emphasis supplied)

In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is clearly stipulated by the parties that the P 15,000.00 advance rental due
to them from SHELL shall augment their "capital investment" in the operation of the gasoline station, which advance rentals shall be
credited as rentals from May 25, 1966 up to four and one-half months or until 10 October 1966, more or less covering said P 15,000.00.

In the subsequent document entitled "Additional Cash Pledge Agreement" above reproduced (Exhibit 6), the private respondents and
petitioners assigned to SHELL the monthly rentals due them commencing the 24th of May 1966 until such time that the monthly rentals
accumulated equal P 15,000.00 which private respondents agree to be a cash deposit of petitioner in favor of SHELL to increase his
credit limit as dealer. As above-stated it provided therein that "This agreement, therefore, cancels and supersedes the Joint Affidavit
dated 11 April 1966 executed by the CO-OWNERS."

Petitioner contends that because of the said stipulation cancelling and superseding that previous Joint Affidavit, whatever partnership
agreement there was in said previous agreement had thereby been abrogated. We find no merit in this argument. Said cancelling
provision was necessary for the Joint Affidavit speaks of P 15,000.00 advance rentals starting May 25, 1966 while the latter agreement
also refers to advance rentals of the same amount starting May 24, 1966. There is, therefore, a duplication of reference to the P
15,000.00 hence the need to provide in the subsequent document that it "cancels and supersedes" the previous one. True it is that in
the latter document, it is silent as to the statement in the Joint Affidavit that the P 15,000.00 represents the "capital investment" of the
parties in the gasoline station business and it speaks of petitioner as the sole dealer, but this is as it should be for in the latter document
SHELL was a signatory and it would be against its policy if in the agreement it should be stated that the business is a partnership with
private respondents and not a sole proprietorship of petitioner.

Moreover other evidence in the record shows that there was in fact such partnership agreement between the parties. This is attested by
the testimonies of private respondent Remedies Estanislao and Atty. Angeles. Petitioner submitted to private respondents periodic
accounting of the business. 4 Petitioner gave a written authority to private respondent Remedies Estanislao, his sister, to examine and
audit the books of their "common business' aming negosyo). 5 Respondent Remedios assisted in the running of the business. There is
no doubt that the parties hereto formed a partnership when they bound themselves to contribute money to a common fund with the
intention of dividing the profits among themselves. 6 The sole dealership by the petitioner and the issuance of all government permits
and licenses in the name of petitioner was in compliance with the afore-stated policy of SHELL and the understanding of the parties of
having only one dealer of the SHELL products.

Further, the findings of facts of the respondent court are conclusive in this proceeding, and its conclusion based on the said facts are in
accordancewith the applicable law.

WHEREFORE, the judgment appealed from is AFFIRMED in toto with costs against petitioner. This decision is immediately executory
and no motion for extension of time to file a motion for reconsideration shag beentertained.

SO ORDERED.

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

EN BANC

G.R. No. L-48113 April 7, 1947

NGO TIAN TEK and NGO HAY, petitioner,

vs.
PHILIPPINE EDUCATION CO., INC., respondent.

Tansinsin and Yatco for petitioner.

Marcial Esposo for respondent.

PARAS, J.:

The plaintiff, Philippine Education Co., Inc., instituted in the Court of First Instance of Manila an action against the defendants, Vicente
Tan alias Chan Sy and the partnership of Ngo Tian Tek and Ngo Hay, for the recovery of some P16,070.14, unpaid cost of
merchandise purchased by Lee Guan Box Factory from the plaintiff and five other corporate entities which, though not parties to the
action, had previously assigned their credits to the plaintiff, together with attorney's fees, interest and costs. /by agreement of the
parties, the case was heard before a referee, Attorney Francisco Dalupan, who in due time submitted his report holding the defendants
jointly and severally liable to the plaintiff for the sum of P16,070.14 plus attorney's fees and interest at the rates specified in the report.
On March 6, 1939, the Court of First Instance of Manila rendered judgment was affirmed by the Court of Appeals in its decision of
January 31, 1941, now the subject of our review at the instance of the partnership Ngo Tian Tek and Ngo Hay, petitioner herein.
"It appears that," quoting from the decision of the Court of Appeals whose findings of fact are conclusive, "as far back as the year 1925,
the Modern Box Factory was established at 603 Magdalena Street, Manila. It was at first owned by Ngo Hay, who three years later was
joined by Ngo Tian Tek as a junior partner. The modern Box Factory dealt in pare and similar merchandise and purchased goods from
the plaintiff and its assignors in the names of the Modern Box Factory, Ngo Hay and Co., Go Hay Box Factory, or Go Hay. Then about
the year 1930, the Lee Guan Box Factory was established a few meters from the Modern Box Factory, under the management of
Vicente Tan. When that concern, through Vicente Tan, sought credit with the plaintiff and its assignors, Ngo Hay, in conversations and
interviews with their officers and employees, represented that he was the principal owner of such factory, that the Lee Guan Box
Factory and the Modern Box Factory belonged to the same owner, and that the Lee Guan Box Factory was a subsidiary of the Modern
Box Factory. There is evidence that many goods purchased in the name of the Lee Guan Box Factory were delivered to the Modern
Box Factory by the employees of the plaintiff and its assignors upon the express direction of Vicente Tan. There is also evidence that
the collectors of the sellers were requested by Vicente Tan to collect — and did collect — from the Modern Box Factory the bills against
the Lee Guan Box Factory. In the fact the record shows many checks signed by Ngo Hay or Ngo Tian Tek in payment of accounts of
the Lee Guan Box Factory. Furthermore, — and this seems to be conclusive-Ngo Hay, testifying for the defense, admitted that 'he' was
the owner of the Lee Guan Box Factory in and before the year 1934, but that in January, 1935, 'he' sold it, by the contract of sale
Exhibit 7, to Vicente Tan, who had been his manager of the business. Tan declared also that before January, 1935, the Lee Guan Box
Factory pertained to Ngo Hay and Ngo Tian Tek. The contract Exhibit 7 was found by the referee, to be untrue and simulated, for
various convincing reasons that need no repetition here. And the quoted statements serve effectively to confirm the evidence for the
plaintiff that it was Ngo Hay's representations of ownership of, and responsibility for, Lee Guan Box Factory that induced them to open
credit for that concern. It must be stated that in this connection — to answer appellant's fitting observation — that the plaintiff and the
assignors have considered Ngo Hay, the Modern Box Factory and Ngo Hay and Co. as one and the same, through the acts of the
partners themselves, and that the proof as to Ngo Hay's statements regarding the ownership of Lee Guan Box Factory must be taken in
that view. Ngo Hay was wont to say 'he' owned the Modern Box Factory, meaning that he was the principal owner, his other partner
being Ngo Tian Tek. Now, it needs no demonstration — for appellant does not deny it — that the obligations of the Lee Guan Box
Factory must rest upon its known owner. And that owner in Ngo Tian Tek and Ngo Hay."

We must overrule petitioner's contention that the Court of Appeals erred in holding that Lee Guan Box Factory was a subsidiary of the
Modern Box Factory and in disregarding the fact that the contracts evidencing the debts in question were signed by Vicente
Tan alias Chan Sy, without any indication that tended to involve the Modern Box Factory or the petitioner. In the first place, we are
concluded by the finding of the Court of Appeals regarding the ownership by the petitioner of Lee Guan Box Factory. Secondly, the
circumstances that Vicente Tan alias Chan Sy acted in his own name cannot save the petitioner, in view of said ownership, and
because contracts entered into by a factor of a commercial establishment known to belong to a well known enterprise or association,
shall be understood as made for the account of the owner of such enterprise or association, even when the factor has not so stated at
the time of executing the same, provided that such contracts involve objects comprised in the line and business of the establishment.
(Article 286, Code of Commerce.) The fact that Vicente Tan did not have any recorded power of attorney executed by the petitioner will
not operate to prejudice third persons, like the respondent Philippine Education Co., Inc., and its assignors. (3 Echavarri, 133.)

Another defense set up by the petitioner is that prior to the transactions which gave rise to this suit, Vicente Tan had purchased Lee
Guan Box Factory from Ngo Hay under the contract, Exhibit 7; and the petitioner assails, under the second assignment of error, the
conclusion of the Court of Appeals that said contract is simulated. This contention is purely factual and must also be overruled.

The petitioner questions the right of the respondent Philippine Education Co., Inc., to sue for the credits assigned by the five entities
with which Lee Guan Box Factory originally contracted, it being argued that the assignment, intended only for purposes of collection,
did not make said respondent the real party in interest. The petitioner has cited 5 Corpus Juris, section 144, page 958, which points out
that "under statutes authorizing only a bona fide assignee of choses in action to sue thereon in his own name, an assignee for
collection merely is not entitled to sue in his own name."

The finding of the Court of Appeals that there is nothing "simulated in the assignment," precludes us from ruling that respondent
company is not a bona fide assignee. Even assuming, however, that said assignment was only for collection, we are not prepared to
say that, under section 114 of the Code of Civil Procedure, in force at the time this action was instituted, ours is not one of those
jurisdictions following the rule that "when a choose, capable of legal assignment, is assigned absolutely to one, but the assignment is
made for purpose of collection, the legal title thereto vests in the assignee, and it is no concern of the debtor that the equitable title is in
another, and payment to the assignee discharges the debtor." (5 C. J., section 144, p. 958.) No substantial right of the petitioner could
indeed be prejudiced by such assignment, because section 114 of the Code of Civil Procedure reserves to it "'any set-off or other
defense existing at the time of or before notice of the assignment.'"

