G.R. No.

L-31684 June 28, 1973

EVANGELISTA & CO., DOMINGO C. EVANGELISTA, JR., CONCHITA B. NAVARRO and

LEONARDA ATIENZA ABAD SABTOS, petitioners,
vs.
ESTRELLA ABAD SANTOS, respondent.

Leonardo Abola for petitioners.

Baisas, Alberto & Associates for respondent.

MAKALINTAL, J.:

On October 9, 1954 a co-partnership was formed under the name of "Evangelista & Co." On June 7,
1955 the Articles of Co-partnership was amended as to include herein respondent, Estrella Abad
Santos, as industrial partner, with herein petitioners Domingo C. Evangelista, Jr., Leonardo Atienza
Abad Santos and Conchita P. Navarro, the original capitalist partners, remaining in that capacity, with
a contribution of P17,500 each. The amended Articles provided, inter alia, that "the contribution of
Estrella Abad Santos consists of her industry being an industrial partner", and that the profits and
losses "shall be divided and distributed among the partners ... in the proportion of 70% for the first
three partners, Domingo C. Evangelista, Jr., Conchita P. Navarro and Leonardo Atienza Abad Santos
to be divided among them equally; and 30% for the fourth partner Estrella Abad Santos."

On December 17, 1963 herein respondent filed suit against the three other partners in the Court of
First Instance of Manila, alleging that the partnership, which was also made a party-defendant, had
been paying dividends to the partners except to her; and that notwithstanding her demands the
defendants had refused and continued to refuse and let her examine the partnership books or to give
her information regarding the partnership affairs to pay her any share in the dividends declared by the
partnership. She therefore prayed that the defendants be ordered to render accounting to her of the
partnership business and to pay her corresponding share in the partnership profits after such
accounting, plus attorney's fees and costs.

The defendants, in their answer, denied ever having declared dividends or distributed profits of the
partnership; denied likewise that the plaintiff ever demanded that she be allowed to examine the
partnership books; and byway of affirmative defense alleged that the amended Articles of Co-
partnership did not express the true agreement of the parties, which was that the plaintiff was not an
industrial partner; that she did not in fact contribute industry to the partnership; and that her share of
30% was to be based on the profits which might be realized by the partnership only until full payment
of the loan which it had obtained in December, 1955 from the Rehabilitation Finance Corporation in
the sum of P30,000, for which the plaintiff had signed a promisory note as co-maker and mortgaged
her property as security.

The parties are in agreement that the main issue in this case is "whether the plaintiff-appellee
(respondent here) is an industrial partner as claimed by her or merely a profit sharer entitled to 30%
of the net profits that may be realized by the partnership from June 7, 1955 until the mortgage loan
from the Rehabilitation Finance Corporation shall be fully paid, as claimed by appellants (herein
petitioners)." On that issue the Court of First Instance found for the plaintiff and rendered judgement
"declaring her an industrial partner of Evangelista & Co.; ordering the defendants to render an
accounting of the business operations of the (said) partnership ... from June 7, 1955; to pay the plaintiff
such amounts as may be due as her share in the partnership profits and/or dividends after such an
accounting has been properly made; to pay plaintiff attorney's fees in the sum of P2,000.00 and the
costs of this suit."

The defendants appealed to the Court of Appeals, which thereafter affirmed judgments of the court a
quo.

In the petition before Us the petitioners have assigned the following errors:

I. The Court of Appeals erred in the finding that the respondent is an industrial partner
of Evangelista & Co., notwithstanding the admitted fact that since 1954 and until after
promulgation of the decision of the appellate court the said respondent was one of the
judges of the City Court of Manila, and despite its findings that respondent had been
paid for services allegedly contributed by her to the partnership. In this connection the
Court of Appeals erred:

(A) In finding that the "amended Articles of Co-partnership," Exhibit "A"

is conclusive evidence that respondent was in fact made an industrial
partner of Evangelista & Co.

(B) In not finding that a portion of respondent's testimony quoted in the

decision proves that said respondent did not bind herself to contribute
her industry, and she could not, and in fact did not, because she was
one of the judges of the City Court of Manila since 1954.

(C) In finding that respondent did not in fact contribute her industry,
despite the appellate court's own finding that she has been paid for the
services allegedly rendered by her, as well as for the loans of money
made by her to the partnership.

II. The lower court erred in not finding that in any event the respondent was lawfully
excluded from, and deprived of, her alleged share, interests and participation, as an
alleged industrial partner, in the partnership Evangelista & Co., and its profits or net
income.

III. The Court of Appeals erred in affirming in toto the decision of the trial court whereby
respondent was declared an industrial partner of the petitioner, and petitioners were
ordered to render an accounting of the business operation of the partnership from June
7, 1955, and to pay the respondent her alleged share in the net profits of the
partnership plus the sum of P2,000.00 as attorney's fees and the costs of the suit,
instead of dismissing respondent's complaint, with costs, against the respondent.

It is quite obvious that the questions raised in the first assigned errors refer to the facts as found by
the Court of Appeals. The evidence presented by the parties as the trial in support of their respective
positions on the issue of whether or not the respondent was an industrial partner was thoroughly
analyzed by the Court of Appeals on its decision, to the extent of reproducing verbatim therein the
lengthy testimony of the witnesses.

It is not the function of the Supreme Court to analyze or weigh such evidence all over again, its
jurisdiction being limited to reviewing errors of law that might have been commited by the lower court.
It should be observed, in this regard, that the Court of Appeals did not hold that the Articles of Co-
partnership, identified in the record as Exhibit "A", was conclusive evidence that the respondent was
an industrial partner of the said company, but considered it together with other factors, consisting of
both testimonial and documentary evidences, in arriving at the factual conclusion expressed in the
decision.

The findings of the Court of Appeals on the various points raised in the first assignment of error are
hereunder reproduced if only to demonstrate that the same were made after a through analysis of then
evidence, and hence are beyond this Court's power of review.

The aforequoted findings of the lower Court are assailed under Appellants' first
assigned error, wherein it is pointed out that "Appellee's documentary evidence does
not conclusively prove that appellee was in fact admitted by appellants as industrial
partner of Evangelista & Co." and that "The grounds relied upon by the lower Court
are untenable" (Pages 21 and 26, Appellant's Brief).

The first point refers to Exhibit A, B, C, K, K-1, J, N and S, appellants' complaint being
that "In finding that the appellee is an industrial partner of appellant Evangelista & Co.,
herein referred to as the partnership — the lower court relied mainly on the appellee's
documentary evidence, entirely disregarding facts and circumstances established by
appellants" evidence which contradict the said finding' (Page 21, Appellants' Brief).
The lower court could not have done otherwise but rely on the exhibits just mentioned,
first, because appellants have admitted their genuineness and due execution, hence
they were admitted without objection by the lower court when appellee rested her case
and, secondly the said exhibits indubitably show the appellee is an industrial partner
of appellant company. Appellants are virtually estopped from attempting to detract from
the probative force of the said exhibits because they all bear the imprint of their
knowledge and consent, and there is no credible showing that they ever protested
against or opposed their contents prior of the filing of their answer to appellee's
complaint. As a matter of fact, all the appellant Evangelista, Jr., would have us believe
— as against the cumulative force of appellee's aforesaid documentary evidence — is
the appellee's Exhibit "A", as confirmed and corroborated by the other exhibits already
mentioned, does not express the true intent and agreement of the parties thereto, the
real understanding between them being the appellee would be merely a profit sharer
entitled to 30% of the net profits that may be realized between the partners from June
7, 1955, until the mortgage loan of P30,000.00 to be obtained from the RFC shall have
been fully paid. This version, however, is discredited not only by the aforesaid
documentary evidence brought forward by the appellee, but also by the fact that from
June 7, 1955 up to the filing of their answer to the complaint on February 8, 1964 —
or a period of over eight (8) years — appellants did nothing to correct the alleged false
agreement of the parties contained in Exhibit "A". It is thus reasonable to suppose that,
had appellee not filed the present action, appellants would not have advanced this
obvious afterthought that Exhibit "A" does not express the true intent and agreement
of the parties thereto.

At pages 32-33 of appellants' brief, they also make much of the argument that 'there
is an overriding fact which proves that the parties to the Amended Articles of
Partnership, Exhibit "A", did not contemplate to make the appellee Estrella Abad
Santos, an industrial partner of Evangelista & Co. It is an admitted fact that since before
the execution of the amended articles of partnership, Exhibit "A", the appellee Estrella
Abad Santos has been, and up to the present time still is, one of the judges of the City
Court of Manila, devoting all her time to the performance of the duties of her public
office. This fact proves beyond peradventure that it was never contemplated between
the parties, for she could not lawfully contribute her full time and industry which is the
obligation of an industrial partner pursuant to Art. 1789 of the Civil Code.
The Court of Appeals then proceeded to consider appellee's testimony on this point, quoting it in the
decision, and then concluded as follows:

One cannot read appellee's testimony just quoted without gaining the very definite
impression that, even as she was and still is a Judge of the City Court of Manila, she
has rendered services for appellants without which they would not have had the
wherewithal to operate the business for which appellant company was organized.
Article 1767 of the New Civil Code which provides that "By contract of partnership two
or more persons bind themselves, to contribute money, property, or industry to a
common fund, with the intention of dividing the profits among themselves, 'does not
specify the kind of industry that a partner may thus contribute, hence the said services
may legitimately be considered as appellee's contribution to the common fund. Another
article of the same Code relied upon appellants reads:

'ART. 1789. An industrial partner cannot engage in business for

himself, unless the partnership expressly permits him to do so; and if
he should do so, the capitalist partners may either exclude him from
the firm or avail themselves of the benefits which he may have obtained
in violation of this provision, with a right to damages in either case.'

It is not disputed that the provision against the industrial partner engaging in business
for himself seeks to prevent any conflict of interest between the industrial partner and
the partnership, and to insure faithful compliance by said partner with this prestation.
There is no pretense, however, even on the part of the appellee is engaged in any
business antagonistic to that of appellant company, since being a Judge of one of the
branches of the City Court of Manila can hardly be characterized as a business. That
appellee has faithfully complied with her prestation with respect to appellants is clearly
shown by the fact that it was only after filing of the complaint in this case and the
answer thereto appellants exercised their right of exclusion under the codal art just
mentioned by alleging in their Supplemental Answer dated June 29, 1964 — or after
around nine (9) years from June 7, 1955 — subsequent to the filing of defendants'
answer to the complaint, defendants reached an agreement whereby the herein
plaintiff been excluded from, and deprived of, her alleged share, interests or
participation, as an alleged industrial partner, in the defendant partnership and/or in its
net profits or income, on the ground plaintiff has never contributed her industry to the
partnership, instead she has been and still is a judge of the City Court (formerly
Municipal Court) of the City of Manila, devoting her time to performance of her duties
as such judge and enjoying the privilege and emoluments appertaining to the said
office, aside from teaching in law school in Manila, without the express consent of the
herein defendants' (Record On Appeal, pp. 24-25). Having always knows as a appellee
as a City judge even before she joined appellant company on June 7, 1955 as an
industrial partner, why did it take appellants many yearn before excluding her from said
company as aforequoted allegations? And how can they reconcile such exclusive with
their main theory that appellee has never been such a partner because "The real
agreement evidenced by Exhibit "A" was to grant the appellee a share of 30% of the
net profits which the appellant partnership may realize from June 7, 1955, until the
mortgage of P30,000.00 obtained from the Rehabilitation Finance Corporal shall have
been fully paid." (Appellants Brief, p. 38).

What has gone before persuades us to hold with the lower Court that appellee is an
industrial partner of appellant company, with the right to demand for a formal
accounting and to receive her share in the net profit that may result from such an
 accounting, which right appellants take exception under their second assigned error.
Our said holding is based on the following article of the New Civil Code:

'ART. 1899. Any partner shall have the right to a formal account as to
partnership affairs:

(1) If he is wrongfully excluded from the partnership business or possession of its

property by his co-partners;

(2) If the right exists under the terms of any agreement;

(3) As provided by article 1807;

(4) Whenever other circumstance render it just and reasonable.

We find no reason in this case to depart from the rule which limits this Court's appellate jurisdiction to
reviewing only errors of law, accepting as conclusive the factual findings of the lower court upon its
own assessment of the evidence.

The judgment appealed from is affirmed, with costs.

G.R. No. L-59956 October 31, 1984

ISABELO MORAN, JR., petitioner,

vs.
THE HON. COURT OF APPEALS and MARIANO E. PECSON, respondents.

GUTIERREZ, JR., J.: ñé+.£ªwph!1

This is a petition for review on certiorari of the decision of the respondent Court of Appeals which
ordered petitioner Isabelo Moran, Jr. to pay damages to respondent Mariano E, Pecson.

As found by the respondent Court of Appeals, the undisputed facts indicate that: têñ.£îhqwâ£

xxx xxx xxx

... on February 22, 1971 Pecson and Moran entered into an agreement whereby both
would contribute P15,000 each for the purpose of printing 95,000 posters (featuring
the delegates to the 1971 Constitutional Convention), with Moran actually supervising
the work; that Pecson would receive a commission of P l,000 a month starting on April
15, 1971 up to December 15, 1971; that on December 15, 1971, a liquidation of the
accounts in the distribution and printing of the 95,000 posters would be made, that
Pecson gave Moran P10,000 for which the latter issued a receipt; that only a few
posters were printed; that on or about May 28, 1971, Moran executed in favor of
Pecson a promissory note in the amount of P20,000 payable in two equal installments
(P10,000 payable on or before June 15, 1971 and P10,000 payable on or before June
30, 1971), the whole sum becoming due upon default in the payment of the first
installment on the date due, complete with the costs of collection.

Private respondent Pecson filed with the Court of First Instance of Manila an action for the recovery
of a sum of money and alleged in his complaint three (3) causes of action, namely: (1) on the alleged
partnership agreement, the return of his contribution of P10,000.00, payment of his share in the profits
that the partnership would have earned, and, payment of unpaid commission; (2) on the alleged
promissory note, payment of the sum of P20,000.00; and, (3) moral and exemplary damages and
attorney's fees.

After the trial, the Court of First Instance held that: têñ.£îhqwâ£

From the evidence presented it is clear in the mind of the court that by virtue of the
partnership agreement entered into by the parties-plaintiff and defendant the plaintiff
did contribute P10,000.00, and another sum of P7,000.00 for the Voice of the Veteran
or Delegate Magazine. Of the expected 95,000 copies of the posters, the defendant
was able to print 2,000 copies only authorized of which, however, were sold at P5.00
each. Nothing more was done after this and it can be said that the venture did not
really get off the ground. On the other hand, the plaintiff failed to give his full
contribution of P15,000.00. Thus, each party is entitled to rescind the contract which
right is implied in reciprocal obligations under Article 1385 of the Civil Code
whereunder 'rescission creates the obligation to return the things which were the object
of the contract ...
 WHEREFORE, the court hereby renders judgment ordering defendant Isabelo C.
Moran, Jr. to return to plaintiff Mariano E. Pecson the sum of P17,000.00, with interest
at the legal rate from the filing of the complaint on June 19, 1972, and the costs of the
suit.

For insufficiency of evidence, the counterclaim is hereby dismissed.

From this decision, both parties appealed to the respondent Court of Appeals. The latter likewise
rendered a decision against the petitioner. The dispositive portion of the decision reads:têñ.£îhqwâ£

PREMISES CONSIDERED, the decision appealed from is hereby SET ASIDE, and a
new one is hereby rendered, ordering defendant-appellant Isabelo C. Moran, Jr. to pay
plaintiff- appellant Mariano E. Pecson:

(a) Forty-seven thousand five hundred (P47,500) (the amount that could have accrued
to Pecson under their agreement);

(b) Eight thousand (P8,000), (the commission for eight months);

(c) Seven thousand (P7,000) (as a return of Pecson's investment for the Veteran's
Project);

(d) Legal interest on (a), (b) and (c) from the date the complaint was filed (up to the
time payment is made)

The petitioner contends that the respondent Court of Appeals decided questions of substance in a
way not in accord with law and with Supreme Court decisions when it committed the following errors:

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P47,500 AS THE SUPPOSED EXPECTED PROFITS DUE HIM.

II

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P8,000, AS SUPPOSED COMMISSION IN THE PARTNERSHIP ARISING OUT OF PECSON'S
INVESTMENT.

III

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN HOLDING PETITIONER

ISABELO C. MORAN, JR. LIABLE TO RESPONDENT MARIANO E. PECSON IN THE SUM OF
P7,000 AS A SUPPOSED RETURN OF INVESTMENT IN A MAGAZINE VENTURE.

IV
ASSUMING WITHOUT ADMITTING THAT PETITIONER IS AT ALL LIABLE FOR ANY AMOUNT,
THE HONORABLE COURT OF APPEALS DID NOT EVEN OFFSET PAYMENTS ADMITTEDLY
RECEIVED BY PECSON FROM MORAN.

THE HONORABLE COURT OF APPEALS GRIEVOUSLY ERRED IN NOT GRANTING THE

PETITIONER'S COMPULSORY COUNTERCLAIM FOR DAMAGES.

The first question raised in this petition refers to the award of P47,500.00 as the private respondent's
share in the unrealized profits of the partnership. The petitioner contends that the award is highly
speculative. The petitioner maintains that the respondent court did not take into account the great risks
involved in the business undertaking.

We agree with the petitioner that the award of speculative damages has no basis in fact and law.

There is no dispute over the nature of the agreement between the petitioner and the private
respondent. It is a contract of partnership. The latter in his complaint alleged that he was induced by
the petitioner to enter into a partnership with him under the following terms and conditions: têñ.£îhqwâ£

1. That the partnership will print colored posters of the delegates to the Constitutional
Convention;

2. That they will invest the amount of Fifteen Thousand Pesos (P15,000.00) each;

3. That they will print Ninety Five Thousand (95,000) copies of the said posters;

4. That plaintiff will receive a commission of One Thousand Pesos (P1,000.00) a month
starting April 15, 1971 up to December 15, 1971;

5. That upon the termination of the partnership on December 15, 1971, a liquidation of
the account pertaining to the distribution and printing of the said 95,000 posters shall
be made.

The petitioner on the other hand admitted in his answer the existence of the partnership.

The rule is, when a partner who has undertaken to contribute a sum of money fails to do so, he
becomes a debtor of the partnership for whatever he may have promised to contribute (Art. 1786, Civil
Code) and for interests and damages from the time he should have complied with his obligation (Art.
1788, Civil Code). Thus in Uy v. Puzon (79 SCRA 598), which interpreted Art. 2200 of the Civil Code
of the Philippines, we allowed a total of P200,000.00 compensatory damages in favor of the appellee
because the appellant therein was remiss in his obligations as a partner and as prime contractor of
the construction projects in question. This case was decided on a particular set of facts. We awarded
compensatory damages in the Uy case because there was a finding that the constructing business is
a profitable one and that the UP construction company derived some profits from its contractors in the
construction of roads and bridges despite its deficient capital." Besides, there was evidence to show
that the partnership made some profits during the periods from July 2, 1956 to December 31, 1957
and from January 1, 1958 up to September 30, 1959. The profits on two government contracts worth
P2,327,335.76 were not speculative. In the instant case, there is no evidence whatsoever that the
partnership between the petitioner and the private respondent would have been a profitable venture.
In fact, it was a failure doomed from the start. There is therefore no basis for the award of speculative
damages in favor of the private respondent.

Furthermore, in the Uy case, only Puzon failed to give his full contribution while Uy contributed much
more than what was expected of him. In this case, however, there was mutual breach. Private
respondent failed to give his entire contribution in the amount of P15,000.00. He contributed only
P10,000.00. The petitioner likewise failed to give any of the amount expected of him. He further failed
to comply with the agreement to print 95,000 copies of the posters. Instead, he printed only 2,000
copies.

Article 1797 of the Civil Code provides: têñ.£îhqwâ£

The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the
losses shall be in the same proportion.

Being a contract of partnership, each partner must share in the profits and losses of the venture. That
is the essence of a partnership. And even with an assurance made by one of the partners that they
would earn a huge amount of profits, in the absence of fraud, the other partner cannot claim a right to
recover the highly speculative profits. It is a rare business venture guaranteed to give 100% profits. In
this case, on an investment of P15,000.00, the respondent was supposed to earn a guaranteed
P1,000.00 a month for eight months and around P142,500.00 on 95,000 posters costing P2.00 each
but 2,000 of which were sold at P5.00 each. The fantastic nature of expected profits is obvious. We
have to take various factors into account. The failure of the Commission on Elections to proclaim all
the 320 candidates of the Constitutional Convention on time was a major factor. The petitioner
undesirable his best business judgment and felt that it would be a losing venture to go on with the
printing of the agreed 95,000 copies of the posters. Hidden risks in any business venture have to be
considered.

It does not follow however that the private respondent is not entitled to recover any amount from the
petitioner. The records show that the private respondent gave P10,000.00 to the petitioner. The latter
used this amount for the printing of 2,000 posters at a cost of P2.00 per poster or a total printing cost
of P4,000.00. The records further show that the 2,000 copies were sold at P5.00 each. The gross
income therefore was P10,000.00. Deducting the printing costs of P4,000.00 from the gross income
of P10,000.00 and with no evidence on the cost of distribution, the net profits amount to only
P6,000.00. This net profit of P6,000.00 should be divided between the petitioner and the private
respondent. And since only P4,000.00 was undesirable by the petitioner in printing the 2,000 copies,
the remaining P6,000.00 should therefore be returned to the private respondent.

Relative to the second alleged error, the petitioner submits that the award of P8,000.00 as Pecson's
supposed commission has no justifiable basis in law.

Again, we agree with the petitioner.

The partnership agreement stipulated that the petitioner would give the private respondent a monthly
commission of Pl,000.00 from April 15, 1971 to December 15, 1971 for a total of eight (8) monthly
commissions. The agreement does not state the basis of the commission. The payment of the
commission could only have been predicated on relatively extravagant profits. The parties could not
have intended the giving of a commission inspite of loss or failure of the venture. Since the venture
was a failure, the private respondent is not entitled to the P8,000.00 commission.
Anent the third assigned error, the petitioner maintains that the respondent Court of Appeals erred in
holding him liable to the private respondent in the sum of P7,000.00 as a supposed return of
investment in a magazine venture.

In awarding P7,000.00 to the private respondent as his supposed return of investment in the "Voice of
the Veterans" magazine venture, the respondent court ruled that: têñ.£îhqwâ£

xxx xxx xxx

... Moran admittedly signed the promissory note of P20,000 in favor of Pecson. Moran
does not question the due execution of said note. Must Moran therefore pay the
amount of P20,000? The evidence indicates that the P20,000 was assigned by Moran
to cover the following:têñ.£îhqwâ£

(a) P 7,000 — the amount of the PNB check given by

Pecson to Moran representing Pecson's investment in
Moran's other project (the publication and printing of
the 'Voice of the Veterans');

(b) P10,000 — to cover the return of Pecson's

contribution in the project of the Posters;

(c) P3,000 — representing Pecson's commission for

three months (April, May, June, 1971).

Of said P20,000 Moran has to pay P7,000 (as a return of Pecson's investment for the
Veterans' project, for this project never left the ground) ...

As a rule, the findings of facts of the Court of Appeals are final and conclusive and cannot be reviewed
on appeal to this Court (Amigo v. Teves, 96 Phil. 252), provided they are borne out by the record or
are based on substantial evidence (Alsua-Betts v. Court of Appeals, 92 SCRA 332). However, this rule
admits of certain exceptions. Thus, in Carolina Industries Inc. v. CMS Stock Brokerage, Inc., et al., (97
SCRA 734), we held that this Court retains the power to review and rectify the findings of fact of the
Court of Appeals when (1) the conclusion is a finding grounded entirely on speculation, surmises and
conjectures; (2) when the inference made is manifestly mistaken absurd and impossible; (3) where
there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; and
(5) when the court, in making its findings, went beyond the issues of the case and the same are
contrary to the admissions of both the appellant and the appellee.

In this case, there is misapprehension of facts. The evidence of the private respondent himself shows
that his investment in the "Voice of Veterans" project amounted to only P3,000.00. The remaining
P4,000.00 was the amount of profit that the private respondent expected to receive.

The records show the following exhibits- têñ.£îhqwâ£

E — Xerox copy of PNB Manager's Check No. 234265 dated March 22, 1971 in favor
of defendant. Defendant admitted the authenticity of this check and of his receipt of
the proceeds thereof (t.s.n., pp. 3-4, Nov. 29, 1972). This exhibit is being offered for
the purpose of showing plaintiff's capital investment in the printing of the "Voice of the
Veterans" for which he was promised a fixed profit of P8,000. This investment of
P6,000.00 and the promised profit of P8,000 are covered by defendant's promissory
 note for P14,000 dated March 31, 1971 marked by defendant as Exhibit 2 (t.s.n., pp.
20-21, Nov. 29, 1972), and by plaintiff as Exhibit P. Later, defendant returned
P3,000.00 of the P6,000.00 investment thereby proportionately reducing the promised
profit to P4,000. With the balance of P3,000 (capital) and P4,000 (promised profit),
defendant signed and executed the promissory note for P7,000 marked Exhibit 3 for
the defendant and Exhibit M for plaintiff. Of this P7,000, defendant paid P4,000
representing full return of the capital investment and P1,000 partial payment of the
promised profit. The P3,000 balance of the promised profit was made part
consideration of the P20,000 promissory note (t.s.n., pp. 22-24, Nov. 29, 1972). It is,
therefore, being presented to show the consideration for the P20,000 promissory note.

F — Xerox copy of PNB Manager's check dated May 29, 1971 for P7,000 in favor of
defendant. The authenticity of the check and his receipt of the proceeds thereof were
admitted by the defendant (t.s.n., pp. 3-4, Nov. 29, 1972). This P 7,000 is part
consideration, and in cash, of the P20,000 promissory note (t.s.n., p. 25, Nov. 29,
1972), and it is being presented to show the consideration for the P20,000 note and
the existence and validity of the obligation.

xxx xxx xxx

L-Book entitled "Voice of the Veterans" which is being offered for the purpose of
showing the subject matter of the other partnership agreement and in which plaintiff
invested the P6,000 (Exhibit E) which, together with the promised profit of P8,000
made up for the consideration of the P14,000 promissory note (Exhibit 2; Exhibit P).
As explained in connection with Exhibit E. the P3,000 balance of the promised profit
was later made part consideration of the P20,000 promissory note.

M-Promissory note for P7,000 dated March 30, 1971. This is also defendant's Exhibit
E. This document is being offered for the purpose of further showing the transaction
as explained in connection with Exhibits E and L.

N-Receipt of plaintiff dated March 30, 1971 for the return of his P3,000 out of his capital
investment of P6,000 (Exh. E) in the P14,000 promissory note (Exh. 2; P). This is also
defendant's Exhibit 4. This document is being offered in support of plaintiff's
explanation in connection with Exhibits E, L, and M to show the transaction mentioned
therein.

xxx xxx xxx

P-Promissory note for P14,000.00. This is also defendant's Exhibit 2. It is being offered
for the purpose of showing the transaction as explained in connection with Exhibits E,
L, M, and N above.

Explaining the above-quoted exhibits, respondent Pecson testified that: têñ.£îhqwâ£

Q During the pre-trial of this case, Mr. Pecson, the defendant

presented a promissory note in the amount of P14,000.00 which has
been marked as Exhibit 2. Do you know this promissory note?

A Yes, sir.
Q What is this promissory note, in connection with your transaction with
the defendant?

A This promissory note is for the printing of the "Voice of the Veterans".

Q What is this "Voice of the Veterans", Mr. Pecson?

A It is a book. têñ.£îhqwâ£

(T.S.N., p. 19, Nov. 29, 1972)

Q And what does the amount of P14,000.00 indicated in the

promissory note, Exhibit 2, represent?

A It represents the P6,000.00 cash which I gave to Mr. Moran, as

evidenced by the Philippine National Bank Manager's check and the
P8,000.00 profit assured me by Mr. Moran which I will derive from the
printing of this "Voice of the Veterans" book.

Q You said that the P6,000.00 of this P14,000.00 is covered by, a

Manager's check. I show you Exhibit E, is this the Manager's check
that mentioned?

A Yes, sir.

Q What happened to this promissory note of P14,000.00 which you

said represented P6,000.00 of your investment and P8,000.00
promised profits?

A Latter, Mr. Moran returned to me P3,000.00 which represented one-

half (1/2) of the P6,000.00 capital I gave to him.

Q As a consequence of the return by Mr. Moran of one-half (1/2) of the

P6,000.00 capital you gave to him, what happened to the promised
profit of P8,000.00?

A It was reduced to one-half (1/2) which is P4,000.00.

Q Was there any document executed by Mr. Moran in connection with

the Balance of P3,000.00 of your capital investment and the P4,000.00
promised profits?

A Yes, sir, he executed a promissory note.

Q I show you a promissory note in the amount of P7,000.00 dated

March 30, 1971 which for purposes of Identification I request the same
to be marked as Exhibit M. . .

Court têñ.£îhqwâ£
 Mark it as Exhibit M.

Q (continuing) is this the promissory note which you said was executed
by Mr. Moran in connection with your transaction regarding the printing
of the "Voice of the Veterans"?

A Yes, sir. (T.S.N., pp. 20-22, Nov. 29, 1972).

Q What happened to this promissory note executed by Mr. Moran, Mr.

Pecson?

A Mr. Moran paid me P4,000.00 out of the P7,000.00 as shown by the

promissory note.

Q Was there a receipt issued by you covering this payment of

P4,000.00 in favor of Mr. Moran?

A Yes, sir.

(T.S.N., p. 23, Nov. 29, 1972).

Q You stated that Mr. Moran paid the amount of P4,000.00 on account
of the P7,000.00 covered by the promissory note, Exhibit M. What does
this P4,000.00 covered by Exhibit N represent?

A This P4,000.00 represents the P3,000.00 which he has returned of

my P6,000.00 capital investment and the P1,000.00 represents partial
payment of the P4,000.00 profit that was promised to me by Mr. Moran.

Q And what happened to the balance of P3,000.00 under the

promissory note, Exhibit M?

