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Republic of the Philippines them at the rate of 50-50 and after December 31, 1950, the showhouse building

r December 31, 1950, the showhouse building shall belong exclusively

SUPREME COURT to the second party, Mrs. Yulo.
The land on which the theatre was constructed was leased by plaintiff Mrs. Yulo from Emilia Carrion
EN BANC Santa Marina and Maria Carrion Santa Marina. In the contract of lease it was stipulated that the lease
shall continue for an indefinite period of time, but that after one year the lease may be cancelled by
G.R. No. L-12541 August 28, 1959 either party by written notice to the other party at least 90 days before the date of cancellation. The last
contract was executed between the owners and Mrs. Yulo on April 5, 1948. But on April 12, 1949, the
attorney for the owners notified Mrs. Yulo of the owner's desire to cancel the contract of lease on July
ROSARIO U. YULO, assisted by her husband JOSE C. YULO, plaintiffs-appellants, 31, 1949. In view of the above notice, Mrs. Yulo and her husband brought a civil action to the Court of
vs. First Instance of Manila on July 3, 1949 to declare the lease of the premises. On February 9, 1950, the
YANG CHIAO SENG, defendant-appellee. Municipal Court of Manila rendered judgment ordering the ejectment of Mrs. Yulo and Mr. Yang. The
judgment was appealed. In the Court of First Instance, the two cases were afterwards heard jointly, and
Punzalan, Yabut, Eusebio & Tiburcio for appellants. judgment was rendered dismissing the complaint of Mrs. Yulo and her husband, and declaring the
Augusto Francisco and Julian T. Ocampo for appellee. contract of lease of the premises terminated as of July 31, 1949, and fixing the reasonable monthly
rentals of said premises at P100. Both parties appealed from said decision and the Court of Appeals, on
LABRADOR, J.: April 30, 1955, affirmed the judgment.

Appeal from the judgment of the Court of First Instance of Manila, Hon. Bienvenido A. Tan, presiding, On October 27, 1950, Mrs. Yulo demanded from Yang Chiao Seng her share in the profits of the
dismissing plaintiff's complaint as well as defendant's counterclaim. The appeal is prosecuted by business. Yang answered the letter saying that upon the advice of his counsel he had to suspend the
plaintiff. payment (of the rentals) because of the pendency of the ejectment suit by the owners of the land
against Mrs. Yulo. In this letter Yang alleges that inasmuch as he is a sublessee and inasmuch as Mrs.
Yulo has not paid to the lessors the rentals from August, 1949, he was retaining the rentals to make
The record discloses that on June 17, 1945, defendant Yang Chiao Seng wrote a letter to the palintiff good to the landowners the rentals due from Mrs. Yulo in arrears (Exh. "E").
Mrs. Rosario U. Yulo, proposing the formation of a partnership between them to run and operate a
theatre on the premises occupied by former Cine Oro at Plaza Sta. Cruz, Manila. The principal
conditions of the offer are (1) that Yang Chiao Seng guarantees Mrs. Yulo a monthly participation of In view of the refusal of Yang to pay her the amount agreed upon, Mrs. Yulo instituted this action on
P3,000 payable quarterly in advance within the first 15 days of each quarter, (2) that the partnership May 26, 1954, alleging the existence of a partnership between them and that the defendant Yang Chiao
shall be for a period of two years and six months, starting from July 1, 1945 to December 31, 1947, with Seng has refused to pay her share from December, 1949 to December, 1950; that after December 31,
the condition that if the land is expropriated or rendered impracticable for the business, or if the owner 1950 the partnership between Mrs. Yulo and Yang terminated, as a result of which, plaintiff became the
constructs a permanent building thereon, or Mrs. Yulo's right of lease is terminated by the owner, then absolute owner of the building occupied by the Cine Astor; that the reasonable rental that the defendant
the partnership shall be terminated even if the period for which the partnership was agreed to be should pay therefor from January, 1951 is P5,000; that the defendant has acted maliciously and refuses
established has not yet expired; (3) that Mrs. Yulo is authorized personally to conduct such business in to pay the participation of the plaintiff in the profits of the business amounting to P35,000 from
the lobby of the building as is ordinarily carried on in lobbies of theatres in operation, provided the said November, 1949 to October, 1950, and that as a result of such bad faith and malice on the part of the
business may not obstruct the free ingress and agrees of patrons of the theatre; (4) that after December defendant, Mrs. Yulo has suffered damages in the amount of P160,000 and exemplary damages to the
31, 1947, all improvements placed by the partnership shall belong to Mrs. Yulo, but if the partnership extent of P5,000. The prayer includes a demand for the payment of the above sums plus the sum of
agreement is terminated before the lapse of one and a half years period under any of the causes P10,000 for the attorney's fees.
mentioned in paragraph (2), then Yang Chiao Seng shall have the right to remove and take away all
improvements that the partnership may place in the premises. In answer to the complaint, defendant alleges that the real agreement between the plaintiff and the
defendant was one of lease and not of partnership; that the partnership was adopted as a subterfuge to
Pursuant to the above offer, which plaintiff evidently accepted, the parties executed a partnership get around the prohibition contained in the contract of lease between the owners and the plaintiff
agreement establishing the "Yang & Company, Limited," which was to exist from July 1, 1945 to against the sublease of the said property. As to the other claims, he denies the same and alleges that
December 31, 1947. It states that it will conduct and carry on the business of operating a theatre for the the fair rental value of the land is only P1,100. By way of counterclaim he alleges that by reason of an
exhibition of motion and talking pictures. The capital is fixed at P100,000, P80,000 of which is to be attachment issued against the properties of the defendant the latter has suffered damages amounting to
furnished by Yang Chiao Seng and P20,000, by Mrs. Yulo. All gains and profits are to be distributed P100,000.
among the partners in the same proportion as their capital contribution and the liability of Mrs. Yulo, in
case of loss, shall be limited to her capital contribution (Exh. "B"). The first hearing was had on April 19, 1955, at which time only the plaintiff appeared. The court heard
evidence of the plaintiff in the absence of the defendant and thereafter rendered judgment ordering the
In June , 1946, they executed a supplementary agreement, extending the partnership for a period of defendant to pay to the plaintiff P41,000 for her participation in the business up to December, 1950;
three years beginning January 1, 1948 to December 31, 1950. The benefits are to be divided between P5,000 as monthly rental for the use and occupation of the building from January 1, 1951 until
defendant vacates the same, and P3,000 for the use and occupation of the lobby from July 1, 1945 until
defendant vacates the property. This decision, however, was set aside on a motion for reconsideration. was progressing, whether the expenses were legitimate, whether the earnings were correct, etc. She
In said motion it is claimed that defendant failed to appear at the hearing because of his honest belief was absolutely silent with respect to any of the acts that a partner should have done; all that she did
that a joint petition for postponement filed by both parties, in view of a possible amicable settlement, was to receive her share of P3,000 a month, which can not be interpreted in any manner than a
would be granted; that in view of the decision of the Court of Appeals in two previous cases between the payment for the use of the premises which she had leased from the owners. Clearly, plaintiff had always
owners of the land and the plaintiff Rosario Yulo, the plaintiff has no right to claim the alleged acted in accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows that
participation in the profit of the business, etc. The court, finding the above motion, well-founded, set both parties considered this offer as the real contract between them.
aside its decision and a new trial was held. After trial the court rendered the decision making the
following findings: that it is not true that a partnership was created between the plaintiff and the Plaintiff claims the sum of P41,000 as representing her share or participation in the business from
defendant because defendant has not actually contributed the sum mentioned in the Articles of December, 1949. But the original letter of the defendant, Exh. "A", expressly states that the agreement
Partnership, or any other amount; that the real agreement between the plaintiff and the defendant is not between the plaintiff and the defendant was to end upon the termination of the right of the plaintiff to the
of the partnership but one of the lease for the reason that under the agreement the plaintiff did not share lease. Plaintiff's right having terminated in July, 1949 as found by the Court of Appeals, the partnership
either in the profits or in the losses of the business as required by Article 1769 of the Civil Code; and agreement or the agreement for her to receive a participation of P3,000 automatically ceased as of said
that the fact that plaintiff was granted a "guaranteed participation" in the profits also belies the supposed date.
existence of a partnership between them. It. therefore, denied plaintiff's claim for damages or supposed
participation in the profits.
We find no error in the judgment of the court below and we affirm it in toto, with costs against plaintiff-
As to her claim for damages for the refusal of the defendant to allow the use of the supposed lobby of
the theatre, the court after ocular inspection found that the said lobby was very narrow space leading to
the balcony of the theatre which could not be used for business purposes under existing ordinances of Paras C.J., Padilla, Bautista Angelo, Endencia, and Barrera, JJ., concur.
the City of Manila because it would constitute a hazard and danger to the patrons of the theatre. The
court, therefore, dismissed the complaint; so did it dismiss the defendant's counterclaim, on the ground
that the defendant failed to present sufficient evidence to sustain the same. It is against this decision
that the appeal has been prosecuted by plaintiff to this Court.