Petitioner's allegation that "fraud in the inception of the debt is personal to the contracting parties and does not follow assignment," and
that the contracts assigned to the respondent company "are immoral and against public policy and therefore void," constitute defenses
on the merits, but do not affect the efficacy of the assignment. It is obvious that, apart from the fact that the petitioner can not invoke
fraud of its authorship to evade liability, the appealed decision is founded on an obligation arising, not from fraud, but from the very
contracts under which merchandise had been purchased by Lee Guan Box Factory.

The fourth and fifth assignments of error relate to the refusal of the Court of Appeals to hold that the writ of attachment is issued at the
commencement of this action by the Court of First Instance is illegal, and to award in favor of the petitioner damages for such wrongful
attachment. For us to sustain petitioner's contention will amount to an unauthorized reversal of the following conclusion of fact of the
Court of Appeals: "The stereotyped manner in which defendants obtained goods on credit from the six companies, Vicente Tan's
sudden disappearance, the execution of the fake sale Exhibit 7 to throw the whole responsibility upon the absent or otherwise insolvent
Tan, defendant's mercurial and unbelievable theories as to the ownership of the Modern Box Factory and Lee Guan Box Factory —
obviously adopted in a vain effort to meet or explain away the evidentiary force of plaintiff's documentary evidence — are much too
significant to permit a declaration that the attachment was not justified."

Regarding the suggestion in petitioner's memorandum that this case should be dismissed because of the death of Ngo Hay, it is
sufficient to state that the petitioner Ngo Tian Tek and Ngo Hay is sued as a partnership possessing a personality distinct from any of
the partners.

The appealed decision is affirmed, with costs against the petitioner. So ordered.

Moran, C.J., Pablo, Perfecto, Hilado, Briones, Hontiveros, and Tuason, JJ., concur.

EN BANC

G.R. No. L-17295 July 30, 1962

ANG PUE & COMPANY, ET AL., plaintiffs-appellants,

vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-appellee.

Felicisimo E. Escaran for plaintiffs-appellants.

Office of the Solicitor General for defendant-appellee.

DIZON, J.:

Action for declaratory relief filed in the Court of First Instance of Iloilo by Ang Pue & Company, Ang Pue and Tan Siong against the
Secretary of Commerce and Industry to secure judgment "declaring that plaintiffs could extend for five years the term of the partnership
pursuant to the provisions of plaintiffs' Amendment to the Article of Co-partnership."

The answer filed by the defendant alleged, in substance, that the extension for another five years of the term of the plaintiffs'
partnership would be in violation of the provisions of Republic Act No. 1180.

It appears that on May 1, 1953, Ang Pue and Tan Siong, both Chinese citizens, organized the partnership Ang Pue & Company for a
term of five years from May 1, 1953, extendible by their mutual consent. The purpose of the partnership was "to maintain the business
of general merchandising, buying and selling at wholesale and retail, particularly of lumber, hardware and other construction materials
for commerce, either native or foreign." The corresponding articles of partnership (Exhibit B) were registered in the Office of the
Securities & Exchange Commission on June 16, 1953.

On June 19, 1954 Republic Act No. 1180 was enacted to regulate the retail business. It provided, among other things, that, after its
enactment, a partnership not wholly formed by Filipinos could continue to engage in the retail business until the expiration of its term.

On April 15, 1958 — prior to the expiration of the five-year term of the partnership Ang Pue & Company, but after the enactment of the
Republic Act 1180, the partners already mentioned amended the original articles of part ownership (Exhibit B) so as to extend the term
of life of the partnership to another five years. When the amended articles were presented for registration in the Office of the Securities
& Exchange Commission on April 16, 1958, registration was refused upon the ground that the extension was in violation of the
aforesaid Act.

From the decision of the lower court dismissing the action, with costs, the plaintiffs interposed this appeal.

The question before us is too clear to require an extended discussion. To organize a corporation or a partnership that could claim a
juridical personality of its own and transact business as such, is not a matter of absolute right but a privilege which may be enjoyed only
under such terms as the State may deem necessary to impose. That the State, through Congress, and in the manner provided by law,
had the right to enact Republic Act No. 1180 and to provide therein that only Filipinos and concerns wholly owned by Filipinos may
engage in the retail business can not be seriously disputed. That this provision was clearly intended to apply to partnership already
existing at the time of the enactment of the law is clearly showing by its provision giving them the right to continue engaging in their
retail business until the expiration of their term or life.

To argue that because the original articles of partnership provided that the partners could extend the term of the partnership, the
provisions of Republic Act 1180 cannot be adversely affect appellants herein, is to erroneously assume that the aforesaid provision
constitute a property right of which the partners can not be deprived without due process or without their consent. The agreement
contain therein must be deemed subject to the law existing at the time when the partners came to agree regarding the extension. In the
present case, as already stated, when the partners amended the articles of partnership, the provisions of Republic Act 1180 were
already in force, and there can be not the slightest doubt that the right claimed by appellants to extend the original term of their
partnership to another five years would be in violation of the clear intent and purpose of the law aforesaid.

WHEREFORE, the judgment appealed from is affirmed, with costs.

Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera, Paredes, Regala and Makalintal, JJ., concur.
Bautista Angelo and Reyes, J.B.L., JJ., took no part.

FIRST DIVISION

G.R. No. 78133 October 18, 1988

MARIANO P. PASCUAL and RENATO P. DRAGON, petitioners,

vs.
THE COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

De la Cuesta, De las Alas and Callanta Law Offices for petitioners.

The Solicitor General for respondents

GANCAYCO, J.:

The distinction between co-ownership and an unregistered partnership or joint venture for income tax purposes is the issue in this
petition.

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966, they bought
another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners in 1968 toMarenir Development
Corporation, while the three parcels of land were sold by petitioners to Erlinda Reyes and Maria Samson on March 19,1970. Petitioners
realized a net profit in the sale made in 1968 in the amount of P165,224.70, while they realized a net profit of P60,000.00 in the sale
made in 1970. The corresponding capital gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties
granted in the said years.

However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were assessed and required to
pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the years 1968 and 1970.

Petitioners protested the said assessment in a letter of June 26, 1979 asserting that they had availed of tax amnesties way back in
1974.

In a reply of August 22, 1979, respondent Commissioner informed petitioners that in the years 1968 and 1970, petitioners as co-owners
in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its
income was subject to the taxes prescribed under Section 24, both of the National Internal Revenue Code 1 that the unregistered
partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to
individual income tax; and that the availment of tax amnesty under P.D. No. 23, as amended, by petitioners relieved petitioners of their
individual income tax liabilities but did not relieve them from the tax liability of the unregistered partnership. Hence, the petitioners were
required to pay the deficiency income tax assessed.

Petitioners filed a petition for review with the respondent Court of Tax Appeals docketed as CTA Case No. 3045. In due course, the
respondent court by a majority decision of March 30, 1987, 2 affirmed the decision and action taken by respondent commissioner with
costs against petitioners.

It ruled that on the basis of the principle enunciated in Evangelista 3 an unregistered partnership was in fact formed by petitioners which
like a corporation was subject to corporate income tax distinct from that imposed on the partners.

In a separate dissenting opinion, Associate Judge Constante Roaquin stated that considering the circumstances of this case, although
there might in fact be a co-ownership between the petitioners, there was no adequate basis for the conclusion that they thereby formed
an unregistered partnership which made "hem liable for corporate income tax under the Tax Code.

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent court:
 A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT
COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED PARTNERSHIP
SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF OFFERING EVIDENCE IN OPPOSITION
THERETO RESTS UPON THE PETITIONERS.

B. IN MAKING A FINDING, SOLELY ON THE BASIS OF ISOLATED SALE TRANSACTIONS, THAT AN

UNREGISTERED PARTNERSHIP EXISTED THUS IGNORING THE REQUIREMENTS LAID DOWN BY LAW THAT
WOULD WARRANT THE PRESUMPTION/CONCLUSION THAT A PARTNERSHIP EXISTS.

C. IN FINDING THAT THE INSTANT CASE IS SIMILAR TO THE EVANGELISTA CASE AND THEREFORE
SHOULD BE DECIDED ALONGSIDE THE EVANGELISTA CASE.

D. IN RULING THAT THE TAX AMNESTY DID NOT RELIEVE THE PETITIONERS FROM PAYMENT OF OTHER
TAXES FOR THE PERIOD COVERED BY SUCH AMNESTY. (pp. 12-13, Rollo.)

The petition is meritorious.

The basis of the subject decision of the respondent court is the ruling of this Court in Evangelista. 4

In the said case, petitioners borrowed a sum of money from their father which together with their own personal funds they used in
buying several real properties. They appointed their brother to manage their properties with full power to lease, collect, rent, issue
receipts, etc. They had the real properties rented or leased to various tenants for several years and they gained net profits from the
rental income. Thus, the Collector of Internal Revenue demanded the payment of income tax on a corporation, among others, from
them.

In resolving the issue, this Court held as follows:

The issue in this case is whether petitioners are subject to the tax on corporations provided for in section 24 of
Commonwealth Act No. 466, otherwise known as the National Internal Revenue Code, as well as to the residence tax
for corporations and the real estate dealers' fixed tax. With respect to the tax on corporations, the issue hinges on the
meaning of the terms corporation and partnership as used in sections 24 and 84 of said Code, the pertinent parts of
which read:

Sec. 24. Rate of the tax on corporations.—There shall be levied, assessed, collected, and paid annually upon the
total net income received in the preceding taxable year from all sources by every corporation organized in, or existing
under the laws of the Philippines, no matter how created or organized but not including duly registered general co-
partnerships (companies collectives), a tax upon such income equal to the sum of the following: ...