A The balance of P3,000.00 and the rest of the profit was applied as
part of the consideration of the promissory note of P20,000.00.

(T.S.N., pp. 23-24, Nov. 29, 1972).

The respondent court erred when it concluded that the project never left the ground because the
project did take place. Only it failed. It was the private respondent himself who presented a copy of
the book entitled "Voice of the Veterans" in the lower court as Exhibit "L". Therefore, it would be error
to state that the project never took place and on this basis decree the return of the private respondent's
investment.

As already mentioned, there are risks in any business venture and the failure of the undertaking cannot
entirely be blamed on the managing partner alone, specially if the latter exercised his best business
judgment, which seems to be true in this case. In view of the foregoing, there is no reason to pass
upon the fourth and fifth assignments of errors raised by the petitioner. We likewise find no valid basis
for the grant of the counterclaim.

WHEREFORE, the petition is GRANTED. The decision of the respondent Court of Appeals (now
Intermediate Appellate Court) is hereby SET ASIDE and a new one is rendered ordering the petitioner
Isabelo Moran, Jr., to pay private respondent Mariano Pecson SIX THOUSAND (P6,000.00) PESOS
representing the amount of the private respondent's contribution to the partnership but which remained
unused; and THREE THOUSAND (P3,000.00) PESOS representing one half (1/2) of the net profits
gained by the partnership in the sale of the two thousand (2,000) copies of the posters, with interests
at the legal rate on both amounts from the date the complaint was filed until full payment is made.

SO ORDERED. 1äwphï1.ñët
G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete
and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

REYES, J.B.L., J.:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947
by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as
the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00
to the partnership. On 1 October 1947, the limited partnership was registered with the Securities and
Exchange Commission. The firm engaged, among other activities, in the importation, marketing,
distribution and operation of automatic phonographs, radios, television sets and amusement
machines, their parts and accessories. It had an office and held itself out as a limited partnership,
handling and carrying merchandise, using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a quota allocation with the Central
Bank.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The
sale was duly recorded with the Securities and Exchange Commission on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by
the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an
assessment, consolidated the income of the firm and the individual incomes of the partners-spouses
Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in
the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax
court's aforesaid decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia
Spirig Suter actually formed a single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William
J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav
Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and
Spirig and their subsequent acquisition of the interests of remaining partner Carlson in the partnership
dissolved the limited partnership, and if they did not, the fiction of juridical personality of the partnership
should be disregarded for income tax purposes because the spouses have exclusive ownership and
control of the business; consequently the income tax return of respondent Suter for the years in
question should have included his and his wife's individual incomes and that of the limited partnership,
in accordance with Section 45 (d) of the National Internal Revenue Code, which provides as follows:

(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-
residents, only one consolidated return for the taxable year shall be filed by either spouse to
cover the income of both spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in
1948 is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New
Civil Code, and that since its juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it is taxable on its
income similarly with corporations, Suter was not bound to include in his individual return the income
of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by
operation of law because of the marriage of the only general partner, William J. Suter to the originally
limited partner, Julia Spirig one year after the partnership was organized is rested by the appellant
upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws
of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

A husband and a wife may not enter into a contract of general copartnership, because under
the Civil Code, which applies in the absence of express provision in the Code of Commerce,
persons prohibited from making donations to each other are prohibited from entering
into universal partnerships. (2 Echaverri 196) It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co.,
Ltd. was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of
the Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in
1947), a universal partnership requires either that the object of the association be all the present
property of the partners, as contributed by them to the common fund, or else "all that the partners may
acquire by their industry or work during the existence of the partnership". William J. Suter "Morcoin"
Co., Ltd. was not such a universal partnership, since the contributions of the partners were fixed sums
of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was
an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that
spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th
Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the
aforesaid Article 1677:

Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero
o podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos
a la tesis permisiva de los contratos de sociedad particular entre esposos, ya que ningun
precepto de nuestro Codigo los prohibe, y hay que estar a la norma general segun la que toda
persona es capaz para contratar mientras no sea declarado incapaz por la ley. La
 jurisprudencia de la Direccion de los Registros fue favorable a esta misma tesis en su
resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de
1943.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one
of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.

The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and Julia
Spirig were separately owned and contributed by them before their marriage; and after they were
joined in wedlock, such contributions remained their respective separate property under the Spanish
Civil Code (Article 1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage in 1948.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality
of its own, distinct and separate from that of its partners (unlike American and English law that does
not recognize such separate juridical personality), the bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and
basic principles of our law. The limited partnership's separate individuality makes it impossible to
equate its income with that of the component members. True, section 24 of the Internal Revenue Code
merges registered general co-partnerships (compañias colectivas) with the personality of the
individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal
tenet of our partnership laws, and can not be extended by mere implication to limited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations involved therein are not applicable to
the present case. In the cited cases, the corporations were already subject to tax when the fiction of
their corporate personality was pierced; in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden upon the partners-spouses in their
individual capacities. The corporations, in the cases cited, merely served as business conduits or alter
egos of the stockholders, a factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership is not a mere business
conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns
as such independent entity. The change in its membership, brought about by the marriage of the
partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the
partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as
the records show, the partners did not enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Suter is to overstretch the letter and intent of the
law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compañia
colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes
the latter on its income, but not the former, because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the
profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris.
on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi1.nêt

But it is argued that the income of the limited partnership is actually or constructively the income of the
spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out
in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the
fruits of the wife's parapherna become conjugal only when no longer needed to defray the expenses
for the administration and preservation of the paraphernal capital of the wife. Then again, the
appellant's argument erroneously confines itself to the question of the legal personality of the limited
partnership, which is not essential to the income taxability of the partnership since the law taxes the
income of even joint accounts that have no personality of their own. 1 Appellant is, likewise, mistaken
in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable
is the "income of both spouses" (Section 45 [d] in their individual capacities. Though the amount of
income (income of the conjugal partnership vis-a-vis the joint income of husband and wife) may be the
same for a given taxable year, their consequences would be different, as their contributions in the
business partnership are not the same.

The difference in tax rates between the income of the limited partnership being consolidated with, and
when split from the income of the spouses, is not a justification for requiring consolidation; the revenue
code, as it presently stands, does not authorize it, and even bars it by requiring the limited partnership
to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
G.R. No. L-18703 August 28, 1922

INVOLUNTARY INSOLVENCY OF CAMPOS RUEDA & CO., S. en C., appellee,

vs.
PACIFIC COMMERCIAL CO., ASIATIC PETROLEUM CO., and INTERNATIONAL BANKING
CORPORATION,petitioners-appellants.

Jose Yulo, Ross and Lawrence and J. A. Wolfson for appellants.

Antonio Sanz for appellee.

ROMUALDEZ, J.:

The record of this proceeding having been transmitted to this court by virtue of an appeal taken herein,
a motion was presented by the appellants praying this court that this case be considered purely a moot
question now, for the reason that subsequent to the decision appealed from, the partnership Campos
Rueda & Co., voluntarily filed an application for a judicial decree adjudging itself insolvent, which is
just what the herein petitioners and appellants tried to obtain from the lower court in this proceeding.

The motion now before us must be, and is hereby, denied even under the facts stated by the appellants
in their motion aforesaid. The question raised in this case is not purely moot one; the fact that a man
was insolvent on a certain day does not justify an inference that he was some time prior thereto.

Proof that a man was insolvent on a certain day does not justify an inference that he was on a
day some time prior thereto. Many contingencies, such as unwise investments, losing
contracts, misfortune, or accident, might happen to reduce a person from a state of solvency
within a short space of time. (Kimball vs. Dresser, 98 Me., 519; 57 Atl. Rep., 767.)

A decree of insolvency begins to operate on the date it is issued. It is one thing to adjudge Campos
Rueda & Co. insolvent in December, 1921, as prayed for in this case, and another to declare it
insolvent in July, 1922, as stated in the motion.

Turning to the merits of this appeal, we find that this limited partnership was, and is, indebted to the
appellants in various sums amounting to not less than P1,000, payable in the Philippines, which were
not paid more than thirty days prior to the date of the filing by the petitioners of the application for
involuntary insolvency now before us. These facts were sufficient established by the evidence.

The trial court denied the petition on the ground that it was not proven, nor alleged, that the members
of the aforesaid firm were insolvent at the time the application was filed; and that was said partners
are personally and solidarily liable for the consequence of the transactions of the partnership, it cannot
be adjudged insolvent so long as the partners are not alleged and proven to be insolvent. From this
judgment the petitioners appeal to this court, on the ground that this finding of the lower court is
erroneous.

The fundamental question that presents itself for decision is whether or not a limited partnership, such
as the appellee, which has failed to pay its obligation with three creditors for more than thirty days,
may be held to have committed an act of insolvency, and thereby be adjudged insolvent against its
will.

Unlike the common law, the Philippine statutes consider a limited partnership as a juridical entity for
all intents and purposes, which personality is recognized in all its acts and contracts (art. 116, Code
of Commerce). This being so and the juridical personality of a limited partnership being different from
that of its members, it must, on general principle, answer for, and suffer, the consequence of its acts
as such an entity capable of being the subject of rights and obligations. If, as in the instant case, the
limited partnership of Campos Rueda & Co. Failed to pay its obligations with three creditors for a
period of more than thirty days, which failure constitutes, under our Insolvency Law, one of the acts of
bankruptcy upon which an adjudication of involuntary insolvency can be predicated, this partnership
must suffer the consequences of such a failure, and must be adjudged insolvent. We are not unmindful
of the fact that some courts of the United States have held that a partnership may not be adjudged
insolvent in an involuntary insolvency proceeding unless all of its members are insolvent, while others
have maintained a contrary view. But it must be borne in mind that under the American common law,
partnerships have no juridical personality independent from that of its members; and if now they have
such personality for the purpose of the insolvency law, it is only by virtue of general law enacted by
the Congress of the United States on July 1, 1898, section 5, paragraph (h), of which reads thus:

In the event of one or more but not all of the members of a partnership being adjudged
bankrupt, the partnership property shall not be administered in bankruptcy, unless by consent
of the partner or partners not adjudged bankrupt; but such partner or partners not adjudged
bankrupt shall settle the partnership business as expeditiously as its nature will permit, and
account for the interest of the partner or partners adjudged bankrupt.

The general consideration that these partnership had no juridical personality and the limitations
prescribed in subsection (h) above set forth gave rise to the conflict noted in American decisions, as
stated in the case of In reSamuels (215 Fed., 845), which mentions the two apparently conflicting
doctrines, citing one from In re Bertenshaw (157 Fed., 363), and the other from Francis vs. McNeal
(186 Fed., 481).

But there being in our insolvency law no such provision as that contained in section 5 of said Act of
Congress of July 1, 1898, nor any rule similar thereto, and the juridical personality of limited
partnership being recognized by our statutes from their formation in all their acts and contracts the
decision of American courts on this point can have no application in this jurisdiction, nor we see any
reason why these partnerships cannot be adjudged bankrupt irrespective of the solvency or insolvency
of their members, provided the partnership has, as such, committed some of the acts of insolvency
provided in our law. Under this view it is unnecessary to discuss the other points raised by the parties,
although in the particular case under consideration it can be added that the liability of the limited
partners for the obligations and losses of the partnership is limited to the amounts paid or promised to
be paid into the common fund except when a limited partner should have included his name or
consented to its inclusion in the firm name (arts. 147 and 148, Code of Commerce).

Therefore, it having been proven that the partnership Campos Rueda & Co. failed for more than thirty
days to pay its obligations to the petitioners the Pacific Commercial Co. the Asiatic Petroleum Co. and
the International Banking Corporation, the case comes under paragraph 11 of section 20 of Act No.
1956, and consequently the petitioners have the right to a judicial decree declaring the involuntary
insolvency of said partnership.

Wherefore, the judgment appealed from is reversed, and it is adjudged that the limited partnership
Campos Rueda & Co. is and was on December 28, 1921, insolvent and liable for having failed for
more than thirty days to meet its obligations with the three petitioners herein, and it is ordered that this
proceeding be remanded to the Court of First Instance of Manila with instruction to said court to issue
the proper decrees under section 24 of Act No. 1956, and proceed therewith until its final disposition.

It is so ordered without special finding as to costs.

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.
G.R. No. L-21906 December 24, 1968

INOCENCIA DELUAO and FELIPE DELUAO plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

Aportadera and Palabrica and Pelaez, Jalandoni and Jamir plaintiffs-appellees.

Ruiz Law Offices for defendant-appellant.

CASTRO, J.:

This is an appeal from the order of May 2, 1956, the decision of May 4, 1956 and the order of May 21,
1956, all of the Court of First Instance of Davao, in civil case 629. The basic action is for specific
performance, and damages resulting from an alleged breach of contract.

In 1940 Nicanor Casteel filed a fishpond application for a big tract of swampy land in the then Sitio of
Malalag (now the Municipality of Malalag), Municipality of Padada, Davao. No action was taken
thereon by the authorities concerned. During the Japanese occupation, he filed another fishpond
application for the same area, but because of the conditions then prevailing, it was not acted upon
either. On December 12, 1945 he filed a third fishpond application for the same area, which, after a
survey, was found to contain 178.76 hectares. Upon investigation conducted by a representative of
the Bureau of Forestry, it was discovered that the area applied for was still needed for firewood
production. Hence on May 13, 1946 this third application was disapproved.

Despite the said rejection, Casteel did not lose interest. He filed a motion for reconsideration. While
this motion was pending resolution, he was advised by the district forester of Davao City that no further
action would be taken on his motion, unless he filed a new application for the area concerned. So he
filed on May 27, 1947 his fishpond application 1717.

Meanwhile, several applications were submitted by other persons for portions of the area covered by
Casteel's application.

On May 20, 1946 Leoncio Aradillos filed his fishpond application 1202 covering 10 hectares of land
found inside the area applied for by Casteel; he was later granted fishpond permit F-289-C covering
9.3 hectares certified as available for fishpond purposes by the Bureau of Forestry.

Victor D. Carpio filed on August 8, 1946 his fishpond application 762 over a portion of the land applied
for by Casteel. Alejandro Cacam's fishpond application 1276, filed on December 26, 1946, was given
due course on December 9, 1947 with the issuance to him of fishpond permit F-539-C to develop 30
hectares of land comprising a portion of the area applied for by Casteel, upon certification of the
Bureau of Forestry that the area was likewise available for fishpond purposes. On November 17, 1948
Felipe Deluao filed his own fishpond application for the area covered by Casteel's application.

Because of the threat poised upon his position by the above applicants who entered upon and spread
themselves within the area, Casteel realized the urgent necessity of expanding his occupation thereof
by constructing dikes and cultivating marketable fishes, in order to prevent old and new squatters from
usurping the land. But lacking financial resources at that time, he sought financial aid from his uncle
Felipe Deluao who then extended loans totalling more or less P27,000 with which to finance the
needed improvements on the fishpond. Hence, a wide productive fishpond was built.
Moreover, upon learning that portions of the area applied for by him were already occupied by rival
applicants, Casteel immediately filed the corresponding protests. Consequently, two administrative
cases ensued involving the area in question, to wit: DANR Case 353, entitled "Fp. Ap. No. 661 (now
Fp. A. No. 1717), Nicanor Casteel, applicant-appellant versus Fp. A. No. 763, Victorio D. Carpio,
applicant-appellant"; and DANR Case 353-B, entitled "Fp. A. No. 661 (now Fp. A. No. 1717), Nicanor
Casteel, applicant-protestant versus Fp. Permit No. 289-C, Leoncio Aradillos, Fp. Permit No. 539-C,
Alejandro Cacam, Permittees-Respondents."

However, despite the finding made in the investigation of the above administrative cases that Casteel
had already introduced improvements on portions of the area applied for by him in the form of dikes,
fishpond gates, clearings, etc., the Director of Fisheries nevertheless rejected Casteel's application on
October 25, 1949, required him to remove all the improvements which he had introduced on the land,
and ordered that the land be leased through public auction. Failing to secure a favorable resolution of
his motion for reconsideration of the Director's order, Casteel appealed to the Secretary of Agriculture
and Natural Resources.

In the interregnum, some more incidents occurred. To avoid repetition, they will be taken up in our
discussion of the appellant's third assignment of error.

On November 25, 1949 Inocencia Deluao (wife of Felipe Deluao) as party of the first part, and Nicanor
Casteel as party of the second part, executed a contract — denominated a "contract of service" — the
salient provisions of which are as follows:

That the Party of the First Part in consideration of the mutual covenants and agreements made
herein to the Party of the Second Part, hereby enter into a contract of service, whereby the
Party of the First Part hires and employs the Party of the Second Part on the following terms
and conditions, to wit:

That the Party of the First Part will finance as she has hereby financed the sum of TWENTY
SEVEN THOUSAND PESOS (P27,000.00), Philippine Currency, to the Party of the Second
Part who renders only his services for the construction and improvements of a fishpond at
Barrio Malalag, Municipality of Padada, Province of Davao, Philippines;

That the Party of the Second Part will be the Manager and sole buyer of all the produce of the
fish that will be produced from said fishpond;

That the Party of the First Part will be the administrator of the same she having financed the
construction and improvement of said fishpond;

That this contract was the result of a verbal agreement entered into between the Parties
sometime in the month of November, 1947, with all the above-mentioned conditions
enumerated; ...

On the same date the above contract was entered into, Inocencia Deluao executed a special power
of attorney in favor of Jesus Donesa, extending to the latter the authority "To represent me in the
administration of the fishpond at Malalag, Municipality of Padada, Province of Davao, Philippines,
which has been applied for fishpond permit by Nicanor Casteel, but rejected by the Bureau of
Fisheries, and to supervise, demand, receive, and collect the value of the fish that is being periodically
realized from it...."

On November 29, 1949 the Director of Fisheries rejected the application filed by Felipe Deluao on
November 17, 1948. Unfazed by this rejection, Deluao reiterated his claim over the same area in the
two administrative cases (DANR Cases 353 and 353-B) and asked for reinvestigation of the application
of Nicanor Casteel over the subject fishpond. However, by letter dated March 15, 1950 sent to the
Secretary of Commerce and Agriculture and Natural Resources (now Secretary of Agriculture and
Natural Resources), Deluao withdrew his petition for reinvestigation.

On September 15, 1950 the Secretary of Agriculture and Natural Resources issued a decision in
DANR Case 353, the dispositive portion of which reads as follows:

In view of all the foregoing considerations, Fp. A. No. 661 (now Fp. A. No. 1717) of Nicanor
Casteel should be, as hereby it is, reinstated and given due course for the area indicated in
the sketch drawn at the back of the last page hereof; and Fp. A. No. 762 of Victorio D. Carpio
shall remain rejected.

On the same date, the same official issued a decision in DANR Case 353-B, the dispositive portion
stating as follows:

WHEREFORE, Fishpond Permit No. F-289-C of Leoncio Aradillos and Fishpond Permit No.
F-539-C of Alejandro Cacam, should be, as they are hereby cancelled and revoked; Nicanor
Casteel is required to pay the improvements introduced thereon by said permittees in
accordance with the terms and dispositions contained elsewhere in this decision....

Sometime in January 1951 Nicanor Casteel forbade Inocencia Deluao from further administering the
fishpond, and ejected the latter's representative (encargado), Jesus Donesa, from the premises.

Alleging violation of the contract of service (exhibit A) entered into between Inocencia Deluao and
Nicanor Casteel, Felipe Deluao and Inocencia Deluao on April 3, 1951 filed an action in the Court of
First Instance of Davao for specific performance and damages against Nicanor Casteel and Juan
Depra (who, they alleged, instigated Casteel to violate his contract), praying inter alia, (a) that Casteel
be ordered to respect and abide by the terms and conditions of said contract and that Inocencia Deluao
be allowed to continue administering the said fishpond and collecting the proceeds from the sale of
the fishes caught from time to time; and (b) that the defendants be ordered to pay jointly and severally
to plaintiffs the sum of P20,000 in damages.

On April 18, 1951 the plaintiffs filed an ex parte motion for the issuance of a preliminary injunction,
praying among other things, that during the pendency of the case and upon their filling the requisite
bond as may be fixed by the court, a preliminary injunction be issued to restrain Casteel from doing
the acts complained of, and that after trial the said injunction be made permanent. The lower court on
April 26, 1951 granted the motion, and, two days later, it issued a preliminary mandatory injunction
addressed to Casteel, the dispositive portion of which reads as follows:

POR EL PRESENTE, queda usted ordenado que, hasta nueva orden, usted, el demandado y
todos usu abogados, agentes, mandatarios y demas personas que obren en su ayuda, desista
de impedir a la demandante Inocencia R. Deluao que continue administrando personalmente
la pesqueria objeto de esta causa y que la misma continue recibiendo los productos de la
venta de los pescados provenientes de dicha pesqueria, y que, asimismo, se prohibe a dicho
demandado Nicanor Casteel a desahuciar mediante fuerza al encargado de los demandantes
llamado Jesus Donesa de la pesqueria objeto de la demanda de autos.

On May 10, 1951 Casteel filed a motion to dissolve the injunction, alleging among others, that he was
the owner, lawful applicant and occupant of the fishpond in question. This motion, opposed by the
plaintiffs on June 15, 1951, was denied by the lower court in its order of June 26, 1961.
The defendants on May 14, 1951 filed their answer with counterclaim, amended on January 8, 1952,
denying the material averments of the plaintiffs' complaint. A reply to the defendants' amended answer
was filed by the plaintiffs on January 31, 1952.

The defendant Juan Depra moved on May 22, 1951 to dismiss the complaint as to him. On June 4,
1951 the plaintiffs opposed his motion.

The defendants filed on October 3, 1951 a joint motion to dismiss on the ground that the plaintiffs'
complaint failed to state a claim upon which relief may be granted. The motion, opposed by the
plaintiffs on October 12, 1951, was denied for lack of merit by the lower court in its order of October
22, 1951. The defendants' motion for reconsideration filed on October 31, 1951 suffered the same fate
when it was likewise denied by the lower court in its order of November 12, 1951.

After the issues were joined, the case was set for trial. Then came a series of postponements. The
lower court (Branch I, presided by Judge Enrique A. Fernandez) finally issued on March 21, 1956 an
order in open court, reading as follows: .

Upon petition of plaintiffs, without any objection on the part of defendants, the hearing of this
case is hereby transferred to May 2 and 3, 1956 at 8:30 o'clock in the morning.

This case was filed on April 3, 1951 and under any circumstance this Court will not entertain
any other transfer of hearing of this case and if the parties will not be ready on that day set for
hearing, the court will take the necessary steps for the final determination of this case.
(emphasis supplied)

On April 25, 1956 the defendants' counsel received a notice of hearing dated April 21, 1956, issued
by the office of the Clerk of Court (thru the special deputy Clerk of Court) of the Court of First Instance
of Davao, setting the hearing of the case for May 2 and 3, 1956 before Judge Amador Gomez of
Branch II. The defendants, thru counsel, on April 26, 1956 filed a motion for postponement. Acting on
this motion, the lower court (Branch II, presided by Judge Gomez) issued an order dated April 27,
1956, quoted as follows:

This is a motion for postponement of the hearing of this case set for May 2 and 3, 1956. The
motion is filed by the counsel for the defendants and has the conformity of the counsel for the
plaintiffs.

An examination of the records of this case shows that this case was initiated as early as April
1951 and that the same has been under advisement of the Honorable Enrique A. Fernandez,
Presiding Judge of Branch No. I, since September 24, 1953, and that various incidents have
already been considered and resolved by Judge Fernandez on various occasions. The last
order issued by Judge Fernandez on this case was issued on March 21, 1956, wherein he
definitely states that the Court will not entertain any further postponement of the hearing of this
case.

CONSIDERING ALL THE FOREGOING, the Court believes that the consideration and
termination of any incident referring to this case should be referred back to Branch I, so that
the same may be disposed of therein. (emphasis supplied)

A copy of the abovequoted order was served on the defendants' counsel on May 4, 1956.
On the scheduled date of hearing, that is, on May 2, 1956, the lower court (Branch I, with Judge
Fernandez presiding), when informed about the defendants' motion for postponement filed on April
26, 1956, issued an order reiterating its previous order handed down in open court on March 21, 1956
and directing the plaintiffs to introduce their evidence ex parte, there being no appearance on the part
of the defendants or their counsel. On the basis of the plaintiffs' evidence, a decision was rendered on
May 4, 1956 the dispositive portion of which reads as follows:

EN SU VIRTUD, el Juzgado dicta de decision a favor de los demandantes y en contra del

demandado Nicanor Casteel:

(a) Declara permanente el interdicto prohibitorio expedido contra el demandado;

(b) Ordena al demandado entregue la demandante la posesion y administracion de la mitad

(½) del "fishpond" en cuestion con todas las mejoras existentes dentro de la misma;

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

concepto de danos a contar de la fecha de la expiracion de los 30 dias de la promulgacion de
esta decision hasta que entregue la posesion y administracion de la porcion del "fishpond" en
conflicto;

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

pescado beneficiados, mas los intereses legales de la fecha de la incoacion de la demanda
de autos hasta el completo pago de la obligacion principal;

(e) Condena al demandado a pagar a la demandante la suma de P2,000.00, por gastos

incurridos por aquella durante la pendencia de esta causa;

(f) Condena al demandado a pagar a la demandante, en concepto de honorarios, la suma de

P2,000.00;

(g) Ordena el sobreseimiento de esta demanda, por insuficiencia de pruebas, en tanto en

cuanto se refiere al demandado Juan Depra;

(h) Ordena el sobreseimiento de la reconvencion de los demandados por falta de pruebas;

(i) Con las costas contra del demandado, Casteel.

The defendant Casteel filed a petition for relief from the foregoing decision, alleging, inter alia, lack of
knowledge of the order of the court a quo setting the case for trial. The petition, however, was denied
by the lower court in its order of May 21, 1956, the pertinent portion of which reads as follows:

The duty of Atty. Ruiz, was not to inquire from the Clerk of Court whether the trial of this case
has been transferred or not, but to inquire from the presiding Judge, particularly because his
motion asking the transfer of this case was not set for hearing and was not also acted upon.

Atty. Ruiz knows the nature of the order of this Court dated March 21, 1956, which reads as
follows:

Upon petition of the plaintiff without any objection on the part of the defendants, the
hearing of this case is hereby transferred to May 2 and 3, 1956, at 8:30 o'clock in the
morning.
 This case was filed on April 3, 1951, and under any circumstance this Court will not
entertain any other transfer of the hearing of this case, and if the parties will not be
ready on the day set for hearing, the Court will take necessary steps for the final
disposition of this case.

In view of the order above-quoted, the Court will not accede to any transfer of this case and
the duty of Atty. Ruiz is no other than to be present in the Sala of this Court and to call the
attention of the same to the existence of his motion for transfer.

Petition for relief from judgment filed by Atty. Ruiz in behalf of the defendant, not well taken,
the same is hereby denied.

Dissatisfied with the said ruling, Casteel appealed to the Court of Appeals which certified the case to
us for final determination on the ground that it involves only questions of law.

Casteel raises the following issues:

(1) Whether the lower court committed gross abuse of discretion when it ordered reception of
the appellees' evidence in the absence of the appellant at the trial on May 2, 1956, thus
depriving the appellant of his day in court and of his property without due process of law;

(2) Whether the lower court committed grave abuse of discretion when it denied the verified
petition for relief from judgment filed by the appellant on May 11, 1956 in accordance with Rule
38, Rules of Court; and

(3) Whether the lower court erred in ordering the issuance ex parte of a writ of preliminary
injunction against defendant-appellant, and in not dismissing appellees' complaint.

1. The first and second issues must be resolved against the appellant.

The record indisputably shows that in the order given in open court on March 21, 1956, the lower court
set the case for hearing on May 2 and 3, 1956 at 8:30 o'clock in the morning and empathically stated
that, since the case had been pending since April 3, 1951, it would not entertain any further motion for
transfer of the scheduled hearing.

An order given in open court is presumed received by the parties on the very date and time of
promulgation,1 and amounts to a legal notification for all legal purposes. 2 The order of March 21, 1956,
given in open court, was a valid notice to the parties, and the notice of hearing dated April 21, 1956 or
one month thereafter, was a superfluity. Moreover, as between the order of March 21, 1956, duly
promulgated by the lower court, thru Judge Fernandez, and the notice of hearing signed by a "special
deputy clerk of court" setting the hearing in another branch of the same court, the former's order was
the one legally binding. This is because the incidents of postponements and adjournments are
controlled by the court and not by the clerk of court, pursuant to section 4, Rule 31 (now sec. 3, Rule
22) of the Rules of Court.

Much less had the clerk of court the authority to interfere with the order of the court or to transfer the
cage from one sala to another without authority or order from the court where the case originated and
was being tried. He had neither the duty nor prerogative to re-assign the trial of the case to a different
branch of the same court. His duty as such clerk of court, in so far as the incident in question was
concerned, was simply to prepare the trial calendar. And this duty devolved upon the clerk of court
and not upon the "special deputy clerk of court" who purportedly signed the notice of hearing.
It is of no moment that the motion for postponement had the conformity of the appellees' counsel. The
postponement of hearings does not depend upon agreement of the parties, but upon the court's
discretion.3

The record further discloses that Casteel was represented by a total of 12 lawyers, none of whom had
ever withdrawn as counsel. Notice to Atty. Ruiz of the order dated March 21, 1956 intransferably
setting the case for hearing for May 2 and 3, 1956, was sufficient notice to all the appellant's eleven
other counsel of record. This is a well-settled rule in our jurisdiction.4

It was the duty of Atty. Ruiz, or of the other lawyers of record, not excluding the appellant himself, to
appear before Judge Fernandez on the scheduled dates of hearing Parties and their lawyers have no
right to presume that their motions for postponement will be granted. 5 For indeed, the appellant and
his 12 lawyers cannot pretend ignorance of the recorded fact that since September 24, 1953 until the
trial held on May 2, 1956, the case was under the advisement of Judge Fernandez who presided over
Branch I. There was, therefore, no necessity to "re-assign" the same to Branch II because Judge
Fernandez had exclusive control of said case, unless he was legally inhibited to try the case — and
he was not.