The first assignment of error imputed to the trial court is its order setting aside its former decision and
allowing a new trial. This assignment of error is without merit. As that parties agreed to postpone the
trial because of a probable amicable settlement, the plaintiff could not take advantage of defendant's
absence at the time fixed for the hearing. The lower court, therefore, did not err in setting aside its
former judgment. The final result of the hearing shown by the decision indicates that the setting aside of
the previous decision was in the interest of justice.

In the second assignment of error plaintiff-appellant claims that the lower court erred in not striking out
the evidence offered by the defendant-appellee to prove that the relation between him and the plaintiff is
one of the sublease and not of partnership. The action of the lower court in admitting evidence is
justified by the express allegation in the defendant's answer that the agreement set forth in the
complaint was one of lease and not of partnership, and that the partnership formed was adopted in view
of a prohibition contained in plaintiff's lease against a sublease of the property.

The most important issue raised in the appeal is that contained in the fourth assignment of error, to the
effect that the lower court erred in holding that the written contracts, Exhs. "A", "B", and "C, between
plaintiff and defendant, are one of lease and not of partnership. We have gone over the evidence and
we fully agree with the conclusion of the trial court that the agreement was a sublease, not a
partnership. The following are the requisites of partnership: (1) two or more persons who bind
themselves to contribute money, property, or industry to a common fund; (2) intention on the part of the
partners to divide the profits among themselves. (Art. 1767, Civil Code.).

In the first place, plaintiff did not furnish the supposed P20,000 capital. In the second place, she did not
furnish any help or intervention in the management of the theatre. In the third place, it does not appear
that she has ever demanded from defendant any accounting of the expenses and earnings of the
business. Were she really a partner, her first concern should have been to find out how the business
resident agent in the Philippines, authorized to accept summons and processes in all legal proceedings,
and all notices affecting the corporation.8

In March 1997, the Side Agreement was amended through a "Revised Operating and Profit Sharing
Agreement for the Representative Office Known as Pacific Forest Resources (Philippines)," 9 where the
salary of petitioner was increased to $78,000 per annum. Both agreements show that the operational
expenses will be borne by the representative office and funded by all parties "as equal partners," while
the profits and commissions will be shared among them.

In July 2000, petitioner wrote Kevin Daley, Vice President for Asia of Pacfor, seeking confirmation of his
SECOND DIVISION 50% equity of Pacfor Phils.10 Private respondent Pacfor, through William Gleason, its President, replied
that petitioner is not a part-owner of Pacfor Phils. because the latter is merely Pacfor-USA's
G.R. No. 159333 July 31, 2006 representative office and not an entity separate and distinct from Pacfor-USA. "It's simply a 'theoretical
company' with the purpose of dividing the income 50-50."11 Petitioner presumably knew of this
ARSENIO T. MENDIOLA, petitioner, arrangement from the start, having been the one to propose to private respondent Pacfor the setting up
vs. of a representative office, and "not a branch office" in the Philippines to save on taxes. 12
RESOURCES, PHILS., INC. and/or CELLMARK AB, respondents. Petitioner claimed that he was all along made to believe that he was in a joint venture with them. He
alleged he would have been better off remaining as an independent agent or representative of Pacfor-
DECISION USA as ATM Marketing Corp.13 Had he known that no joint venture existed, he would not have allowed
Pacfor to take the profitable business of his own company, ATM Marketing Corp.14 Petitioner raised
other issues, such as the rentals of office furniture, salary of the employees, company car, as well as
PUNO, J.: commissions allegedly due him. The issues were not resolved, hence, in October 2000, petitioner wrote
Pacfor-USA demanding payment of unpaid commissions and office furniture and equipment rentals,
On appeal are the Decision1 and Resolution2 of the Court of Appeals, dated January 30, 2003 and July amounting to more than one million dollars.15
30, 2003, respectively, in CA-G.R. SP No. 71028, affirming the ruling3 of the National Labor Relations
Commission (NLRC), which in turn set aside the July 30, 2001 Decision4 of the labor arbiter. The labor On November 27, 2000, private respondent Pacfor, through counsel, ordered petitioner to turn over to it
arbiter declared illegal the dismissal of petitioner from employment and awarded separation pay, moral all papers, documents, files, records, and other materials in his or ATM Marketing Corporation's
and exemplary damages, and attorney's fees. possession that belong to Pacfor or Pacfor Phils.16 On December 18, 2000, private respondent Pacfor
also required petitioner to remit more than three hundred thousand-peso Christmas giveaway fund for
The facts are as follows: clients of Pacfor Phils.17 Lastly, private respondent Pacfor withdrew all its offers of settlement and
ordered petitioner to transfer title and turn over to it possession of the service car. 18
Private respondent Pacific Forest Resources, Phils., Inc. (Pacfor) is a corporation organized and
existing under the laws of California, USA. It is a subsidiary of Cellulose Marketing International, a Private respondent Pacfor likewise sent letters to its clients in the Philippines, advising them not to deal
corporation duly organized under the laws of Sweden, with principal office in Gothenburg, Sweden. with Pacfor Phils. In its letter to Intercontinental Paper Industries, Inc., dated November 21, 2000,
private respondent Pacfor stated:
Private respondent Pacfor entered into a "Side Agreement on Representative Office known as Pacific
Forest Resources (Phils.), Inc."5 with petitioner Arsenio T. Mendiola (ATM), effective May 1, 1995, Until further notice, please course all inquiries and communications for Pacific Forest
"assuming that Pacfor-Phils. is already approved by the Securities and Exchange Commission [SEC] on Resources (Philippines) to:
the said date."6 The Side Agreement outlines the business relationship of the parties with regard to the
Philippine operations of Pacfor. Private respondent will establish a Pacfor representative office in the Pacific Forest Resources
Philippines, to be known as Pacfor Phils, and petitioner ATM will be its President. Petitioner's base 200 Tamal Plaza, Suite 200
salary and the overhead expenditures of the company shall be borne by the representative office and Corte Madera, CA, USA 94925
funded by Pacfor/ATM, since Pacfor Phils. is equally owned on a 50-50 equity by ATM and Pacfor-usa. (415) 927 1700 phone
(415) 381 4358 fax
On July 14, 1995, the SEC granted the application of private respondent Pacfor for a license to transact
business in the Philippines under the name of Pacfor or Pacfor Phils. 7 In its application, private Please do not send any communication to Mr. Arsenio "Boy" T. Mendiola or to the offices of
respondent Pacfor proposed to establish its representative office in the Philippines with the purpose of ATM Marketing Corporation at Room 504, Concorde Building, Legaspi Village, Makati City,
monitoring and coordinating the market activities for paper products. It also designated petitioner as its Philippines.19
In another letter addressed to Davao Corrugated Carton Corp. (DAVCOR), dated December 2000, Labor Arbiter Felipe Pati ruled in favor of petitioner, finding there was constructive dismissal. By
private respondent directed said client "to please communicate directly with us on any further questions directing petitioner to turn over all office records and materials, regardless of whether he may have
associated with these payments or any future business. Do not communicate with [Pacfor] and/or retained copies, private respondent Pacfor virtually deprived petitioner of his job by the gradual
[ATM]."20 diminution of his authority as resident manager. Petitioner's position as resident manager whose duty,
among others, was to maintain the security of its business transactions and communications was
Petitioner construed these directives as a severance of the "unregistered partnership" between him and rendered meaningless. The dispositive portion of the decision of the Labor Arbiter reads:
Pacfor, and the termination of his employment as resident manager of Pacfor Phils.21 In a memorandum
to the employees of Pacfor Phils., dated January 29, 2001, he stated: WHEREFORE, premises considered, judgment is hereby rendered ordering herein
respondents Cellmark AB and Pacific Forest Resources, Inc., jointly and severally to
I received a letter from Pacific Forest Resources, Inc. demanding the turnover of all records to compensate complainant Arsenio T. Mendiola separation pay equivalent to at least one month
them effective December 19, 2000. The company records were turned over only on January for every year of service, whichever is higher (sic), as reinstatement is no longer feasible by
26, 2001. This means our jobs with Pacific Forest were terminated effective December 19, reason of the strained relations of the parties equivalent to five (5) months in the amount of
2000. I am concerned about your welfare. I would like to help you by offering you to work with $32,000.00 plus the sum of P250,000.00; pay complainant the sum of P500,000.00 as moral
ATM Marketing Corporation. and exemplary damages and ten percent (10%) of the amounts awarded as and for attorney's
Please let me know if you are interested.22
All other claims are dismissed for lack of basis.
On the basis of the "Side Agreement," petitioner insisted that he and Pacfor equally own Pacfor Phils.
Thus, it follows that he and Pacfor likewise own, on a 50/50 basis, Pacfor Phils.' office furniture and SO ORDERED.30
equipment and the service car. He also reiterated his demand for unpaid commissions, and proposed to
offset these with the remaining Christmas giveaway fund in his possession. 23 Furthermore, he did not Private respondent Pacfor appealed to the NLRC which ruled in its favor. On December 20, 2001, the
renew the lease contract with Pulp and Paper, Inc., the lessor of the office premises of Pacfor Phils., NLRC set aside the July 30, 2001 decision of the labor arbiter, for lack of jurisdiction and lack of
wherein he was the signatory to the lease agreement.24 merit.31 It held there was no employer-employee relationship between the parties. Based on the two
agreements between the parties, it concluded that petitioner is not an employee of private respondent
On February 2, 2001, private respondent Pacfor placed petitioner on preventive suspension and Pacfor, but a full co-owner (50/50 equity).
ordered him to show cause why no disciplinary action should be taken against him. Private respondent
Pacfor charged petitioner with willful disobedience and serious misconduct for his refusal to turn over The NLRC denied petitioner's Motion for Reconsideration. 32
the service car and the Christmas giveaway fund which he applied to his alleged unpaid commissions.
Private respondent also alleged loss of confidence and gross neglect of duty on the part of petitioner for Petitioner was not successful on his appeal to the Court of Appeals. The appellate court upheld the
allegedly allowing another corporation owned by petitioner's relatives, High End Products, Inc. (HEPI), ruling of the NLRC.
to use the same telephone and facsimile numbers of Pacfor, to possibly steal and divert the sales and
business of private respondent for HEPI's principal, International Forest Products, a competitor of
private respondent.25 Petitioner's Motion for Reconsideration33 of the decision of the Court of Appeals was denied.