Sec. 84(b). The term "corporation" includes partnerships, no matter how created or organized, joint-stock companies,
joint accounts (cuentas en participation), associations or insurance companies, but does not include duly registered
general co-partnerships (companies colectivas).

Article 1767 of the Civil Code of the Philippines provides:

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

Pursuant to this article, the essential elements of a partnership are two, namely: (a) an agreement to contribute
money, property or industry to a common fund; and (b) intent to divide the profits among the contracting parties. The
first element is undoubtedly present in the case at bar, for, admittedly, petitioners have agreed to, and did, contribute
money and property to a common fund. Hence, the issue narrows down to their intent in acting as they did. Upon
consideration of all the facts and circumstances surrounding the case, we are fully satisfied that their purpose was to
engage in real estate transactions for monetary gain and then divide the same among themselves, because:

1. Said common fund was not something they found already in existence. It was not a property inherited by them pro
indiviso. They created it purposely. What is more they jointly borrowed a substantial portion thereof in order to
establish said common fund.

2. They invested the same, not merely in one transaction, but in a series of transactions. On February 2, 1943, they
bought a lot for P100,000.00. On April 3, 1944, they purchased 21 lots for P18,000.00. This was soon followed, on
April 23, 1944, by the acquisition of another real estate for P108,825.00. Five (5) days later (April 28, 1944), they got
a fourth lot for P237,234.14. The number of lots (24) acquired and transcations undertaken, as well as the brief
interregnum between each, particularly the last three purchases, is strongly indicative of a pattern or common design
that was not limited to the conservation and preservation of the aforementioned common fund or even of the property
 acquired by petitioners in February, 1943. In other words, one cannot but perceive a character of habituality peculiar
to business transactions engaged in for purposes of gain.

3. The aforesaid lots were not devoted to residential purposes or to other personal uses, of petitioners herein. The
properties were leased separately to several persons, who, from 1945 to 1948 inclusive, paid the total sum of
P70,068.30 by way of rentals. Seemingly, the lots are still being so let, for petitioners do not even suggest that there
has been any change in the utilization thereof.

4. Since August, 1945, the properties have been under the management of one person, namely, Simeon Evangelists,
with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts, and to indorse
and deposit notes and checks. Thus, the affairs relative to said properties have been handled as if the same
belonged to a corporation or business enterprise operated for profit.

5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen (15) years, since
the first property was acquired, and over twelve (12) years, since Simeon Evangelists became the manager.

6. Petitioners have not testified or introduced any evidence, either on their purpose in creating the set up already
adverted to, or on the causes for its continued existence. They did not even try to offer an explanation therefor.

Although, taken singly, they might not suffice to establish the intent necessary to constitute a partnership, the
collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in
petitioners herein. Only one or two of the aforementioned circumstances were present in the cases cited by
petitioners herein, and, hence, those cases are not in point. 5

In the present case, there is no evidence that petitioners entered into an agreement to contribute money, property or industry to a
common fund, and that they intended to divide the profits among themselves. Respondent commissioner and/ or his representative just
assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-
owners thereof.

In Evangelists, there was a series of transactions where petitioners purchased twenty-four (24) lots showing that the purpose was not
limited to the conservation or preservation of the common fund or even the properties acquired by them. The character of habituality
peculiar to business transactions engaged in for the purpose of gain was present.

In the instant case, petitioners bought two (2) parcels of land in 1965. They did not sell the same nor make any improvements thereon.
In 1966, they bought another three (3) parcels of land from one seller. It was only 1968 when they sold the two (2) parcels of land after
which they did not make any additional or new purchase. The remaining three (3) parcels were sold by them in 1970. The transactions
were isolated. The character of habituality peculiar to business transactions for the purpose of gain was not present.

In Evangelista, the properties were leased out to tenants for several years. The business was under the management of one of the
partners. Such condition existed for over fifteen (15) years. None of the circumstances are present in the case at bar. The co-ownership
started only in 1965 and ended in 1970.

Thus, in the concurring opinion of Mr. Justice Angelo Bautista in Evangelista he said:

I wish however to make the following observation Article 1769 of the new Civil Code lays down the rule for
determining when a transaction should be deemed a partnership or a co-ownership. Said article paragraphs 2 and 3,
provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-owners or co-possessors
do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property from which the returns are derived;

From the above it appears that the fact that those who agree to form a co- ownership share or do not share any
profits made by the use of the property held in common does not convert their venture into a partnership. Or the
sharing of the gross returns does not of itself establish a partnership whether or not the persons sharing therein have
a joint or common right or interest in the property. This only means that, aside from the circumstance of profit, the
presence of other elements constituting partnership is necessary, such as the clear intent to form a partnership, the
existence of a juridical personality different from that of the individual partners, and the freedom to transfer or assign
any interest in the property by one with the consent of the others (Padilla, Civil Code of the Philippines Annotated,
Vol. I, 1953 ed., pp. 635-636)
 It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real estate for
profit in the absence of other circumstances showing a contrary intention cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns of that
enterprise in proportion to their contribution, but who severally retain the title to their respective contribution, are not
thereby rendered partners. They have no common stock or capital, and no community of interest as principal
proprietors in the business itself which the proceeds derived. (Elements of the Law of Partnership by Flord D.
Mechem 2nd Ed., section 83, p. 74.)

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an agreement to
share the profits and losses on the sale of land create a partnership; the parties are only tenants in common. (Clark
vs. Sideway, 142 U.S. 682,12 Ct. 327, 35 L. Ed., 1157.)

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as tenants in
common, and to divide the profits of disposing of it, the brother and the other not being entitled to share in plaintiffs
commission, no partnership existed as between the three parties, whatever their relation may have been as to third
parties. (Magee vs. Magee 123 N.E. 673, 233 Mass. 341.)

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally participating
in both profits and losses; (c) and such a community of interest, as far as third persons are concerned as enables
each party to make contract, manage the business, and dispose of the whole property.-Municipal Paving Co. vs.
Herring 150 P. 1067, 50 III 470.)

The common ownership of property does not itself create a partnership between the owners, though they may use it
for the purpose of making gains; and they may, without becoming partners, agree among themselves as to the
management, and use of such property and the application of the proceeds therefrom. (Spurlock vs. Wilson, 142
S.W. 363,160 No. App. 14.) 6

The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right
or interest in the property. There must be a clear intent to form a partnership, the existence of a juridical personality different from the
individual partners, and the freedom of each party to transfer or assign the whole property.

In the present case, there is clear evidence of co-ownership between the petitioners. There is no adequate basis to support the
proposition that they thereby formed an unregistered partnership. The two isolated transactions whereby they purchased properties and
sold the same a few years thereafter did not thereby make them partners. They shared in the gross profits as co- owners and paid their
capital gains taxes on their net profits and availed of the tax amnesty thereby. Under the circumstances, they cannot be considered to
have formed an unregistered partnership which is thereby liable for corporate income tax, as the respondent commissioner proposes.

And even assuming for the sake of argument that such unregistered partnership appears to have been formed, since there is no such
existing unregistered partnership with a distinct personality nor with assets that can be held liable for said deficiency corporate income
tax, then petitioners can be held individually liable as partners for this unpaid obligation of the partnership p. 7 However, as petitioners
have availed of the benefits of tax amnesty as individual taxpayers in these transactions, they are thereby relieved of any further tax
liability arising therefrom.

WHEREFROM, the petition is hereby GRANTED and the decision of the respondent Court of Tax Appeals of March 30, 1987 is hereby
REVERSED and SET ASIDE and another decision is hereby rendered relieving petitioners of the corporate income tax liability in this
case, without pronouncement as to costs.

SO ORDERED.

Cruz, Griño-Aquino and Medialdea, JJ., concur.

Narvasa, J., took no part.

EN BANC

G.R. No. L-19342 May 25, 1972

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.

Orlando Velasco for petitioners.

Office of the Solicitor General Arturo A. Alafriz, Assistant Solicitor General Felicisimo R. Rosete, and Special Attorney Purificacion
Ureta for respondent.

BARREDO, J.:p

Petition for review of the decision of the Court of Tax Appeals in CTA Case No. 617, similarly entitled as above, holding that petitioners
have constituted an unregistered partnership and are, therefore, subject to the payment of the deficiency corporate income taxes
assessed against them by respondent Commissioner of Internal Revenue for the years 1955 and 1956 in the total sum of P21,891.00,
plus 5% surcharge and 1% monthly interest from December 15, 1958, subject to the provisions of Section 51 (e) (2) of the Internal
Revenue Code, as amended by Section 8 of Republic Act No. 2343 and the costs of the suit, 1 as well as the resolution of said court
denying petitioners' motion for reconsideration of said decision.

The facts are stated in the decision of the Tax Court as follows:

Julia 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 decedent with money borrowed from the Philippine Trust
Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).

The project of partition also shows that the estate shares equally with Lorenzo T. 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:

Year Investment Land Building

Account Account Account

1949 — P87,860.00 P17,590.00

1950 P24,657.65 128,566.72 96,076.26

1951 51,301.31 120,349.28 110,605.11

1952 67,927.52 87,065.28 152,674.39

1953 61,258.27 84,925.68 161,463.83

 1954 63,623.37 99,001.20 167,962.04

1955 100,786.00 120,249.78 169,262.52

1956 175,028.68 135,714.68 169,262.52

(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50, 102-104)

From said investments and properties petitioners derived such incomes as profits from installment sales of
subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of Exhibit 3; p. 32, BIR rec.;
t.s.n., pp. 37-38). The said incomes are recorded in the books of account kept by Lorenzo T. 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 income of an unregistered partnership. This, We hold, is the clear intent of the
law.