There is truth in the appellant's contention that it is the duty of the clerk of court — not of the Court —
to prepare the trial calendar. But the assignment or reassignment of cases already pending in one sala
to another sala, and the setting of the date of trial after the trial calendar has been prepared, fall within
the exclusive control of the presiding judge.

The appellant does not deny the appellees' claim that on May 2 and 3, 1956, the office of the clerk of
court of the Court of First Instance of Davao was located directly below Branch I. If the appellant and
his counsel had exercised due diligence, there was no impediment to their going upstairs to the second
storey of the Court of First Instance building in Davao on May 2, 1956 and checking if the case was
scheduled for hearing in the said sala. The appellant after all admits that on May 2, 1956 his counsel
went to the office of the clerk of court.

The appellant's statement that parties as a matter of right are entitled to notice of trial, is correct. But
he was properly accorded this right. He was notified in open court on March 21, 1956 that the case
was definitely and intransferably set for hearing on May 2 and 3, 1956 before Branch I. He cannot
argue that, pursuant to the doctrine in Siochi vs. Tirona,6 his counsel was entitled to a timely notice of
the denial of his motion for postponement. In the cited case the motion for postponement was the first
one filed by the defendant; in the case at bar, there had already been a series of postponements.
Unlike the case at bar, the Siochi case was not intransferably set for hearing. Finally, whereas the
cited case did not spend for a long time, the case at bar was only finally and intransferably set for
hearing on March 21, 1956 — after almost five years had elapsed from the filing of the complaint on
April 3, 1951.

The pretension of the appellant and his 12 counsel of record that they lacked ample time to prepare
for trial is unacceptable because between March 21, 1956 and May 2, 1956, they had one month and
ten days to do so. In effect, the appellant had waived his right to appear at the trial and therefore he
cannot be heard to complain that he has been deprived of his property without due process of
law.7 Verily, the constitutional requirements of due process have been fulfilled in this case: the lower
court is a competent court; it lawfully acquired jurisdiction over the person of the defendant (appellant)
and the subject matter of the action; the defendant (appellant) was given an opportunity to be heard;
and judgment was rendered upon lawful hearing. 8
2. Finally, the appellant contends that the lower court incurred an error in ordering the issuance ex
parte of a writ of preliminary injunction against him, and in not dismissing the appellee's complaint. We
find this contention meritorious.

Apparently, the court a quo relied on exhibit A — the so-called "contract of service" — and the
appellees' contention that it created a contract of co-ownership and partnership between Inocencia
Deluao and the appellant over the fishpond in question.

Too well-settled to require any citation of authority is the rule that everyone is conclusively presumed
to know the law. It must be assumed, conformably to such rule, that the parties entered into the so-
called "contract of service" cognizant of the mandatory and prohibitory laws governing the filing of
applications for fishpond permits. And since they were aware of the said laws, it must likewise be
assumed — in fairness to the parties — that they did not intend to violate them. This view must perforce
negate the appellees' allegation that exhibit A created a contract of co-ownership between the parties
over the disputed fishpond. Were we to admit the establishment of a co-ownership violative of the
prohibitory laws which will hereafter be discussed, we shall be compelled to declare altogether the
nullity of the contract. This would certainly not serve the cause of equity and justice, considering that
rights and obligations have already arisen between the parties. We shall therefore construe the
contract as one of partnership, divided into two parts — namely, a contract of partnership to exploit
the fishpond pending its award to either Felipe Deluao or Nicanor Casteel, and a contract of
partnership to divide the fishpond between them after such award. The first is valid, the second illegal.

It is well to note that when the appellee Inocencia Deluao and the appellant entered into the so-called
"contract of service" on November 25, 1949, there were two pending applications over the fishpond.
One was Casteel's which was appealed by him to the Secretary of Agriculture and Natural Resources
after it was disallowed by the Director of Fisheries on October 25, 1949. The other was Felipe Deluao's
application over the same area which was likewise rejected by the Director of Fisheries on November
29, 1949, refiled by Deluao and later on withdrawn by him by letter dated March 15, 1950 to the
Secretary of Agriculture and Natural Resources. Clearly, although the fishpond was then in the
possession of Casteel, neither he nor, Felipe Deluao was the holder of a fishpond permit over the
area. But be that as it may, they were not however precluded from exploiting the fishpond pending
resolution of Casteel's appeal or the approval of Deluao's application over the same area — whichever
event happened first. No law, rule or regulation prohibited them from doing so. Thus, rather than let
the fishpond remain idle they cultivated it.

The evidence preponderates in favor of the view that the initial intention of the parties was not to form
a co-ownership but to establish a partnership — Inocencia Deluao as capitalist partner and Casteel
as industrial partner — the ultimate undertaking of which was to divide into two equal parts such portion
of the fishpond as might have been developed by the amount extended by the plaintiffs-appellees,
with the further provision that Casteel should reimburse the expenses incurred by the appellees over
one-half of the fishpond that would pertain to him. This can be gleaned, among others, from the letter
of Casteel to Felipe Deluao on November 15, 1949, which states, inter alia:

... [W]ith respect to your allowing me to use your money, same will redound to your benefit
because you are the ones interested in half of the work we have done so far, besides I did not
insist on our being partners in my fishpond permit, but it was you "Tatay" Eping the one who
wanted that we be partners and it so happened that we became partners because I am poor,
but in the midst of my poverty it never occurred to me to be unfair to you. Therefore so that
each of us may be secured, let us have a document prepared to the effect that we are partners
in the fishpond that we caused to be made here in Balasinon, but it does not mean that you
will treat me as one of your "Bantay" (caretaker) on wage basis but not earning wages at all,
while the truth is that we are partners. In the event that you are not amenable to my proposition
 and consider me as "Bantay" (caretaker) instead, do not blame me if I withdraw all my cases
and be left without even a little and you likewise.
(emphasis supplied)9

Pursuant to the foregoing suggestion of the appellant that a document be drawn evidencing their
partnership, the appellee Inocencia Deluao and the appellant executed exhibit A which, although
denominated a "contract of service," was actually the memorandum of their partnership agreement.
That it was not a contract of the services of the appellant, was admitted by the appellees themselves
in their letter10 to Casteel dated December 19, 1949 wherein they stated that they did not employ him
in his (Casteel's) claim but because he used their money in developing and improving the fishpond,
his right must be divided between them. Of course, although exhibit A did not specify any wage or
share appertaining to the appellant as industrial partner, he was so entitled — this being one of the
conditions he specified for the execution of the document of partnership. 11

Further exchanges of letters between the parties reveal the continuing intent to divide the fishpond. In
a letter,12dated March 24, 1950, the appellant suggested that they divide the fishpond and the
remaining capital, and offered to pay the Deluaos a yearly installment of P3,000 — presumably as
reimbursement for the expenses of the appellees for the development and improvement of the one-
half that would pertain to the appellant. Two days later, the appellee Felipe Deluao replied, 13expressing
his concurrence in the appellant's suggestion and advising the latter to ask for a reconsideration of the
order of the Director of Fisheries disapproving his (appellant's) application, so that if a favorable
decision was secured, then they would divide the area.

Apparently relying on the partnership agreement, the appellee Felipe Deluao saw no further need to
maintain his petition for the reinvestigation of Casteel's application. Thus by letter14 dated March 15,
1950 addressed to the Secretary of Agriculture and Natural Resources, he withdrew his petition on
the alleged ground that he was no longer interested in the area, but stated however that he wanted
his interest to be protected and his capital to be reimbursed by the highest bidder.

The arrangement under the so-called "contract of service" continued until the decisions both dated
September 15, 1950 were issued by the Secretary of Agriculture and Natural Resources in DANR
Cases 353 and 353-B. This development, by itself, brought about the dissolution of the partnership.
Moreover, subsequent events likewise reveal the intent of both parties to terminate the partnership
because each refused to share the fishpond with the other.

Art. 1830(3) of the Civil Code enumerates, as one of the causes for the dissolution of a partnership,
"... any event which makes it unlawful for the business of the partnership to be carried on or for the
members to carry it on in partnership." The approval of the appellant's fishpond application by the
decisions in DANR Cases 353 and 353-B brought to the fore several provisions of law which made
the continuation of the partnership unlawful and therefore caused its ipso facto dissolution.

Act 4003, known as the Fisheries Act, prohibits the holder of a fishpond permit (the permittee) from
transferring or subletting the fishpond granted to him, without the previous consent or approval of the
Secretary of Agriculture and Natural Resources. 15 To the same effect is Condition No. 3 of the fishpond
permit which states that "The permittee shall not transfer or sublet all or any area herein granted or
any rights acquired therein without the previous consent and approval of this Office." Parenthetically,
we must observe that in DANR Case 353-B, the permit granted to one of the parties therein, Leoncio
Aradillos, was cancelled not solely for the reason that his permit covered a portion of the area included
in the appellant's prior fishpond application, but also because, upon investigation, it was ascertained
thru the admission of Aradillos himself that due to lack of capital, he allowed one Lino Estepa to
develop with the latter's capital the area covered by his fishpond permit F-289-C with the
understanding that he (Aradillos) would be given a share in the produce thereof. 16
Sec. 40 of Commonwealth Act 141, otherwise known as the Public Land Act, likewise provides that

The lessee shall not assign, encumber, or sublet his rights without the consent of the Secretary
of Agriculture and Commerce, and the violation of this condition shall avoid the
contract; Provided, That assignment, encumbrance, or subletting for purposes of speculation
shall not be permitted in any case: Provided, further, That nothing contained in this section
shall be understood or construed to permit the assignment, encumbrance, or subletting of
lands leased under this Act, or under any previous Act, to persons, corporations, or
associations which under this Act, are not authorized to lease public lands.

Finally, section 37 of Administrative Order No. 14 of the Secretary of Agriculture and Natural
Resources issued in August 1937, prohibits a transfer or sublease unless first approved by the Director
of Lands and under such terms and conditions as he may prescribe. Thus, it states:

When a transfer or sub-lease of area and improvement may be allowed. — If the permittee or
lessee had, unless otherwise specifically provided, held the permit or lease and actually
operated and made improvements on the area for at least one year, he/she may request
permission to sub-lease or transfer the area and improvements under certain conditions.

(a) Transfer subject to approval. — A sub-lease or transfer shall only be valid when first
approved by the Director under such terms and conditions as may be prescribed, otherwise it
shall be null and void. A transfer not previously approved or reported shall be considered
sufficient cause for the cancellation of the permit or lease and forfeiture of the bond and for
granting the area to a qualified applicant or bidder, as provided in subsection (r) of Sec. 33 of
this Order.

Since the partnership had for its object the division into two equal parts of the fishpond between the
appellees and the appellant after it shall have been awarded to the latter, and therefore it envisaged
the unauthorized transfer of one-half thereof to parties other than the applicant Casteel, it was
dissolved by the approval of his application and the award to him of the fishpond. The approval was
an event which made it unlawful for the business of the partnership to be carried on or for the members
to carry it on in partnership.

The appellees, however, argue that in approving the appellant's application, the Secretary of
Agriculture and Natural Resources likewise recognized and/or confirmed their property right to one-
half of the fishpond by virtue of the contract of service, exhibit A. But the untenability of this argument
would readily surface if one were to consider that the Secretary of Agriculture and Natural Resources
did not do so for the simple reason that he does not possess the authority to violate the aforementioned
prohibitory laws nor to exempt anyone from their operation.

However, assuming in gratia argumenti that the approval of Casteel's application, coupled with the
foregoing prohibitory laws, was not enough to cause the dissolution ipso facto of their partnership,
succeeding events reveal the intent of both parties to terminate the partnership by refusing to share
the fishpond with the other.

On December 27, 1950 Casteel wrote17 the appellee Inocencia Deluao, expressing his desire to divide
the fishpond so that he could administer his own share, such division to be subject to the approval of
the Secretary of Agriculture and Natural Resources. By letter dated December 29, 1950,18 the appellee
Felipe Deluao demurred to Casteel's proposition because there were allegedly no appropriate grounds
to support the same and, moreover, the conflict over the fishpond had not been finally resolved.
The appellant wrote on January 4, 1951 a last letter19 to the appellee Felipe Deluao wherein the former
expressed his determination to administer the fishpond himself because the decision of the
Government was in his favor and the only reason why administration had been granted to the Deluaos
was because he was indebted to them. In the same letter, the appellant forbade Felipe Deluao from
sending the couple's encargado, Jesus Donesa, to the fishpond. In reply thereto, Felipe Deluao wrote
a letter20 dated January 5, 1951 in which he reiterated his refusal to grant the administration of the
fishpond to the appellant, stating as a ground his belief "that only the competent agencies of the
government are in a better position to render any equitable arrangement relative to the present case;
hence, any action we may privately take may not meet the procedure of legal order."

Inasmuch as the erstwhile partners articulated in the aforecited letters their respective resolutions not
to share the fishpond with each other — in direct violation of the undertaking for which they have
established their partnership — each must be deemed to have expressly withdrawn from the
partnership, thereby causing its dissolution pursuant to art. 1830(2) of the Civil Code which
provides, inter alia, that dissolution is caused "by the express will of any partner at any time."

In this jurisdiction, the Secretary of Agriculture and Natural Resources possesses executive and
administrative powers with regard to the survey, classification, lease, sale or any other form of
concession or disposition and management of the lands of the public domain, and, more specifically,
with regard to the grant or withholding of licenses, permits, leases and contracts over portions of the
public domain to be utilized as fishponds.21, Thus, we held in Pajo, et al. vs. Ago, et al. (L-15414, June
30, 1960), and reiterated in Ganitano vs. Secretary of Agriculture and Natural Resources, et al.
(L-21167, March 31, 1966), that

... [T]he powers granted to the Secretary of Agriculture and Commerce (Natural Resources)
by law regarding the disposition of public lands such as granting of licenses, permits, leases,
and contracts, or approving, rejecting, reinstating, or cancelling applications, or deciding
conflicting applications, are all executive and administrative in nature. It is a well-recognized
principle that purely administrative and discretionary functions may not be interfered with by
the courts (Coloso v. Board of Accountancy, G.R. No. L-5750, April 20, 1953). In general,
courts have no supervising power over the proceedings and action of the administrative
departments of the government. This is generally true with respect to acts involving the
exercise of judgment or discretion, and findings of fact. (54 Am. Jur. 558-559) Findings of fact
by an administrative board or official, following a hearing, are binding upon the courts and will
not be disturbed except where the board or official has gone beyond his statutory authority,
exercised unconstitutional powers or clearly acted arbitrarily and without regard to his duty or
with grave abuse of discretion... (emphasis supplied)

In the case at bar, the Secretary of Agriculture and Natural Resources gave due course to the
appellant's fishpond application 1717 and awarded to him the possession of the area in question. In
view of the finality of the Secretary's decision in DANR Cases 353 and 353-B, and considering the
absence of any proof that the said official exceeded his statutory authority, exercised unconstitutional
powers, or acted with arbitrariness and in disregard of his duty, or with grave abuse of discretion, we
can do no less than respect and maintain unfettered his official acts in the premises. It is a salutary
rule that the judicial department should not dictate to the executive department what to do with regard
to the administration and disposition of the public domain which the law has entrusted to its care and
administration. Indeed, courts cannot superimpose their discretion on that of the land department and
compel the latter to do an act which involves the exercise of judgment and discretion. 22

Therefore, with the view that we take of this case, and even assuming that the injunction was properly
issued because present all the requisite grounds for its issuance, its continuation, and, worse, its
declaration as permanent, was improper in the face of the knowledge later acquired by the lower court
that it was the appellant's application over the fishpond which was given due course. After the
Secretary of Agriculture and Natural Resources approved the appellant's application, he became to
all intents and purposes the legal permittee of the area with the corresponding right to possess, occupy
and enjoy the same. Consequently, the lower court erred in issuing the preliminary mandatory
injunction. We cannot overemphasize that an injunction should not be granted to take property out of
the possession and control of one party and place it in the hands of another whose title has not been
clearly established by law.23

However, pursuant to our holding that there was a partnership between the parties for the exploitation
of the fishpond before it was awarded to Casteel, this case should be remanded to the lower court for
the reception of evidence relative to an accounting from November 25, 1949 to September 15, 1950,
in order for the court to determine (a) the profits realized by the partnership, (b) the share (in the profits)
of Casteel as industrial partner, (e) the share (in the profits) of Deluao as capitalist partner, and (d)
whether the amounts totalling about P27,000 advanced by Deluao to Casteel for the development and
improvement of the fishpond have already been liquidated. Besides, since the appellee Inocencia
Deluao continued in possession and enjoyment of the fishpond even after it was awarded to Casteel,
she did so no longer in the concept of a capitalist partner but merely as creditor of the appellant, and
therefore, she must likewise submit in the lower court an accounting of the proceeds of the sales of all
the fishes harvested from the fishpond from September 16, 1950 until Casteel shall have been finally
given the possession and enjoyment of the same. In the event that the appellee Deluao has received
more than her lawful credit of P27,000 (or whatever amounts have been advanced to Casteel), plus
6% interest thereon per annum, then she should reimburse the excess to the appellant.

ACCORDINGLY, the judgment of the lower court is set aside. Another judgment is hereby rendered:
(1) dissolving the injunction issued against the appellant, (2) placing the latter back in possession of
the fishpond in litigation, and (3) remanding this case to the court of origin for the reception of evidence
relative to the accounting that the parties must perforce render in the premises, at the termination of
which the court shall render judgment accordingly. The appellant's counterclaim is dismissed. No
pronouncement as to costs.
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.
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.

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.
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.
G.R. No. L-25532 February 28, 1969

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
WILLIAM J. SUTER and THE COURT OF TAX APPEALS, respondents.

Office of the Solicitor General Antonio P. Barredo, Assistant Solicitor General Felicisimo R. Rosete
and Special Attorneys B. Gatdula, Jr. and T. Temprosa Jr. for petitioner.
A. S. Monzon, Gutierrez, Farrales and Ong for respondents.

REYES, J.B.L., J.:

A limited partnership, named "William J. Suter 'Morcoin' Co., Ltd.," was formed on 30 September 1947
by herein respondent William J. Suter as the general partner, and Julia Spirig and Gustav Carlson, as
the limited partners. The partners contributed, respectively, P20,000.00, P18,000.00 and P2,000.00
to the partnership. On 1 October 1947, the limited partnership was registered with the Securities and
Exchange Commission. The firm engaged, among other activities, in the importation, marketing,
distribution and operation of automatic phonographs, radios, television sets and amusement
machines, their parts and accessories. It had an office and held itself out as a limited partnership,
handling and carrying merchandise, using invoices, bills and letterheads bearing its trade-name,
maintaining its own books of accounts and bank accounts, and had a quota allocation with the Central
Bank.

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18
December 1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The
sale was duly recorded with the Securities and Exchange Commission on 20 December 1948.

The limited partnership had been filing its income tax returns as a corporation, without objection by
the herein petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an
assessment, consolidated the income of the firm and the individual incomes of the partners-spouses
Suter and Spirig resulting in a determination of a deficiency income tax against respondent Suter in
the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

Respondent Suter protested the assessment, and requested its cancellation and withdrawal, as not in
accordance with law, but his request was denied. Unable to secure a reconsideration, he appealed to
the Court of Tax Appeals, which court, after trial, rendered a decision, on 11 November 1965, reversing
that of the Commissioner of Internal Revenue.

The present case is a petition for review, filed by the Commissioner of Internal Revenue, of the tax
court's aforesaid decision. It raises these issues:

(a) Whether or not the corporate personality of the William J. Suter "Morcoin" Co., Ltd. should be
disregarded for income tax purposes, considering that respondent William J. Suter and his wife, Julia
Spirig Suter actually formed a single taxable unit; and

(b) Whether or not the partnership was dissolved after the marriage of the partners, respondent William
J. Suter and Julia Spirig Suter and the subsequent sale to them by the remaining partner, Gustav
Carlson, of his participation of P2,000.00 in the partnership for a nominal amount of P1.00.

The theory of the petitioner, Commissioner of Internal Revenue, is that the marriage of Suter and
Spirig and their subsequent acquisition of the interests of remaining partner Carlson in the partnership
dissolved the limited partnership, and if they did not, the fiction of juridical personality of the partnership
should be disregarded for income tax purposes because the spouses have exclusive ownership and
control of the business; consequently the income tax return of respondent Suter for the years in
question should have included his and his wife's individual incomes and that of the limited partnership,
in accordance with Section 45 (d) of the National Internal Revenue Code, which provides as follows:

(d) Husband and wife. — In the case of married persons, whether citizens, residents or non-
residents, only one consolidated return for the taxable year shall be filed by either spouse to
cover the income of both spouses; ....

In refutation of the foregoing, respondent Suter maintains, as the Court of Tax Appeals held, that his
marriage with limited partner Spirig and their acquisition of Carlson's interests in the partnership in
1948 is not a ground for dissolution of the partnership, either in the Code of Commerce or in the New
Civil Code, and that since its juridical personality had not been affected and since, as a limited
partnership, as contra distinguished from a duly registered general partnership, it is taxable on its
income similarly with corporations, Suter was not bound to include in his individual return the income
of the limited partnership.

We find the Commissioner's appeal unmeritorious.

The thesis that the limited partnership, William J. Suter "Morcoin" Co., Ltd., has been dissolved by
operation of law because of the marriage of the only general partner, William J. Suter to the originally
limited partner, Julia Spirig one year after the partnership was organized is rested by the appellant
upon the opinion of now Senator Tolentino in Commentaries and Jurisprudence on Commercial Laws
of the Philippines, Vol. 1, 4th Ed., page 58, that reads as follows:

A husband and a wife may not enter into a contract of general copartnership, because under
the Civil Code, which applies in the absence of express provision in the Code of Commerce,
persons prohibited from making donations to each other are prohibited from entering
into universal partnerships. (2 Echaverri 196) It follows that the marriage of partners
necessarily brings about the dissolution of a pre-existing partnership. (1 Guy de Montella 58)

The petitioner-appellant has evidently failed to observe the fact that William J. Suter "Morcoin" Co.,
Ltd. was not a universal partnership, but a particular one. As appears from Articles 1674 and 1675 of
the Spanish Civil Code, of 1889 (which was the law in force when the subject firm was organized in
1947), a universal partnership requires either that the object of the association be all the present
property of the partners, as contributed by them to the common fund, or else "all that the partners may
acquire by their industry or work during the existence of the partnership". William J. Suter "Morcoin"
Co., Ltd. was not such a universal partnership, since the contributions of the partners were fixed sums
of money, P20,000.00 by William Suter and P18,000.00 by Julia Spirig and neither one of them was
an industrial partner. It follows that William J. Suter "Morcoin" Co., Ltd. was not a partnership that
spouses were forbidden to enter by Article 1677 of the Civil Code of 1889.

The former Chief Justice of the Spanish Supreme Court, D. Jose Casan, in his Derecho Civil, 7th
Edition, 1952, Volume 4, page 546, footnote 1, says with regard to the prohibition contained in the
aforesaid Article 1677:

Los conyuges, segun esto, no pueden celebrar entre si el contrato de sociedad universal, pero
o podran constituir sociedad particular? Aunque el punto ha sido muy debatido, nos inclinamos
a la tesis permisiva de los contratos de sociedad particular entre esposos, ya que ningun
precepto de nuestro Codigo los prohibe, y hay que estar a la norma general segun la que toda
persona es capaz para contratar mientras no sea declarado incapaz por la ley. La
 jurisprudencia de la Direccion de los Registros fue favorable a esta misma tesis en su
resolution de 3 de febrero de 1936, mas parece cambiar de rumbo en la de 9 de marzo de
1943.

Nor could the subsequent marriage of the partners operate to dissolve it, such marriage not being one
of the causes provided for that purpose either by the Spanish Civil Code or the Code of Commerce.

The appellant's view, that by the marriage of both partners the company became a single
proprietorship, is equally erroneous. The capital contributions of partners William J. Suter and Julia
Spirig were separately owned and contributed by them before their marriage; and after they were
joined in wedlock, such contributions remained their respective separate property under the Spanish
Civil Code (Article 1396):

The following shall be the exclusive property of each spouse:

(a) That which is brought to the marriage as his or her own; ....

Thus, the individual interest of each consort in William J. Suter "Morcoin" Co., Ltd. did not become
common property of both after their marriage in 1948.

It being a basic tenet of the Spanish and Philippine law that the partnership has a juridical personality
of its own, distinct and separate from that of its partners (unlike American and English law that does
not recognize such separate juridical personality), the bypassing of the existence of the limited
partnership as a taxpayer can only be done by ignoring or disregarding clear statutory mandates and
basic principles of our law. The limited partnership's separate individuality makes it impossible to
equate its income with that of the component members. True, section 24 of the Internal Revenue Code
merges registered general co-partnerships (compañias colectivas) with the personality of the
individual partners for income tax purposes. But this rule is exceptional in its disregard of a cardinal
tenet of our partnership laws, and can not be extended by mere implication to limited partnerships.

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554,
Resolution of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for
disregarding the fiction of legal personality of the corporations involved therein are not applicable to
the present case. In the cited cases, the corporations were already subject to tax when the fiction of
their corporate personality was pierced; in the present case, to do so would exempt the limited
partnership from income taxation but would throw the tax burden upon the partners-spouses in their
individual capacities. The corporations, in the cases cited, merely served as business conduits or alter
egos of the stockholders, a factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership is not a mere business
conduit of the partner-spouses; it was organized for legitimate business purposes; it conducted its own
dealings with its customers prior to appellee's marriage, and had been filing its own income tax returns
as such independent entity. The change in its membership, brought about by the marriage of the
partners and their subsequent acquisition of all interest therein, is no ground for withdrawing the
partnership from the coverage of Section 24 of the tax code, requiring it to pay income tax. As far as
the records show, the partners did not enter into matrimony and thereafter buy the interests of the
remaining partner with the premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws. Regularity, not otherwise, is presumed.

As the limited partnership under consideration is taxable on its income, to require that income to be
included in the individual tax return of respondent Suter is to overstretch the letter and intent of the
law. In fact, it would even conflict with what it specifically provides in its Section 24: for the appellant
Commissioner's stand results in equal treatment, tax wise, of a general copartnership (compañia
colectiva) and a limited partnership, when the code plainly differentiates the two. Thus, the code taxes
the latter on its income, but not the former, because it is in the case of compañias colectivas that the
members, and not the firm, are taxable in their individual capacities for any dividend or share of the
profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Arañas, Anno. & Juris.
on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi1.nêt

But it is argued that the income of the limited partnership is actually or constructively the income of the
spouses and forms part of the conjugal partnership of gains. This is not wholly correct. As pointed out
in Agapito vs. Molo 50 Phil. 779, and People's Bank vs. Register of Deeds of Manila, 60 Phil. 167, the
fruits of the wife's parapherna become conjugal only when no longer needed to defray the expenses
for the administration and preservation of the paraphernal capital of the wife. Then again, the
appellant's argument erroneously confines itself to the question of the legal personality of the limited
partnership, which is not essential to the income taxability of the partnership since the law taxes the
income of even joint accounts that have no personality of their own. 1 Appellant is, likewise, mistaken
in that it assumes that the conjugal partnership of gains is a taxable unit, which it is not. What is taxable
is the "income of both spouses" (Section 45 [d] in their individual capacities. Though the amount of
income (income of the conjugal partnership vis-a-vis the joint income of husband and wife) may be the
same for a given taxable year, their consequences would be different, as their contributions in the
business partnership are not the same.

The difference in tax rates between the income of the limited partnership being consolidated with, and
when split from the income of the spouses, is not a justification for requiring consolidation; the revenue
code, as it presently stands, does not authorize it, and even bars it by requiring the limited partnership
to pay tax on its own income.

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.
G.R. NOS. 166299-300 December 13, 2005

AURELIO K. LITONJUA, JR., Petitioner,

vs.
EDUARDO K. LITONJUA, SR., ROBERT T. YANG, ANGLO PHILS. MARITIME, INC., CINEPLEX,
INC., DDM GARMENTS, INC., EDDIE K. LITONJUA SHIPPING AGENCY, INC., EDDIE K.
LITONJUA SHIPPING CO., INC., LITONJUA SECURITIES, INC. (formerly E. K. Litonjua Sec),
LUNETA THEATER, INC., E & L REALTY, (formerly E & L INT’L SHIPPING CORP.), FNP CO.,
INC., HOME ENTERPRISES, INC., BEAUMONT DEV. REALTY CO., INC., GLOED LAND CORP.,
EQUITY TRADING CO., INC., 3D CORP., "L" DEV. CORP, LCM THEATRICAL ENTERPRISES,
INC., LITONJUA SHIPPING CO. INC., MACOIL INC., ODEON REALTY CORP., SARATOGA
REALTY, INC., ACT THEATER INC. (formerly General Theatrical & Film Exchange, INC.),
AVENUE REALTY, INC., AVENUE THEATER, INC. and LVF PHILIPPINES, INC., (Formerly VF
PHILIPPINES),Respondents.

DECISION

GARCIA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioner Aurelio K. Litonjua, Jr. seeks
to nullify and set aside the Decision of the Court of Appeals (CA) dated March 31, 20041 in consolidated
cases C.A. G.R. Sp. No. 76987 and C.A. G.R. SP. No 78774 and its Resolution dated December 07,
2004,2 denying petitioner’s motion for reconsideration.

The recourse is cast against the following factual backdrop:

Petitioner Aurelio K. Litonjua, Jr. (Aurelio) and herein respondent Eduardo K. Litonjua, Sr. (Eduardo)
are brothers. The legal dispute between them started when, on December 4, 2002, in the Regional
Trial Court (RTC) at Pasig City, Aurelio filed a suit against his brother Eduardo and herein respondent
Robert T. Yang (Yang) and several corporations for specific performance and accounting. In his
complaint,3 docketed as Civil Case No. 69235 and eventually raffled to Branch 68 of the court, 4 Aurelio
alleged that, since June 1973, he and Eduardo are into a joint venture/partnership arrangement in the
Odeon Theater business which had expanded thru investment in Cineplex, Inc., LCM Theatrical
Enterprises, Odeon Realty Corporation (operator of Odeon I and II theatres), Avenue Realty, Inc.,
owner of lands and buildings, among other corporations. Yang is described in the complaint as
petitioner’s and Eduardo’s partner in their Odeon Theater investment. 5 The same complaint also
contained the following material averments:

3.01 On or about 22 June 1973, [Aurelio] and Eduardo entered into a joint venture/partnership for the
continuation of their family business and common family funds ….