Petitioner denied the charges. He reiterated that he considered the import of Pacfor President William Hence, this appeal.34
Gleason's letters as a "cessation of his position and of the existence of Pacfor Phils." He likewise
informed private respondent Pacfor that ATM Marketing Corp. now occupies Pacfor Phils.' office Petitioner assigns the following errors:
premises,26 and demanded payment of his separation pay.27 On February 15, 2001, petitioner filed his
complaint for illegal dismissal, recovery of separation pay, and payment of attorney's fees with the A. The Respondent Court of Appeals committed reversible error and abused its discretion in
NLRC.28 rendering judgment against petitioner since jurisdiction has been acquired over the subject
matter of the case as there exists employer-employee relationship between the parties.
In the meantime, private respondent Pacfor lodged fresh charges against petitioner. In a memorandum
dated March 5, 2001, private respondent directed petitioner to explain why he should not be disciplined B. The Respondent Court of Appeals committed reversible error and abused its discretion in
for serious misconduct and conflict of interest. Private respondent charged petitioner anew with serious ruling that jurisdiction over the subject matter cannot be waived and may be alleged even for
misconduct for the latter's alleged act of fraud and misrepresentation in authorizing the release of an the first time on appeal or considered by the court motu prop[r]io. 35
additional peso salary for himself, besides the dollar salary agreed upon by the parties. Private
respondent also accused petitioner of disloyalty and representation of conflicting interests for having
continued using the Pacfor Phils.' office for operations of HEPI. In addition, petitioner allegedly solicited The first issue is whether an employer-employee relationship exists between petitioner and private
business for HEPI from a competitor company of private respondent Pacfor.29 respondent Pacfor.
Petitioner argues that he is an industrial partner of the partnership he formed with private respondent Lastly and most important, private respondent Pacfor has the power of control over the means and
Pacfor, and also an employee of the partnership. Petitioner insists that an industrial partner may at the method of petitioner in accomplishing his work.
same time be an employee of the partnership, provided there is such an agreement, which, in this case,
is the "Side Agreement" and the "Revised Operating and Profit Sharing Agreement." The Court of The power of control refers merely to the existence of the power, and not to the actual exercise thereof.
Appeals denied the appeal of petitioner, holding that "the legal basis of the complaint is not employment The principal consideration is whether the employer has the right to control the manner of doing the
but perhaps partnership, co-ownership, or independent contractorship." Hence, the Labor Code cannot work, and it is not the actual exercise of the right by interfering with the work, but the right to control,
apply. which constitutes the test of the existence of an employer-employee relationship.44 In the case at bar,
private respondent Pacfor, as employer, clearly possesses such right of control. Petitioner, as private
We hold that petitioner is an employee of private respondent Pacfor and that no partnership or co- respondent Pacfor's resident agent in the Philippines, is, exactly so, only an agent of the corporation, a
ownership exists between the parties. representative of Pacfor, who transacts business, and accepts service on its behalf.

In a partnership, the members become co-owners of what is contributed to the firm capital and of all This right of control was exercised by private respondent Pacfor during the period of November to
property that may be acquired thereby and through the efforts of the members. 36 The property or stock December 2000, when it directed petitioner to turn over to it all records of Pacfor Phils.; when it ordered
of the partnership forms a community of goods, a common fund, in which each party has a proprietary petitioner to remit the Christmas giveaway fund intended for clients of Pacfor Phils.; and, when it
interest.37 In fact, the New Civil Code regards a partner as a co-owner of specific partnership withdrew all its offers of settlement and ordered petitioner to transfer title and turn over to it the
property.38 Each partner possesses a joint interest in the whole of partnership property. If the relation possession of the service car. It was also during this period when private respondent Pacfor sent letters
does not have this feature, it is not one of partnership. 39 This essential element, the community of to its clients in the Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, advising
interest, or co-ownership of, or joint interest in partnership property is absent in the relations between them not to deal with petitioner and/or Pacfor Phils. In its letter to DAVCOR, private respondent Pacfor
petitioner and private respondent Pacfor. Petitioner is not a part-owner of Pacfor Phils. William Gleason, replied to the client's request for an invoice payment extension, and formulated a revised payment
private respondent Pacfor's President established this fact when he said that Pacfor Phils. is simply a program for DAVCOR. This is one unmistakable proof that private respondent Pacfor exercises control
"theoretical company" for the purpose of dividing the income 50-50. He stressed that petitioner knew of over the petitioner.
this arrangement from the very start, having been the one to propose to private respondent Pacfor the
setting up of a representative office, and "not a branch office" in the Philippines to save on taxes. Thus, Next, we shall determine if petitioner was constructively dismissed from employment.
the parties in this case, merely shared profits. This alone does not make a partnership. 40
The evidence shows that when petitioner insisted on his 50% equity in Pacfor Phils., and would not quit
Besides, a corporation cannot become a member of a partnership in the absence of express however, private respondent Pacfor began to systematically deprive petitioner of his duties and benefits
authorization by statute or charter.41 This doctrine is based on the following considerations: (1) that the to make him feel that his presence in the company was no longer wanted. First, private respondent
mutual agency between the partners, whereby the corporation would be bound by the acts of persons Pacfor directed petitioner to turn over to it all records of Pacfor Phils. This would certainly make the
who are not its duly appointed and authorized agents and officers, would be inconsistent with the policy work of petitioner very difficult, if not impossible. Second, private respondent Pacfor ordered petitioner
of the law that the corporation shall manage its own affairs separately and exclusively; and, (2) that to remit the Christmas giveaway fund intended for clients of Pacfor Phils. Then it ordered petitioner to
such an arrangement would improperly allow corporate property to become subject to risks not transfer title and turn over to it the possession of the service car. It also advised its clients in the
contemplated by the stockholders when they originally invested in the corporation. 42No such Philippines, particularly Intercontinental Paper Industries, Inc. and DAVCOR, not to deal with petitioner
authorization has been proved in the case at bar. and/or Pacfor Phils. Lastly, private respondent Pacfor appointed a new resident agent for Pacfor Phils.45