Likewise, the third question of petitioners appears to have been adequately resolved by the Tax Court in the aforementioned resolution
denying petitioners' motion for reconsideration of the decision of said court. Pertinently, the court ruled this wise:

In support of the third ground, counsel for petitioners alleges:

Even if we were to yield to the decision of this Honorable Court that the herein petitioners have
formed an unregistered partnership and, therefore, have to be taxed as such, it might be recalled
that the petitioners in their individual income tax returns reported their shares of the profits of the
unregistered partnership. We think it only fair and equitable that the various amounts paid by the
individual petitioners as income tax on their respective shares of the unregistered partnership
should be deducted from the deficiency income tax found by this Honorable Court against the
unregistered partnership. (page 7, Memorandum for the Petitioner in Support of Their Motion for
Reconsideration, Oct. 28, 1961.)

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

Petitioners insist that it was error for the Tax Court to so rule that whatever excess they might have paid as individual income tax cannot
be credited as part payment of the taxes herein in question. It is argued that to sanction the view of the Tax Court is to oblige petitioners
to pay double income tax on the same income, and, worse, considering the time that has lapsed since they paid their individual income
taxes, they may already be barred by prescription from recovering their overpayments in a separate action. We do not agree. As We
see it, the case of petitioners as regards the point under discussion is simply that of a taxpayer who has paid the wrong tax, assuming
that the failure to pay the corporate taxes in question was not deliberate. Of course, such taxpayer has the right to be reimbursed what
he has erroneously paid, but the law is very clear that the claim and action for such reimbursement are subject to the bar of
prescription. And since the period for the recovery of the excess income taxes in the case of herein petitioners has already lapsed, it
would not seem right to virtually disregard prescription merely upon the ground that the reason for the delay is precisely because the
taxpayers failed to make the proper return and payment of the corporate taxes legally due from them. In principle, it is but proper not to
allow any relaxation of the tax laws in favor of persons who are not exactly above suspicion in their conduct vis-a-vis their tax obligation
to the State.

IN VIEW OF ALL THE FOREGOING, the judgment of the Court of Tax Appeals appealed from is affirm with costs against petitioners.

Makalintal, Zaldivar, Fernando, Makasiar and Antonio, JJ., concur.

Reyes, J.B.L. and Teehankee, JJ., concur in the result.

Castro, J., took no part.

Concepcion, C.J., is on leave.

SECOND DIVISION

G.R. No. L-47045 November 22, 1988

NOBIO SARDANE, petitioner,

vs.
THE COURT OF APPEALS and ROMEO J. ACOJEDO, respondents.

Y.G. Villaruz & Associates for petitioner.

Pelagio R. Lachica for private respondent.

REGALADO, J.:

The extensive discussion and exhaustive disquisition in the decision 1 of the respondent Court 2 should have written finis to this case
without further recourse to Us. The assignment of errors and arguments raised in the respondent Court by herein private respondent,
as the petitioner therein, having been correctly and justifiedly sustained by said court without any reversible error in its conclusions, the
present petition must fail.

The assailed decision details the facts and proceedings which spawned the present controversy as follows:

Petitioner brought an action in the City Court of Dipolog for collection of a sum of P5,217.25 based on promissory
notes executed by the herein private respondent Nobio Sardane in favor of the herein petitioner. Petitioner bases his
right to collect on Exhibits B, C, D, E, F, and G executed on different dates and signed by private respondent Nobio
Sardane. Exhibit B is a printed promissory note involving Pl,117.25 and dated May 13, 1972. Exhibit C is likewise a
printed promissory note and denotes on its face that the sum loaned was Pl,400.00. Exhibit D is also a printed
promissory note dated May 31, 1977 involving an amount of P100.00. Exhibit E is what is commonly known to the
layman as 'vale' which reads: 'Good for: two hundred pesos (Sgd) Nobio Sardane'. Exhibit F is stated in the following
tenor: 'Received from Mr. Romeo Acojedo the sum Pesos: Two Thousand Two Hundred (P2,200.00) ONLY, to be
paid on or before December 25, 1975. (Sgd) Nobio Sardane.' Exhibit G and H are both vales' involving the same
amount of one hundred pesos, and dated August 25, 1972 and September 12, 1972 respectively.

It has been established in the trial court that on many occasions, the petitioner demanded the payment of the total
amount of P5,217.25. The failure of the private respondent to pay the said amount prompted the petitioner to seek
the services of lawyer who made a letter (Exhibit 1) formally demanding the return of the sum loaned. Because of the
failure of the private respondent to heed the demands extrajudicially made by the petitioner, the latter was
constrained to bring an action for collection of sum of money.

During the scheduled day for trial, private respondent failed to appear and to file an answer. On motion by the
petitioner, the City Court of Dipolog issued an order dated May 18, 1976 declaring the private respondent in default
and allowed the petitioner to present his evidence ex-parte. Based on petitioner's evidence, the City Court of Dipolog
rendered judgment by default in favor of the petitioner.

Private respondent filed a motion to lift the order of default which was granted by the City Court in an order dated May
24, 1976, taking into consideration that the answer was filed within two hours after the hearing of the evidence
presented ex-parte by the petitioner.

After the trial on the merits, the City Court of Dipolog rendered its decision on September 14, 1976, the dispositive
portion of which reads:

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the plaintiff and against the defendant as
follows:

(a) Ordering the defendant to pay unto the plaintiff the sum of Five Thousand Two Hundred Seventeen Pesos and
Twenty-five centavos (P5,217.25) plus legal interest to commence from April 23, 1976 when this case was filed in
court; and
 (b) Ordering the defendant to pay the plaintiff the sum of P200.00 as attorney's fee and to pay the cost of this
proceeding. 3

Therein defendant Sardane appealed to the Court of First Instance of Zamboanga del Norte which reversed the decision of the lower
court by dismissing the complaint and ordered the plaintiff-appellee Acojedo to pay said defendant-appellant P500.00 each for actual
damages, moral damages, exemplary damages and attorney's fees, as well as the costs of suit. Plaintiff-appellee then sought the
review of said decision by petition to the respondent Court.

The assignment of errors in said petition for review can be capsulized into two decisive issues, firstly, whether the oral testimony for the
therein private respondent Sardane that a partnership existed between him and therein petitioner Acojedo are admissible to vary the
meaning of the abovementioned promissory notes; and, secondly, whether because of the failure of therein petitioner to 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 the true intent and agreement of the
parties, or the validity of the agreement is put in issue by the pleadings;

(b) When there is an intrinsic ambiguity in the writing.

As correctly pointed out by the respondent Court the exceptions to the rule do not apply in this case as there is no ambiguity in the
writings in question, thus:

In the case at bar, Exhibits B, C, and D are printed promissory notes containing a promise to pay a sum certain in
money, payable on demand and the promise to bear the costs of litigation in the event of the private respondent's
failure to pay the amount loaned when demanded extrajudicially. Likewise, the vales denote that the private
respondent is obliged to return the sum loaned to him by the petitioner. On their face, nothing appears to be vague or
ambigous, for the terms of the promissory notes clearly show that it was incumbent upon the private respondent to
pay the amount involved in the promissory notes if and when the petitioner demands the same. It was clearly the
intent of the parties to enter into a contract of loan for how could an educated man like the private respondent be
deceived to sign a promissory note yet intending to make such a writing to be mere receipts of the petitioner's
supposed contribution to the alleged partnership existing between the parties?

It has been established in the trial court that, the private respondent has been engaged in business for quite a long
period of time--as owner of the Sardane Trucking Service, entering into contracts with the government for the
construction of wharfs and seawall; and a member of the City Council of Dapitan (TSN, July 20, 1976, pp. 57-
58).<äre||anº•1àw> It indeed puzzles us how the private respondent could have been misled into signing a document
containing terms which he did not mean them to be. ...

xxx xxx xxx

The private respondent admitted during the cross-examination made by petitioner's counsel that he was the one who
was responsible for the printing of Exhibits B, C, and D (TSN, July 28, 1976, p. 64). How could he purportedly rely on
such a flimsy pretext that the promissory notes were receipts of the petitioner's contribution? 4

The Court of Appeals held, and We agree, that even if evidence aliunde other than the promissory notes may be admitted to alter the
meaning conveyed thereby, still the evidence is insufficient to prove that a partnership existed between the private parties hereto.
As manager of the basnig Sarcado naturally some degree of control over the operations and maintenance thereof had to be exercised
by herein petitioner. The fact that he had received 50% of the net profits does not conclusively establish that he was a partner of the
private respondent herein. Article 1769(4) of the Civil Code is explicit that while the receipt by a person of a share of the profits of a
business is prima facie evidence that he is a partner in the business, no such inference shall be drawn if such profits were received in
payment as wages of an employee. Furthermore, herein petitioner had no voice in the management of the affairs of the basnig. Under
similar facts, this Court in the early case of Fortis vs. Gutierrez Hermanos, 5 in denying the claim of the plaintiff therein that he was a
partner in the business of the defendant, declared:

This contention cannot be sustained. It was a mere contract of employment. The plaintiff had no voice nor vote in the
management of the affairs of the company. The fact that the compensation received by him was to be determined
with reference to the profits made by the defendant in their business did not in any sense make him a partner therein.
...

The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et al. 6 which involved the same factual and legal milieu.