3.01.1 This joint venture/[partnership] agreement was contained in a memorandum addressed by

Eduardo to his siblings, parents and other relatives. Copy of this memorandum is attached hereto and
made an integral part as Annex "A" and the portion referring to [Aurelio] submarked as Annex "A-1".

3.02 It was then agreed upon between [Aurelio] and Eduardo that in consideration of [Aurelio’s]
retaining his share in the remaining family businesses (mostly, movie theaters, shipping and land
development) and contributing his industry to the continued operation of these businesses, [Aurelio]
will be given P1 Million or 10% equity in all these businesses and those to be subsequently acquired
by them whichever is greater. . . .
4.01 … from 22 June 1973 to about August 2001, or [in] a span of 28 years, [Aurelio] and Eduardo
had accumulated in their joint venture/partnership various assets including but not limited to the
corporate defendants and [their] respective assets.

4.02 In addition . . . the joint venture/partnership … had also acquired [various other assets], but
Eduardo caused to be registered in the names of other parties….

xxx xxx xxx

4.04 The substantial assets of most of the corporate defendants consist of real properties …. A list of
some of these real properties is attached hereto and made an integral part as Annex "B".

xxx xxx xxx

5.02 Sometime in 1992, the relations between [Aurelio] and Eduardo became sour so that [Aurelio]
requested for an accounting and liquidation of his share in the joint venture/partnership [but these
demands for complete accounting and liquidation were not heeded].

xxx xxx xxx

5.05 What is worse, [Aurelio] has reasonable cause to believe that Eduardo and/or the corporate
defendants as well as Bobby [Yang], are transferring . . . various real properties of the corporations
belonging to the joint venture/partnership to other parties in fraud of [Aurelio]. In consequence,
[Aurelio] is therefore causing at this time the annotation on the titles of these real properties… a notice
of lis pendens …. (Emphasis in the original; underscoring and words in bracket added.)

For ease of reference, Annex "A-1" of the complaint, which petitioner asserts to have been meant for
him by his brother Eduardo, pertinently reads:

10) JR. (AKL) [Referring to petitioner Aurelio K. Litonjua]:

You have now your own life to live after having been married. ….

I am trying my best to mold you the way I work so you can follow the pattern …. You will be the only
one left with the company, among us brothers and I will ask you to stay as I want you to run this office
every time I am away. I want you to run it the way I am trying to run it because I will be all alone and I
will depend entirely to you (sic). My sons will not be ready to help me yet until about maybe 15/20
years from now. Whatever is left in the corporation, I will make sure that you get ONE MILLION PESOS
(P1,000,000.00) or ten percent (10%) equity, whichever is greater. We two will gamble the whole thing
of what I have and what you are entitled to. …. It will be you and me alone on this. If ever I pass away,
I want you to take care of all of this. You keep my share for my two sons are ready take over but give
them the chance to run the company which I have built.

xxx xxx xxx

Because you will need a place to stay, I will arrange to give you first ONE HUNDRED THOUSANDS
PESOS: (P100, 000.00) in cash or asset, like Lt. Artiaga so you can live better there. The rest I will
give you in form of stocks which you can keep. This stock I assure you is good and saleable. I will also
gladly give you the share of Wack-Wack …and Valley Golf … because you have been good. The rest
will be in stocks from all the corporations which I repeat, ten percent (10%) equity. 6
On December 20, 2002, Eduardo and the corporate respondents, as defendants a quo, filed a
joint ANSWER With Compulsory Counterclaim denying under oath the material allegations of the
complaint, more particularly that portion thereof depicting petitioner and Eduardo as having entered
into a contract of partnership. As affirmative defenses, Eduardo, et al., apart from raising a
jurisdictional matter, alleged that the complaint states no cause of action, since no cause of action
may be derived from the actionable document, i.e., Annex "A-1", being void under the terms of Article
1767 in relation to Article 1773 of the Civil Code, infra. It is further alleged that whatever undertaking
Eduardo agreed to do, if any, under Annex "A-1", are unenforceable under the provisions of the
Statute of Frauds.7

For his part, Yang - who was served with summons long after the other defendants submitted their
answer – moved to dismiss on the ground, inter alia, that, as to him, petitioner has no cause of action
and the complaint does not state any. 8 Petitioner opposed this motion to dismiss.

On January 10, 2003, Eduardo, et al., filed a Motion to Resolve Affirmative Defenses. 9 To this motion,
petitioner interposed an Opposition with ex-Parte Motion to Set the Case for Pre-trial.10

Acting on the separate motions immediately adverted to above, the trial court, in an Omnibus Order
dated March 5, 2003, denied the affirmative defenses and, except for Yang, set the case for pre-trial
on April 10, 2003.11

In another Omnibus Order of April 2, 2003, the same court denied the motion of Eduardo, et al., for
reconsideration12 and Yang’s motion to dismiss. The following then transpired insofar as Yang is
concerned:

1. On April 14, 2003, Yang filed his ANSWER, but expressly reserved the right to seek reconsideration
of the April 2, 2003 Omnibus Order and to pursue his failed motion to dismiss 13 to its full resolution.

2. On April 24, 2003, he moved for reconsideration of the Omnibus Order of April 2, 2003, but his
motion was denied in an Order of July 4, 2003. 14

3. On August 26, 2003, Yang went to the Court of Appeals (CA) in a petition for certiorari under Rule
65 of the Rules of Court, docketed as CA-G.R. SP No. 78774,15 to nullify the separate orders of the
trial court, the first denying his motion to dismiss the basic complaint and, the second, denying his
motion for reconsideration.

Earlier, Eduardo and the corporate defendants, on the contention that grave abuse of discretion and
injudicious haste attended the issuance of the trial court’s aforementioned Omnibus Orders dated
March 5, and April 2, 2003, sought relief from the CA via similar recourse. Their petition
for certiorari was docketed as CA G.R. SP No. 76987.

Per its resolution dated October 2, 2003,16 the CA’s 14th Division ordered the consolidation of CA G.R.
SP No. 78774 with CA G.R. SP No. 76987.

Following the submission by the parties of their respective Memoranda of Authorities, the appellate
court came out with the herein assailed Decision dated March 31, 2004, finding for Eduardo and
Yang, as lead petitioners therein, disposing as follows:

WHEREFORE, judgment is hereby rendered granting the issuance of the writ of certiorari in these
consolidated cases annulling, reversing and setting aside the assailed orders of the court a quo dated
March 5, 2003, April 2, 2003 and July 4, 2003 and the complaint filed by private respondent [now
petitioner Aurelio] against all the petitioners [now herein respondents Eduardo, et al.] with the court a
quo is hereby dismissed.

SO ORDERED.17 (Emphasis in the original; words in bracket added.)

Explaining its case disposition, the appellate court stated, inter alia, that the alleged partnership, as
evidenced by the actionable documents, Annex "A" and "A-1" attached to the complaint, and upon
which petitioner solely predicates his right/s allegedly violated by Eduardo, Yang and the corporate
defendants a quo is "void or legally inexistent".

In time, petitioner moved for reconsideration but his motion was denied by the CA in its equally
assailed Resolution of December 7, 2004.18 .

Hence, petitioner’s present recourse, on the contention that the CA erred:

A. When it ruled that there was no partnership created by the actionable document because this was
not a public instrument and immovable properties were contributed to the partnership.

B. When it ruled that the actionable document did not create a demandable right in favor of petitioner.

C. When it ruled that the complaint stated no cause of action against [respondent] Robert Yang; and

D. When it ruled that petitioner has changed his theory on appeal when all that Petitioner had done
was to support his pleaded cause of action by another legal perspective/argument.

The petition lacks merit.

Petitioner’s demand, as defined in the petitory portion of his complaint in the trial court, is for delivery
or payment to him, as Eduardo’s and Yang’s partner, of his partnership/joint venture share, after an
accounting has been duly conducted of what he deems to be partnership/joint venture property. 19

A partnership exists when two or more persons agree to place their money, effects, labor, and skill in
lawful commerce or business, with the understanding that there shall be a proportionate sharing of the
profits and losses between them.20 A contract of partnership is defined by the Civil Code as one where
two or more persons bound themselves to contribute money, property, or industry to a common fund
with the intention of dividing the profits among themselves.21 A joint venture, on the other hand, is hardly
distinguishable from, and may be likened to, a partnership since their elements are similar, i.e.,
community of interests in the business and sharing of profits and losses. Being a form of partnership,
a joint venture is generally governed by the law on partnership. 22

The underlying issue that necessarily comes to mind in this proceedings is whether or not petitioner
and respondent Eduardo are partners in the theatre, shipping and realty business, as one claims but
which the other denies. And the issue bearing on the first assigned error relates to the question of
what legal provision is applicable under the premises, petitioner seeking, as it were, to enforce the
actionable document - Annex "A-1" - which he depicts in his complaint to be the contract of
partnership/joint venture between himself and Eduardo. Clearly, then, a look at the legal provisions
determinative of the existence, or defining the formal requisites, of a partnership is indicated. Foremost
of these are the following provisions of the Civil Code:

Art. 1771. A partnership may be constituted in any form, except where immovable property or real
rights are contributed thereto, in which case a public instrument shall be necessary.
Art. 1772. Every contract of partnership having a capital of three thousand pesos or more, in money
or property, shall appear in a public instrument, which must be recorded in the Office of the Securities
and Exchange Commission.

Failure to comply with the requirement of the preceding paragraph shall not affect the liability of the
partnership and the members thereof to third persons.

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

Annex "A-1", on its face, contains typewritten entries, personal in tone, but is unsigned and undated.
As an unsigned document, there can be no quibbling that Annex "A-1" does not meet the public
instrumentation requirements exacted under Article 1771 of the Civil Code. Moreover, being unsigned
and doubtless referring to a partnership involving more than P3,000.00 in money or property,
Annex "A-1" cannot be presented for notarization, let alone registered with the Securities and
Exchange Commission (SEC), as called for under the Article 1772 of the Code. And inasmuch as the
inventory requirement under the succeeding Article 1773 goes into the matter of validity when
immovable property is contributed to the partnership, the next logical point of inquiry turns on the
nature of petitioner’s contribution, if any, to the supposed partnership.

The CA, addressing the foregoing query, correctly stated that petitioner’s contribution consisted of
immovables and real rights. Wrote that court:

A further examination of the allegations in the complaint would show that [petitioner’s] contribution to
the so-called "partnership/joint venture" was his supposed share in the family business that is
consisting of movie theaters, shipping and land development under paragraph 3.02 of the complaint.
In other words, his contribution as a partner in the alleged partnership/joint venture consisted of
immovable properties and real rights. ….23

Significantly enough, petitioner matter-of-factly concurred with the appellate court’s observation that,
prescinding from what he himself alleged in his basic complaint, his contribution to the partnership
consisted of his share in the Litonjua family businesses which owned variable immovable properties.
Petitioner’s assertion in his motion for reconsideration24 of the CA’s decision, that "what was to be
contributed to the business [of the partnership] was [petitioner’s] industry and his share in the family
[theatre and land development] business" leaves no room for speculation as to what petitioner
contributed to the perceived partnership.

Lest it be overlooked, the contract-validating inventory requirement under Article 1773 of the Civil
Code applies as long real property or real rights are initially brought into the partnership. In short, it is
really of no moment which of the partners, or, in this case, who between petitioner and his brother
Eduardo, contributed immovables. In context, the more important consideration is that real property
was contributed, in which case an inventory of the contributed property duly signed by the parties
should be attached to the public instrument, else there is legally no partnership to speak of.

Petitioner, in an obvious bid to evade the application of Article 1773, argues that the immovables in
question were not contributed, but were acquired after the formation of the supposed partnership.
Needless to stress, the Court cannot accord cogency to this specious argument. For, as earlier stated,
petitioner himself admitted contributing his share in the supposed shipping, movie theatres and realty
development family businesses which already owned immovables even before Annex "A-1" was
allegedly executed.
Considering thus the value and nature of petitioner’s alleged contribution to the purported partnership,
the Court, even if so disposed, cannot plausibly extend Annex "A-1" the legal effects that petitioner so
desires and pleads to be given. Annex "A-1", in fine, cannot support the existence of the partnership
sued upon and sought to be enforced. The legal and factual milieu of the case calls for this disposition.
A partnership may be constituted in any form, save when immovable property or real rights are
contributed thereto or when the partnership has a capital of at least ₱3,000.00, in which case a public
instrument shall be necessary.25 And if only to stress what has repeatedly been articulated, an inventory
to be signed by the parties and attached to the public instrument is also indispensable to the validity of
the partnership whenever immovable property is contributed to it.

Given the foregoing perspective, what the appellate court wrote in its assailed Decision26 about the
probative value and legal effect of Annex "A-1" commends itself for concurrence:

Considering that the allegations in the complaint showed that [petitioner] contributed immovable
properties to the alleged partnership, the "Memorandum" (Annex "A" of the complaint) which purports
to establish the said "partnership/joint venture" is NOT a public instrument and there was NO inventory
of the immovable property duly signed by the parties. As such, the said "Memorandum" … is null and
void for purposes of establishing the existence of a valid contract of partnership. Indeed, because of
the failure to comply with the essential formalities of a valid contract, the purported "partnership/joint
venture" is legally inexistent and it produces no effect whatsoever. Necessarily, a void or legally
inexistent contract cannot be the source of any contractual or legal right. Accordingly, the allegations
in the complaint, including the actionable document attached thereto, clearly demonstrates that
[petitioner] has NO valid contractual or legal right which could be violated by the [individual
respondents] herein. As a consequence, [petitioner’s] complaint does NOT state a valid cause of
action because NOT all the essential elements of a cause of action are present. (Underscoring and
words in bracket added.)

Likewise well-taken are the following complementary excerpts from the CA’s equally assailed
Resolution of December 7, 200427 denying petitioner’s motion for reconsideration:

Further, We conclude that despite glaring defects in the allegations in the complaint as well as the
actionable document attached thereto (Rollo, p. 191), the [trial] court did not appreciate and apply the
legal provisions which were brought to its attention by herein [respondents] in the their pleadings. In
our evaluation of [petitioner’s] complaint, the latter alleged inter alia to have contributed immovable
properties to the alleged partnership but the actionable document is not a public document and there
was no inventory of immovable properties signed by the parties. Both the allegations in the complaint
and the actionable documents considered, it is crystal clear that [petitioner] has no valid or legal right
which could be violated by [respondents]. (Words in bracket added.)

Under the second assigned error, it is petitioner’s posture that Annex "A-1", assuming its inefficacy or
nullity as a partnership document, nevertheless created demandable rights in his favor. As petitioner
succinctly puts it in this petition:

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an
actionable contract even though it may not be a partnership. This actionable contract is what is known
as an innominate contract (Civil Code, Article 1307).

44. It may not be a contract of loan, or a mortgage or whatever, but surely the contract does create
rights and obligations of the parties and which rights and obligations may be enforceable and
demandable. Just because the relationship created by the agreement cannot be specifically labeled
or pigeonholed into a category of nominate contract does not mean it is void or unenforceable.
Petitioner has thus thrusted the notion of an innominate contract on this Court - and earlier on the CA
after he experienced a reversal of fortune thereat - as an afterthought. The appellate court, however,
cannot really be faulted for not yielding to petitioner’s dubious stratagem of altering his theory of joint
venture/partnership to an innominate contract. For, at bottom, the appellate court’s certiorari
jurisdiction was circumscribed by what was alleged to have been the order/s issued by the trial court
in grave abuse of discretion. As respondent Yang pointedly observed, 28since the parties’ basic position
had been well-defined, that of petitioner being that the actionable document established a
partnership/joint venture, it is on those positions that the appellate court exercised its certiorari
jurisdiction. Petitioner’s act of changing his original theory is an impermissible practice and constitutes,
as the CA aptly declared, an admission of the untenability of such theory in the first place.

[Petitioner] is now humming a different tune . . . . In a sudden twist of stance, he has now contended
that the actionable instrument may be considered an innominate contract. xxx Verily, this now
changes [petitioner’s] theory of the case which is not only prohibited by the Rules but also is an implied
admission that the very theory he himself … has adopted, filed and prosecuted before the respondent
court is erroneous.

Be that as it may . …. We hold that this new theory contravenes [petitioner’s] theory of the actionable
document being a partnership document. If anything, it is so obvious we do have to test the sufficiency
of the cause of action on the basis of partnership law xxx. 29 (Emphasis in the original; Words in bracket
added).

But even assuming in gratia argumenti that Annex "A-1" partakes of a perfected innominate contract,
petitioner’s complaint would still be dismissible as against Eduardo and, more so, against Yang. It
cannot be over-emphasized that petitioner points to Eduardo as the author of Annex "A-1". Withal,
even on this consideration alone, petitioner’s claim against Yang is doomed from the very start.

As it were, the only portion of Annex "A-1" which could perhaps be remotely regarded as vesting
petitioner with a right to demand from respondent Eduardo the observance of a determinate conduct,
reads:

xxx You will be the only one left with the company, among us brothers and I will ask you to stay as I
want you to run this office everytime I am away. I want you to run it the way I am trying to run it because
I will be alone and I will depend entirely to you, My sons will not be ready to help me yet until about
maybe 15/20 years from now. Whatever is left in the corporation, I will make sure that you get ONE
MILLION PESOS (P1,000,000.00) or ten percent (10%) equity, whichever is greater. (Underscoring
added)

It is at once apparent that what respondent Eduardo imposed upon himself under the above passage,
if he indeed wrote Annex "A-1", is a promise which is not to be performed within one year from
"contract" execution on June 22, 1973. Accordingly, the agreement embodied in Annex "A-1" is
covered by the Statute of Frauds and ergounenforceable for non-compliance therewith.30 By force of
the statute of frauds, an agreement that by its terms is not to be performed within a year from the
making thereof shall be unenforceable by action, unless the same, or some note or memorandum
thereof, be in writing and subscribed by the party charged. Corollarily, no action can be proved unless
the requirement exacted by the statute of frauds is complied with. 31

Lest it be overlooked, petitioner is the intended beneficiary of the P1 Million or 10% equity of the family
businesses supposedly promised by Eduardo to give in the near future. Any suggestion that the stated
amount or the equity component of the promise was intended to go to a common fund would be to
read something not written in Annex"A-1". Thus, even this angle alone argues against the very idea
of a partnership, the creation of which requires two or more contracting minds mutually agreeing to
contribute money, property or industry to a common fund with the intention of dividing the profits
between or among themselves.32

In sum then, the Court rules, as did the CA, that petitioner’s complaint for specific performance
anchored on an actionable document of partnership which is legally inexistent or void or, at best,
unenforceable does not state a cause of action as against respondent Eduardo and the corporate
defendants. And if no of action can successfully be maintained against respondent Eduardo because
no valid partnership existed between him and petitioner, the Court cannot see its way clear on how
the same action could plausibly prosper against Yang. Surely, Yang could not have become a partner
in, or could not have had any form of business relationship with, an inexistent partnership.

As may be noted, petitioner has not, in his complaint, provide the logical nexus that would tie Yang to
him as his partner. In fact, attendant circumstances would indicate the contrary. Consider:

1. Petitioner asserted in his complaint that his so-called joint venture/partnership with Eduardo was
"for the continuation of their family business and common family funds which were theretofore being
mainly managed by Eduardo." 33 But Yang denies kinship with the Litonjua family and petitioner has
not disputed the disclaimer.

2. In some detail, petitioner mentioned what he had contributed to the joint venture/partnership with
Eduardo and what his share in the businesses will be. No allegation is made whatsoever about what
Yang contributed, if any, let alone his proportional share in the profits. But such allegation cannot,
however, be made because, as aptly observed by the CA, the actionable document did not contain
such provision, let alone mention the name of Yang. How, indeed, could a person be considered a
partner when the document purporting to establish the partnership contract did not even mention his
name.

3. Petitioner states in par. 2.01 of the complaint that "[he] and Eduardo are business partners in the
[respondent] corporations," while "Bobby is his and Eduardo’s partner in their Odeon Theater
investment’ (par. 2.03). This means that the partnership between petitioner and Eduardo came first;
Yang became their partner in their Odeon Theater investment thereafter. Several paragraphs later,
however, petitioner would contradict himself by alleging that his "investment and that of Eduardo and
Yang in the Odeon theater business has expanded through a reinvestment of profit income and direct
investments in several corporation including but not limited to [six] corporate respondents" This simply
means that the "Odeon Theatre business" came before the corporate respondents. Significantly
enough, petitioner refers to the corporate respondents as "progeny" of the Odeon Theatre business. 34

Needless to stress, petitioner has not sufficiently established in his complaint the
legal vinculum whence he sourced his right to drag Yang into the fray. The Court of Appeals, in its
assailed decision, captured and formulated the legal situation in the following wise:

[Respondent] Yang, … is impleaded because, as alleged in the complaint, he is a "partner" of

[Eduardo] and the [petitioner] in the Odeon Theater Investment which expanded through
reinvestments of profits and direct investments in several corporations, thus:

xxx xxx xxx

Clearly, [petitioner’s] claim against … Yang arose from his alleged partnership with petitioner and the
…respondent. However, there was NO allegation in the complaint which directly alleged how the
supposed contractual relation was created between [petitioner] and …Yang. More importantly,
however, the foregoing ruling of this Court that the purported partnership between [Eduardo] is void
and legally inexistent directly affects said claim against …Yang. Since [petitioner] is trying to establish
his claim against … Yang by linking him to the legally inexistent partnership . . . such attempt had
become futile because there was NOTHING that would contractually connect [petitioner] and … Yang.
To establish a valid cause of action, the complaint should have a statement of fact upon which to
connect [respondent] Yang to the alleged partnership between [petitioner] and respondent [Eduardo],
including their alleged investment in the Odeon Theater. A statement of facts on those matters is
pivotal to the complaint as they would constitute the ultimate facts necessary to establish the elements
of a cause of action against … Yang. 35

Pressing its point, the CA later stated in its resolution denying petitioner’s motion for reconsideration
the following:

xxx Whatever the complaint calls it, it is the actionable document attached to the complaint that is
controlling. Suffice it to state, We have not ignored the actionable document … As a matter of fact,
We emphasized in our decision … that insofar as [Yang] is concerned, he is not even mentioned in
the said actionable document. We are therefore puzzled how a person not mentioned in a document
purporting to establish a partnership could be considered a partner.36 (Words in bracket ours).

The last issue raised by petitioner, referring to whether or not he changed his theory of the case, as
peremptorily determined by the CA, has been discussed at length earlier and need not detain us long.
Suffice it to say that after the CA has ruled that the alleged partnership is inexistent, petitioner took a
different tack. Thus, from a joint venture/partnership theory which he adopted and consistently pursued
in his complaint, petitioner embraced the innominate contract theory. Illustrative of this shift is
petitioner’s statement in par. #8 of his motion for reconsideration of the CA’s decision combined with
what he said in par. # 43 of this petition, as follows:

8. Whether or not the actionable document creates a partnership, joint venture, or whatever, is a legal
matter. What is determinative for purposes of sufficiency of the complainant’s allegations, is whether
the actionable document bears out an actionable contract – be it a partnership, a joint venture or
whatever or some innominate contract … It may be noted that one kind of innominate contract is what
is known as du ut facias (I give that you may do).37

43. Contrariwise, this actionable document, especially its above-quoted provisions, established an
actionable contract even though it may not be a partnership. This actionable contract is what is known
as an innominate contract (Civil Code, Article 1307). 38

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

Petitioner’s protestation that his act of introducing the concept of innominate contract was not a case
of changing theories but of supporting his pleaded cause of action – that of the existence of a
partnership - by another legal perspective/argument, strikes the Court as a strained attempt to
rationalize an untenable position. Paragraph 12 of his motion for reconsideration of the CA’s decision
virtually relegates partnership as a fall-back theory. Two paragraphs later, in the same notion,
petitioner faults the appellate court for reading, with myopic eyes, the actionable document solely as
establishing a partnership/joint venture. Verily, the cited paragraphs are a study of a party hedging on
whether or not to pursue the original cause of action or altogether abandoning the same, thus:
12. Incidentally, assuming that the actionable document created a partnership between [respondent]
Eduardo, Sr. and [petitioner], no immovables were contributed to this partnership. xxx

14. All told, the Decision takes off from a false premise that the actionable document attached to the
complaint does not establish a contractual relationship between [petitioner] and … Eduardo, Sr. and
Roberto T Yang simply because his document does not create a partnership or a joint venture. This is
… a myopic reading of the actionable document.

Per the Court’s own count, petitioner used in his complaint the mixed words "joint venture/partnership"
nineteen (19) times and the term "partner" four (4) times. He made reference to the "law of joint
venture/partnership [being applicable] to the business relationship … between [him], Eduardo and
Bobby [Yang]" and to his "rights in all specific properties of their joint venture/partnership". Given this
consideration, petitioner’s right of action against respondents Eduardo and Yang doubtless pivots on
the existence of the partnership between the three of them, as purportedly evidenced by the undated
and unsigned Annex "A-1". A void Annex "A-1", as an actionable document of partnership, would strip
petitioner of a cause of action under the premises. A complaint for delivery and accounting of
partnership property based on such void or legally non-existent actionable document is dismissible for
failure to state of action. So, in gist, said the Court of Appeals. The Court agrees.

WHEREFORE, the instant petition is DENIED and the impugned Decision and Resolution of the Court
of Appeals AFFIRMED.

Cost against the petitioner.

SO ORDERED.

G.R. No. 183374 June 29, 2010

MARSMAN DRYSDALE LAND, INC., Petitioner,

vs.
PHILIPPINE GEOANALYTICS, INC. AND GOTESCO PROPERTIES, INC., Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 183376

GOTESCO PROPERTIES, INC., Petitioner,

vs.
MARSMAN DRYSDALE LAND, INC. AND PHILIPPINE GEOANALYTICS, INC., Respondents.

DECISION

CARPIO MORALES, J.:

On February 12, 1997, Marsman Drysdale Land, Inc. (Marsman Drysdale) and Gotesco Properties,
Inc. (Gotesco) entered into a Joint Venture Agreement (JVA) for the construction and development of
an office building on a land owned by Marsman Drysdale in Makati City. 1

The JVA contained the following pertinent provisions:

SECTION 4. CAPITAL OF THE JV

It is the desire of the Parties herein to implement this Agreement by investing in the PROJECT on a
FIFTY (50%) PERCENT- FIFTY (50%) PERCENT basis.

4.1. Contribution of [Marsman Drysdale]-[Marsman Drysdale] shall contribute the Property.

The total appraised value of the Property is PESOS: FOUR HUNDRED TWENTY MILLION
(P420,000,000.00).

For this purpose, [Marsman Drysdale] shall deliver the Property in a buildable condition within ninety
(90) days from signing of this Agreement barring any unforeseen circumstances over which [Marsman
Drysdale] has no control. Buildable condition shall mean that the old building/structure which stands
on the Property is demolished and taken to ground level.

4.2. Contribution of [Gotesco]- [Gotesco] shall contribute the amount of PESOS: FOUR HUNDRED
TWENTY MILLION (P420,000,000.00) in cash which shall be payable as follows:

4.2.1. The amount of PESOS: FIFTY MILLION (P50,000,000.00) upon signing of this Agreement.

4.2.2. The balance of PESOS: THREE HUNDRED SEVENTY MILLION (P370,000,000.00) shall be
paid based on progress billings, relative to the development and construction of the Building, but shall
in no case exceed ten (10) months from delivery of the Property in a Buildable condition as defined in
section 4.1.

A joint account shall be opened and maintained by both Parties for handling of said balance, among
other Project concerns.

4.3. Funding and Financing

4.3.1 Construction funding for the Project shall be obtained from the cash contribution of [Gotesco].
4.3.2 Subsequent funding shall be obtained from the pre-selling of units in the Building or, when
necessary, from loans from various banks or financial institutions. [Gotesco] shall arrange the required
funding from such banks or financial institutions, under such terms and conditions which will provide
financing rates favorable to the Parties.

4.3.3 [Marsman Drysdale] shall not be obligated to fund the Project as its contribution is limited to the
Property.

4.3.4 If the cost of the Project exceeds the cash contribution of [Gotesco], the proceeds obtained from
the pre-selling of units and proceeds from loans, the Parties shall agree on other sources and terms
of funding such excess as soon as practicable.

4.3.5 x x x x.

4.3.6 x x x x.

4.3.7 x x x x.

4.3.8 All funds advanced by a Party (or by third parties in substitution for advances from a Party) shall
be repaid by the JV.

4.3.9 If any Party agrees to make an advance to the Project but fails to do so (in whole or in part) the
other party may advance the shortfall and the Party in default shall indemnify the Party making the
substitute advance on demand for all of its losses, costs and expenses incurred in so doing. (emphasis
supplied; underscoring in the original)

Via Technical Services Contract (TSC) dated July 14, 1997, 2 the joint venture engaged the services
of Philippine Geoanalytics, Inc. (PGI) to provide subsurface soil exploration, laboratory testing, seismic
study and geotechnical engineering for the project. PGI, was, however, able to drill only four of five
boreholes needed to conduct its subsurface soil exploration and laboratory testing, justifying its failure
to drill the remaining borehole to the failure on the part of the joint venture partners to clear the area
where the drilling was to be made.3 PGI was able to complete its seismic study though.

PGI then billed the joint venture on November 24, 1997 for ₱284,553.50 representing the cost of partial
subsurface soil exploration; and on January 15, 1998 for ₱250,800 representing the cost of the
completed seismic study.4

Despite repeated demands from PGI,5 the joint venture failed to pay its obligations.

Meanwhile, due to unfavorable economic conditions at the time, the joint venture was cut short and
the planned building project was eventually shelved. 6

PGI subsequently filed on November 11, 1999 a complaint for collection of sum of money and
damages at the Regional Trial Court (RTC) of Quezon City against Marsman Drysdale and Gotesco.