Be that as it may, we hold that on the basis of the evidence, an employer-employee relationship is Although there is no reduction of the salary of petitioner, constructive dismissal is still present because
present in the case at bar. The elements to determine the existence of an employment relationship are: continued employment of petitioner is rendered, at the very least, unreasonable.46 There is an act of
(a) the selection and engagement of the employee; (b) the payment of wages; (c) the power of clear discrimination, insensibility or disdain by the employer that continued employment may become so
dismissal; and (d) the employer's power to control the employee's conduct. The most important element unbearable on the part of the employee so as to foreclose any choice on his part except to resign from
is the employer's control of the employee's conduct, not only as to the result of the work to be done, but such employment.47
also as to the means and methods to accomplish it.43
The harassing acts of the private respondent are unjustified. They were undertaken when petitioner
In the instant case, all the foregoing elements are present. First, it was private respondent Pacfor which sought clarification from the private respondent about his supposed 50% equity on Pacfor Phils. Private
selected and engaged the services of petitioner as its resident agent in the Philippines. Second, as respondent Pacfor invokes its rights as an owner. Allegedly, its issuance of the foregoing directives
stipulated in their Side Agreement, private respondent Pacfor pays petitioner his salary amounting to against petitioner was a valid exercise of management prerogative. We remind private respondent
$65,000 per annum which was later increased to $78,000. Third, private respondent Pacfor holds the Pacfor that the exercise of management prerogative is not absolute. "By its very nature, encompassing
power of dismissal, as may be gleaned through the various memoranda it issued against petitioner, as it could be, management prerogative must be exercised in good faith and with due regard to the
placing the latter on preventive suspension while charging him with various offenses, including willful rights of labor – verily, with the principles of fair play at heart and justice in mind." The exercise of
disobedience, serious misconduct, and gross neglect of duty, and ordering him to show cause why no management prerogative cannot be utilized as an implement to circumvent our laws and oppress
disciplinary action should be taken against him. employees.48
As resident agent of private respondent corporation, petitioner occupied a position involving trust and
confidence. In the light of the strained relations between the parties, the full restoration of an
employment relationship based on trust and confidence is no longer possible. He should be awarded
separation pay, in lieu of reinstatement.

IN VIEW WHEREOF, the petition is GRANTED. The Court of Appeals' January 30, 2003 Decision in
CA-G.R. SP No. 71028 and July 30, 2003 Resolution, affirming the December 20, 2001 Decision of the
National Labor Relations Commission, are ANNULED and SET ASIDE. The July 30, 2001 Decision of
the Labor Arbiter is REINSTATED with the MODIFICATION that the amount of P250,000.00
representing an alleged increase in petitioner's salary shall be deducted from the grant of separation
pay for lack of evidence.


Sandoval-Gutierrez, Corona, Azcuna, Garcia, J.J., concur.

THIRD DIVISION i. Accrued interest of P73,221.00 on Invoice No. 14407 for P385,377.80 dated February 9, 1990;

ii. Accrued interest of P27,904.02 on Invoice No. 14413 for P146,868.00 dated February 13, 1990;

[G.R. No. 136448. November 3, 1999] iii. Accrued interest of P12,920.00 on Invoice No. 14426 for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorneys fees, plus P8,500.00 representing P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage charges on the nets counted from September 20,
1990 (date of attachment) to September 12, 1991 (date of auction sale);
PANGANIBAN, J.: e. Cost of suit.

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and to With respect to the joint liability of defendants for the principal obligation or for the unpaid price of nets and floats
divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any capital of in the amount of P532,045.00 and P68,000.00, respectively, or for the total amount of P600,045.00, this Court
their own to a "common fund." Their contribution may be in the form of credit or industry, not necessarily cash or noted that these items were attached to guarantee any judgment that may be rendered in favor of the plaintiff but,
fixed assets. Being partners, they are all liable for debts incurred by or on behalf of the partnership. The liability for upon agreement of the parties, and, to avoid further deterioration of the nets during the pendency of this case, it
a contract entered into on behalf of an unincorporated association or ostensible corporation may lie in a person who was ordered sold at public auction for not less than P900,000.00 for which the plaintiff was the sole and winning
may not have directly transacted on its behalf, but reaped benefits from that contract. bidder. The proceeds of the sale paid for by plaintiff was deposited in court. In effect, the amount of P900,000.00
replaced the attached property as a guaranty for any judgment that plaintiff may be able to secure in this case with
the ownership and possession of the nets and floats awarded and delivered by the sheriff to plaintiff as the highest
bidder in the public auction sale. It has also been noted that ownership of the nets [was] retained by the plaintiff
The Case until full payment [was] made as stipulated in the invoices; hence, in effect, the plaintiff attached its own
properties. It [was] for this reason also that this Court earlier ordered the attachment bond filed by plaintiff to
guaranty damages to defendants to be cancelled and for the P900,000.00 cash bidded and paid for by plaintiff to
In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998 Decision of the serve as its bond in favor of defendants.
Court of Appeals in CA-GR CV 41477,[1] which disposed as follows:
From the foregoing, it would appear therefore that whatever judgment the plaintiff may be entitled to in this case
WHEREFORE, [there being] no reversible error in the appealed decision, the same is hereby affirmed. [2] will have to be satisfied from the amount of P900,000.00 as this amount replaced the attached nets and
floats. Considering, however, that the total judgment obligation as computed above would amount to
only P840,216.92, it would be inequitable, unfair and unjust to award the excess to the defendants who are not
The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the CA,
entitled to damages and who did not put up a single centavo to raise the amount of P900,000.00 aside from the fact
reads as follows:
that they are not the owners of the nets and floats. For this reason, the defendants are hereby relieved from any and
all liabilities arising from the monetary judgment obligation enumerated above and for plaintiff to retain
WHEREFORE, the Court rules: possession and ownership of the nets and floats and for the reimbursement of the P900,000.00 deposited by it with
the Clerk of Court.
1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on September 20, 1990;
2. That defendants are jointly liable to plaintiff for the following amounts, subject to the modifications as
hereinafter made by reason of the special and unique facts and circumstances and the proceedings that transpired
during the trial of this case; The Facts