There are other considerations noted by respondent Court which negate herein petitioner's pretension that he was a partner and not a
mere employee indebted to the present private respondent. Thus, in an action for damages filed by herein private respondent against
the North Zamboanga Timber Co., Inc. arising from the operations of the business, herein petitioner did not ask to be joined as a party
plaintiff. Also, although he contends that herein private respondent is the treasurer of the alleged partnership, yet it is the latter who is
demanding an accounting. The advertence of the Court of First Instance to the fact that the casco bears the name of herein petitioner
disregards the finding of the respondent Court that it was just a concession since it was he who obtained the engine used in the
Sardaco from the Department of Local Government and Community Development. Further, the use by the parties of the pronoun "our"
in referring to "our basnig, our catch", "our deposit", or "our boseros" was merely indicative of the camaraderie and not evidentiary of a
partnership, between them.

The foregoing factual findings, which belie the further claim that the aforesaid promissory notes do not express the true intent and
agreement of the parties, are binding on Us since there is no showing that they fall within the exceptions to the rule limiting the scope of
appellate review herein to questions of law.

On the second issue, the pertinent rule on actionable documents in Rule 8, for ready reference, reads:

Sec. 8. How to contest genuineness of such documents.—When an action or defense is founded upon a written
instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the
genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath,
specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the
adverse party does not appear to be a party to the instrument or when compliance with an order for the inspection of
the original instrument is refused.

The record shows that herein petitioner did not deny under oath in his answer the authenticity and due execution of the promissory
notes which had been duly pleaded and attached to the complaint, thereby admitting their genuineness and due execution. Even in the
trial court, he did not at all question the fact that he signed said promissory notes and that the same were genuine. Instead, he
presented parol evidence to vary the import of the promissory notes by alleging that they were mere receipts of his contribution to the
alleged partnership.

His arguments on this score reflect a misapprehension of the rule on parol evidence as distinguished from the rule on actionable
documents. As the respondent Court correctly explained to herein petitioner, what he presented in the trial Court was testimonial
evidence that the promissory notes were receipts of his supposed contributions to the alleged partnership which testimony, in the light
of Section 7, Rule 130, could not be admitted to vary or alter the explicit meaning conveyed by said promissory notes. On the other
hand, the presumed genuineness and due execution of said promissory notes were not affected, pursuant to the provisions of Section
8, Rule 8, since such aspects were not at all questioned but, on the contrary, were admitted by herein petitioner.

Petitioner's invocation of the doctrines in Yu Chuck, et al. vs. Kong Li Po, 7 which was reiterated in Central Surety & Insurance Co. vs.
C. N. Hodges, et al. 8 does not sustain his thesis that the herein private respondent had "waived the mantle of protection given him by
Rule 8, Sec. 8". It is true that such implied admission of genuineness and due execution may be waived by a party but only if he acts in
a manner indicative of either an express or tacit waiver thereof. Petitioner, however, either overlooked or ignored the fact that, as held
in Yu Chuck, and the same is true in other cases of Identical factual settings, such a finding of waiver is proper where a case has been
tried in complete disregard of the rule and the plaintiff having pleaded a document by copy, presents oral evidence to prove the due
execution of the document and no objections are made to the defendant's evidence in refutation. This situation does not obtain in the
present case hence said doctrine is obviously inapplicable.

Neither did the failure of herein private respondent to cross-examine herein petitioner on the latter's sur-rebuttal testimony constitute a
waiver of the aforesaid implied admission. As found by the respondent Court, said sur-rebuttal testimony consisted solely of the denial
of the testimony of herein private respondent and no new or additional matter was introduced in that sur-rebuttal testimony to exonerate
herein petitioner from his obligations under the aforesaid promissory notes.
On the foregoing premises and considerations, the respondent Court correctly reversed and set aside the appealed decision of the
Court of First Instance of Zamboanga del Norte and affirmed in full the decision of the City Court of Dipolog City in Civil Case No. 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 thereof in its Resolution of
August 12, 1971, by requiring a petition for review but which also did not require for its availability that the judgment of the court of first
instance had affirmed in full that of the lower court. Said mode of appeal and the procedural requirements thereof governed the appeal
taken in this case from the aforesaid Court of First Instance to the Court of Appeals in 1977. 10 Herein petitioner's plaint on this issue
is, therefore, devoid of merit.

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

SO ORDERED.

EN BANC

G.R. No. 21639 September 25, 1924

ALBERT F. KIEL, plaintiff-appellee,

vs.
ESTATE OF P. S. SABERT, defendant-appellant.

J. F. Yeager for appellant.

J. S. Alano for appellee.

MALCOLM, J.:

This action relates to the legal right of Albert F. Kiel to secure from the estate of P. S. Sabert the sum of P20,000, on a claim first
presented to the commissioners and disallowed, then on appeal to the Court of First Instance allowed, and ultimately the subject-matter
of the appeal taken to this court.

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:

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 P1, 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 occuring before the death of such deceased person." But the trial judge, misled somewhat by the
decision of the Supreme Court of California in the city 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 up a trial of the following facts: ". . . the act or declaration of a deceased person, done or
made against his interest 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, and 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 vs. 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 by 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 had 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 to 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, Avanceña, Villamor, Ostrand and Romualdez, JJ., concur.

EN BANC

G.R. No. L-24193 June 28, 1968

MAURICIO AGAD, plaintiff-appellant,

vs.
SEVERINO MABATO and MABATO and AGAD COMPANY, defendants-appellees.

Angeles, Maskarino and Associates for plaintiff-appellant.

Victorio S. Advincula for defendants-appellees.

CONCEPCION, C.J.:

In this appeal, taken by plaintiff Mauricio Agad, from an order of dismissal of the Court of First Instance of Davao, we are called upon to
determine the applicability of Article 1773 of our Civil Code to the contract of partnership on which the complaint herein is based.

Alleging that he and defendant Severino Mabato are — pursuant to a public instrument dated August 29, 1952, copy of which is
attached to the complaint as Annex "A" — partners in a fishpond business, to the capital of which Agad contributed P1,000, with the
right to receive 50% of the profits; that from 1952 up to and including 1956, Mabato who handled the partnership funds, had yearly
rendered accounts of the operations of the partnership; and that, despite repeated demands, Mabato had failed and refused to render
accounts for the years 1957 to 1963, Agad prayed in his complaint against Mabato and Mabato & Agad Company, filed on June 9,
1964, that judgment be rendered sentencing Mabato to pay him (Agad) the sum of P14,000, as his share in the profits of the
partnership for the period from 1957 to 1963, in addition to P1,000 as attorney's fees, and ordering the dissolution of the partnership, as
well as the winding up of its affairs by a receiver to be appointed therefor.

In his answer, Mabato admitted the formal allegations of the complaint and denied the existence of said partnership, upon the ground
that the contract therefor had not been perfected, despite the execution of Annex "A", because Agad had allegedly failed to give his
P1,000 contribution to the partnership capital. Mabato prayed, therefore, that the complaint be dismissed; that Annex "A" be declared
void ab initio; and that Agad be sentenced to pay actual, moral and exemplary damages, as well as attorney's fees.

Subsequently, Mabato filed a motion to dismiss, upon the ground that the complaint states no cause of action and that the lower court
had no jurisdiction over the subject matter of the case, because it involves principally the determination of rights over public lands. After
due hearing, the court issued the order appealed from, granting the motion to dismiss the complaint for failure to state a cause of
action. This conclusion was predicated upon the theory that the contract of partnership, Annex "A", is null and void, pursuant to Art.
1773 of our Civil Code, because an inventory of the fishpond referred in said instrument had not been attached thereto. A
reconsideration of this order having been denied, Agad brought the matter to us for review by record on appeal.

Articles 1771 and 1773 of said Code provide:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real rights are contributed
thereto, in which case a public instrument shall be necessary.

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

The issue before us hinges on whether or not "immovable property or real rights" have been contributed to the partnership under
consideration. Mabato alleged and the lower court held that the answer should be in the affirmative, because "it is really inconceivable
how a partnership engaged in the fishpond business could exist without said fishpond property (being) contributed to the partnership." It
should be noted, however, that, as stated in Annex "A" the partnership was established "to operate a fishpond", not to "engage in a
fishpond business". Moreover, none of the partners contributed either a fishpond or a real right to any fishpond. Their contributions
were limited to the sum of P1,000 each. Indeed, Paragraph 4 of Annex "A" provides:

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

xxx xxx xxx

The operation of the fishpond mentioned in Annex "A" was the purpose of the partnership. Neither said fishpond nor a real right thereto
was contributed to the partnership or became part of the capital thereof, even if a fishpond or a real right thereto could become part of
its assets.

WHEREFORE, we find that said Article 1773 of the Civil Code is not in point and that, the order appealed from should be, as it is
hereby set aside and the case remanded to the lower court for further proceedings, with the costs of this instance against defendant-
appellee, Severino Mabato. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur.

THIRD DIVISION

G.R. No. 75875 December 15, 1989

WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.
SANITARY WARES MANUFACTURING CORPORATOIN, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE
R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUZ, respondents.

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO, GEORGE FL .EE
RAUL A. BONCAN, BALDWIN YOUNG and AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY and
LUCIANO SALAZAR, respondents.

G.R. Nos. 75975-76 December 15, 1989

LUCIANO E. SALAZAR, petitioner,

vs.
SANITARY WARES MANUFACTURING CORPORATION, ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR., ENRIQUE
R. LAGDAMEO, GEORGE F. LEE, RAUL A. BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the COURT OF
APPEALS, respondents.

Belo, Abiera & Associates for petitioners in 75875.

Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J.:

These consolidated petitions seek the review of the amended decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and 05617
which set aside the earlier decision dated June 5, 1986, of the then Intermediate Appellate Court and directed that in all subsequent
elections for directors of Sanitary Wares Manufacturing Corporation (Saniwares), American Standard Inc. (ASI) cannot nominate more
than three (3) directors; that the Filipino stockholders shall not interfere in ASI's choice of its three (3) nominees; that, on the other
hand, the Filipino stockholders can nominate only six (6) candidates and in the event they cannot agree on the six (6) nominees, they
shall vote only among themselves to determine who the six (6) nominees will be, with cumulative voting to be allowed but without
interference from ASI.

The antecedent facts can be summarized as follows:

In 1961, Saniwares, a domestic corporation was incorporated for the primary purpose of manufacturing and marketing sanitary wares.
One of the incorporators, Mr. Baldwin Young went abroad to look for foreign partners, European or American who could help in its
expansion plans. On August 15, 1962, ASI, a foreign corporation domiciled in Delaware, United States entered into an Agreement with
Saniwares and some Filipino investors whereby ASI and the Filipino investors agreed to participate in the ownership of an enterprise
which would engage primarily in the business of manufacturing in the Philippines and selling here and abroad vitreous china and
sanitary wares. The parties agreed that the business operations in the Philippines shall be carried on by an incorporated enterprise and
that the name of the corporation shall initially be "Sanitary Wares Manufacturing Corporation."

The Agreement has the following provisions relevant to the issues in these cases on the nomination and election of the directors of the
corporation:

3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation shall be substantially in the form annexed hereto as Exhibit A and,
insofar as permitted under Philippine law, shall specifically provide for

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist of nine
individuals. As long as American-Standard shall own at least 30% of the outstanding stock of the Corporation, three
of the nine directors shall be designated by American-Standard, and the other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)

At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the grant of veto powers
over a number of corporate acts and the right to designate certain officers, such as a member of the Executive Committee whose vote
was required for important corporate transactions.
Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of Investments for
availment of incentives with the condition that at least 60% of the capital stock of the corporation shall be owned by Philippine nationals.

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

... There were protests against the action of the Chairman and heated arguments ensued. An appeal was made by
the ASI representative to the body of stockholders present that a vote be taken on the ruling of the Chairman. The
Chairman, Baldwin Young, declared the appeal out of order and no vote on the ruling was taken. The Chairman then
instructed the Corporate Secretary to cast all the votes present and represented by proxy equally for the 6 nominees
of the Philippine Investors and the 3 nominees of ASI, thus effectively excluding the 2 additional persons nominated,
namely, Luciano E. Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the
Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.
05617) were being cumulatively voted for the three ASI nominees and Charles Chamsay, and instructed the
Secretary to so vote. Luciano E. Salazar and other proxy holders announced that all the votes owned by and or
represented by them 467,197 shares (p. 27, Rollo, AC-G.R. SP No. 05617) were being voted cumulatively in favor of
Luciano E. Salazar. The Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in
favor of the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto Lagdameo, Jr.,
Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified for the election of the following
Wolfgang Aurbach, John Griffin, David Whittingham Ernesto Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, Raul A. Boncan, Baldwin Young. The representative of ASI then moved to recess the
meeting which was duly seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This
motion to adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried and
declared the meeting adjourned. Protests against the adjournment were registered and having been ignored, Mr.
Jaqua the ASI representative, stated that the meeting was not adjourned but only recessed and that the meeting
would be reconvened in the next room. The Chairman then threatened to have the stockholders who did not agree to
the decision of the Chairman on the casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other
stockholders, allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the
elevator lobby of the American Standard Building. The continued meeting was presided by Luciano E. Salazar, while
Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast earlier in the meeting, the ASI Group
nominated its four nominees; Wolfgang Aurbach, John Griffin, David Whittingham and Charles Chamsay. Luciano E.
Salazar voted for himself, thus the said five directors were certified as elected directors by the Acting Secretary,
Andres Gatmaitan, with the explanation that there was a tie among the other six (6) nominees for the four (4)
remaining positions of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)

These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange Commission (SEC). The
first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A. Bonean Ernesto R.
Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano Salazar and Charles Chamsay. The case was denominated as
SEC Case No. 2417. The second petition was for quo warranto and application for receivership by Wolfgang Aurbach, John Griffin,
David Whittingham, Luciano E. Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No.
2417) and Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz claimed to be
the legitimate directors of the corporation.

The two petitions were consolidated and tried jointly by a hearing officer who rendered a decision upholding the election of the
Lagdameo Group and dismissing the quo warranto petition of Salazar and Chamsay. The ASI Group and Salazar appealed the
decision to the SEC en banc which affirmed the hearing officer's decision.

The SEC decision led to the filing of two separate appeals with the Intermediate Appellate Court by Wolfgang Aurbach, John Griffin,
David Whittingham and Charles Chamsay (docketed as AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed as AC-G.R. SP
No. 05617). The petitions were consolidated and the appellate court in its decision ordered the remand of the case to the Securities and
Exchange Commission with the directive that a new stockholders' meeting of Saniwares be ordered convoked as soon as possible,
under the supervision of the Commission.

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals) rendered the
questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and Charles Chamsay in G.R. No.
75875 assign the following errors:
 I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE RESPONDENTS AS
MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN FACT THERE WAS NO ELECTION AT
ALL.

II. THE COURT OF APPEALS PROHIBITS THE STOCKHOLDERS FROM EXERCISING THEIR FULL VOTING
RIGHTS REPRESENTED BY THE NUMBER OF SHARES IN SANIWARES, THUS DEPRIVING PETITIONERS
AND THE CORPORATION THEY REPRESENT OF THEIR PROPERTY RIGHTS WITHOUT DUE PROCESS OF
LAW.

III. THE COURT OF APPEALS IMPOSES CONDITIONS AND READS PROVISIONS INTO THE AGREEMENT OF
THE PARTIES WHICH WERE NOT THERE, WHICH ACTION IT CANNOT LEGALLY DO. (p. 17, Rollo-75875)

Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the amended decision on the following grounds:

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements entered into by

stockholders and the replacement of the conditions of such agreements with terms never contemplated by the
stockholders but merely dictated by the CA .

11.2. The Amended decision would likewise sanction the deprivation of the property rights of stockholders without
due process of law in order that a favored group of stockholders may be illegally benefitted and guaranteed a
continuing monopoly of the control of a corporation. (pp. 14-15, Rollo-75975-76)

On the other hand, the petitioners in G.R. No. 75951 contend that:

THE AMENDED DECISION OF THE RESPONDENT COURT, WHILE RECOGNIZING THAT THE
STOCKHOLDERS OF SANIWARES ARE DIVIDED INTO TWO BLOCKS, FAILS TO FULLY ENFORCE THE BASIC
INTENT OF THE AGREEMENT AND THE LAW.

II

THE AMENDED DECISION DOES NOT CATEGORICALLY RULE THAT PRIVATE PETITIONERS HEREIN WERE
THE DULY ELECTED DIRECTORS DURING THE 8 MARCH 1983 ANNUAL STOCKHOLDERS MEETING OF
SANTWARES. (P. 24, Rollo-75951)

The issues raised in the petitions are interrelated, hence, they are discussed jointly.

The main issue hinges on who were the duly elected directors of Saniwares for the year 1983 during its annual stockholders' meeting
held on March 8, 1983. To answer this question the following factors should be determined: (1) the nature of the business established
by the parties whether it was a joint venture or a corporation and (2) whether or not the ASI Group may vote their additional 10% equity
during elections of Saniwares' board of directors.

The rule is that whether the parties to a particular contract have thereby established among themselves a joint venture or some other
relation depends upon their actual intention which is determined in accordance with the rules governing the interpretation and
construction of contracts. (Terminal Shares, Inc. v. Chicago, B. and Q.R. Co. (DC MO) 65 F Supp 678; Universal Sales Corp. v.
California Press Mfg. Co. 20 Cal. 2nd 751, 128 P 2nd 668)

The ASI Group and petitioner Salazar (G.R. Nos. 75975-76) contend that the actual intention of the parties should be viewed strictly on
the "Agreement" dated August 15,1962 wherein it is clearly stated that the parties' intention was to form a corporation and not a joint
venture.

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

c) nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder. (At P. 66, Rollo-GR No. 75875)

They object to the admission of other evidence which tends to show that the parties' agreement was to establish a joint venture
presented by the Lagdameo and Young Group on the ground that it contravenes the parol evidence rule under section 7, Rule 130 of
the Revised Rules of Court. According to them, the Lagdameo and Young Group never pleaded in their pleading that the "Agreement"
failed to express the true intent of the parties.
The parol evidence Rule under Rule 130 provides:

Evidence of written agreements-When the terms of an agreement have been reduced to writing, it is to be considered
as containing all such terms, and therefore, there can be, between the parties and their successors in interest, no
evidence of the terms of the agreement other than the contents of the writing, except in the following cases:

(a) Where a mistake or imperfection of the writing, or its failure to express the true intent and agreement of the parties
or the validity of the agreement is put in issue by the pleadings.

(b) When there is an intrinsic ambiguity in the writing.