In its Answer with Counterclaim and Cross-claim, Marsman Drysdale passed the responsibility of
paying PGI to Gotesco which, under the JVA, was solely liable for the monetary expenses of the
project.7
Gotesco, on the other hand, countered that PGI has no cause of action against it as PGI had yet to
complete the services enumerated in the contract; and that Marsman Drysdale failed to clear the
property of debris which prevented PGI from completing its work. 8

By Decision of June 2, 2004,9 Branch 226 of the Quezon City RTC rendered judgment in favor of PGI,
disposing as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of plaintiff [PGI].

The defendants [Gotesco] and [Marsman Drysdale] are ordered to pay plaintiff, jointly:

(1) the sum of P535,353.50 with legal interest from the date of this decision until fully paid;

(2) the sum of P200,000.00 as exemplary damages;

(3) the sum of P200,000.00 as and for attorney’s fees; and

(4) costs of suit.

The cross-claim of defendant [Marsman Drysdale] against defendant [Gotesco] is hereby GRANTED
as follows:

a) Defendant [Gotesco] is ordered to reimburse co-defendant [Marsman Drysdale] in the

amount of P535,353.[50] in accordance with the [JVA].

b) Defendant [Gotesco] is further ordered to pay co-defendant [Marsman Drysdale] the sum of
P100,000.00 as and for attorney’s fees.

SO ORDERED. (underscoring in the original; emphasis supplied)

Marsman Drysdale moved for partial reconsideration, contending that it should not have been held
jointly liable with Gotesco on PGI’s claim as well as on the awards of exemplary damages and
attorney’s fees. The motion was, by Resolution of October 28, 2005, denied.

Both Marsman Drysdale and Gotesco appealed to the Court of Appeals which, by Decision of January
28, 2008,10affirmed with modification the decision of the trial court. Thus the appellate court disposed:

WHEREFORE, premises considered, the instant appeal is PARTLY GRANTED. The assailed
Decision dated June 2, 2004 and the Resolution dated October 28, 2005 of the RTC of Quezon City,
Branch 226, in Civil Case No. Q99-39248 are hereby AFFIRMED with MODIFICATION deleting the
award of exemplary damages in favor of [PGI] and the P100,000.00 attorney’s fees in favor of
[Marsman Drysdale] and ordering defendant-appellant [Gotesco] to REIMBURSE [Marsman Drysdale]
50% of the aggregate sum due [PGI], instead of the lump sum P535,353.00 awarded by the RTC. The
rest of the Decision stands.

SO ORDERED. (capitalization and emphasis in the original; underscoring supplied)

In partly affirming the trial court’s decision, the appellate court ratiocinated that notwithstanding the
terms of the JVA, the joint venture cannot avoid payment of PGI’s claim since "[the JVA] could not
affect third persons like [PGI] because of the basic civil law principle of relativity of contracts which
provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a
third person, even if he is aware of such contract and has acted with knowledge thereof." 11

Their motions for partial reconsideration having been denied, 12 Marsman Drysdale and Gotesco filed
separate petitions for review with the Court which were docketed as G.R. Nos. 183374 and 183376,
respectively. By Resolution of September 8, 2008, the Court consolidated the petitions.

In G.R. No. 183374, Marsman Drysdale imputes error on the appellate court in

A. …ADJUDGING [MARSMAN DRYSDALE] WITH JOINT LIABILITY AFTER CONCEDING

THAT [GOTESCO] SHOULD ULTIMATELY BE SOLELY LIABLE TO [PGI].

B. …AWARDING ATTORNEY’S FEES IN FAVOR OF [PGI]…

C. …IGNORING THE FACT THAT [PGI] DID NOT COMPLY WITH THE REQUIREMENT OF
"SATISFACTORY PERFORMANCE" OF ITS PRESTATION WHICH, PURSUANT TO THE
TECHNICAL SERVICES CONTRACT, IS THE CONDITION SINE QUA NON TO
COMPENSATION.

D. …DISREGARDING CLEAR EVIDENCE SHOWING [MARSMAN DRYSDALE’S]

ENTITLEMENT TO AN AWARD OF ATTORNEY’S FEES.13

On the other hand, in G.R. No. 183376, Gotesco peddles that the appellate court committed error
when it

…ORDERED [GOTESCO] TO PAY P535,353.50 AS COST OF THE WORK PERFORMED BY [PGI]

AND P100,000.00 [AS] ATTORNEY’S FEES …[AND] TO REIMBURSE [MARSMAN DRYSDALE]
50% OF P535,353.50 AND PAY [MARSMAN DRYSDALE] P100,000.00 AS ATTORNEY’S FEES. 14

On the issue of whether PGI was indeed entitled to the payment of services it rendered, the Court
sees no imperative to re-examine the congruent findings of the trial and appellate courts thereon.
Undoubtedly, the exercise involves an examination of facts which is normally beyond the ambit of the
Court’s functions under a petition for review, for it is well-settled that this Court is not a trier of facts.
While this judicial tenet admits of exceptions, such as when the findings of facts of the appellate court
are contrary to those of the trial court’s, or when the judgment is based on a misapprehension of facts,
or when the findings of facts are contradicted by the evidence on record, 15these extenuating grounds
find no application in the present petitions.

At all events, the Court is convinced that PGI had more than sufficiently established its claims against
the joint venture. In fact, Marsman Drysdale had long recognized PGI’s contractual claims when it
(PGI) received a Certificate of Payment16 from the joint venture’s project manager17 which was
endorsed to Gotesco for processing and payment.18

The core issue to be resolved then is which between joint venturers Marsman Drysdale and Gotesco
bears the liability to pay PGI its unpaid claims.

To Marsman Drysdale, it is Gotesco since, under the JVA, construction funding for the project was to
be obtained from Gotesco’s cash contribution, as its (Marsman Drysdale’s) participation in the venture
was limited to the land.
Gotesco maintains, however, that it has no liability to pay PGI since it was due to the fault of Marsman
Drysdale that PGI was unable to complete its undertaking.

The Court finds Marsman Drysdale and Gotesco jointly liable to PGI.

PGI executed a technical service contract with the joint venture and was never a party to the JVA.
While the JVA clearly spelled out, inter alia, the capital contributions of Marsman Drysdale (land) and
Gotesco (cash) as well as the funding and financing mechanism for the project, the same cannot be
used to defeat the lawful claim of PGI against the two joint venturers-partners.

The TSC clearly listed the joint venturers Marsman Drysdale and Gotesco as the beneficial owner of
the project,19and all billing invoices indicated the consortium therein as the client.

As the appellate court held, Articles 1207 and 1208 of the Civil Code, which respectively read:

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each one of the
latter is bound to render, entire compliance with the prestations. There is a solidary liability only when
1avvphi1

the obligation expressly so states, or when the law or nature of the obligation requires solidarity.

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many
equal shares as there are creditors or debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits. (emphasis and underscoring
supplied),

presume that the obligation owing to PGI is joint between Marsman Drysdale and Gotesco.

The only time that the JVA may be made to apply in the present petitions is when the liability of the
joint venturers to each other would set in.

A joint venture being a form of partnership, it is to be governed by the laws on partnership. 20 Article
1797 of the Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share
of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.

In the absence of stipulation, the share of each in the profits and losses shall be in proportion to what
he may have contributed, but the industrial partner shall not be liable for the losses. As for the profits,
the industrial partner shall receive such share as may be just and equitable under the circumstances.
If besides his services he has contributed capital, he shall also receive a share in the profits in
proportion to his capital. (emphasis and underscoring supplied)

In the JVA, Marsman Drysdale and Gotesco agreed on a 50-50 ratio on the proceeds of the
project.21 They did not provide for the splitting of losses, however. Applying the above-quoted provision
of Article 1797 then, the same ratio applies in splitting the ₱535,353.50 obligation-loss of the joint
venture.
The appellate court’s decision must be modified, however. Marsman Drysdale and Gotesco being
jointly liable, there is no need for Gotesco to reimburse Marsman Drysdale for "50% of the aggregate
sum due" to PGI.

Allowing Marsman Drysdale to recover from Gotesco what it paid to PGI would not only be contrary to
the law on partnership on division of losses but would partake of a clear case of unjust enrichment at
Gotesco’s expense. The grant by the lower courts of Marsman Drysdale cross-claim against Gotesco
was thus erroneous.

Marsman Drysdale’s supplication for the award of attorney’s fees in its favor must be denied. It cannot
claim that it was compelled to litigate or that the civil action or proceeding against it was clearly
unfounded, for the JVA provided that, in the event a party advances funds for the project, the joint
venture shall repay the advancing party. 22

Marsman Drysdale was thus not precluded from advancing funds to pay for PGI’s contracted services
to abate any legal action against the joint venture itself. It was in fact hardline insistence on Gotesco
having sole responsibility to pay for the obligation, despite the fact that PGI’s services redounded to
the benefit of the joint venture, that spawned the legal action against it and Gotesco.

Finally, an interest of 12% per annum on the outstanding obligation must be imposed from the time of
demand23 as the delay in payment makes the obligation one of forbearance of money, conformably
with this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. 24 Marsman Drysdale and
Gotesco should bear legal interest on their respective obligations.

WHEREFORE, the assailed Decision and Resolution of the Court of Appeals are AFFIRMED with
MODIFICATION in that the order for Gotesco to reimburse Marsman Drysdale is DELETED, and
interest of 12% per annum on the respective obligations of Marsman Drysdale and Gotesco is
imposed, computed from the last demand or on January 5, 1999 up to the finality of the Decision.

If the adjudged amount and the interest remain unpaid thereafter, the interest rate shall be 12% per
annum computed from the time the judgment becomes final and executory until it is fully satisfied. The
appealed decision is, in all other respects, affirmed.

Costs against petitioners Marsman Drysdale and Gotesco.

SO ORDERED.
G.R. No. 178782 September 21, 2011

JOSEFINA P. REALUBIT, Petitioner,

vs.
PROSENCIO D. JASO and EDEN G. JASO, Respondents.

DECISION

PEREZ, J.:

The validity as well as the consequences of an assignment of rights in a joint venture are at issue in
this petition for review filed pursuant to Rule 45 of the 1997 Rules of Civil Procedure, 1 assailing the 30
April 2007 Decision2rendered by the Court of Appeals’ (CA) then Twelfth Division in CA-G.R. CV No.
73861,3 the dispositive portion of which states:

WHEREFORE, the Decision appealed from is SET ASIDE and we order the dissolution of the joint
venture between defendant-appellant Josefina Realubit and Francis Eric Amaury Biondo and the
subsequent conduct of accounting, liquidation of assets and division of shares of the joint venture
business.

Let a copy hereof and the records of the case be remanded to the trial court for appropriate
proceedings.4

The Facts

On 17 March 1994, petitioner Josefina Realubit (Josefina) entered into a Joint Venture Agreement
with Francis Eric Amaury Biondo (Biondo), a French national, for the operation of an ice manufacturing
business. With Josefina as the industrial partner and Biondo as the capitalist partner, the parties
agreed that they would each receive 40% of the net profit, with the remaining 20% to be used for the
payment of the ice making machine which was purchased for the business.5 For and in consideration
of the sum of ₱500,000.00, however, Biondo subsequently executed a Deed of Assignment dated 27
June 1997, transferring all his rights and interests in the business in favor of respondent Eden Jaso
(Eden), the wife of respondent Prosencio Jaso.6 With Biondo’s eventual departure from the country,
the Spouses Jaso caused their lawyer to send Josefina a letter dated 19 February 1998, apprising her
of their acquisition of said Frenchman’s share in the business and formally demanding an accounting
and inventory thereof as well as the remittance of their portion of its profits. 7

Faulting Josefina with unjustified failure to heed their demand, the Spouses Jaso commenced the
instant suit with the filing of their 3 August 1998 Complaint against Josefina, her husband, Ike Realubit
(Ike), and their alleged dummies, for specific performance, accounting, examination, audit and
inventory of assets and properties, dissolution of the joint venture, appointment of a receiver and
damages. Docketed as Civil Case No. 98-0331 before respondent Branch 257 of the Regional Trial
Court (RTC) of Parañaque City, said complaint alleged, among other matters, that the Spouses
Realubit had no gainful occupation or business prior to their joint venture with Biondo; that with the
income of the business which earned not less than ₱3,000.00 per day, they were, however, able to
acquire the two-storey building as well as the land on which the joint venture’s ice plant stands, another
building which they used as their office and/or residence and six (6) delivery vans; and, that aside from
appropriating for themselves the income of the business, the Spouses Realubit have fraudulently
concealed the funds and assets thereof thru their relatives, associates or dummies. 8

Served with summons, the Spouses Realubit filed their Answer dated 21 October 1998, specifically
denying the material allegations of the foregoing complaint. Claiming that they have been engaged in
the tube ice trading business under a single proprietorship even before their dealings with Biondo, the
Spouses Realubit, in turn, averred that their said business partner had left the country in May 1997
and could not have executed the Deed of Assignment which bears a signature markedly different from
that which he affixed on their Joint Venture Agreement; that they refused the Spouses Jaso’s demand
in view of the dubious circumstances surrounding their acquisition of Biondo’s share in the business
which was established at Don Antonio Heights, Commonwealth Avenue, Quezon City; that said
business had already stopped operations on 13 January 1996 when its plant shut down after its power
supply was disconnected by MERALCO for non-payment of utility bills; and, that it was their own tube
ice trading business which had been moved to 66-C Cenacle Drive, Sanville Subdivision, Project 6,
Quezon City that the Spouses Jaso mistook for the ice manufacturing business established in
partnership with Biondo.9

The issues thus joined and the mandatory pre-trial conference subsequently terminated, the RTC went
on to try the case on its merits and, thereafter, to render its Decision dated 17 September 2001,
discounting the existence of sufficient evidence from which the income, assets and the supposed
dissolution of the joint venture can be adequately reckoned. Upon the finding, however, that the
Spouses Jaso had been nevertheless subrogated to Biondo’s rights in the business in view of their
valid acquisition of the latter’s share as capitalist partner, 10 the RTC disposed of the case in the
following wise:

WHEREFORE, defendants are ordered to submit to plaintiffs a complete accounting and inventory of
the assets and liabilities of the joint venture from its inception to the present, to allow plaintiffs access
to the books and accounting records of the joint venture, to deliver to plaintiffs their share in the profits,
if any, and to pay the plaintiffs the amount of ₱20,000. for moral damages. The claims for exemplary
damages and attorney’s fees are denied for lack of basis. 11

On appeal before the CA, the foregoing decision was set aside in the herein assailed Decision dated
30 April 2007, upon the following findings and conclusions: (a) the Spouses Jaso validly acquired
Biondo’s share in the business which had been transferred to and continued its operations at 66-C
Cenacle Drive, Sanville Subdivision, Project 6, Quezon City and not dissolved as claimed by the
Spouses Realubit; (b) absent showing of Josefina’s knowledge and consent to the transfer of Biondo’s
share, Eden cannot be considered as a partner in the business, pursuant to Article 1813 of the Civil
Code of the Philippines; (c) while entitled to Biondo’s share in the profits of the business, Eden cannot,
however, interfere with the management of the partnership, require information or account of its
transactions and inspect its books; (d) the partnership should first be dissolved before Eden can seek
an accounting of its transactions and demand Biondo’s share in the business; and, (e) the evidence
adduced before the RTC do not support the award of moral damages in favor of the Spouses Jaso. 12

The Spouses Realubit’s motion for reconsideration of the foregoing decision was denied for lack of
merit in the CA’s 28 June 2007 Resolution, 13 hence, this petition.

The Issues

The Spouses Realubit urge the reversal of the assailed decision upon the negative of the following
issues, to wit:

A. WHETHER OR NOT THERE WAS A VALID ASSIGNMENT OF RIGHTS TO THE JOINT

VENTURE.

B. WHETHER THE COURT MAY ORDER PETITIONER [JOSEFINA REALUBIT] AS

PARTNER IN THE JOINT VENTURE TO RENDER [A]N ACCOUNTING TO ONE WHO IS
NOT A PARTNER IN SAID JOINT VENTURE.
 C. WHETHER PRIVATE RESPONDENTS [SPOUSES JASO] HAVE ANY RIGHT IN THE
JOINT VENTURE AND IN THE SEPARATE ICE BUSINESS OF PETITIONER[S]. 14

The Court’s Ruling

We find the petition bereft of merit.

The Spouses Realubit argue that, in upholding its validity, both the RTC and the CA inordinately gave
premium to the notarization of the 27 June 1997 Deed of Assignment executed by Biondo in favor of
the Spouses Jaso. Calling attention to the latter’s failure to present before the RTC said assignor or,
at the very least, the witnesses to said document, the Spouses Realubit maintain that the testimony
of Rolando Diaz, the Notary Public before whom the same was acknowledged, did not suffice to
establish its authenticity and/or validity. They insist that notarization did not automatically and
conclusively confer validity on said deed, since it is still entirely possible that Biondo did not execute
said deed or, for that matter, appear before said notary public. 15 The dearth of merit in the Spouses
Realubit’s position is, however, immediately evident from the settled rule that documents
acknowledged before notaries public are public documents which are admissible in evidence without
necessity of preliminary proof as to their authenticity and due execution.16

It cannot be gainsaid that, as a public document, the Deed of Assignment Biondo executed in favor of
Eden not only enjoys a presumption of regularity17 but is also considered prima facie evidence of the
facts therein stated.18 A party assailing the authenticity and due execution of a notarized document is,
consequently, required to present evidence that is clear, convincing and more than merely
preponderant.19 In view of the Spouses Realubit’s failure to discharge this onus, we find that both the
RTC and the CA correctly upheld the authenticity and validity of said Deed of Assignment upon the
combined strength of the above-discussed disputable presumptions and the testimonies elicited from
Eden20 and Notary Public Rolando Diaz.21 As for the Spouses’ Realubit’s bare assertion that Biondo’s
signature on the same document appears to be forged, suffice it to say that, like fraud, 22 forgery is
never presumed and must likewise be proved by clear and convincing evidence by the party alleging
the same.23 Aside from not being borne out by a comparison of Biondo’s signatures on the Joint
Venture Agreement24 and the Deed of Assignment,25 said forgery is, moreover debunked by Biondo’s
duly authenticated certification dated 17 November 1998, confirming the transfer of his interest in the
business in favor of Eden.26

Generally understood to mean an organization formed for some temporary purpose, a joint venture is
likened to a particular partnership or one which "has for its object determinate things, their use or fruits,
or a specific undertaking, or the exercise of a profession or vocation." 27 The rule is settled that joint
ventures are governed by the law on partnerships 28 which are, in turn, based on mutual agency or
delectus personae.29 Insofar as a partner’s conveyance of the entirety of his interest in the partnership
is concerned, Article 1813 of the Civil Code provides as follows:

Art. 1813. A conveyance by a partner of his whole interest in the partnership does not itself dissolve
the partnership, or, as against the other partners in the absence of agreement, entitle the assignee,
during the continuance of the partnership, to interfere in the management or administration of the
partnership business or affairs, or to require any information or account of partnership transactions, or
to inspect the partnership books; but it merely entitles the assignee to receive in accordance with his
contracts the profits to which the assigning partners would otherwise be entitled. However, in case of
fraud in the management of the partnership, the assignee may avail himself of the usual remedies.

In the case of a dissolution of the partnership, the assignee is entitled to receive his assignor’s interest
and may require an account from the date only of the last account agreed to by all the partners.
From the foregoing provision, it is evident that "(t)he transfer by a partner of his partnership interest
does not make the assignee of such interest a partner of the firm, nor entitle the assignee to interfere
in the management of the partnership business or to receive anything except the assignee’s profits.
The assignment does not purport to transfer an interest in the partnership, but only a future contingent
right to a portion of the ultimate residue as the assignor may become entitled to receive by virtue of
his proportionate interest in the capital." 30 Since a partner’s interest in the partnership includes his
share in the profits,31 we find that the CA committed no reversible error in ruling that the Spouses Jaso
are entitled to Biondo’s share in the profits, despite Juanita’s lack of consent to the assignment of said
Frenchman’s interest in the joint venture. Although Eden did not, moreover, become a partner as a
consequence of the assignment and/or acquire the right to require an accounting of the partnership
business, the CA correctly granted her prayer for dissolution of the joint venture conformably with the
right granted to the purchaser of a partner’s interest under Article 1831 of the Civil Code. 32 1âwphi1

Considering that they involve questions of fact, neither are we inclined to hospitably entertain the
Spouses Realubit’s insistence on the supposed fact that Josefina’s joint venture with Biondo had
already been dissolved and that the ice manufacturing business at 66-C Cenacle Drive, Sanville
Subdivision, Project 6, Quezon City was merely a continuation of the same business they previously
operated under a single proprietorship. It is well-entrenched doctrine that questions of fact are not
proper subjects of appeal by certiorari under Rule 45 of the Rules of Court as this mode of appeal is
confined to questions of law.33 Upon the principle that this Court is not a trier of facts, we are not duty
bound to examine the evidence introduced by the parties below to determine if the trial and the
appellate courts correctly assessed and evaluated the evidence on record. 34 Absent showing that the
factual findings complained of are devoid of support by the evidence on record or the assailed
judgment is based on misapprehension of facts, the Court will limit itself to reviewing only errors of
law.35

Based on the evidence on record, moreover, both the RTC36 and the CA37 ruled out the dissolution of
the joint venture and concluded that the ice manufacturing business at the aforesaid address was the
same one established by Juanita and Biondo. As a rule, findings of fact of the CA are binding and
conclusive upon this Court,38 and will not be reviewed or disturbed on appeal39 unless the case falls
under any of the following recognized exceptions: (1) when the conclusion is a finding grounded
entirely on speculation, surmises and conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) where there is a grave abuse of discretion; (4) when the judgment is based
on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the CA, in making
its findings, went beyond the issues of the case and the same is contrary to the admissions of both
appellant and appellee; (7) when the findings are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific evidence on which they are based; (9) when
the facts set forth in the petition as well as in the petitioners' main and reply briefs are not disputed by
the respondents; and, (10) when the findings of fact of the CA are premised on the supposed absence
of evidence and contradicted by the evidence on record. 40Unfortunately for the Spouses Realubit’s
cause, not one of the foregoing exceptions applies to the case.

WHEREFORE, the petition is DENIED for lack of merit and the assailed CA Decision dated 30 April
2007 is, accordingly, AFFIRMED in toto.

SO ORDERED.
G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA

BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

Courts may not extricate parties from the necessary consequences of their acts. That the terms of a
contract turn out to be financially disadvantageous to them will not relieve them of their obligations
therein. The lack of an inventory of real property will not ipso facto release the contracting partners
from their respective obligations to each other arising from acts executed in accordance with their
agreement.

The Case

The Petition for Review on Certiorari before us assails the March 5, 1998 Decision 1 of the Court of
Appeals 2 (CA) in CA-GR CV No. 42378 and its June 25, 1998 Resolution denying reconsideration.
The assailed Decision affirmed the ruling of the Regional Trial Court (RTC) of Cebu City in Civil Case
No. R-21208, which disposed as follows:

WHEREFORE, for all the foregoing considerations, the Court, finding for the defendant
and against the plaintiffs, orders the dismissal of the plaintiffs complaint. The
counterclaims of the defendant are likewise ordered dismissed. No pronouncement as
to costs. 3

The Facts

Sisters Antonia Torres and Emeteria Baring, herein petitioners, entered into a "joint venture
agreement" with Respondent Manuel Torres for the development of a parcel of land into a subdivision.
Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of
respondent, who then had it registered in his name. By mortgaging the property, respondent obtained
from Equitable Bank a loan of P40,000 which, under the Joint Venture Agreement, was to be used for
the development of the subdivision. 4 All three of them also agreed to share the proceeds from the sale
of the subdivided lots.

The project did not push through, and the land was subsequently foreclosed by the bank.

According to petitioners, the project failed because of "respondent's lack of funds or means and skills."
They add that respondent used the loan not for the development of the subdivision, but in furtherance
of his own company, Universal Umbrella Company.

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the
said amount, he was able to effect the survey and the subdivision of the lots. He secured the Lapu
Lapu City Council's approval of the subdivision project which he advertised in a local newspaper. He
also caused the construction of roads, curbs and gutters. Likewise, he entered into a contract with an
engineering firm for the building of sixty low-cost housing units and actually even set up a model house
on one of the subdivision lots. He did all of these for a total expense of P85,000.
Respondent claimed that the subdivision project failed, however, because petitioners and their
relatives had separately caused the annotations of adverse claims on the title to the land, which
eventually scared away prospective buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the project. 5

Subsequently, petitioners filed a criminal case for estafa against respondent and his wife, who were
however acquitted. Thereafter, they filed the present civil case which, upon respondent's motion, was
later dismissed by the trial court in an Order dated September 6, 1982. On appeal, however, the
appellate court remanded the case for further proceedings. Thereafter, the RTC issued its assailed
Decision, which, as earlier stated, was affirmed by the CA.

Hence, this Petition. 6

Ruling of the Court of Appeals

In affirming the trial court, the Court of Appeals held that petitioners and respondent had formed a
partnership for the development of the subdivision. Thus, they must bear the loss suffered by the
partnership in the same proportion as their share in the profits stipulated in the contract. Disagreeing
with the trial court's pronouncement that losses as well as profits in a joint venture should be distributed
equally, 7 the CA invoked Article 1797 of the Civil Code which provides:

Art. 1797 — The losses and profits shall be distributed in conformity with the
agreement. If only the share of each partner in the profits has been agreed upon, the
share of each in the losses shall be in the same proportion.

The CA elucidated further:

In the absence of stipulation, the share of each partner in the profits and losses shall
be in proportion to what he may have contributed, but the industrial partner shall not
be liable for the losses. As for the profits, the industrial partner shall receive such share
as may be just and equitable under the circumstances. If besides his services he has
contributed capital, he shall also receive a share in the profits in proportion to his
capital.

The Issue

Petitioners impute to the Court of Appeals the following error:

. . . [The] Court of Appeals erred in concluding that the transaction

. . . between the petitioners and respondent was that of a joint venture/partnership,
ignoring outright the provision of Article 1769, and other related provisions of the Civil
Code of the Philippines. 8

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership
Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture
Agreement and the earlier Deed of Sale, both of which were the bases of the appellate court's finding
of a partnership, were void.

In the same breath, however, they assert that under those very same contracts, respondent is liable
for his failure to implement the project. Because the agreement entitled them to receive 60 percent of
the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages
equivalent to 60 percent of the value of the property. 9

The pertinent portions of the Joint Venture Agreement read as follows:

KNOW ALL MEN BY THESE PRESENTS:

This AGREEMENT, is made and entered into at Cebu City, Philippines, this 5th day of
March, 1969, by and between MR. MANUEL R. TORRES, . . . the FIRST PARTY,
likewise, MRS. ANTONIA B. TORRES, and MISS EMETERIA BARING, . . . the
SECOND PARTY:

WITNESSETH:

That, whereas, the SECOND PARTY, voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island of Mactan, under Lot No. 1368 covering
TCT No. T-0184 with a total area of 17,009 square meters, to be sub-divided by the
FIRST PARTY;

Whereas, the FIRST PARTY had given the SECOND PARTY, the sum of: TWENTY
THOUSAND (P20,000.00) Pesos, Philippine Currency upon the execution of this
contract for the property entrusted by the SECOND PARTY, for sub-division projects
and development purposes;

NOW THEREFORE, for and in consideration of the above covenants and promises
herein contained the respective parties hereto do hereby stipulate and agree as
follows:

ONE: That the SECOND PARTY signed an absolute Deed of Sale . . . dated March 5,
1969, in the amount of TWENTY FIVE THOUSAND FIVE HUNDRED THIRTEEN &
FIFTY CTVS. (P25,513.50) Philippine Currency, for 1,700 square meters at ONE
[PESO] & FIFTY CTVS. (P1.50) Philippine Currency, in favor of the FIRST PARTY,
but the SECOND PARTY did not actually receive the payment.

SECOND: That the SECOND PARTY, had received from the FIRST PARTY, the
necessary amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency,
for their personal obligations and this particular amount will serve as an advance
payment from the FIRST PARTY for the property mentioned to be sub-divided and to
be deducted from the sales.

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest
and the principal amount involving the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, until the sub-division project is terminated and ready for
sale to any interested parties, and the amount of TWENTY THOUSAND (P20,000.00)
pesos, Philippine currency, will be deducted accordingly.
 FOURTH: That all general expense[s] and all cost[s] involved in the sub-division
project should be paid by the FIRST PARTY, exclusively and all the expenses will not
be deducted from the sales after the development of the sub-division project.

FIFTH: That the sales of the sub-divided lots will be divided into SIXTY PERCENTUM
60% for the SECOND PARTY and FORTY PERCENTUM 40% for the FIRST PARTY,
and additional profits or whatever income deriving from the sales will be divided equally
according to the . . . percentage [agreed upon] by both parties.

SIXTH: That the intended sub-division project of the property involved will start the
work and all improvements upon the adjacent lots will be negotiated in both parties[']
favor and all sales shall [be] decided by both parties.

SEVENTH: That the SECOND PARTIES, should be given an option to get back the
property mentioned provided the amount of TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, borrowed by the SECOND PARTY, will be paid in full to
the FIRST PARTY, including all necessary improvements spent by the FIRST PARTY,
and-the FIRST PARTY will be given a grace period to turnover the property mentioned
above.

That this AGREEMENT shall be binding and obligatory to the parties who executed
same freely and voluntarily for the uses and purposes therein stated. 10

A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership
pursuant to Article 1767 of the Civil Code, which provides:

Art. 1767. By the contract of partnership two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of dividing
the profits among themselves.

Under the above-quoted Agreement, petitioners would contribute property to the partnership in the
form of land which was to be developed into a subdivision; while respondent would give, in addition to
his industry, the amount needed for general expenses and other costs. Furthermore, the income from
the said project would be divided according to the stipulated percentage. Clearly, the contract
manifested the intention of the parties to form a partnership. 11

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title
to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused
the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision
of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and
entered into a contract to construct low-cost housing units on the property.