a. P532,045.00 representing [the] unpaid purchase price of the fishing nets covered by the Agreement
plus P68,000.00 representing the unpaid price of the floats not covered by said Agreement; On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a Contract dated
February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine Fishing Gear Industries, Inc.
b. 12% interest per annum counted from date of plaintiffs invoices and computed on their respective amounts as (herein respondent). They claimed that they were engaged in a business venture with Petitioner Lim Tong Lim, who
follows: however was not a signatory to the agreement. The total price of the nets amounted to P532,045. Four hundred
pieces of floats worth P68,000 were also sold to the Corporation.[4]
The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondent filed a contract of partnership, two or more persons bind themselves to contribute money, property or industry to a
collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of preliminary common fund with the intention of dividing the profits among themselves (Article 1767, New Civil Code). [13]
attachment. The suit was brought against the three in their capacities as general partners, on the allegation that Ocean
Quest Fishing Corporation was a nonexistent corporation as shown by a Certification from the Securities and Hence, petitioner brought this recourse before this Court. [14]
Exchange Commission.[5] On September 20, 1990, the lower court issued a Writ of Preliminary Attachment, which
the sheriff enforced by attaching the fishing nets on board F/B Lourdes which was then docked at the Fisheries Port,
Navotas, Metro Manila.
The Issues
Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting a
reasonable time within which to pay. He also turned over to respondent some of the nets which were in his
possession. Peter Yao filed an Answer, after which he was deemed to have waived his right to cross-examine
In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the following
witnesses and to present evidence on his behalf, because of his failure to appear in subsequent hearings. Lim Tong
Lim, on the other hand, filed an Answer with Counterclaim and Crossclaim and moved for the lifting of the Writ of
Attachment.[6] The trial court maintained the Writ, and upon motion of private respondent, ordered the sale of the
fishing nets at a public auction. Philippine Fishing Gear Industries won the bidding and deposited with the said court I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE AGREEMENT THAT
On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear Industries
was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners, were jointly liable to pay
The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the testimonies of the APPEALS WAS UNJUSTIFIED IN IMPUTING LIABILITY TO PETITIONER LIM AS WELL.
witnesses presented and (2) on a Compromise Agreement executed by the three[9] in Civil Case No. 1492-MN which
Chua and Yao had brought against Lim in the RTC of Malabon, Branch 72, for (a) a declaration of nullity of III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND ATTACHMENT OF PETITIONER
commercial documents; (b) a reformation of contracts; (c) a declaration of ownership of fishing boats; (d) an LIMS GOODS.
injunction and (e) damages.[10] The Compromise Agreement provided:
In determining whether petitioner may be held liable for the fishing nets and floats purchased from respondent,
a) That the parties plaintiffs & Lim Tong Lim agree to have the four (4) vessels sold in the amount the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to have entered
of P5,750,000.00 including the fishing net. This P5,750,000.00 shall be applied as full payment for P3,250,000.00 into a partnership.
in favor of JL Holdings Corporation and/or Lim Tong Lim;

b) If the four (4) vessel[s] and the fishing net will be sold at a higher price than P5,750,000.00 whatever will be the This Courts Ruling
excess will be divided into 3: 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao;

c) If the proceeds of the sale the vessels will be less than P5,750,000.00 whatever the deficiency shall be The Petition is devoid of merit.
shouldered and paid to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua; 1/3 Peter Yao. [11]

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations, but that
First and Second Issues: Existence of a Partnership and Petitioner's Liability
joint liability could be presumed from the equal distribution of the profit and loss. [12]
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.
In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
Ruling of the Court of Appeals
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He asserts that the
In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing business CA based its finding on the Compromise Agreement alone. Furthermore, he disclaims any direct participation in the
and may thus be held liable as a such for the fishing nets and floats purchased by and for the use of the purchase of the nets, alleging that the negotiations were conducted by Chua and Yao only, and that he has not even
partnership. The appellate court ruled: met the representatives of the respondent company. Petitioner further argues that he was a lessor, not a partner, of
Chua and Yao, for the "Contract of Lease" dated February 1, 1990, showed that he had merely leased to the two the
main asset of the purported partnership -- the fishing boat F/B Lourdes. The lease was for six months, with a monthly
The evidence establishes that all the defendants including herein appellant Lim Tong Lim undertook a partnership
rental of P37,500 plus 25 percent of the gross catch of the boat.
for a specific undertaking, that is for commercial fishing x x x. Obviously, the ultimate undertaking of the
defendants was to divide the profits among themselves which is what a partnership essentially is x x x. By a
We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts clearly Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to that of the
showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767 of the Civil Code which nets and the floats. The fishing nets and the floats, both essential to fishing, were obviously acquired in furtherance
provides: of their business. It would have been inconceivable for Lim to involve himself so much in buying the boat but not
in the acquisition of the aforesaid equipment, without which the business could not have proceeded.
Article 1767 - By the contract of partnership, two or more persons bind themselves to contribute money, property, Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership engaged
or industry to a common fund, with the intention of dividing the profits among themselves. in the fishing business. They purchased the boats, which constituted the main assets of the partnership, and they
agreed that the proceeds from the sales and operations thereof would be divided among them.
Specifically, both lower courts ruled that a partnership among the three existed based on the following factual
findings:[15] We stress that under Rule 45, a petition for review like the present case should involve only questions of
law. Thus, the foregoing factual findings of the RTC and the CA are binding on this Court, absent any cogent proof
that the present action is embraced by one of the exceptions to the rule. [16] In assailing the factual findings of the
(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in commercial fishing to join him, while two lower courts, petitioner effectively goes beyond the bounds of a petition for review under Rule 45.
Antonio Chua was already Yaos partner;

(2) That after convening for a few times, Lim Chua, and Yao verbally agreed to acquire two fishing boats, the FB
Compromise Agreement Not the Sole Basis of Partnership
Lourdes and the FB Nelson for the sum of P3.35 million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong Lim, to finance the venture.
Petitioner argues that the appellate courts sole basis for assuming the existence of a partnership was the
Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them,
(4) That they bought the boats from CMF Fishing Corporation, which executed a Deed of Sale over these two (2) but not to adjudicate their preexisting rights and obligations. His arguments are baseless. The Agreement was but an
boats in favor of Petitioner Lim Tong Lim only to serve as security for the loan extended by Jesus Lim; embodiment of the relationship extant among the parties prior to its execution.
A proper adjudication of claimants rights mandates that courts must review and thoroughly appraise all
(5) That Lim, Chua and Yao agreed that the refurbishing , re-equipping, repairing, dry docking and other expenses
relevant facts. Both lower courts have done so and have found, correctly, a preexisting partnership among the
for the boats would be shouldered by Chua and Yao;
parties. In implying that the lower courts have decided on the basis of one piece of document alone, petitioner fails
to appreciate that the CA and the RTC delved into the history of the document and explored all the possible
(6) That because of the unavailability of funds, Jesus Lim again extended a loan to the partnership in the amount consequential combinations in harmony with law, logic and fairness. Verily, the two lower courts factual findings
of P1 million secured by a check, because of which, Yao and Chua entrusted the ownership papers of two other mentioned above nullified petitioners argument that the existence of a partnership was based only on the
boats, Chuas FB Lady Anne Mel and Yaos FB Tracy to Lim Tong Lim. Compromise Agreement.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua bought nets from Respondent
Philippine Fishing Gear, in behalf of "Ocean Quest Fishing Corporation," their purported business name. Petitioner Was a Partner, Not a Lessor