Contrary to ASI Group's stand, the Lagdameo and Young Group pleaded in their Reply and Answer to Counterclaim in SEC Case No.
2417 that the Agreement failed to express the true intent of the parties, to wit:

xxx xxx xxx

4. While certain provisions of the Agreement would make it appear that the parties thereto disclaim being partners or
joint venturers such disclaimer is directed at third parties and is not inconsistent with, and does not preclude, the
existence of two distinct groups of stockholders in Saniwares one of which (the Philippine Investors) shall constitute
the majority, and the other ASI shall constitute the minority stockholder. In any event, the evident intention of the
Philippine Investors and ASI in entering into the Agreement is to enter into ajoint venture enterprise, and if some
words in the Agreement appear to be contrary to the evident intention of the parties, the latter shall prevail over the
former (Art. 1370, New Civil Code). The various stipulations of a contract shall be interpreted together attributing to
the doubtful ones that sense which may result from all of them taken jointly (Art. 1374, New Civil Code). Moreover, in
order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered. (Art. 1371, New Civil Code). (Part I, Original Records, SEC Case No. 2417)

It has been ruled:

In an action at law, where there is evidence tending to prove that the parties joined their efforts in furtherance of an
enterprise for their joint profit, the question whether they intended by their agreement to create a joint adventure, or to
assume some other relation is a question of fact for the jury. (Binder v. Kessler v 200 App. Div. 40,192 N Y S 653;
Pyroa v. Brownfield (Tex. Civ. A.) 238 SW 725; Hoge v. George, 27 Wyo, 423, 200 P 96 33 C.J. p. 871)

In the instant cases, our examination of important provisions of the Agreement as well as the testimonial evidence presented by the
Lagdameo and Young Group shows that the parties agreed to establish a joint venture and not a corporation. The history of the
organization of Saniwares and the unusual arrangements which govern its policy making body are all consistent with a joint venture and
not with an ordinary corporation. As stated by the SEC:

According to the unrebutted testimony of Mr. Baldwin Young, he negotiated the Agreement with ASI in behalf of the
Philippine nationals. He testified that ASI agreed to accept the role of minority vis-a-vis the Philippine National group
of investors, on the condition that the Agreement should contain provisions to protect ASI as the minority.

An examination of the Agreement shows that certain provisions were included to protect the interests of ASI as the
minority. For example, the vote of 7 out of 9 directors is required in certain enumerated corporate acts [Sec. 3 (b) (ii)
(a) of the Agreement]. ASI is contractually entitled to designate a member of the Executive Committee and the vote of
this member is required for certain transactions [Sec. 3 (b) (i)].

The Agreement also requires a 75% super-majority vote for the amendment of the articles and by-laws of Saniwares
[Sec. 3 (a) (iv) and (b) (iii)]. ASI is also given the right to designate the president and plant manager [Sec. 5 (6)]. The
Agreement further provides that the sales policy of Saniwares shall be that which is normally followed by ASI [Sec. 13
(a)] and that Saniwares should not export "Standard" products otherwise than through ASI's Export Marketing
Services [Sec. 13 (6)]. Under the Agreement, ASI agreed to provide technology and know-how to Saniwares and the
latter paid royalties for the same. (At p. 2).

xxx xxx xxx

It is pertinent to note that the provisions of the Agreement requiring a 7 out of 9 votes of the board of directors for
certain actions, in effect gave ASI (which designates 3 directors under the Agreement) an effective veto power.
Furthermore, the grant to ASI of the right to designate certain officers of the corporation; the super-majority voting
requirements for amendments of the articles and by-laws; and most significantly to the issues of tms case, the
provision that ASI shall designate 3 out of the 9 directors and the other stockholders shall designate the other 6,
clearly indicate that there are two distinct groups in Saniwares, namely ASI, which owns 40% of the capital stock and
 the Philippine National stockholders who own the balance of 60%, and that 2) ASI is given certain protections as the
minority stockholder.

Premises considered, we believe that under the Agreement there are two groups of stockholders who established a
corporation with provisions for a special contractual relationship between the parties, i.e., ASI and the other
stockholders. (pp. 4-5)

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the nine directors on a
six to three ratio. Each group is assured of a fixed number of directors in the board.

Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that Section 16(c) of the
Agreement that "Nothing herein contained shall be construed to constitute any of the parties hereto partners or joint venturers in
respect of any transaction hereunder" was merely to obviate the possibility of the enterprise being treated as partnership for tax
purposes and liabilities to third parties.

Quite often, Filipino entrepreneurs in their desire to develop the industrial and manufacturing capacities of a local firm are constrained
to seek the technology and marketing assistance of huge multinational corporations of the developed world. Arrangements are
formalized where a foreign group becomes a minority owner of a firm in exchange for its manufacturing expertise, use of its brand
names, and other such assistance. However, there is always a danger from such arrangements. The foreign group may, from the start,
intend to establish its own sole or monopolistic operations and merely uses the joint venture arrangement to gain a foothold or test the
Philippine waters, so to speak. Or the covetousness may come later. As the Philippine firm enlarges its operations and becomes
profitable, the foreign group undermines the local majority ownership and actively tries to completely or predominantly take over the
entire company. This undermining of joint ventures is not consistent with fair dealing to say the least. To the extent that such subversive
actions can be lawfully prevented, the courts should extend protection especially in industries where constitutional and legal
requirements reserve controlling ownership to Filipino citizens.

The Lagdameo Group stated in their appellees' brief in the Court of Appeal

In fact, the Philippine Corporation Code itself recognizes the right of stockholders to enter into agreements regarding
the exercise of their voting rights.

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

2. An agreement between two or more stockholders, if in writing and signed by the parties thereto, may provide that
in exercising any voting rights, the shares held by them shall be voted as therein provided, or as they may agree, or
as determined in accordance with a procedure agreed upon by them.

Appellants contend that the above provision is included in the Corporation Code's chapter on close corporations and
Saniwares cannot be a close corporation because it has 95 stockholders. Firstly, although Saniwares had 95
stockholders at the time of the disputed stockholders meeting, these 95 stockholders are not separate from each
other but are divisible into groups representing a single Identifiable interest. For example, ASI, its nominees and
lawyers count for 13 of the 95 stockholders. The YoungYutivo family count for another 13 stockholders, the Chamsay
family for 8 stockholders, the Santos family for 9 stockholders, the Dy family for 7 stockholders, etc. If the members of
one family and/or business or interest group are considered as one (which, it is respectfully submitted, they should be
for purposes of determining how closely held Saniwares is there were as of 8 March 1983, practically only 17
stockholders of Saniwares. (Please refer to discussion in pp. 5 to 6 of appellees' Rejoinder Memorandum dated 11
December 1984 and Annex "A" thereof).

Secondly, even assuming that Saniwares is technically not a close corporation because it has more than 20
stockholders, the undeniable fact is that it is a close-held corporation. Surely, appellants cannot honestly claim that
Saniwares is a public issue or a widely held corporation.

In the United States, many courts have taken a realistic approach to joint venture corporations and have not rigidly
applied principles of corporation law designed primarily for public issue corporations. These courts have indicated
that express arrangements between corporate joint ventures should be construed with less emphasis on the ordinary
rules of law usually applied to corporate entities and with more consideration given to the nature of the agreement
between the joint venturers (Please see Wabash Ry v. American Refrigerator Transit Co., 7 F 2d 335; Chicago, M &
St. P. Ry v. Des Moines Union Ry; 254 Ass'n. 247 US. 490'; Seaboard Airline Ry v. Atlantic Coast Line Ry; 240 N.C.
495,.82 S.E. 2d 771; Deboy v. Harris, 207 Md., 212,113 A 2d 903; Hathway v. Porter Royalty Pool, Inc., 296 Mich.
90, 90, 295 N.W. 571; Beardsley v. Beardsley, 138 U.S. 262; "The Legal Status of Joint Venture Corporations", 11
Vand Law Rev. p. 680,1958). These American cases dealt with legal questions as to the extent to which the
requirements arising from the corporate form of joint venture corporations should control, and the courts ruled that
 substantial justice lay with those litigants who relied on the joint venture agreement rather than the litigants who relied
on the orthodox principles of corporation law.

As correctly held by the SEC Hearing Officer:

It is said that participants in a joint venture, in organizing the joint venture deviate from the traditional pattern of
corporation management. A noted authority has pointed out that just as in close corporations, shareholders'
agreements in joint venture corporations often contain provisions which do one or more of the following: (1) require
greater than majority vote for shareholder and director action; (2) give certain shareholders or groups of shareholders
power to select a specified number of directors; (3) give to the shareholders control over the selection and retention
of employees; and (4) set up a procedure for the settlement of disputes by arbitration (See I O' Neal, Close
Corporations, 1971 ed., Section 1.06a, pp. 15-16) (Decision of SEC Hearing Officer, P. 16)

Thirdly paragraph 2 of Sec. 100 of the Corporation Code does not necessarily imply that agreements regarding the
exercise of voting rights are allowed only in close corporations. As Campos and Lopez-Campos explain:

Paragraph 2 refers to pooling and voting agreements in particular. Does this provision necessarily imply that these
agreements can be valid only in close corporations as defined by the Code? Suppose that a corporation has twenty
five stockholders, and therefore cannot qualify as a close corporation under section 96, can some of them enter into
an agreement to vote as a unit in the election of directors? It is submitted that there is no reason for denying
stockholders of corporations other than close ones the right to enter into not voting or pooling agreements to protect
their interests, as long as they do not intend to commit any wrong, or fraud on the other stockholders not parties to
the agreement. Of course, voting or pooling agreements are perhaps more useful and more often resorted to in close
corporations. But they may also be found necessary even in widely held corporations. Moreover, since the Code
limits the legal meaning of close corporations to those which comply with the requisites laid down by section 96, it is
entirely possible that a corporation which is in fact a close corporation will not come within the definition. In such
case, its stockholders should not be precluded from entering into contracts like voting agreements if these are
otherwise valid. (Campos & Lopez-Campos, op cit, p. 405)

In short, even assuming that sec. 5(a) of the Agreement relating to the designation or nomination of directors restricts
the right of the Agreement's signatories to vote for directors, such contractual provision, as correctly held by the SEC,
is valid and binding upon the signatories thereto, which include appellants. (Rollo No. 75951, pp. 90-94)

In regard to the question as to whether or not the ASI group may vote their additional equity during elections of Saniwares' board of
directors, the Court of Appeals correctly stated:

As in other joint venture companies, the extent of ASI's participation in the management of the corporation is spelled
out in the Agreement. Section 5(a) hereof says that three of the nine directors shall be designated by ASI and the
remaining six by the other stockholders, i.e., the Filipino stockholders. This allocation of board seats is obviously in
consonance with the minority position of ASI.