Respondent's actions clearly belie petitioners' contention that he made no contribution to the
partnership. Under Article 1767 of the Civil Code, a partner may contribute not only money or property,
but also industry.

Petitioners Bound by

Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties not only to what has been expressly
stipulated, but also to all necessary consequences thereof, as follows:

Art. 1315. Contracts are perfected by mere consent, and from that moment the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to
all the consequences which, according to their nature, may be in keeping with good
faith, usage and law.

It is undisputed that petitioners are educated and are thus presumed to have understood the terms of
the contract they voluntarily signed. If it was not in consonance with their expectations, they should
have objected to it and insisted on the provisions they wanted.

Courts are not authorized to extricate parties from the necessary consequences of their acts, and the
fact that the contractual stipulations may turn out to be financially disadvantageous will not relieve
parties thereto of their obligations. They cannot now disavow the relationship formed from such
agreement due to their supposed misunderstanding of its terms.

Alleged Nullity of the

Partnership Agreement

Petitioners argue that the Joint Venture Agreement is void under Article 1773 of the Civil Code, which
provides:

Art. 1773. A contract of partnership is void, whenever immovable property is

contributed thereto, if an inventory of said property is not made, signed by the parties,
and attached to the public instrument.

They contend that since the parties did not make, sign or attach to the public instrument an inventory
of the real property contributed, the partnership is void.

We clarify. First, Article 1773 was intended primarily to protect third persons. Thus, the eminent Arturo
M. Tolentino states that under the aforecited provision which is a complement of Article 1771, 12 "The
execution of a public instrument would be useless if there is no inventory of the property contributed,
because without its designation and description, they cannot be subject to inscription in the Registry
of Property, and their contribution cannot prejudice third persons. This will result in fraud to those who
contract with the partnership in the belief [in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no such inventory is made." The case at
bar does not involve third parties who may be prejudiced.

Second, petitioners themselves invoke the allegedly void contract as basis for their claim that
respondent should pay them 60 percent of the value of the property. 13 They cannot in one breath deny
the contract and in another recognize it, depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and courts will not tolerate, much less
approve, such practice.

In short, the alleged nullity of the partnership will not prevent courts from considering the Joint Venture
Agreement an ordinary contract from which the parties' rights and obligations to each other may be
inferred and enforced.

Partnership Agreement Not the Result

of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil
Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land
without valid consideration.

This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the
sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners
did not actually receive payment for the parcel of land sold to respondent. Consideration, more
properly denominated as cause, can take different forms, such as the prestation or promise of a thing
or service by another. 15

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in
the expectation of profits from the subdivision project, for which the land was intended to be used. As
explained by the trial court, "the land was in effect given to the partnership as [petitioner's] participation
therein. . . . There was therefore a consideration for the sale, the [petitioners] acting in the expectation
that, should the venture come into fruition, they [would] get sixty percent of the net profits."

Liability of the Parties

Claiming that rerpondent was solely responsible for the failure of the subdivision project, petitioners
maintain that he should be made to pay damages equivalent to 60 percent of the value of the property,
which was their share in the profits under the Joint Venture Agreement.

We are not persuaded. True, the Court of Appeals held that petitioners' acts were not the cause of the
failure of the project. 16 But it also ruled that neither was respondent responsible therefor. 17 In imputing
the blame solely to him, petitioners failed to give any reason why we should disregard the factual
findings of the appellate court relieving him of fault. Verily, factual issues cannot be resolved in a
petition for review under Rule 45, as in this case. Petitioners have not alleged, not to say shown, that
their Petition constitutes one of the exceptions to this doctrine. 18Accordingly, we find no reversible
error in the CA's ruling that petitioners are not entitled to damages.

WHEREFORE, the Perition is hereby DENIED and the challenged Decision AFFIRMED. Costs against
petitioners.

SO ORDERED
G.R. No. 149844 October 13, 2004

MIGUEL CUENCO, Substituted by MARIETTA C. CUYEGKENG, petitioner,

vs.
CONCEPCION CUENCO Vda. DE MANGUERRA, respondent.

DECISION

PANGANIBAN, J.:

Inasmuch as the facts indubitably and eloquently show an implied trust in favor of respondent, the
Court of Appeals did not err in affirming the Decision of the Regional Trial Court ordering petitioner to
convey the subject property to her. That Decision satisfied the demands of justice and prevented unjust
enrichment.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the August 22,
2001 Decision2of the Court of Appeals (CA) in CA-GR CV No. 54852. The assailed Decision disposed
as follows:

"WHEREFORE, the decision appealed from is AFFIRMED."3

On the other hand, the Regional Trial Court (RTC) Decision affirmed by the CA disposed as follows:

"WHEREFORE, considering that this action is essentially one for reconveyance or

enforcement of a trust, judgment is hereby rendered ordering the substituted defendant
Marietta Cuenco Cuyegkeng to reconvey or transfer, in a duly registrable public instrument,
Lot No 903-A-6 under TCT No. 113781 of the Registry of Deeds of Cebu City, of the Banilad
Estate with an area of 834 square meters, in favor of plaintiff Concepcion Cuenco Vda. De
Manguerra; or should the substituted defendant, for one reason or another, fail to execute the
necessary instrument once the decision becomes final, the Clerk of Court of this Court (RTC)
is hereby instructed, in accordance with the Rules of Court, to prepare and execute the
appropriate and requisite conveyance and instrument in favor of herein plaintiff which, in either
case, shall be registered with the Office of the Register of Deeds of Cebu City.

Without costs in this instance."4

The Facts

The facts were summarized by the appellate court as follows:

"On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific
performance against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her
father, the late Don Mariano Jesus Cuenco (who became Senator) and said [petitioner] formed
the ‘Cuenco and Cuenco Law Offices’; that on or around August 4, 1931, the Cuenco and
Cuenco Law Offices served as lawyers in two (2) cases entitled ‘Valeriano Solon versus Zoilo
Solon’ (Civil Case 9037) and ‘Valeriano Solon versus Apolonia Solon’ (Civil Case 9040)
involving a dispute among relatives over ownership of lot 903 of the Banilad Estate which is
near the Cebu Provincial Capitol; that records of said cases indicate the name of the
[petitioner] alone as counsel of record, but in truth and in fact, the real lawyer behind the
success of said cases was the influential Don Mariano Jesus Cuenco; that after winning said
cases, the awardees of Lot 903 subdivided said lot into three (3) parts as follows:

Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees

Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees

Lot 903-C: 54,000 [square meters]: Solon’s retention

"That at the time of distribution of said three (3) lots in Cebu, Mariano Jesus Cuenco was
actively practicing law in Manila, and so he entrusted his share (Lot 903-A) to his brother law
partner (the [petitioner]); that on September 10, 1938, the [petitioner] was able to obtain in his
own name a title for Lot 903-A (Transfer Certificate of Title [TCT] RT-6999 [T-21108]); that he
was under the obligation to hold the title in trust for his brother Mariano’s children by first
marriage; that sometime in 1947, the Cuenco family was anticipating Mariano’s second
marriage, and so on February 1, 1947, they partitioned Lot 903-A into six (6) sub-lots (Lots
903-A-1 to 903-A-6) to correspond to the six (6) children of Mariano’s first marriage (Teresita,
Manuel, Lourdes, Carmen, Consuelo, and Concepcion); that the [petitioner] did not object nor
oppose the partition plan; that on June 4, 1947, the [petitioner] executed four (4) deeds of
donation in favor of Mariano’s four (4) children: Teresita, Manuel, Lourdes, and Carmen,
pursuant to the partition plan (per notary documents 183, 184, 185, 186, Book III, Series 1947
of Cebu City Notary Public Candido Vasquez); that on June 24, 1947, the [petitioner] executed
the fifth deed of donation in favor of Mariano’s fifth child – Consuelo (per notary document 214,
Book III, Series 1947 of Cebu City Notary Public Candido Vasquez) (Exhibits ‘2’ to ‘5’); that
said five (5) deeds of donation left out Mariano’s sixth child – Concepcion – who later became
the [respondent] in this case; that in 1949, [respondent] occupied and fenced a portion of Lot
903-A-6 for taxation purposes (Exhibit ‘F’, Exhibit ‘6’); that she also paid the taxes thereon
(Exhibit ‘G’); that her father died on February 25, 1964 with a Last Will and Testament; that
the pertinent portion of her father’s Last Will and Testament bequeaths the lot.

‘… near the Cebu provincial capitol, which were my attorney’s fees from my clients,
Victoria Rallos and Zoilo Solon, respectively – have already long been disposed of,
and distributed by me, through my brother, Miguel, to all my said children in the first
marriage;’

"That on June 3, 1966, the [petitioner] wrote a letter petitioning the Register of Deeds of Cebu
to transfer Lot 903-A-6 to his name on the ground that Lot 903-A-6 is a portion of Lot 903-A;
that on April 6, 1967, the [respondent] requested the Register of Deeds to annotate an affidavit
of adverse claim against the [petitioner’s] TCT RT-6999 (T-21108) which covers Lot 903-A;
that on June 3, 1967, the Register of Deeds issued TCT 35275 covering Lot 903-A-6 in the
name of the [petitioner] but carrying the earlier annotation of adverse claim; that in 1969, the
[petitioner] tore down the wire fence which the [respondent] constructed on Lot 903-A-6 which
compelled the latter to institute the instant complaint dated August 20, 1970 on September 19,
1970.

"On December 5, 1970, the answer with counterclaim dated December 3, 1970 of [petitioner]
Miguel Cuenco was filed where he alleged that he was the absolute owner of Lot 903-A-6; that
this lot was a portion of Lot 903-A which in turn was part of Lot 903 which was the subject
matter of litigation; that he was alone in defending the cases involving Lot 903 without the
participation of his brother Mariano Cuenco; that he donated five (5) of the six (6) portions of
Lot 903-A to the five (5) children of his brother Mariano out of gratitude for the love and care
they exhibited to him (Miguel) during the time of his long sickness; that he did not give or
 donate any portion of the lot to the [respondent] because she never visited him nor took care
of him during his long sickness; that he became critically ill on February 11, 1946 and was
confined at the Singian’s Clinic in Manila and then transferred to Cebu where he nearly died
in 1946; that his wife Fara Remia Ledesma Cuenco had an operation on January 1951 and
was confined at the University of Santo Tomas Hospital and John Hopkins Hospital in the
United States; that two of his children died at the University of Santo Tomas Hospital in 1951
and 1952; and that his wife was blind for many months due to malignant hypertension but
[respondent] never remembered her nor did she commiserate with him and his wife in their
long period of sorrow.

"[Petitioner] Miguel Cuenco took the witness stand as early as September 13, 1974. His self-
conducted direct examination lasted until 1985, the last one on November 22, 1985.
Unfortunately, he died5 before he was able to submit himself for cross-examination and so his
testimony had to be stricken off the record. His only surviving daughter, Marietta Cuyegkeng,
stood as the substitute [petitioner] in this case. She testified that she purchased Lot 903-A-6
(the property subject matter of this case) from her late father sometime in 1990 and
constructed a house thereon in the same year; that she became aware of this case because
her late father used to commute to Cebu City to attend to this case; and that Lot 903-A-6 is in
her name per Transfer Certificate of Title #113781 of the Registry of Deeds for Cebu." 6

Ruling of the Court of Appeals

The CA found respondent’s action not barred by res judicata, because there was "no identity of causes
of action between the Petition for cancellation of adverse claim in L.R.C. Records 5988 and the
Complaint for specific performance to resolve the issue of ownership in Civil Case No. R-11891."

The appellate court further found no reason to disturb the findings of the trial court that respondent
"has the legal right of ownership over lot 903-A-6." The CA ruled that the subject land "is part of the
attorney’s fees of Don Mariano Cuenco, predecessor-in-interest of [Respondent] Concepcion Cuenco
vda. de Manguerra and [petitioner] merely holds such property in trust for [her], his title there[to]
notwithstanding."

Finally, the CA held that the right of action of respondent "has not yet prescribed as she was in
possession of the lot in dispute and the prescriptive period to file the case commences to run only from
the time she acquired knowledge of an adverse claim over [her] possession."

Hence, this Petition.7

The Issues

In her Memorandum, petitioner raises the following issues for our consideration:

"I.

On question of law, the Court of Appeals failed to consider facts of substance and significance
which, if considered, will show that the preponderance of evidence is in favor of the petitioner.

"II.
 On question of law, the Court of Appeals failed to appreciate the proposition that, contrary to
the position taken by the trial court, no constructive or implied trust exists between the parties,
and neither is the action one for reconveyance based upon a constructive or implied trust.

"III.

On question of law, the Court of Appeals erred in not finding that even where implied trust is
admitted to exist the respondent’s action for relief is barred by laches and prescription.

"IV.

On question of law, the trial court and the appellate court erred in expunging from the records
the testimony of Miguel Cuenco."8

This Court’s Ruling

The Petition has no merit.

First Issue:

Evaluation of Evidence

Petitioner asks us to appreciate and weigh the evidence offered in support of the finding that Lot 903-
A-6 constituted a part of Mariano Cuenco’s share in the attorney’s fees. In other words, she seeks to
involve us in a reevaluation of the veracity and probative value of the evidence submitted to the lower
court. What she wants us to do is contrary to the dictates of Rule 45 that only questions of law may be
raised and resolved in a petition for review. "Absent any whimsical or capricious exercise of judgment,
and unless the lack of any basis for the conclusions made by the lower courts be amply demonstrated,
the Supreme Court will not disturb such factual findings." 9

As a rule, findings of fact of the Court of Appeals affirming those of the trial court are binding and
conclusive. Normally, such factual findings are not disturbed by this Court, to which only questions of
law may be raised in an appeal by certiorari. 10 This Court has consistently ruled that these questions
"must involve no examination of the probative value of the evidence presented by the litigants or any
of them."11 Emphasizing the difference between the two types of question, it has explained that "there
is a question of law in a given case when the doubt or difference arises as to what the law is pertaining
to a certain state of facts, and there is a question of fact when the doubt arises as the truth or the
falsity of alleged facts."12

Indeed, after going over the records of the present case, we are not inclined to disturb the factual
findings of the trial and the appellate courts, just because of the insistent claim of petitioner. His
witnesses allegedly testified that Civil Case No. 9040 involving Lot 903 had not been handled by
Mariano for defendants therein -- Apolonia Solon, Zoilo Solon, et al. It has sufficiently been proven,
however, that these defendants were represented by the Cuenco and Cuenco Law Office, composed
of Partners Mariano Cuenco and Miguel Cuenco.

Given as attorney’s fees was one hectare of Lot 903, of which two five-thousand square meter portions
were identified as Lot 903-A and Lot 903-B. That only Miguel handled Civil Case No. 9040 does not
mean that he alone is entitled to the attorney’s fees in the said cases. "When a client employs the
services of a law firm, he does not employ the services of the lawyer who is assigned to personally
handle the case. Rather, he employs the entire law firm."13 Being a partner in the law firm, Mariano --
like Miguel -- was likewise entitled14 to a share in the attorney’s fees from the firm’s clients. Hence, the
lower courts’ finding that Lot 903-A was a part of Mariano Cuenco’s attorney’s fees has ample support.

Second Issue:

Implied Trust

Petitioner then contends that no constructive or implied trust exists between the parties.

A trust is a legal relationship between one having an equitable ownership in a property and another
having legal title to it.15

Trust relations between parties may either be express or implied. 16 Express trusts are created by the
direct and positive acts of the parties, indicated through some writing, deed, will, or words evidencing
an intention to create a trust.17 On the other hand, implied trusts are those that, "without being express,
are deducible from the nature of the transaction as matters of intent[;] or which are superinduced on
the transaction by operation of law as a matter of equity, independently of the particular intention of
the parties. Implied trusts may either be resulting or constructive trusts, both coming into being by
operation of law."18

Resulting trusts are presumed to have been contemplated by the parties and are based on the
equitable doctrine that valuable consideration, not legal title, determines the equitable title or
interest.19 These trusts arise from the nature of or the circumstances involved in a
transaction,20 whereby legal title becomes vested in one person, who is obligated in equity to hold that
title for the benefit of another.

Constructive trusts are "created by the construction of equity in order to satisfy the demands of justice
and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or
abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good
conscience, to hold."21

A review of the records shows that indeed there is an implied trust between the parties.

Although Lot 903-A was titled in Miguel’s name, the circumstances surrounding the acquisition and
the subsequent partial dispositions of this property eloquently speak of the intent that the equitable or
beneficial ownership of the property should belong to Mariano and his heirs.

First, Lot 903-A was one half of the one-hectare portion of Lot 903 given as attorney’s fees by
a client of the law firm of Partners Miguel and Mariano Cuenco. It constituted the latter’s share
in the attorney’s fees and thus equitably belonged to him, as correctly found by the CA. That
Lot 903-A had been titled in the name of Miguel gave rise to an implied trust between him and
Mariano, specifically, the former holds the property in trust for the latter. In the present case, it
is of no moment that the implied trust arose from the circumstance -- a share in the attorney’s
fees -- that does not categorically fall under Articles 1448 to 1456 of the Civil Code. The cases
of implied trust enumerated therein "does not exclude others established by the general law
of trust."22

Second, from the time it was titled in his name in 1938, 23 Lot 903-A remained undivided and
untouched24 by Miguel. Only on February 3, 1947, did Lourdes Cuenco, 25 upon the instruction
of Mariano, have it surveyed and subdivided into six almost equal portions -- 903-A-1 to 903-
 A-6. Each portion was specifically allocated to each of the six children of Mariano with his first
wife.26

Third, Miguel readily surrendered his Certificate of Title27 and interposed no objection28 to the
subdivision and the allocation of the property to Mariano’s six children, including Concepcion.

Fourth, Mariano’s children, including Concepcion, 29 were the ones who shouldered the
expenses incurred for the subdivision of the property.

Fifth, after the subdivision of the property, Mariano’s children -- including Concepcion30 -- took
possession of their respective portions thereof.

Sixth, the legal titles to five portions of the property were transferred via a gratuitous deed of
conveyance to Mariano’s five children, following the allocations specified in the subdivision
plan prepared for Lourdes Cuenco.31

With respect to Lot 903-A-6 in particular, the existence of Concepcion’s equitable ownership thereof
is bolstered, not just by the above circumstances, but also by the fact that respondent fenced the
portion allocated to her and planted trees thereon. 32

More significantly, she also paid real property taxes on Lot 903-A-6 yearly, from 1956 until 196933 --
the year when she was dispossessed of the property. "Although tax declarations or realty tax payments
of property are not conclusive evidence of ownership, nevertheless, they are good indicia of
possession in the concept of owner, for no one in his right mind would be paying taxes for a property
that is not in his actual or at least constructive possession."34 Such realty tax payments constitute proof
that the holder has a claim of title over the property.

Tellingly, Miguel started paying real property taxes on Lot 903-A-6 only on April 4, 1964,35 after the
death of Mariano.36 This fact shows that it was only in that year that he was emboldened to claim the
property as his own and to stop recognizing Mariano’s, and subsequently Concepcion’s, ownership
rights over it. It was only by then that the one who could have easily refuted his claim had already
been silenced by death. Such a situation cannot be permitted to arise, as will be explained below.

Estoppel

From the time Lot 903-A was subdivided and Mariano’s six children -- including Concepcion -- took
possession as owners of their respective portions, no whimper of protest from petitioner was heard
until 1963. By his acts as well as by his omissions, Miguel led Mariano and the latter’s heirs, including
Concepcion, to believe that Petitioner Cuenco respected the ownership rights of respondent over Lot
903-A-6. That Mariano acted and relied on Miguel’s tacit recognition of his ownership thereof is evident
from his will, executed in 1963, which states:

"I hereby make it known and declare that x x x all properties which my first wife and I had
brought to, or acquired during our marriage, or which I had acquired during the years I was a
widower – including jewelry, war damage compensation, and two other lots also located at
Cebu City, one near the South-Western University and the other near the Cebu provincial
capitol, which were my attorney’s fees from my clients, Victoria Rallos and Zoilo Solon,
respectively – have already long been disposed of, and distributed by me, through my brother,
Miguel, to all my said six children in the first marriage."37 (emphasis supplied)
Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -- situated along Juana
Osmeña Extension, Kamputhaw, Cebu City, 38 near the Cebu Provincial Capitol -- had been subdivided
and distributed to his six children in his first marriage. Having induced him and his heirs to believe that
Lot 903-A-6 had already been distributed to Concepcion as her own, petitioner is estopped from
asserting the contrary and claiming ownership thereof.

The principle of estoppel in pais applies when -- by one’s acts, representations, admissions, or silence
when there is a need to speak out -- one, intentionally or through culpable negligence, induces another
to believe certain facts to exist; and the latter rightfully relies and acts on such belief, so as to be
prejudiced if the former is permitted to deny the existence of those facts. 39

Third Issue:

Laches

Petitioner claims that respondent’s action is already barred by laches.

We are not persuaded. Laches is negligence or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to it has either abandoned or declined to assert it. 40 In
the present case, respondent has persistently asserted her right to Lot 903-A-6 against petitioner.

Concepcion was in possession as owner of the property from 1949 to 1969. 41 When Miguel took steps
to have it separately titled in his name, despite the fact that she had the owner’s duplicate copy of TCT
No. RT-6999 -- the title covering the entire Lot 903-A -- she had her adverse claim annotated on the
title in 1967. When petitioner ousted her from her possession of the lot by tearing down her wire fence
in 1969,42 she commenced the present action on September 19, 1970, 43 to protect and assert her rights
to the property. We find that she cannot be held guilty of laches, as she did not sleep on her rights.

Fourth Issue:

Expunging of Testimony

Petitioner Cuyegkeng questions the expunging of the direct testimony of Miguel Cuenco. Respondent
points out that this issue was not raised before the CA. Neither had petitioner asked the trial court to
reconsider its Order expunging the testimony. Hence, this issue cannot for the first time be raised at
this point of the appeal. Issues, arguments and errors not adequately and seriously brought below
cannot be raised for the first time on appeal. 44"Basic considerations of due process impel this rule." 45

WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. Costs against
petitioner.

SO ORDERED.
G.R. No. L-19819 October 26, 1977

WILLIAM UY, plaintiff-appellee,

vs.
BARTOLOME PUZON, substituted by FRANCO PUZON, defendant-appellant.

R.P. Sarandi for appellant.

Jose L. Uy & Andres P. Salvador for appellee.

CONCEPCION JR., J.: têñ.£îhqwâ£

Appeal from the decision of the Court of First Instanre of Manila, dissolving the "U.P. Construction
Company" and ordering the defendant Bartolome Puzon to pay the plaintiff the amounts of: (1)
P115,102.13, with legal interest thereon from the date of the filing of the complaint until fully paid; (2)
P200,000.00, as plaintiffs share in the unrealized profits of the "U.P. Construction Company" and (3)
P5,000.00, as and for attorney's fees.

It is of record that the defendant Bartolome Puzon had a contract with the Republic of the Philippines
for the construction of the Ganyangan Bato Section of the Pagadian Zamboanga City Road,
province of Zamboanga del Sur 1 and of five (5) bridges in the Malangas-Ganyangan Road. 2 Finding
difficulty in accomplishing both projects, Bartolome Puzon sought the financial assistance of the plaintiff,
William Uy. As an inducement, Puzon proposed the creation of a partnership between them which would
be the sub-contractor of the projects and the profits to be divided equally between them. William Uy
inspected the projects in question and, expecting to derive considerable profits therefrom, agreed to the
proposition, thus resulting in the formation of the "U.P. Construction Company" 3 which was subsequently
engaged as subcontractor of the construction projects. 4

The partners agreed that the capital of the partnership would be P100,000.00 of which each partner shall
contribute the amount of P50,000.00 in cash. 5 But, as heretofore stated, Puzon was short of cash and he
promised to contribute his share in the partnership capital as soon as his application for a loan with the
Philippine National Bank in the amount of P150,000.00 shall have been approved. However, before his
loan application could be acted upon, he had to clear his collaterals of its incumbrances first. For this
purpose, on October 24, 1956, Wilham Uy gave Bartolome Puzon the amount of P10,000.00 as advance
contribution of his share in the partnership to be organized between them under the firm name U.P.
CONSTRUCTION COMPANY which amount mentioned above will be used by Puzon to pay his
obligations with the Philippine National Bank to effect the release of his mortgages with the said
Bank. 6 On October 29, 1956, William Uy again gave Puzon the amount of P30,000.00 as his partial
contribution to the proposed partnership and which the said Puzon was to use in payment of his
obligation to the Rehabilitation Finance Corporation. 7 Puzon promised William Uy that the amount of
P150,000.00 would be given to the partnership to be applied thusly: P40,000.00, as reimbursement of the
capital contribution of William Uy which the said Uy had advanced to clear the title of Puzon's property;
P50,000.00, as Puzon's contribution to the partnership; and the balance of P60,000.00 as Puzon's
personal loan to the partnership. 8

Although the partnership agreement was signed by the parties on January 18, 1957, 9 work on the projects
was started by the partnership on October 1, 1956 in view of the insistence of the Bureau of Public
Highways to complete the project right away. 10 Since Puzon was busy with his other projects, William Uy
was entrusted with the management of the projects and whatever expense the latter might incur, would
be considered as part of his contribution. 11 At the end of December, 1957, William Uy had contributed to
the partnership the amount of P115,453.39, including his capital. 12
The loan of Puzon was approved by the Philippine National Bank in November, 1956 and he gave to
William Uy the amount of P60,000.00. Of this amount, P40,000.00 was for the reimbursement of Uy's
contribution to the partnership which was used to clear the title to Puzon's property, and the P20,000.00
as Puzon's contribution to the partnership capital. 13

To guarantee the repayment of the above-mentioned loan, Bartolome Puzon, without the knowledge and
consent of William Uy, 14 assigned to the Philippine National Bank all the payments to be received on
account of the contracts with the Bureau of Public Highways for the construction of the afore-mentioned
projects. 15 By virtue of said assignment, the Bureau of Public Highways paid the money due on the
partial accomplishments on the government projects in question to the Philippine National Bank which, in
turn, applied portions of it in payment of Puzon's loan. Of the amount of P1,047,181.07, released by the
Bureau of Public Highways in payment of the partial work completed by the partnership on the projects,
the amount of P332,539.60 was applied in payment of Puzon's loan and only the amount of P27,820.80
was deposited in the partnership funds, 16 which, for all practical purposes, was also under Puzon's
account since Puzon was the custodian of the common funds.

As time passed and the financial demands of the projects increased, William Uy, who supervised the
said projects, found difficulty in obtaining the necessary funds with which to pursue the construction
projects. William Uy correspondingly called on Bartolome Puzon to comply with his obligations under
the terms of their partnership agreement and to place, at lest, his capital contribution at the disposal
of the partnership. Despite several promises, Puzon, however, failed to do so. 17 Realizing that his
verbal demands were to no avail, William Uy consequently wrote Bartolome Puzon pormal letters of
demand, 18 to which Puzon replied that he is unable to put in additional capital to continue with the
projects. 19

Failing to reach an agreement with William Uy, Bartolome Puzon, as prime contractor of the construction
projects, wrote the subcontractor, U.P. Construction Company, on November 20, 1957, advising the
partnership, of which he is also a partner, that unless they presented an immediate solution and capacity
to prosecute the work effectively, he would be constrained to consider the sub-contract terminated and,
thereafter, to assume all responsibilities in the construction of the projects in accordance with his original
contract with the Bureau of Public Highways. 20 On November 27, 1957, Bartolome Puzon again wrote the
U.P.Construction Company finally terminating their subcontract agreement as of December 1, 1957. 21

Thereafter, William Uy was not allowed to hold office in the U.P. Construction Company and his authority
to deal with the Bureau of Public Highways in behalf of the partnership was revoked by Bartolome Puzon
who continued with the construction projects alone. 22

On May 20, 1958, William Uy, claiming that Bartolome Puzon had violated the terms of their
partnership agreement, instituted an action in court, seeking, inter alia, the dissolution of the
partnership and payment of damages.

Answering, Bartolome Puzon denied that he violated the terms of their agreement claiming that it
was the plaintiff, William Uy, who violated the terms thereof. He, likewise, prayed for the dissolution
of the partnership and for the payment by the plaintiff of his, share in the losses suffered by the
partnership.

After appropriate proceedings, the trial court found that the defendant, contrary to the terms of their
partnership agreement, failed to contribute his share in the capital of the partnership applied
partnership funds to his personal use; ousted the plaintiff from the management of the firm, and
caused the failure of the partnership to realize the expected profits of at least P400,000.00. As a
consequence, the trial court dismissed the defendant's counterclaim and ordered the dissolution of
the partnership. The trial court further ordered the defendant to pay the plaintiff the sum of
P320,103.13.
Hence, the instant appeal by the defendant Bartolome Puzon during the pendency of the appeal
before this Court, the said Bartolome Puzon died, and was substituted by Franco Puzon.

The appellant makes in his brief nineteen (19) assignment of errors, involving questions of fact,
which relates to the following points:

(1) That the appellant is not guilty of breach of contract; and

(2) That the amounts of money the appellant has been order to pay the appellee is not supported by
the evidence and the law.

After going over the record, we find no reason for rejecting the findings of fact below, justifying the
reversal of the decision appealed from.