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC, Branch 72 by Antonio Chua and
Peter Yao against Lim Tong Lim for (a) declaration of nullity of commercial documents; (b) reformation of We are not convinced by petitioners argument that he was merely the lessor of the boats to Chua and Yao, not
contracts; (c) declaration of ownership of fishing boats; (4) injunction; and (e) damages. a partner in the fishing venture. His argument allegedly finds support in the Contract of Lease and the registration
papers showing that he was the owner of the boats, including F/B Lourdes where the nets were found.
(9) That the case was amicably settled through a Compromise Agreement executed between the parties-litigants
the terms of which are already enumerated above. His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale of his
own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided among the three of them. No
lessor would do what petitioner did. Indeed, his consent to the sale proved that there was a preexisting partnership
From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to engage in a among all three.
fishing business, which they started by buying boats worth P3.35 million, financed by a loan secured from Jesus
Lim who was petitioners brother. In their Compromise Agreement, they subsequently revealed their intention to pay Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and Yao, in which
the loan with the proceeds of the sale of the boats, and to divide equally among them the excess or loss. These boats, debts were undertaken in order to finance the acquisition and the upgrading of the vessels which would be used in
the purchase and the repair of which were financed with borrowed money, fell under the term common fund under their fishing business. The sale of the boats, as well as the division among the three of the balance remaining after
Article 1767.The contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or the payment of their loans, proves beyond cavil that F/B Lourdes, though registered in his name, was not his own
industry. That the parties agreed that any loss or profit from the sale and operation of the boats would be divided property but an asset of the partnership. It is not uncommon to register the properties acquired from a loan in the
equally among them also shows that they had indeed formed a partnership. name of the person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the
creditor, Jesus Lim.
We stress that it is unreasonable indeed, it is absurd -- for petitioner to sell his property to pay a debt he did Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat which has
not incur, if the relationship among the three of them was merely that of lessor-lessee, instead of partners. earlier been proven to be an asset of the partnership. He in fact questions the attachment of the nets, because the
Writ has effectively stopped his use of the fishing vessel.
It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
Corporation by Estoppel corporation. Although it was never legally formed for unknown reasons, this fact alone does not preclude the
liabilities of the three as contracting parties in representation of it. Clearly, under the law on estoppel, those acting
on behalf of a corporation and those benefited by it, knowing it to be without valid existence, are held liable as
Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to Chua and general partners.
Yao, and not to him. Again, we disagree.
Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having reaped
Section 21 of the Corporation Code of the Philippines provides: the benefits of the contract entered into by persons with whom he previously had an existing relationship, he is
deemed to be part of said association and is covered by the scope of the doctrine of corporation by estoppel. We
reiterate the ruling of the Court in Alonso v. Villamor:[19]
Sec. 21. Corporation by estoppel. - All persons who assume to act as a corporation knowing it to be without
authority to do so shall be liable as general partners for all debts, liabilities and damages incurred or arising as a
result thereof: Provided however, That when any such ostensible corporation is sued on any transaction entered by A litigation is not a game of technicalities in which one, more deeply schooled and skilled in the subtle art of
it as a corporation or on any tort committed by it as such, it shall not be allowed to use as a defense its lack of movement and position , entraps and destroys the other. It is, rather, a contest in which each contending party fully
corporate personality. and fairly lays before the court the facts in issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done upon the merits. Lawsuits, unlike
duels, are not to be won by a rapiers thrust. Technicality, when it deserts its proper office as an aid to justice and
One who assumes an obligation to an ostensible corporation as such, cannot resist performance thereof on the
becomes its great hindrance and chief enemy, deserves scant consideration from courts. There should be no vested
ground that there was in fact no corporation.
rights in technicalities.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be estopped from
denying its corporate existence. The reason behind this doctrine is obvious - an unincorporated association has no
Third Issue: Validity of Attachment
personality and would be incompetent to act and appropriate for itself the power and attributes of a corporation as
provided by law; it cannot create agents or confer authority on another to act in its behalf; thus, those who act or
purport to act as its representatives or agents do so without authority and at their own risk. And as it is an elementary
principle of law that a person who acts as an agent without authority or without a principal is himself regarded as Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with
the principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or purporting the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an asset
to act on behalf of a corporation which has no valid existence assumes such privileges and obligations and becomes of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and his
personally liable for contracts entered into or for other acts performed as such agent. [17] partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own design,
and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to assure the
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In the first payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of the nets
instance, an unincorporated association, which represented itself to be a corporation, will be estopped from denying remained with Respondent Philippine Fishing Gear, until full payment thereof.
its corporate capacity in a suit against it by a third person who relied in good faith on such representation. It cannot
allege lack of personality to be sued to evade its responsibility for a contract it entered into and by virtue of which WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
it received advantages and benefits.
On the other hand, a third party who, knowing an association to be unincorporated, nonetheless treated it as
a corporation and received benefits from it, may be barred from denying its corporate existence in a suit brought Melo, (Chairman), Purisima, and Gonzaga-Reyes, JJ., concur.
against the alleged corporation. In such case, all those who benefited from the transaction made by the ostensible Vitug, J., Pls. see concurring opinion.
corporation, despite knowledge of its legal defects, may be held liable for contracts they impliedly assented to or
took advantage of.
There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for the nets it
sold. The only question here is whether petitioner should be held jointly[18] liable with Chua and Yao. Petitioner
contests such liability, insisting that only those who dealt in the name of the ostensible corporation should be held
liable. Since his name does not appear on any of the contracts and since he never directly transacted with the
respondent corporation, ergo, he cannot be held liable.
Republic of the Philippines Thus, on August 25, 1970 private respondents filed a complaint in the Court of First Instance of Rizal
SUPREME COURT against petitioner praying among others that the latter be ordered:
1. to execute a public document embodying all the provisions of the partnership
FIRST DIVISION agreement entered into between plaintiffs and defendant as provided in Article 1771
of the New Civil Code;
G.R. No. L-49982 April 27, 1988
2. to render a formal accounting of the business operation covering the period from
ELIGIO ESTANISLAO, JR., petitioner, May 6, 1966 up to December 21, 1968 and from January 1, 1969 up to the time the
vs. order is issued and that the same be subject to proper audit;
SANTIAGO, respondents. 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
Agustin O. Benitez for petitioner. month from date of demand until full payment thereof for the entire duration of the
business; and
Benjamin C. Yatco for private respondents.
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
GANCAYCO, J.: 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
By this petition for certiorari the Court is asked to determine if a partnership exists between members of filed a motion for reconsideration of the decision. On December 10, 1975, Hon. Ricardo Tensuan who
the same family arising from their joint ownership of certain properties. was the newly appointed presiding judge of the same branch, set aside the aforesaid derision and
rendered another decision in favor of said respondents.
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 The dispositive part thereof reads as follows:
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 WHEREFORE, the Decision of this Court dated October 14, 1975 is hereby
advance rentals due to them from SHELL for the occupancy of the said lots owned in common by them. reconsidered and a new judgment is hereby rendered in favor of the plaintiffs and as
A joint affidavit was executed by them on April 11, 1966 which was prepared byAtty. Democrito against the defendant:
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 (1) Ordering the defendant to execute a public instrument embodying all the
petitioner would apply for the dealership. Respondent Remedios helped in managing the bussiness with provisions of the partnership agreement entered into between plaintiffs and defendant
petitioner from May 3, 1966 up to February 16, 1967. as provided for in Article 1771, Civil Code of the Philippines;