Having entered into a well-defined contractual relationship, it is imperative that the parties should honor and adhere
to their respective rights and obligations thereunder. Appellants seem to contend that any allocation of board seats,
even in joint venture corporations, are null and void to the extent that such may interfere with the stockholder's rights
to cumulative voting as provided in Section 24 of the Corporation Code. This Court should not be prepared to hold
that any agreement which curtails in any way cumulative voting should be struck down, even if such agreement has
been freely entered into by experienced businessmen and do not prejudice those who are not parties thereto. It may
well be that it would be more cogent to hold, as the Securities and Exchange Commission has held in the decision
appealed from, that cumulative voting rights may be voluntarily waived by stockholders who enter into special
relationships with each other to pursue and implement specific purposes, as in joint venture relationships between
foreign and local stockholders, so long as such agreements do not adversely affect third parties.

In any event, it is believed that we are not here called upon to make a general rule on this question. Rather, all that
needs to be done is to give life and effect to the particular contractual rights and obligations which the parties have
assumed for themselves.

On the one hand, the clearly established minority position of ASI and the contractual allocation of board seats Cannot
be disregarded. On the other hand, the rights of the stockholders to cumulative voting should also be protected.

In our decision sought to be reconsidered, we opted to uphold the second over the first. Upon further reflection, we
feel that the proper and just solution to give due consideration to both factors suggests itself quite clearly. This Court
should recognize and uphold the division of the stockholders into two groups, and at the same time uphold the right of
the stockholders within each group to cumulative voting in the process of determining who the group's nominees
would be. In practical terms, as suggested by appellant Luciano E. Salazar himself, this means that if the Filipino
stockholders cannot agree who their six nominees will be, a vote would have to be taken among the Filipino
 stockholders only. During this voting, each Filipino stockholder can cumulate his votes. ASI, however, should not be
allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be able to designate more than the
three directors it is allowed to designate under the Agreement, and may even be able to get a majority of the board
seats, a result which is clearly contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three directors. (Rollo-75875, pp. 38-39)

The ASI Group and petitioner Salazar, now reiterate their theory that the ASI Group has the right to vote their additional equity pursuant
to Section 24 of the Corporation Code which gives the stockholders of a corporation the right to cumulate their votes in electing
directors. Petitioner Salazar adds that this right if granted to the ASI Group would not necessarily mean a violation of the Anti-Dummy
Act (Commonwealth Act 108, as amended). He cites section 2-a thereof which provides:

And provided finally that the election of aliens as members of the board of directors or governing body of corporations
or associations engaging in partially nationalized activities shall be allowed in proportion to their allowable
participation or share in the capital of such entities. (amendments introduced by Presidential Decree 715, section 1,
promulgated May 28, 1975)

The ASI Group's argument is correct within the context of Section 24 of the Corporation Code. The point of query, however, is whether
or not that provision is applicable to a joint venture with clearly defined agreements:

The legal concept of ajoint venture is of common law origin. It has no precise legal definition but it has been generally
understood to mean an organization formed for some temporary purpose. (Gates v. Megargel, 266 Fed. 811 [1920]) It
is in fact hardly distinguishable from the partnership, since their elements are similar community of interest in the
business, sharing of profits and losses, and a mutual right of control. Blackner v. Mc Dermott, 176 F. 2d. 498, [1949];
Carboneau v. Peterson, 95 P. 2d., 1043 [1939]; Buckley v. Chadwick, 45 Cal. 2d. 183, 288 P. 2d. 12 289 P. 2d. 242
[1955]). The main distinction cited by most opinions in common law jurisdictions is that the partnership contemplates
a general business with some degree of continuity, while the joint venture is formed for the execution of a single
transaction, and is thus of a temporary nature. (Tufts v. Mann 116 Cal. App. 170, 2 P. 2d. 500 [1931]; Harmon v.
Martin, 395 111. 595, 71 NE 2d. 74 [1947]; Gates v. Megargel 266 Fed. 811 [1920]). This observation is not entirely
accurate in this jurisdiction, since under the Civil Code, a partnership may be particular or universal, and a particular
partnership may have for its object a specific undertaking. (Art. 1783, Civil Code). It would seem therefore that under
Philippine law, a joint venture is a form of partnership and should thus be governed by the law of partnerships. The
Supreme Court has however recognized a distinction between these two business forms, and has held that although
a corporation cannot enter into a partnership contract, it may however engage in a joint venture with others. (At p. 12,
Tuazon v. Bolanos, 95 Phil. 906 [1954]) (Campos and Lopez-Campos Comments, Notes and Selected Cases,
Corporation Code 1981)

Moreover, the usual rules as regards the construction and operations of contracts generally apply to a contract of joint venture. (O' Hara
v. Harman 14 App. Dev. (167) 43 NYS 556).

Bearing these principles in mind, the correct view would be that the resolution of the question of whether or not the ASI Group may vote
their additional equity lies in the agreement of the parties.

Necessarily, the appellate court was correct in upholding the agreement of the parties as regards the allocation of director seats under
Section 5 (a) of the "Agreement," and the right of each group of stockholders to cumulative voting in the process of determining who the
group's nominees would be under Section 3 (a) (1) of the "Agreement." As pointed out by SEC, Section 5 (a) of the Agreement relates
to the manner of nominating the members of the board of directors while Section 3 (a) (1) relates to the manner of voting for these
nominees.

This is the proper interpretation of the Agreement of the parties as regards the election of members of the board of directors.

To allow the ASI Group to vote their additional equity to help elect even a Filipino director who would be beholden to them would
obliterate their minority status as agreed upon by the parties. As aptly stated by the appellate court:

... ASI, however, should not be allowed to interfere in the voting within the Filipino group. Otherwise, ASI would be
able to designate more than the three directors it is allowed to designate under the Agreement, and may even be able
to get a majority of the board seats, a result which is clearly contrary to the contractual intent of the parties.

Such a ruling will give effect to both the allocation of the board seats and the stockholder's right to cumulative voting.
Moreover, this ruling will also give due consideration to the issue raised by the appellees on possible violation or
circumvention of the Anti-Dummy Law (Com. Act No. 108, as amended) and the nationalization requirements of the
Constitution and the laws if ASI is allowed to nominate more than three directors. (At p. 39, Rollo, 75875)
Equally important as the consideration of the contractual intent of the parties is the consideration as regards the possible domination by
the foreign investors of the enterprise in violation of the nationalization requirements enshrined in the Constitution and circumvention of
the Anti-Dummy Act. In this regard, petitioner Salazar's position is that the Anti-Dummy Act allows the ASI group to elect board
directors in proportion to their share in the capital of the entity. It is to be noted, however, that the same law also limits the election of
aliens as members of the board of directors in proportion to their allowance participation of said entity. In the instant case, the foreign
Group ASI was limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings, this
limitation of six to three board seats should always be maintained as long as the joint venture agreement exists considering that in
limiting 3 board seats in the 9-man board of directors there are provisions already agreed upon and embodied in the parties' Agreement
to protect the interests arising from the minority status of the foreign investors.

With these findings, we the decisions of the SEC Hearing Officer and SEC which were impliedly affirmed by the appellate court
declaring Messrs. Wolfgang Aurbach, John Griffin, David P Whittingham, Emesto V. Lagdameo, Baldwin young, Raul A. Boncan,
Emesto V. Lagdameo, Jr., Enrique Lagdameo, and George F. Lee as the duly elected directors of Saniwares at the March 8,1983
annual stockholders' meeting.

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting during the election of
the board of directors of the enterprise as ruled by the appellate court and submits that the six (6) directors allotted the Filipino
stockholders should be selected by consensus pursuant to section 5 (a) of the Agreement which uses the word "designate" meaning
"nominate, delegate or appoint."

They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are allowed to select
their nominees separately and not as a common slot determined by the majority of their group.

Section 5 (a) of the Agreement which uses the word designates in the allocation of board directors should not be interpreted in isolation.
This should be construed in relation to section 3 (a) (1) of the Agreement. As we stated earlier, section 3(a) (1) relates to the manner of
voting for these nominees which is cumulative voting while section 5(a) relates to the manner of nominating the members of the board
of directors. The petitioners in G.R. No. 75951 agreed to this procedure, hence, they cannot now impugn its legality.

The insinuation that the ASI Group may be able to control the enterprise under the cumulative voting procedure cannot, however, be
ignored. The validity of the cumulative voting procedure is dependent on the directors thus elected being genuine members of the
Filipino group, not voters whose interest is to increase the ASI share in the management of Saniwares. The joint venture character of
the enterprise must always be taken into account, so long as the company exists under its original agreement. Cumulative voting may
not be used as a device to enable ASI to achieve stealthily or indirectly what they cannot accomplish openly. There are substantial
safeguards in the Agreement which are intended to preserve the majority status of the Filipino investors as well as to maintain the
minority status of the foreign investors group as earlier discussed. They should be maintained.

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

SO ORDERED.