The findings of the trial court that the appellant failed to contribute his share in the capital of the
partnership is clear incontrovertible. The record shows that after the appellant's loan the amount of
P150,000.00 was approved by the Philippin National Bank in November, 1956, he gave the amount
P60,000.00 to the appellee who was then managing the construction projects. Of this amount,
P40,000.00 was to be applied a reimbursement of the appellee's contribution to the partnership
which was used to clear the title to the appellant's property, and th balance of P20,000.00, as
Puzon's contribution to the partnership. 23 Thereafter, the appellant failed to make any further
contributions the partnership funds as shown in his letters to the appellee wherein he confessed his
inability to put in additional capital to continue with the projects. 24

Parenthetically, the claim of the appellant that the appellee is equally guilty of not contributing his share in
the partnership capital inasmuch as the amount of P40,000.00, allegedly given to him in October, 1956 as
partial contribution of the appellee is merely a personal loan of the appellant which he had paid to the
appellee, is plainly untenable. The terms of the receipts signed by the appellant are clear and unequivocal
that the sums of money given by the appellee are appellee's partial contributions to the partnership
capital. Thus, in the receipt for P10,000.00 dated October 24, 1956, 25 the appellant stated: ñé+.£ªwph!1

Received from Mr. William Uy the sum of TEN THOUSAND PESOS (P10,000.00) in
Check No. SC 423285 Equitable Banking Corporation, dated October 24, 1956, as
advance contribution of the share of said William Uy in the partnership to be
organized between us under the firm name U.P. CONSTRUCTION
COMPANY which amount mentioned above will be used by the undersigned to pay
his obligations with the Philippine National Bank to effect the release of his
mortgages with the said bank. (Emphasis supplied)

In the receipt for the amount of P30,000.00 dated October 29, 1956, 26 the appellant also said: ñé+.£ªwph!1

Received from William Uy the sum of THIRTY THOUSAND PESOS (P30,000.00) in

Check No. SC423287, of the Equitable Banking Corporation, as partial contribution
of the share of the said William Uy to the U.P. CONSTRUCTION COMPANY for
which the undersigned will use the said amount in payment of his obligation to the
Rehabilitation Finance Corporation. (Emphasis supplied)

The findings of the trial court that the appellant misapplied partnership funds is, likewise, sustained
by competent evidence. It is of record that the appellant assigned to the Philippine National Bank all
the payments to be received on account of the contracts with the Bureau of Public Highways for the
construction of the aforementioned projects to guarantee the repayment of the bank. 27 By virtue of
the said appeflant's personal loan with the said bank assignment, the Bureau of Public Highways paid the
money due on the partial accomplishments on the construction projects in question to the Philippine
National Bank who, in turn, applied portions of it in payment of the appellant's loan. 28

The appellant claims, however, that the said assignment was made with the consent of the appellee and
that the assignment not prejudice the partnership as it was reimbursed by the appellant.

But, the appellee categorically stated that the assignment to the Philippine National Bank was made
without his prior knowledge and consent and that when he learned of said assignment, he cal the
attention of the appellant who assured him that the assignment was only temporary as he would
transfer the loan to the Rehabilitation Finance Corporation within three (3) months time. 29

The question of whom to believe being a matter large dependent on the trier's discretion, the findings of
the trial court who had the better opportunity to examine and appraise the fact issue, certainly deserve
respect.

That the assignment to the Philippine National Bank prejudicial to the partnership cannot be denied.
The record show that during the period from March, 1957 to September, 1959, the appellant
Bartolome Puzon received from the Bureau of Public highways, in payment of the work
accomplished on the construction projects, the amount of P1,047,181.01, which amount rightfully
and legally belongs to the partnership by virtue of the subcontract agreements between the appellant
and the U.P. Construction Company. In view of the assignemt made by Puzon to the Philippine
National Bank, the latter withheld and applied the amount of P332,539,60 in payment of the
appellant's personal loan with the said bank. The balance was deposited in Puzon's current account
and only the amount of P27,820.80 was deposited in the current account of the partnership. 30 For
sure, if the appellant gave to the partnership all that were eamed and due it under the subcontract
agreements, the money would have been used as a safe reserve for the discharge of all obligations of the
firm and the partnership would have been able to successfully and profitably prosecute the projects it
subcontracted.

When did the appellant make the reimbursement claimed by him?

For the same period, the appellant actually disbursed for the partnership, in connection with the
construction projects, the amount of P952,839.77. 31 Since the appellant received from the Bureau of
Public Highways the sum of P1,047,181.01, the appellant has a deficit balance of P94,342.24. The
appellant, therefore, did not make complete restitution.

The findings of the trial court that the appellee has been ousted from the management of the
partnership is also based upon persuasive evidence. The appellee testified that after he had
demanded from the appellant payment of the latter's contribution to the partnership capital, the said
appellant did not allow him to hold office in the U.P. Construction Company and his authority to deal
with the Bureau of Public Highways was revoked by the appellant. 32

As the record stands, We cannot say, therefore, that the decis of the trial court is not sustained by the
evidence of record as warrant its reverw.

Since the defendantappellant was at fauh, the tral court properly ordered him to reimburse the
plaintiff-appellee whatever amount latter had invested in or spent for the partnership on account of
construction projects.

How much did the appellee spend in the construction projects question?
It appears that although the partnership agreement stated the capital of the partnership is
P100,000.00 of which each part shall contribute to the partnership the amount of P50,000.00
cash 33 the partners of the U.P. Construction Company did contribute their agreed share in the
capitalization of the enterprise in lump sums of P50,000.00 each. Aside from the initial amount
P40,000.00 put up by the appellee in October, 1956, 34 the partners' investments took, the form of cash
advances coveting expenses of the construction projects as they were incurred. Since the determination
of the amount of the disbursements which each of them had made for the construction projects require an
examination of the books of account, the trial court appointed two commissioners, designated by the
parties, "to examine the books of account of the defendant regarding the U.P. Construction Company and
his personal account with particular reference to the Public Works contract for the construction of the
Ganyangan-Bato Section, Pagadian-Zamboanga City Road and five (5) Bridges in Malangas-Ganyangan
Road, including the payments received by defendant from the Bureau of Public Highways by virtue of the
two projects above mentioned, the disbursements or disposition made by defendant of the portion thereof
released to him by the Philippine National Bank and in whose account these funds are deposited . 35

In due time, the loners so appointed, 36 submitted their report 37 they indicated the items wherein they are
in agreement, as well as their points of disagreement.

In the commissioners' report, the appellant's advances are listed under Credits; the money received
from the firm, under Debits; and the resulting monthly investment standings of the partners, under
Balances. The commissioners are agreed that at the end of December, 1957, the appellee had a
balance of P8,242.39. 38 It is in their respective adjustments of the capital account of the appellee that
the commissioners had disagreed.

Mr. Ablaza, designated by the appellant, would want to charge the appellee with the sum of
P24,239.48, representing the checks isssued by the appellant, 39 and encashed by the appellee or his
brother, Uy Han so that the appellee would owe the partnership the amount of P15,997.09.

Mr. Tayag, designated by the appellee, upon the other hand, would credit the appellee the following
additional amounts:

(1) P7,497.80 — items omitted from the books of partnership but recognized and charged to
Miscellaneous Expenses by Mr. Ablaza;

(2) P65,103.77 — payrolls paid by the appellee in the amount P128,103.77 less payroll remittances
from the appellant in amount of P63,000.00; and

(3) P26,027.04 other expeses incurred by the appellee at construction site.

With respect to the amount of P24,239.48, claimed by appellant, we are hereunder adopting the
findings of the trial which we find to be in accord with the evidence:

To enhance defendant's theory that he should be credited P24,239.48, he presented checks

allegedly given to plaintiff and the latter's brother, Uy Han, marked as Exhibits 2 to 11. However,
defendant admitted that said cheeks were not entered nor record their books of account, as
expenses for and in behalf of partnership or its affairs. On the other hand, Uy Han testified that of the
cheeks he received were exchange for cash, while other used in the purchase of spare parts
requisitioned by defendant. This testimony was not refuted to the satisfaction of the Court,
considering that Han's explanation thereof is the more plausible because if they were employed in
the prosecution of the partners projects, the corresponding disbursements would have certainly been
recorded in its books, which is not the case. Taking into account defendant is the custodian of the
books of account, his failure to so enter therein the alleged disbursements, accentuates the falsity of
his claim on this point. 40

Besides, as further noted by the trial court, the report Commissioner Ablaza is unreliable in view of his
proclivity to favor the appellant and because of the inaccurate accounting procedure adopted by him in
auditing the books of account of the partnership unlike Mr. Tayag's report which inspires faith and
credence. 41

As explained by Mr. Tayag, the amount of P7,497.80 represen expenses paid by the appellee out of
his personal funds which not been entered in the books of the partnership but which been
recognized and conceded to by the auditor designated by the appellant who included the said
amount under Expenses. 42

The explanation of Mr. Tayag on the inclusion of the amount of P65,103.77 is likewise clear and
convincing. 43

As for the sum of of P26,027.04, the same represents the expenses which the appelle paid in connection
withe the projects and not entered in the books of the partnership since all vouchers and receipts were
sent to the Manila office which were under the control of the appellant. However, officer which were under
the control of the appellant. However, a list of these expenses are incorporated in Exhibits ZZ, ZZ-1 to ZZ-
4.

In resume', the appelllee's credit balance would be as follows:

ñé+.£ªwph!1

Undisputed
balance as of
Dec. 1967

Add: Items P 8,242.

omitted from
the books but

recognized
and charged
to
Miscellaneous

Expenses by 7,497.80
Mr. Ablaza
Add: Payrolls P128,103.77
paid by the
appellee

Less: 63,000.00 65,103.77

Payroll
remittances
received

Add: Other
expenses
 incurred at
the

site (Exhs, 26,027.04

ZZ, ZZ-1 to
ZZ-4)

TOTAL P106,871.00

At the trial, the appellee presented a claim for the amounts of P3,917.39 and P4,665.00 which he
also advanced for the construction projects but which were not included in the Commissioner's
Report. 44

Appellee's total investments in the partnership would, therefore, be:

Appellee's total P106,871.00

credits

Add: 3,917,39
unrecorded
balances for
the month of
Dec. 1957
(Exhs. KKK,
KK-1 to
KKK_19,
KKK-22)

Add: 4,665.00
Payments to
Munoz, as
subcontractor
of five,(5)
Bridges (p.
264 tsn;
Exhs. KKK-
20, KKK-21)

Total Pl 15,453.39
Investments

Regarding the award of P200,000.00 as his share in the unrealized profits of the partnership, the
appellant contends that the findings of the trial court that the amount of P400,000.00 as reasonable
profits of the partnership venture is without any basis and is not supported by the evidence. The
appemnt maintains that the lower court, in making its determination, did not take into consideration
the great risks involved in business operations involving as it does the completion of the projects
within a definite period of time, in the face of adverse and often unpredictable circumstances, as well
as the fact that the appellee, who was in charge of the projects in the field, contributed in a large
measure to the failure of the partnership to realize such profits by his field management.

This argument must be overruled in the light of the law and evidence on the matter. Under Article
2200 of the Civil Code, indemnification for damages shall comprehend not only the value of the loss
suffered, but also that of the profits which the obligee failed to obtain. In other words lucrum
cessans is also a basis for indemnification.

Has the appellee failed to make profits because of appellant's breach of contract?

There is no doubt that the contracting business is a profitable one and that the U.P. Construction
Company derived some profits from' co io oa ects its sub ntracts in the construction of the road and
bridges projects its deficient working capital and the juggling of its funds by the appellant.

Contrary to the appellant's claim, the partnership showed some profits during the period from July 2,
1956 to December 31, 1957. If the Profit and Loss Statement 45 showed a net loss of P134,019.43, this
was primarily due to the confusing accounting method employed by the auditor who intermixed h and
accthe cas ruamethod of accounting and the erroneous inclusion of certain items, like personal expenses
of the appellant and afteged extraordinary losses due to an accidental plane crash, in the operating
expenses of the partnership, Corrected, the Profit and Loss Statement would indicate a net profit of
P41,611.28.

For the period from January 1, 1958 to September 30, 1959, the partnership admittedly made a net
profit of P52,943.89. 46

Besides, as We have heretofore pointed out, the appellant received from the Bureau of Public Highways,
in payment of the zonstruction projects in question, the amount of P1,047,181.01 47 and disbursed the
amount of P952,839.77, 48 leaving an unaccounted balance of P94,342.24. Obviously, this amount is also
part of the profits of the partnership.

During the trial of this case, it was discovered that the appellant had money and credits receivable
froin the projects in question, in the custody of the Bureau of Public Highways, in the amount of
P128,669.75, representing the 10% retention of said projects. 49 After the trial of this case, it was shown
50
that the total retentions Wucted from the appemnt amounted to P145,358.00. Surely, these retained
amounts also form part of the profits of the partnership.

Had the appellant not been remiss in his obligations as partner and as prime contractor of the
construction projects in question as he was bound to perform pursuant to the partnership and
subcontract agreements, and considering the fact that the total contract amount of these two
projects is P2,327,335.76, it is reasonable to expect that the partnership would have earned much
more than the P334,255.61 We have hereinabove indicated. The award, therefore, made by the trial
court of the amount of P200,000.00, as compensatory damages, is not speculative, but based on
reasonable estimate.

WHEREFORE, finding no error in the decision appealed from, the said decision is hereby affirmed
with costs against the appellant, it being understood that the liability mentioned herein shall be home
by the estate of the deceased Bartolome Puzon, represented in this instance by the administrator
thereof, Franco Puzon.

SO ORDERED.
G.R. No. L-39780 November 11, 1985

ELMO MUÑASQUE, petitioner,

vs.
COURT OF APPEALS,CELESTINO GALAN TROPICAL COMMERCIAL COMPANY and RAMON
PONS, respondents.

John T. Borromeo for petitioner.

Juan D. Astete for respondent C. Galan.

Paul Gornes for respondent R. Pons.

Viu Montecillo for respondent Tropical.

Paterno P. Natinga for Intervenor Blue Diamond Glass Palace.

GUTTIERREZ, JR., J.:

In this petition for certiorari, the petitioner seeks to annul and set added the decision of the Court of
Appeals affirming the existence of a partnership between petitioner and one of the respondents,
Celestino Galan and holding both of them liable to the two intervenors which extended credit to their
partnership. The petitioner wants to be excluded from the liabilities of the partnership.

Petitioner Elmo Muñasque filed a complaint for payment of sum of money and damages against
respondents Celestino Galan, Tropical Commercial, Co., Inc. (Tropical) and Ramon Pons, alleging
that the petitioner entered into a contract with respondent Tropical through its Cebu Branch Manager
Pons for remodelling a portion of its building without exchanging or expecting any consideration from
Galan although the latter was casually named as partner in the contract; that by virtue of his having
introduced the petitioner to the employing company (Tropical). Galan would receive some kind of
compensation in the form of some percentages or commission; that Tropical, under the terms of the
contract, agreed to give petitioner the amount of P7,000.00 soon after the construction began and
thereafter, the amount of P6,000.00 every fifteen (15) days during the construction to make a total
sum of P25,000.00; that on January 9, 1967, Tropical and/or Pons delivered a check for P7,000.00
not to the plaintiff but to a stranger to the contract, Galan, who succeeded in getting petitioner's
indorsement on the same check persuading the latter that the same be deposited in a joint account;
that on January 26, 1967 when the second check for P6,000.00 was due, petitioner refused to
indorse said cheek presented to him by Galan but through later manipulations, respondent Pons
succeeded in changing the payee's name from Elmo Muñasque to Galan and Associates, thus
enabling Galan to cash the same at the Cebu Branch of the Philippine Commercial and Industrial
Bank (PCIB) placing the petitioner in great financial difficulty in his construction business and
subjecting him to demands of creditors to pay' for construction materials, the payment of which
should have been made from the P13,000.00 received by Galan; that petitioner undertook the
construction at his own expense completing it prior to the March 16, 1967 deadline;that because of
the unauthorized disbursement by respondents Tropical and Pons of the sum of P13,000.00 to
Galan petitioner demanded that said amount be paid to him by respondents under the terms of the
written contract between the petitioner and respondent company.
The respondents answered the complaint by denying some and admitting some of the material
averments and setting up counterclaims.

During the pre-trial conference, the petitioners and respondents agreed that the issues to be
resolved are:

(1) Whether or not there existed a partners between Celestino Galan and Elmo
Muñasque; and

(2) Whether or not there existed a justifiable cause on the part of respondent Tropical
to disburse money to respondent Galan.

The business firms Cebu Southern Hardware Company and Blue Diamond Glass Palace were
allowed to intervene, both having legal interest in the matter in litigation.

After trial, the court rendered judgment, the dispositive portion of which states:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and severally the
intervenors Cebu and Southern Hardware Company and Blue Diamond Glass
Palace the amount of P6,229.34 and P2,213.51, respectively;

(2) absolving the defendants Tropical Commercial Company and Ramon Pons from
any liability,

No damages awarded whatsoever.

The petitioner and intervenor Cebu Southern Company and its proprietor, Tan Siu filed motions for
reconsideration.

On January 15, 197 1, the trial court issued 'another order amending its judgment to make it read as
follows:

IN VIEW WHEREOF, Judgment is hereby rendered:

(1) ordering plaintiff Muñasque and defendant Galan to pay jointly and severally the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace the
amount of P6,229.34 and P2,213.51, respectively,

(2) ordering plaintiff and defendant Galan to pay Intervenor Cebu Southern Hardware
Company and Tan Siu jointly and severally interest at 12% per annum of the sum of
P6,229.34 until the amount is fully paid;

(3) ordering plaintiff and defendant Galan to pay P500.00 representing attorney's
fees jointly and severally to Intervenor Cebu Southern Hardware Company:

(4) absolving the defendants Tropical Commercial Company and Ramon Pons from
any liability,
 No damages awarded whatsoever.

On appeal, the Court of Appeals affirmed the judgment of the trial court with the sole modification
that the liability imposed in the dispositive part of the decision on the credit of Cebu Southern
Hardware and Blue Diamond Glass Palace was changed from "jointly and severally" to "jointly."

Not satisfied, Mr. Muñasque filed this petition.

The present controversy began when petitioner Muñasque in behalf of the partnership of "Galan and
Muñasque" as Contractor entered into a written contract with respondent Tropical for remodelling the
respondent's Cebu branch building. A total amount of P25,000.00 was to be paid under the contract
for the entire services of the Contractor. The terms of payment were as follows: thirty percent (30%)
of the whole amount upon the signing of the contract and the balance thereof divided into three
equal installments at the lute of Six Thousand Pesos (P6,000.00) every fifteen (15) working days.

The first payment made by respondent Tropical was in the form of a check for P7,000.00 in the
name of the petitioner.Petitioner, however, indorsed the check in favor of respondent Galan to
enable the latter to deposit it in the bank and pay for the materials and labor used in the project.

Petitioner alleged that Galan spent P6,183.37 out of the P7,000.00 for his personal use so that when
the second check in the amount of P6,000.00 came and Galan asked the petitioner to indorse it
again, the petitioner refused.

The check was withheld from the petitioner. Since Galan informed the Cebu branch of Tropical that
there was a"misunderstanding" between him and petitioner, respondent Tropical changed the name
of the payee in the second check from Muñasque to "Galan and Associates" which was the duly
registered name of the partnership between Galan and petitioner and under which name a permit to
do construction business was issued by the mayor of Cebu City. This enabled Galan to encash the
second check.

Meanwhile, as alleged by the petitioner, the construction continued through his sole efforts. He
stated that he borrowed some P12,000.00 from his friend, Mr. Espina and although the expenses
had reached the amount of P29,000.00 because of the failure of Galan to pay what was partly due
the laborers and partly due for the materials, the construction work was finished ahead of schedule
with the total expenditure reaching P34,000.00.

The two remaining checks, each in the amount of P6,000.00,were subsequently given to the
petitioner alone with the last check being given pursuant to a court order.

As stated earlier, the petitioner filed a complaint for payment of sum of money and damages against
the respondents,seeking to recover the following: the amounts covered by the first and second
checks which fell into the hands of respondent Galan, the additional expenses that the petitioner
incurred in the construction, moral and exemplary damages, and attorney's fees.

Both the trial and appellate courts not only absolved respondents Tropical and its Cebu Manager,
Pons, from any liability but they also held the petitioner together with respondent Galan, hable to the
intervenors Cebu Southern Hardware Company and Blue Diamond Glass Palace for the credit which
the intervenors extended to the partnership of petitioner and Galan

In this petition the legal questions raised by the petitioner are as follows: (1) Whether or not the
appellate court erred in holding that a partnership existed between petitioner and respondent Galan.
(2) Assuming that there was such a partnership, whether or not the court erred in not finding Galan
guilty of malversing the P13,000.00 covered by the first and second checks and therefore,
accountable to the petitioner for the said amount; and (3) Whether or not the court committed grave
abuse of discretion in holding that the payment made by Tropical through its manager Pons to Galan
was "good payment, "

Petitioner contends that the appellate court erred in holding that he and respondent Galan were
partners, the truth being that Galan was a sham and a perfidious partner who misappropriated the
amount of P13,000.00 due to the petitioner.Petitioner also contends that the appellate court
committed grave abuse of discretion in holding that the payment made by Tropical to Galan was
"good" payment when the same gave occasion for the latter to misappropriate the proceeds of such
payment.

The contentions are without merit.

The records will show that the petitioner entered into a con-tract with Tropical for the renovation of
the latter's building on behalf of the partnership of "Galan and Muñasque." This is readily seen in the
first paragraph of the contract where it states:

This agreement made this 20th day of December in the year 1966 by Galan and
Muñasque hereinafter called the Contractor, and Tropical Commercial Co., Inc.,
hereinafter called the owner do hereby for and in consideration agree on the
following: ... .

There is nothing in the records to indicate that the partner-ship organized by the two men was not a
genuine one. If there was a falling out or misunderstanding between the partners, such does not
convert the partnership into a sham organization.

Likewise, when Muñasque received the first payment of Tropical in the amount of P7,000.00 with a
check made out in his name, he indorsed the check in favor of Galan. Respondent Tropical
therefore, had every right to presume that the petitioner and Galan were true partners. If they were
not partners as petitioner claims, then he has only himself to blame for making the relationship
appear otherwise, not only to Tropical but to their other creditors as well. The payments made to the
partnership were, therefore, valid payments.

In the case of Singsong v. Isabela Sawmill (88 SCRA 643),we ruled:

Although it may be presumed that Margarita G. Saldajeno had acted in good faith,
the appellees also acted in good faith in extending credit to the partnership. Where
one of two innocent persons must suffer, that person who gave occasion for the
damages to be caused must bear the consequences.

No error was committed by the appellate court in holding that the payment made by Tropical to
Galan was a good payment which binds both Galan and the petitioner. Since the two were partners
when the debts were incurred, they, are also both liable to third persons who extended credit to their
partnership. In the case of George Litton v. Hill and Ceron, et al, (67 Phil. 513, 514), we ruled:

There is a general presumption that each individual partner is an authorized agent for
the firm and that he has authority to bind the firm in carrying on the partnership
transactions. (Mills vs. Riggle,112 Pan, 617).
 The presumption is sufficient to permit third persons to hold the firm liable on
transactions entered into by one of members of the firm acting apparently in its
behalf and within the scope of his authority. (Le Roy vs. Johnson, 7 U.S. (Law. ed.),
391.)

Petitioner also maintains that the appellate court committed grave abuse of discretion in not holding
Galan liable for the amounts which he "malversed" to the prejudice of the petitioner. He adds that
although this was not one of the issues agreed upon by the parties during the pretrial, he,
nevertheless, alleged the same in his amended complaint which was, duly admitted by the court.

When the petitioner amended his complaint, it was only for the purpose of impleading Ramon Pons
in his personal capacity. Although the petitioner made allegations as to the alleged malversations of
Galan, these were the same allegations in his original complaint. The malversation by one partner
was not an issue actually raised in the amended complaint but the alleged connivance of Pons with
Galan as a means to serve the latter's personal purposes.

The petitioner, therefore, should be bound by the delimitation of the issues during the pre-trial
because he himself agreed to the same. In Permanent Concrete Products, Inc. v. Teodoro, (26
SCRA 336), we ruled:

xxx xxx xxx

... The appellant is bound by the delimitation of the issues contained in the trial
court's order issued on the very day the pre-trial conference was held. Such an order
controls the subsequent course of the action, unless modified before trial to prevent
manifest injustice.In the case at bar, modification of the pre-trial order was never
sought at the instance of any party.

Petitioner could have asked at least for a modification of the issues if he really wanted to include the
determination of Galan's personal liability to their partnership but he chose not to do so, as he
vehemently denied the existence of the partnership. At any rate, the issue raised in this petition is
the contention of Muñasque that the amounts payable to the intervenors should be shouldered
exclusively by Galan. We note that the petitioner is not solely burdened by the obligations of their
illstarred partnership. The records show that there is an existing judgment against respondent Galan,
holding him liable for the total amount of P7,000.00 in favor of Eden Hardware which extended credit
to the partnership aside from the P2, 000. 00 he already paid to Universal Lumber.

We, however, take exception to the ruling of the appellate court that the trial court's ordering
petitioner and Galan to pay the credits of Blue Diamond and Cebu Southern Hardware"jointly and
severally" is plain error since the liability of partners under the law to third persons for contracts
executed inconnection with partnership business is only pro rata under Art. 1816, of the Civil Code.

While it is true that under Article 1816 of the Civil Code,"All partners, including industrial ones, shall
be liable prorate with all their property and after all the partnership assets have been exhausted, for
the contracts which may be entered into the name and fm the account cd the partnership, under its
signature and by a person authorized to act for the partner-ship. ...". this provision should be
construed together with Article 1824 which provides that: "All partners are liable solidarily with the
partnership for everything chargeable to the partnership under Articles 1822 and 1823." In short,
while the liability of the partners are merely joint in transactions entered into by the partnership, a
third person who transacted with said partnership can hold the partners solidarily liable for the whole
obligation if the case of the third person falls under Articles 1822 or 1823.
Articles 1822 and 1823 of the Civil Code provide:

Art. 1822. Where, by any wrongful act or omission of any partner acting in the
ordinary course of the business of the partner-ship or with the authority of his co-
partners, loss or injury is caused to any person, not being a partner in the partnership
or any penalty is incurred, the partnership is liable therefor to the same extent as the
partner so acting or omitting to act.

Art. 1823. The partnership is bound to make good:

(1) Where one partner acting within the scope of his apparent authority receives
money or property of a third person and misapplies it; and

(2) Where the partnership in the course of its business receives money or property of
a third person and t he money or property so received is misapplied by any partner
while it is in the custody of the partnership.

The obligation is solidary, because the law protects him, who in good faith relied upon the authority
of a partner, whether such authority is real or apparent. That is why under Article 1824 of the Civil
Code all partners, whether innocent or guilty, as well as the legal entity which is the partnership, are
solidarily liable.

In the case at bar the respondent Tropical had every reason to believe that a partnership existed
between the petitioner and Galan and no fault or error can be imputed against it for making
payments to "Galan and Associates" and delivering the same to Galan because as far as it was
concerned, Galan was a true partner with real authority to transact on behalf of the partnership with
which it was dealing. This is even more true in the cases of Cebu Southern Hardware and Blue
Diamond Glass Palace who supplied materials on credit to the partnership. Thus, it is but fair that
the consequences of any wrongful act committed by any of the partners therein should be answered
solidarily by all the partners and the partnership as a whole

However. as between the partners Muñasque and Galan,justice also dictates that Muñasque be
reimbursed by Galan for the payments made by the former representing the liability of their
partnership to herein intervenors, as it was satisfactorily established that Galan acted in bad faith in
his dealings with Muñasque as a partner.

WHEREFORE, the decision appealed from is hereby AFFIRMED with the MODIFICATION that the
liability of petitioner and respondent Galan to intervenors Blue Diamond Glass and Cebu Southern
Hardware is declared to be joint and solidary. Petitioner may recover from respondent Galan any
amount that he pays, in his capacity as a partner, to the above intervenors,

SO ORDERED.
G.R. No. L-22493 July 31, 1975

ISLAND SALES, INC., plaintiff-appellee,

vs.
UNITED PIONEERS GENERAL CONSTRUCTION COMPANY, ET. AL defendants. BENJAMIN C.
DACO, defendant-appellant.

Grey, Buenaventura and Santiago for plaintiff-appellee.

Anacleto D. Badoy, Jr. for defendant-appellant.

CONCEPCION JR., J.:

This is an appeal interposed by the defendant Benjamin C. Daco from the decision of the Court of
First Instance of Manila, Branch XVI, in Civil Case No. 50682, the dispositive portion of which reads:

WHEREFORE, the Court sentences defendant United Pioneer General Construction

Company to pay plaintiff the sum of P7,119.07 with interest at the rate of 12% per
annum until it is fully paid, plus attorney's fees which the Court fixes in the sum of
Eight Hundred Pesos (P800.00) and costs.

The defendants Benjamin C. Daco, Daniel A. Guizona, Noel C. Sim and Augusto
Palisoc are sentenced to pay the plaintiff in this case with the understanding that the
judgment against these individual defendants shall be enforced only if the defendant
company has no more leviable properties with which to satisfy the judgment against
it. .

The individual defendants shall also pay the costs.

On April 22, 1961, the defendant company, a general partnership duly registered under the laws of
the Philippines, purchased from the plaintiff a motor vehicle on the installment basis and for this
purpose executed a promissory note for P9,440.00, payable in twelve (12) equal monthly
installments of P786.63, the first installment payable on or before May 22, 1961 and the subsequent
installments on the 22nd day of every month thereafter, until fully paid, with the condition that failure
to pay any of said installments as they fall due would render the whole unpaid balance immediately
due and demandable.

Having failed to receive the installment due on July 22, 1961, the plaintiff sued the defendant
company for the unpaid balance amounting to P7,119.07. Benjamin C. Daco, Daniel A. Guizona,
Noel C. Sim, Romulo B. Lumauig, and Augusto Palisoc were included as co-defendants in their
capacity as general partners of the defendant company.

Daniel A. Guizona failed to file an answer and was consequently declared in default. 1

Subsequently, on motion of the plaintiff, the complaint was dismissed insofar as the defendant
Romulo B. Lumauig is concerned.2
When the case was called for hearing, the defendants and their counsels failed to appear
notwithstanding the notices sent to them. Consequently, the trial court authorized the plaintiff to
present its evidence ex-parte3 , after which the trial court rendered the decision appealed from.

The defendants Benjamin C. Daco and Noel C. Sim moved to reconsider the decision claiming that
since there are five (5) general partners, the joint and subsidiary liability of each partner should not
exceed one-fifth (1/5 ) of the obligations of the defendant company. But the trial court denied the said
motion notwithstanding the conformity of the plaintiff to limit the liability of the defendants Daco and
Sim to only one-fifth (1/5 ) of the obligations of the defendant company.4 Hence, this appeal.