On May 26, 1966, the parties herein entered into an Additional Cash Pledge Agreement with SHELL (2) Ordering the defendant to render a formal accounting of the business operation
wherein it was reiterated that the P 15,000.00 advance rental shall be deposited with SHELL to cover from April 1969 up to the time this order is issued, the same to be subject to
advances of fuel to petitioner as dealer with a proviso that said agreement "cancels and supersedes the examination and audit by the plaintiff,
Joint Affidavit dated 11 April 1966 executed by the co-owners." 2
(3) Ordering the defendant to pay plaintiffs their lawful shares and participation in the
For sometime, the petitioner submitted financial statements regarding the operation of the business to net profits of the business in the amount of P 150,000.00, with interest thereon at the
private respondents, but therafter petitioner failed to render subsequent accounting. Hence through Atty. rate of One (1%) Per Cent per month from date of demand until full payment thereof;
Angeles, a demand was made on petitioner to render an accounting of the profits.
(4) Ordering the defendant to pay the plaintiffs the sum of P 5,000.00 by way of
The financial report of December 31, 1968 shows that the business was able to make a profit of P attorney's fees of plaintiffs' counsel; as well as the costs of suit. (pp. 161-162. Record
87,293.79 and that by the year ending 1969, a profit of P 150,000.00 was realized. 3 on Appeal).
Petitioner then interposed an appeal to the Court of Appeals enumerating seven (7) errors allegedly conformity that the said amount that it will generously grant us as requested be
committed by the trial court. In due course, a decision was rendered by the Court of Appeals on applied as ADVANCED RENTALS; and
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 (b) The Additional Cash Pledge Agreement of May 20,1966, Exhibit 6, is as follows:
that the respondent court erred:
WHEREAS, under the lease Agreement dated 13th November, 1963 (identified as
1. In interpreting the legal import of the Joint Affidavit (Exh. 'A') vis-a-vis the Additional doc. Nos. 491 & 1407, Page Nos. 99 & 66, Book Nos. V & III, Series of 1963 in the
Cash Pledge Agreement (Exhs. "B-2","6", and "L"); and Notarial Registers of Notaries Public Rosauro Marquez, and R.D. Liwanag,
respectively) executed in favour of SHELL by the herein CO-OWNERS and another
2. In declaring that a partnership was established by and among the petitioner and the Lease Agreement dated 19th March 1964 . . . also executed in favour of SHELL by
private respondents as regards the ownership and or operation of the gasoline CO-OWNERS Remedios and MARIA ESTANISLAO for the lease of adjoining
service station business. portions of two parcels of land at Aurora Blvd./ Annapolis, Quezon City, the CO
Petitioner relies heavily on the provisions of the Joint Affidavit of April 11, 1966 (Exhibit A) and the HUNDRED EIGHTY TWO AND 29/100 (P 3,382.29), Philippine Currency;
Additional Cash Pledge Agreement of May 20, 1966 (Exhibit 6) which are herein reproduced-
WHEREAS, CO-OWNER Eligio Estanislao Jr. is the Dealer of the Shell Station
(a) The joint Affidavit of April 11, 1966, Exhibit A reads: 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
(1) That we are the Lessors of two parcels of land fully describe in Transfer Shell petroleum products; . . .
Certificates of Title Nos. 45071 and 71244 of the Register of Deeds of Quezon City, in
corporation duly licensed to do business in the Philippines; 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
(2) That we have requested the said SHELL COMPANY OF THE PHILIPPINE amount of P 15,000, commencing 24th May 1966, this P 15,000 shall be treated as
LIMITED advanced rentals in the total amount of FIFTEEN THOUSAND PESOS (P additional cash deposit to SHELL under the same terms and conditions of the
l5,000.00) Philippine Currency, so that we can use the said amount to augment our aforementioned Cash Pledge Agreement dated llth May 1966.
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; 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:
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 l. The CO-OWNERS dohere by waive in favor of DEALER the monthly rentals due to
15,000.00, which amount will partake the nature of ADVANCED RENTALS; 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
(4) That we have freely and voluntarily agreed that upon receipt of the said amount of purpose, the SHELL CO-OWNERS and DEALER hereby irrevocably assign to SHELL
FIFTEEN THOUSAND PESOS (P l6,000.00) from he SHELL COMPANY OF THE the monthly rental of P 3,382.29 payable to them respectively as they fall due,
PHILIPPINES LIMITED, the said sum as ADVANCED RENTALS to us be applied as monthly, commencing 24th May 1966, until such time that the monthly rentals
monthly rentals for the sai two lots under our Lease Agreement starting on the 25th of accumulated, shall be equal to P l5,000.
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; 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
(5) That we have likewise agreed among ourselves that the SHELL COMPANY OF 11 April 1966 executed by the CO-OWNERS.
THE PHILIPPINES LIMITED execute an instrument for us to sign embodying our
3. Effective upon the signing of this agreement, SHELL agrees to allow DEALER to SO ORDERED.
purchase from SHELL petroleum products, on credit, up to the amount of P 25,000.
Narvasa, Cruz and Griño-Aquino, JJ., concur.
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

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.
SECOND DIVISION (7) Should the FIRST PARTY fail to deliver peaceful possession of the property to the SECOND PARTY after
the expiration of the 15-day grace period given in paragraph 3 above, the FIRST PARTY shall pay an amount
equivalent to Five Percent of the principal amount of TWO HUNDRED PESOS (P200.00) or P10,000.00 per
month of delay as and for rentals and liquidated damages;
[G.R. No. 127347. November 25, 1999]
(8) Should the FIRST PARTY fail to exercise her option to repurchase the property within ninety (90) days period
above-mentioned, this memorandum of agreement shall be deemed cancelled and the Deed of Absolute Sale,
executed by the parties shall be the final contract considered as entered between the parties and the SECOND
PARTY shall proceed to transfer ownership of the property above described to its name free from lines and
ALFREDO N. AGUILA, JR, petitioner, vs. HONORABLE COURT OF APPEALS and FELICIDAD S. VDA. encumbrances.[2]
DE ABROGAR, respondents.
On the same day, April 18, 1991, the parties likewise executed a deed of absolute sale,[3] dated June 11, 1991,
DECISION wherein private respondent, with the consent of her late husband, sold the subject property to A.C. Aguila & Sons,
MENDOZA, J.: Co., represented by petitioner, for P200,000.00. In a special power of attorney dated the same day, April 18, 1991,
private respondent authorized petitioner to cause the cancellation of TCT No. 195101 and the issuance of a new
certificate of title in the name of A.C. Aguila and Sons, Co., in the event she failed to redeem the subject property
This is a petition for review on certiorari of the decision[1] of the Court of Appeals, dated November 29, 1990, as provided in the Memorandum of Agreement.[4]
which reversed the decision of the Regional Trial Court, Branch 273, Marikina, Metro Manila, dated April 11,
1995. The trial court dismissed the petition for declaration of nullity of a deed of sale filed by private respondent Private respondent failed to redeem the property within the 90-day period as provided in the Memorandum of
Felicidad S. Vda. de Abrogar against petitioner Alfredo N. Aguila, Jr. Agreement. Hence, pursuant to the special power of attorney mentioned above, petitioner caused the cancellation of
TCT No. 195101 and the issuance of a new certificate of title in the name of A.C. Aguila and Sons, Co. [5]
The facts are as follows:
Private respondent then received a letter dated August 10, 1991 from Atty. Lamberto C. Nanquil, counsel for
Petitioner is the manager of A.C. Aguila & Sons, Co., a partnership engaged in lending activities. Private A.C. Aguila & Sons, Co., demanding that she vacate the premises within 15 days after receipt of the letter and
respondent and her late husband, Ruben M. Abrogar, were the registered owners of a house and lot, covered by surrender its possession peacefully to A.C. Aguila & Sons, Co.Otherwise, the latter would bring the appropriate
Transfer Certificate of Title No. 195101, in Marikina, Metro Manila. On April 18, 1991, private respondent, with action in court.[6]
the consent of her late husband, and A.C. Aguila & Sons, Co., represented by petitioner, entered into a Memorandum
of Agreement, which provided: Upon the refusal of private respondent to vacate the subject premises, A.C. Aguila & Sons, Co. filed an
ejectment case against her in the Metropolitan Trial Court, Branch 76, Marikina, Metro Manila. In a decision, dated
(1) That the SECOND PARTY [A.C. Aguila & Sons, Co.] shall buy the above-described property from the FIRST April 3, 1992, the Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons, Co. on the ground that private
PARTY [Felicidad S. Vda. de Abrogar], and pursuant to this agreement, a Deed of Absolute Sale shall be respondent did not redeem the subject property before the expiration of the 90-day period provided in the
executed by the FIRST PARTY conveying the property to the SECOND PARTY for and in consideration of the Memorandum of Agreement. Private respondent appealed first to the Regional Trial Court, Branch 163, Pasig, Metro
sum of Two Hundred Thousand Pesos (P200,000.00), Philippine Currency; Manila, then to the Court of Appeals, and later to this Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity of a deed of sale with the Regional Trial
(2) The FIRST PARTY is hereby given by the SECOND PARTY the option to repurchase the said property within Court, Branch 273, Marikina, Metro Manila on December 4, 1993. She alleged that the signature of her husband on
a period of ninety (90) days from the execution of this memorandum of agreement effective April 18, 1991, for the the deed of sale was a forgery because he was already dead when the deed was supposed to have been executed on
amount of TWO HUNDRED THIRTY THOUSAND PESOS (P230,000.00); June 11, 1991.
It appears, however, that private respondent had filed a criminal complaint for falsification against petitioner
(3) In the event that the FIRST PARTY fail to exercise her option to repurchase the said property within a period with the Office of the Prosecutor of Quezon City which was dismissed in a resolution, dated February 14, 1994.
of ninety (90) days, the FIRST PARTY is obliged to deliver peacefully the possession of the property to the
SECOND PARTY within fifteen (15) days after the expiration of the said 90 day grace period; On April 11, 1995, Branch 273 of RTC-Marikina rendered its decision:

(4) During the said grace period, the FIRST PARTY obliges herself not to file any lis pendens or whatever claims Plaintiffs claim therefore that the Deed of Absolute Sale is a forgery because they could not personally appear
on the property nor shall be cause the annotation of say claim at the back of the title to the said property; before Notary Public Lamberto C. Nanquil on June 11, 1991 because her husband, Ruben Abrogar, died on May 8,
1991 or one month and 2 days before the execution of the Deed of Absolute Sale, while the plaintiff was still in
(5) With the execution of the deed of absolute sale, the FIRST PARTY warrants her ownership of the property and the Quezon City Medical Center recuperating from wounds which she suffered at the same vehicular accident on
shall defend the rights of the SECOND PARTY against any party whom may have any interests over the property; May 8, 1991, cannot be sustained. The Court is convinced that the three required documents, to wit: the
Memorandum of Agreement, the Special Power of Attorney, and the Deed of Absolute Sale were all signed by the
parties on the same date on April 18, 1991. It is a common and accepted business practice of those engaged in
(6) All expenses for documentation and other incidental expenses shall be for the account of the FIRST PARTY; money lending to prepare an undated absolute deed of sale in loans of money secured by real estate for various
reasons, foremost of which is the evasion of taxes and surcharges. The plaintiff never questioned receiving the Moreover, it is undisputed that the deed of sale with right of repurchase was executed by reason of the loan
sum of P200,000.00 representing her loan from the defendant. Common sense dictates that an established lending extended by defendant-appellee to plaintiff-appellant. The amount of loan being the same with the amount of the
and realty firm like the Aguila & Sons, Co. would not part with P200,000.00 to the Abrogar spouses, who are purchase price.
virtual strangers to it, without the simultaneous accomplishment and signing of all the required documents, more
particularly the Deed of Absolute Sale, to protect its interest. ....

.... Since the real intention of the party is to secure the payment of debt, now deemed to be repurchase price: the
transaction shall then be considered to be an equitable mortgage.
WHEREFORE, foregoing premises considered, the case in caption is hereby ORDERED DISMISSED, with costs
against the plaintiff. Being a mortgage, the transaction entered into by the parties is in the nature of a pactum commissorium which is
clearly prohibited by Article 2088 of the New Civil Code. Article 2088 of the New Civil Code reads:
On appeal, the Court of Appeals reversed. It held:
ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of
The facts and evidence show that the transaction between plaintiff-appellant and defendant-appellee is indubitably them. Any stipulation to the contrary is null and void.
an equitable mortgage. Article 1602 of the New Civil Code finds strong application in the case at bar in the light
of the following circumstances. The aforequoted provision furnishes the two elements for pactum commissorium to exist: (1) that there should be a
pledge or mortgage wherein a property is pledged or mortgaged by way of security for the payment of principal
First: The purchase price for the alleged sale with right to repurchase is unusually inadequate. The property is a obligation; and (2) that there should be a stipulation for an automatic appropriation by the creditor of the thing
two hundred forty (240) sq. m. lot. On said lot, the residential house of plaintiff-appellant stands. The property is pledged and mortgaged in the event of non-payment of the principal obligation within the stipulated period.
inside a subdivision/village. The property is situated in Marikina which is already part of Metro Manila. The
alleged sale took place in 1991 when the value of the land had considerably increased. In this case, defendant-appellee in reality extended a P200,000.00 loan to plaintiff-appellant secured by a
mortgage on the property of plaintiff-appellant. The loan was payable within ninety (90) days, the period within
For this property, defendant-appellee pays only a measly P200,000.00 or P833.33 per square meter for both the which plaintiff-appellant can repurchase the property. Plaintiff-appellant will pay P230,000.00 and not
land and for the house. P200,000.00, the P30,000.00 excess is the interest for the loan extended. Failure of plaintiff-appellee to pay the
P230,000,00 within the ninety (90) days period, the property shall automatically belong to defendant-appellee by
Second: The disputed Memorandum of Agreement specifically provides that plaintiff-appellant is obliged to virtue of the deed of sale executed.
deliver peacefully the possession of the property to the SECOND PARTY within fifteen (15) days after the
expiration of the said ninety (90) day grace period. Otherwise stated, plaintiff-appellant is to retain physical Clearly, the agreement entered into by the parties is in the nature of pactum commissorium. Therefore, the
possession of the thing allegedly sold. deed of sale should be declared void as we hereby so declare to be invalid, for being violative of law.

In fact, plaintiff-appellant retained possession of the property sold as if they were still the absolute owners. There ....
was no provision for maintenance or expenses, much less for payment of rent.
WHEREFORE, foregoing considered, the appealed decision is hereby REVERSED and SET ASIDE. The
Third: The apparent vendor, plaintiff-appellant herein, continued to pay taxes on the property sold. It is well- questioned Deed of Sale and the cancellation of the TCT No. 195101 issued in favor of plaintiff-appellant and the
known that payment of taxes accompanied by actual possession of the land covered by the tax declaration, issuance of TCT No. 267073 issued in favor of defendant-appellee pursuant to the questioned Deed of Sale is
constitute evidence of great weight that a person under whose name the real taxes were declared has a claim of hereby declared VOID and is hereby ANNULLED. Transfer Certificate of Title No. 195101 of the Registry of
right over the land. Marikina is hereby ordered REINSTATED. The loan in the amount of P230,000.00 shall be paid within ninety
(90) days from the finality of this decision. In case of failure to pay the amount of P230,000.00 from the period
It is well-settled that the presence of even one of the circumstances in Article 1602 of the New Civil Code is therein stated, the property shall be sold at public auction to satisfy the mortgage debt and costs and if there is an
sufficient to declare a contract of sale with right to repurchase an equitable mortgage. excess, the same is to be given to the owner.

Considering that plaintiff-appellant, as vendor, was paid a price which is unusually inadequate, has retained Petitioner now contends that: (1) he is not the real party in interest but A.C. Aguila & Co., against which this
possession of the subject property and has continued paying the realty taxes over the subject property, case should have been brought; (2) the judgment in the ejectment case is a bar to the filing of the complaint for
(circumstances mentioned in par. (1) (2) and (5) of Article 1602 of the New Civil Code), it must be conclusively declaration of nullity of a deed of sale in this case; and (3) the contract between A.C. Aguila & Sons, Co. and private
presumed that the transaction the parties actually entered into is an equitable mortgage, not a sale with right to respondent is a pacto de retro sale and not an equitable mortgage as held by the appellate court.
repurchase. The factors cited are in support to the finding that the Deed of Sale/Memorandum of Agreement with The petition is meritorious.
right to repurchase is in actuality an equitable mortgage.
Rule 3, 2 of the Rules of Court of 1964, under which the complaint in this case was filed, provided that every
action must be prosecuted and defended in the name of the real party in interest. A real party in interest is one who
would be benefited or injured by the judgment, or who is entitled to the avails of the suit.[7] This ruling is now
embodied in Rule 3, 2 of the 1997 Revised Rules of Civil Procedure. Any decision rendered against a person who
is not a real party in interest in the case cannot be executed.[8] Hence, a complaint filed against such a person should
be dismissed for failure to state a cause of action.[9]
Under Art. 1768 of the Civil Code, a partnership has a juridical personality separate and distinct from that of
each of the partners. The partners cannot be held liable for the obligations of the partnership unless it is shown that
the legal fiction of a different juridical personality is being used for fraudulent, unfair, or illegal purposes. [10] In this
case, private respondent has not shown that A.C. Aguila & Sons, Co., as a separate juridical entity, is being used for
fraudulent, unfair, or illegal purposes. Moreover, the title to the subject property is in the name of A.C. Aguila &
Sons, Co. and the Memorandum of Agreement was executed between private respondent, with the consent of her
late husband, and A. C. Aguila & Sons, Co., represented by petitioner. Hence, it is the partnership, not its officers
or agents, which should be impleaded in any litigation involving property registered in its name. A violation of this
rule will result in the dismissal of the complaint.[11] We cannot understand why both the Regional Trial Court and
the Court of Appeals sidestepped this issue when it was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest against whom this action should be prosecuted
makes it unnecessary to discuss the other issues raised by him in this appeal.
WHEREFORE, the decision of the Court of Appeals is hereby REVERSED and the complaint against
petitioner is DISMISSED.
Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.