The only issue for resolution is whether or not the dismissal of the complaint to favor one of the
general partners of a partnership increases the joint and subsidiary liability of each of the remaining
partners for the obligations of the partnership.

Article 1816 of the Civil Code provides:

Art. 1816. All partners including industrial ones, shall be liable pro rata with all their
property and after all the partnership assets have been exhausted, for the contracts
which may be entered into in the name and for the account of the partnership, under
its signature and by a person authorized to act for the partnership. However, any
partner may enter into a separate obligation to perform a partnership contract.

In the case of Co-Pitco vs. Yulo (8 Phil. 544) this Court held:

The partnership of Yulo and Palacios was engaged in the operation of a sugar estate
in Negros. It was, therefore, a civil partnership as distinguished from a mercantile
partnership. Being a civil partnership, by the express provisions of articles l698 and
1137 of the Civil Code, the partners are not liable each for the whole debt of the
partnership. The liability is pro rata and in this case Pedro Yulo is responsible to
plaintiff for only one-half of the debt. The fact that the other partner, Jaime Palacios,
had left the country cannot increase the liability of Pedro Yulo.

In the instant case, there were five (5) general partners when the promissory note in question was
executed for and in behalf of the partnership. Since the liability of the partners is pro rata, the liability
of the appellant Benjamin C. Daco shall be limited to only one-fifth (1/5 ) of the obligations of the
defendant company. The fact that the complaint against the defendant Romulo B. Lumauig was
dismissed, upon motion of the plaintiff, does not unmake the said Lumauig as a general partner in
the defendant company. In so moving to dismiss the complaint, the plaintiff merely condoned
Lumauig's individual liability to the plaintiff.

WHEREFORE, the appealed decision as thus clarified is hereby AFFIRMED, without

pronouncement as to costs.

SO ORDERED.
G.R. No. 136448 November 3, 1999

LIM TONG LIM, petitioner,

vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.

PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a
business and to divide the profits or losses that may arise therefrom, even if it is shown that they
have not contributed any capital of their own to a "common fund." Their contribution may be in the
form of credit or industry, not necessarily cash or fixed assets. Being partner, they are all liable for
debts incurred by or on behalf of the partnership. The liability for a contract entered into on behalf of
an unincorporated association or ostensible corporation may lie in a person who may not have
directly transacted on its behalf, but reaped benefits from that contract.

The Case

In the Petition for Review on Certiorari before us, Lim Tong Lim assails the November 26, 1998
Decision of the Court of Appeals in CA-GR CV
41477, 1 which disposed as follows:

WHEREFORE, [there being] no reversible error in the appealed decision, the same
is hereby affirmed. 2

The decretal portion of the Quezon City Regional Trial Court (RTC) ruling, which was affirmed by the
CA, reads as follows:

WHEREFORE, the Court rules:

1. That plaintiff is entitled to the writ of preliminary attachment issued by this Court on
September 20, 1990;

2. That defendants are jointly liable to plaintiff for the following amounts, subject to
the modifications as hereinafter made by reason of the special and unique facts and
circumstances and the proceedings that transpired during the trial of this case;

a. P532,045.00 representing [the] unpaid purchase price of the

fishing nets covered by the Agreement plus P68,000.00 representing
the unpaid price of the floats not covered by said Agreement;

b. 12% interest per annum counted from date of plaintiff's invoices

and computed on their respective amounts as follows:

i. Accrued interest of P73,221.00 on Invoice No.

14407 for P385,377.80 dated February 9, 1990;

ii. Accrued interest for P27,904.02 on Invoice No.

14413 for P146,868.00 dated February 13, 1990;
 iii. Accrued interest of P12,920.00 on Invoice No.
14426 for P68,000.00 dated February 19, 1990;

c. P50,000.00 as and for attorney's fees, plus P8,500.00 representing

P500.00 per appearance in court;

d. P65,000.00 representing P5,000.00 monthly rental for storage

charges on the nets counted from September 20, 1990 (date of
attachment) to September 12, 1991 (date of auction sale);

e. Cost of suit.

With respect to the joint liability of defendants for the principal obligation or
for the unpaid price of nets and floats in the amount of P532,045.00 and
P68,000.00, respectively, or for the total amount P600,045.00, this Court
noted that these items were attached to guarantee any judgment that may be
rendered in favor of the plaintiff but, upon agreement of the parties, and, to
avoid further deterioration of the nets during the pendency of this case, it was
ordered sold at public auction for not less than P900,000.00 for which the
plaintiff was the sole and winning bidder. The proceeds of the sale paid for by
plaintiff was deposited in court. In effect, the amount of P900,000.00 replaced
the attached property as a guaranty for any judgment that plaintiff may be
able to secure in this case with the ownership and possession of the nets and
floats awarded and delivered by the sheriff to plaintiff as the highest bidder in
the public auction sale. It has also been noted that ownership of the nets
[was] retained by the plaintiff until full payment [was] made as stipulated in
the invoices; hence, in effect, the plaintiff attached its own properties. It [was]
for this reason also that this Court earlier ordered the attachment bond filed
by plaintiff to guaranty damages to defendants to be cancelled and for the
P900,000.00 cash bidded and paid for by plaintiff to serve as its bond in favor
of defendants.

From the foregoing, it would appear therefore that whatever judgment the
plaintiff may be entitled to in this case will have to be satisfied from the
amount of P900,000.00 as this amount replaced the attached nets and floats.
Considering, however, that the total judgment obligation as computed above
would amount to only P840,216.92, it would be inequitable, unfair and unjust
to award the excess to the defendants who are not entitled to damages and
who did not put up a single centavo to raise the amount of P900,000.00 aside
from the fact that they are not the owners of the nets and floats. For this
reason, the defendants are hereby relieved from any and all liabilities arising
from the monetary judgment obligation enumerated above and for plaintiff to
retain possession and ownership of the nets and floats and for the
reimbursement of the P900,000.00 deposited by it with the Clerk of Court.

SO ORDERED. 3

The Facts

On behalf of "Ocean Quest Fishing Corporation," Antonio Chua and Peter Yao entered into a
Contract dated February 7, 1990, for the purchase of fishing nets of various sizes from the Philippine
Fishing Gear Industries, Inc. (herein respondent). They claimed that they were engaged in a
business venture with Petitioner Lim Tong Lim, who however was not a signatory to the agreement.
The total price of the nets amounted to P532,045. Four hundred pieces of floats worth P68,000 were
also sold to the Corporation. 4

The buyers, however, failed to pay for the fishing nets and the floats; hence, private respondents
filed a collection suit against Chua, Yao and Petitioner Lim Tong Lim with a prayer for a writ of
preliminary attachment. The suit was brought against the three in their capacities as general
partners, on the allegation that "Ocean Quest Fishing Corporation" was a nonexistent corporation as
shown by a Certification from the Securities and Exchange Commission. 5 On September 20, 1990,
the lower court issued a Writ of Preliminary Attachment, which the sheriff enforced by attaching the
fishing nets on board F/B Lourdes which was then docked at the Fisheries Port, Navotas, Metro
Manila.

Instead of answering the Complaint, Chua filed a Manifestation admitting his liability and requesting
a reasonable time within which to pay. He also turned over to respondent some of the nets which
were in his possession. Peter Yao filed an Answer, after which he was deemed to have waived his
right to cross-examine witnesses and to present evidence on his behalf, because of his failure to
appear in subsequent hearings. Lim Tong Lim, on the other hand, filed an Answer with Counterclaim
and Crossclaim and moved for the lifting of the Writ of Attachment. 6 The trial court maintained the
Writ, and upon motion of private respondent, ordered the sale of the fishing nets at a public auction.
Philippine Fishing Gear Industries won the bidding and deposited with the said court the sales
proceeds of P900,000. 7

On November 18, 1992, the trial court rendered its Decision, ruling that Philippine Fishing Gear
Industries was entitled to the Writ of Attachment and that Chua, Yao and Lim, as general partners,
were jointly liable to pay respondent. 8

The trial court ruled that a partnership among Lim, Chua and Yao existed based (1) on the
testimonies of the witnesses presented and (2) on a Compromise Agreement executed by the
three 9 in Civil Case No. 1492-MN which Chua and Yao had brought against Lim in the RTC of
Malabon, Branch 72, for (a) a declaration of nullity of commercial documents; (b) a reformation of
contracts; (c) a declaration of ownership of fishing boats; (d) an injunction and (e) damages. 10 The
Compromise Agreement provided:

a) That the parties plaintiffs & Lim Tong Lim agree to have the four
(4) vessels sold in the amount of P5,750,000.00 including the fishing
net. This P5,750,000.00 shall be applied as full payment for
P3,250,000.00 in favor of JL Holdings Corporation and/or Lim Tong
Lim;

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

c) If the proceeds of the sale the vessels will be less than

P5,750,000.00 whatever the deficiency shall be shouldered and paid
to JL Holding Corporation by 1/3 Lim Tong Lim; 1/3 Antonio Chua;
1/3 Peter Yao. 11

The trial court noted that the Compromise Agreement was silent as to the nature of their obligations,
but that joint liability could be presumed from the equal distribution of the profit and loss. 21
Lim appealed to the Court of Appeals (CA) which, as already stated, affirmed the RTC.

Ruling of the Court of Appeals

In affirming the trial court, the CA held that petitioner was a partner of Chua and Yao in a fishing
business and may thus be held liable as a such for the fishing nets and floats purchased by and for
the use of the partnership. The appellate court ruled:

The evidence establishes that all the defendants including herein appellant Lim Tong
Lim undertook a partnership for a specific undertaking, that is for commercial fishing .
. . . Oviously, the ultimate undertaking of the defendants was to divide the profits
among themselves which is what a partnership essentially is . . . . By a contract of
partnership, two or more persons bind themselves to contribute money, property or
industry to a common fund with the intention of dividing the profits among themselves
(Article 1767, New Civil Code). 13

Hence, petitioner brought this recourse before this Court. 14

The Issues

In his Petition and Memorandum, Lim asks this Court to reverse the assailed Decision on the
following grounds:

I THE COURT OF APPEALS ERRED IN HOLDING, BASED ON A COMPROMISE

AGREEMENT THAT CHUA, YAO AND PETITIONER LIM ENTERED INTO IN A
SEPARATE CASE, THAT A PARTNERSHIP AGREEMENT EXISTED AMONG
THEM.

II SINCE IT WAS ONLY CHUA WHO REPRESENTED THAT HE WAS ACTING

FOR OCEAN QUEST FISHING CORPORATION WHEN HE BOUGHT THE NETS
FROM PHILIPPINE FISHING, THE COURT OF APPEALS WAS UNJUSTIFIED IN
IMPUTING LIABILITY TO PETITIONER LIM AS WELL.

III THE TRIAL COURT IMPROPERLY ORDERED THE SEIZURE AND

ATTACHMENT OF PETITIONER LIM'S GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats from respondent,
the Court must resolve this key issue: whether by their acts, Lim, Chua and Yao could be deemed to
have entered into a partnership.

This Court's Ruling

The Petition is devoid of merit.

First and Second Issues:

Existence of a Partnership

and Petitioner's Liability

In arguing that he should not be held liable for the equipment purchased from respondent, petitioner
controverts the CA finding that a partnership existed between him, Peter Yao and Antonio Chua. He
asserts that the CA based its finding on the Compromise Agreement alone. Furthermore, he
disclaims any direct participation in the purchase of the nets, alleging that the negotiations were
conducted by Chua and Yao only, and that he has not even met the representatives of the
respondent company. Petitioner further argues that he was a lessor, not a partner, of Chua and Yao,
for the "Contract of Lease " dated February 1, 1990, showed that he had merely leased to the two
the main asset of the purported partnership — the fishing boat F/B Lourdes. The lease was for six
months, with a monthly rental of P37,500 plus 25 percent of the gross catch of the boat.

We are not persuaded by the arguments of petitioner. The facts as found by the two lower courts
clearly showed that there existed a partnership among Chua, Yao and him, pursuant to Article 1767
of the Civil Code which provides:

Art. 1767 — By the contract of partnership, two or more persons bind themselves to
contribute money, property, or industry to a common fund, with the intention of
dividing the profits among themselves.

Specifically, both lower courts ruled that a partnership among the three existed based on the
following factual findings: 15

(1) That Petitioner Lim Tong Lim requested Peter Yao who was engaged in
commercial fishing to join him, while Antonio Chua was already Yao's partner;

(2) That after convening for a few times, Lim, Chua, and Yao verbally agreed to
acquire two fishing boats, the FB Lourdes and the FB Nelson for the sum of P3.35
million;

(3) That they borrowed P3.25 million from Jesus Lim, brother of Petitioner Lim Tong
Lim, to finance the venture.

(4) That they bought the boats from CMF Fishing Corporation, which executed a
Deed of Sale over these two (2) boats in favor of Petitioner Lim Tong Lim only to
serve as security for the loan extended by Jesus Lim;

(5) That Lim, Chua and Yao agreed that the refurbishing, re-equipping, repairing, dry
docking and other expenses for the boats would be shouldered by Chua and Yao;

(6) That because of the "unavailability of funds," Jesus Lim again extended a loan to
the partnership in the amount of P1 million secured by a check, because of which,
Yao and Chua entrusted the ownership papers of two other boats, Chua's FB Lady
Anne Mel and Yao's FB Tracy to Lim Tong Lim.

(7) That in pursuance of the business agreement, Peter Yao and Antonio Chua
bought nets from Respondent Philippine Fishing Gear, in behalf of "Ocean Quest
Fishing Corporation," their purported business name.

(8) That subsequently, Civil Case No. 1492-MN was filed in the Malabon RTC,
Branch 72 by Antonio Chua and Peter Yao against Lim Tong Lim for (a) declaration
of nullity of commercial documents; (b) reformation of contracts; (c) declaration of
ownership of fishing boats; (4) injunction; and (e) damages.
 (9) That the case was amicably settled through a Compromise Agreement executed
between the parties-litigants the terms of which are already enumerated above.

From the factual findings of both lower courts, it is clear that Chua, Yao and Lim had decided to
engage in a fishing business, which they started by buying boats worth P3.35 million, financed by a
loan secured from Jesus Lim who was petitioner's brother. In their Compromise Agreement, they
subsequently revealed their intention to pay the loan with the proceeds of the sale of the boats, and
to divide equally among them the excess or loss. These boats, the purchase and the repair of which
were financed with borrowed money, fell under the term "common fund" under Article 1767. The
contribution to such fund need not be cash or fixed assets; it could be an intangible like credit or
industry. That the parties agreed that any loss or profit from the sale and operation of the boats
would be divided equally among them also shows that they had indeed formed a partnership.

Moreover, it is clear that the partnership extended not only to the purchase of the boat, but also to
that of the nets and the floats. The fishing nets and the floats, both essential to fishing, were
obviously acquired in furtherance of their business. It would have been inconceivable for Lim to
involve himself so much in buying the boat but not in the acquisition of the aforesaid equipment,
without which the business could not have proceeded.

Given the preceding facts, it is clear that there was, among petitioner, Chua and Yao, a partnership
engaged in the fishing business. They purchased the boats, which constituted the main assets of the
partnership, and they agreed that the proceeds from the sales and operations thereof would be
divided among them.

We stress that under Rule 45, a petition for review like the present case should involve only
questions of law. Thus, the foregoing factual findings of the RTC and the CA are binding on this
Court, absent any cogent proof that the present action is embraced by one of the exceptions to the
rule. 16 In assailing the factual findings of the two lower courts, petitioner effectively goes beyond the
bounds of a petition for review under Rule 45.

Compromise Agreement

Not the Sole Basis of Partnership

Petitioner argues that the appellate court's sole basis for assuming the existence of a partnership
was the Compromise Agreement. He also claims that the settlement was entered into only to end
the dispute among them, but not to adjudicate their preexisting rights and obligations. His arguments
are baseless. The Agreement was but an embodiment of the relationship extant among the parties
prior to its execution.

A proper adjudication of claimants' rights mandates that courts must review and thoroughly appraise
all relevant facts. Both lower courts have done so and have found, correctly, a preexisting
partnership among the parties. In implying that the lower courts have decided on the basis of one
piece of document alone, petitioner fails to appreciate that the CA and the RTC delved into the
history of the document and explored all the possible consequential combinations in harmony with
law, logic and fairness. Verily, the two lower courts' factual findings mentioned above nullified
petitioner's argument that the existence of a partnership was based only on the Compromise
Agreement.

Petitioner Was a Partner,

Not a Lessor
We are not convinced by petitioner's argument that he was merely the lessor of the boats to Chua
and Yao, not a partner in the fishing venture. His argument allegedly finds support in the Contract of
Lease and the registration papers showing that he was the owner of the boats, including F/B
Lourdes where the nets were found.

His allegation defies logic. In effect, he would like this Court to believe that he consented to the sale
of his own boats to pay a debt of Chua and Yao, with the excess of the proceeds to be divided
among the three of them. No lessor would do what petitioner did. Indeed, his consent to the sale
proved that there was a preexisting partnership among all three.

Verily, as found by the lower courts, petitioner entered into a business agreement with Chua and
Yao, in which debts were undertaken in order to finance the acquisition and the upgrading of the
vessels which would be used in their fishing business. The sale of the boats, as well as the division
among the three of the balance remaining after the payment of their loans, proves beyond cavil
that F/B Lourdes, though registered in his name, was not his own property but an asset of the
partnership. It is not uncommon to register the properties acquired from a loan in the name of the
person the lender trusts, who in this case is the petitioner himself. After all, he is the brother of the
creditor, Jesus Lim.

We stress that it is unreasonable — indeed, it is absurd — for petitioner to sell his property to pay a
debt he did not incur, if the relationship among the three of them was merely that of lessor-lessee,
instead of partners.

Corporation by Estoppel

Petitioner argues that under the doctrine of corporation by estoppel, liability can be imputed only to
Chua and Yao, and not to him. Again, we disagree.

Sec. 21 of the Corporation Code of the Philippines provides:

Sec. 21. Corporation by estoppel. — All persons who assume to act as a corporation
knowing it to be without authority to do so shall be liable as general partners for all
debts, liabilities and damages incurred or arising as a result thereof: Provided
however, That when any such ostensible corporation is sued on any transaction
entered by it as a corporation or on any tort committed by it as such, it shall not be
allowed to use as a defense its lack of corporate personality.

One who assumes an obligation to an ostensible corporation as such, cannot resist

performance thereof on the ground that there was in fact no corporation.

Thus, even if the ostensible corporate entity is proven to be legally nonexistent, a party may be
estopped from denying its corporate existence. "The reason behind this doctrine is obvious — an
unincorporated association has no personality and would be incompetent to act and appropriate for
itself the power and attributes of a corporation as provided by law; it cannot create agents or confer
authority on another to act in its behalf; thus, those who act or purport to act as its representatives or
agents do so without authority and at their own risk. And as it is an elementary principle of law that a
person who acts as an agent without authority or without a principal is himself regarded as the
principal, possessed of all the right and subject to all the liabilities of a principal, a person acting or
purporting to act on behalf of a corporation which has no valid existence assumes such privileges
and obligations and becomes personally liable for contracts entered into or for other acts performed
as such agent. 17
The doctrine of corporation by estoppel may apply to the alleged corporation and to a third party. In
the first instance, an unincorporated association, which represented itself to be a corporation, will be
estopped from denying its corporate capacity in a suit against it by a third person who relied in good
faith on such representation. It cannot allege lack of personality to be sued to evade its responsibility
for a contract it entered into and by virtue of which it received advantages and benefits.

On the other hand, a third party who, knowing an association to be unincorporated, nonetheless
treated it as a corporation and received benefits from it, may be barred from denying its corporate
existence in a suit brought against the alleged corporation. In such case, all those who benefited
from the transaction made by the ostensible corporation, despite knowledge of its legal defects, may
be held liable for contracts they impliedly assented to or took advantage of.

There is no dispute that the respondent, Philippine Fishing Gear Industries, is entitled to be paid for
the nets it sold. The only question here is whether petitioner should be held jointly 18 liable with Chua
and Yao. Petitioner contests such liability, insisting that only those who dealt in the name of the
ostensible corporation should be held liable. Since his name does not appear on any of the contracts
and since he never directly transacted with the respondent corporation, ergo, he cannot be held
liable.

Unquestionably, petitioner benefited from the use of the nets found inside F/B Lourdes, the boat
which has earlier been proven to be an asset of the partnership. He in fact questions the attachment
of the nets, because the Writ has effectively stopped his use of the fishing vessel.

It is difficult to disagree with the RTC and the CA that Lim, Chua and Yao decided to form a
corporation. Although it was never legally formed for unknown reasons, this fact alone does not
preclude the liabilities of the three as contracting parties in representation of it. Clearly, under the law
on estoppel, those acting on behalf of a corporation and those benefited by it, knowing it to be
without valid existence, are held liable as general partners.

Technically, it is true that petitioner did not directly act on behalf of the corporation. However, having
reaped the benefits of the contract entered into by persons with whom he previously had an existing
relationship, he is deemed to be part of said association and is covered by the scope of the doctrine
of corporation by estoppel. We reiterate the ruling of the Court in Alonso v. Villamor: 19

A litigation is not a game of technicalities in which one, more deeply schooled and
skilled in the subtle art of movement and position, entraps and destroys the other. It
is, rather, a contest in which each contending party fully and fairly lays before the
court the facts in issue and then, brushing aside as wholly trivial and indecisive all
imperfections of form and technicalities of procedure, asks that justice be done upon
the merits. Lawsuits, unlike duels, are not to be won by a rapier's thrust. Technicality,
when it deserts its proper office as an aid to justice and becomes its great hindrance
and chief enemy, deserves scant consideration from courts. There should be no
vested rights in technicalities.

Third Issue:

Validity of Attachment

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

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against
petitioner.

SO ORDERED.
G.R. No. 70403 July 7, 1989

SANTIAGO SYJUCO, INC., petitioner,

vs.
HON. JOSE P. CASTRO, AS PRESIDING JUDGE OF THE REGIONAL TRIAL COURT OF THE
NATIONAL CAPITAL JUDICIAL REGION, BRANCH LXXXV, QUEZON CITY, THE CITY SHERIFF
OF THE CITY OF MANILA, THE CITY REGISTER OF DEEDS OF THE CITY OF MANILA,
EUGENIO LIM, ARAMIS LIM, MARIO LIM, PAULINO LIM, LORENZO LIM, NILA LIM and/ or THE
PARTNERSHIP OF THE HEIRS OF HUGO LIM and ATTORNEY PATERNO P.
CANLAS, respondents.

Doroteo B. Daguna and Felix D. Carao for petitioner.

Paterno Canlas for private respondents.

NARVASA, J.:

This case may well serve as a textbook example of how judicial processes, designed to promote the
swift and efficient disposition of disputes at law, can be so grossly abused and manipulated as to
produce precisely the opposite result; how they can be utilized by parties with small scruples to
forestall for an unconscionably long time so essentially simple a matter as making the security given
for a just debt answer for its payment.

The records of the present proceedings and of two other cases already decided by this Court expose
how indeed the routine procedure of an extrajudicial foreclosure came by dint of brazen forum
shopping and other devious maneuvering to grow into a veritable thicket of litigation from which the
mortgagee has been trying to extricate itself for the last twenty years.

Back in November 1964, Eugenio Lim, for and in his own behalf and as attorney-in-fact of his
mother, the widow Maria Moreno (now deceased) and of his brother Lorenzo, together with his other
brothers, Aramis, Mario and Paulino, and his sister, Nila, all hereinafter collectively called the Lims,
borrowed from petitioner Santiago Syjuco, Inc. (hereinafter, Syjuco only) the sum of P800,000.00.
The loan was given on the security of a first mortgage on property registered in the names of said
borrowers as owners in common under Transfer Certificates of Title Numbered 75413 and 75415 of
the Registry of Deeds of Manila. Thereafter additional loans on the same security were obtained by
the Lims from Syjuco, so that as of May 8, 1967, the aggregate of the loans stood at P2,460,000.00,
exclusive of interest, and the security had been augmented by bringing into the mortgage other
property, also registered as owned pro indiviso by the Lims under two titles: TCT Nos. 75416 and
75418 of the Manila Registry.

There is no dispute about these facts, nor about the additional circumstance that as stipulated in the
mortgage deed the obligation matured on November 8, 1967; that the Lims failed to pay it despite
demands therefor; that Syjuco consequently caused extra-judicial proceedings for the foreclosure of
the mortgage to be commenced by the Sheriff of Manila; and that the latter scheduled the auction
sale of the mortgaged property on December 27, 1968. 1 The attempt to foreclose triggered off a
legal battle that has dragged on for more than twenty years now, fought through five (5) cases in the
trial courts, 2 two (2) in the Court of Appeals, 3 and three (3) more in this Court, 4 with the end only
now in sight.
 1. CIVIL CASE NO. 75180, CFI MANILA, BR.5; CA-G.R. NO. 00242-
R; G.R. NO. L-34683

To stop the foreclosure, the Lims — through Atty. Marcial G. Mendiola, who was later joined by Atty.
Raul Correa — filed Civil Case No. 75180 on December 24,1968 in the Court of First Instance of
Manila (Branch 5). In their complaint they alleged that their mortgage was void, being usurious for
stipulating interest of 23% on top of 11 % that they had been required to pay as "kickback." An order
restraining the auction sale was issued two days later, on December 26,1968, premised inter alia on
the Lims' express waiver of "their rights to the notice and re-publication of the notice of sale which
may be conducted at some future date." 5

On November 25,1970, the Court of First Instance (then presided over by Judge Conrado M.
Vasquez 6 rendered judgment finding that usury tained the mortgage without, however, rendering it
void, declaring the amount due to be only Pl,136,235.00 and allowing the foreclosure to proceed for
satisfaction of the obligation reckoned at only said amount . 7

Syjuco moved for new trial to enable it to present additional evidence to overthrow the finding of
usury, and the Court ordered the case reopened for that purpose. The Lims tried to negate that order
of reopening in the Court of Appeals, the proceedings being docketed as CA-G.R. No. 00242-R.
They failed. The Court of Appeals upheld the Trial Court. The Lims then sought to nullify this action
of the Appellate Court; towards that end, they filed with this Court a petition for certiorari and
prohibition, docketed as G.R. No. L-34683. But here, too, they failed; their petition was dismissed. 8

Thereafter, and on the basis of the additional evidence adduced by Syjuco on remand of the case
from this Court, the Trial Court promulgated an amended decision on August 16, 1972, reversing its
previous holding that usury had flawed the Lims' loan obligation. It declared that the principal of said
obligation indeed amounted to P2,460,000.00, exclusive of interest at the rate of 12% per annum
from November 8, 1967, and, that obligation being already due, the defendants (Syjuco and the
Sheriff of Manila) could proceed with the extrajudicial foreclosure of the mortgage given to secure its
satisfaction.9

2. APPEAL FROM CIVIL CASE NO. 75180; CA-G.R. NO. 51752;

G.R. NO. L-45752

On September 9, 1972, Atty. Paterno R. Canlas entered his appearance in Civil Case No. 75180 as
counsel for the Lims in collaboration with Atty. Raul Correa, and on the same date appealed to the
Court of Appeals from the amended decision of August 16, 1972. 10 In that appeal, which was
docketed as CA G.R. No. 51752, Messrs. Canlas and Correa prayed that the loans be declared
usurious; that the principal of the loans be found to be in the total amount of Pl,269,505.00 only, and
the interest thereon fixed at only 6% per annum from the filing of the complaint; and that the
mortgage be also pronounced void ab initio. 11

The appeal met with no success. In a decision promulgated on October 25,1976, the Court of
Appeals affirmed in toto the Trial Court's amended decision. 12

The Lims came to this Court seeking reversal of the appellate Court's decision. However, their
petition for review-filed in their behalf by Canlas, and Atty. Pio R. Marcos, and docketed as G.R. No.
L-45752-was denied for lack of merit in a minute resolution dated August 5, 1977. The Lims' motion
for reconsideration was denied and entry of judgment was made on September 24,1977. 13 Here the
matter should have ended; it marked only the beginning of Syjuco's travails.

3. CIVIL CASE NO.112762, CFI MANILA BRANCH 9

Syjuco then resumed its efforts to proceed with the foreclosure. It caused the auction sale of the
mortgaged property to be scheduled on December 20, 1977, only to be frustrated again by another
action filed by the Lims on December 19, 1977, docketed as Civil Case No. 112762 of the Court of
First Instance of Manila. 14 The action sought to stop the sale on the ground that the notice of
foreclosure had not been republished; this, notwithstanding that as earlier stressed, the restraining
order of December 26, 1968 issued in Civil Case No 75180 explicitly declared itself to be predicated
on the Lims' waiver of "their rights to the notice and republication of the notice of sale which may be
conducted at some future date." 15 An order restraining the sale issued in the case, although the
petition for preliminary injunction was subsequently denied. A supplemental complaint was also filed
by the Lims seeking recovery of some Pl million in damages allegedly suffered by reason of said
lack of republication. 16

4. CIVIL CASE NO. 75180

That very same claim — that there had been no republication of the notice of sale, which was the
foundation of the Lims' action in Civil Case No. 112762 as aforesaid — was made by the Lims the
basis of an urgent motion filed on December 15, 1977 in Civil Case No. 75180, in which, as earlier
narrated, the judgement authorizing the foreclosure had been affirmed by both the Court of Appeals
and this Court, and had become final and executory. And that motion sought exactly the same
remedy prayed for in Civil Case No. 112762 (filed by the Lims four [4] days later, on December 19,
1977), i.e., the prevention of the auction sale. The Court -- Branch 5, then presided over by Judge
Jose H. Tecson — granted the restraining order on December 19, 1977, 17 the very same day that
the Lims commenced Civil Case No. 112762 in the same Court and in which subsequent action they
asked for and obtained a similar restraining order.

The Lims' counsel thus brought about the anomalous situation of two (2) restraining orders directed
against the same auction sale, based on the same ground, issued by different courts having
cognizance of two (2) separate proceedings instituted for identical objectives. This situation lasted
for all of three (3) years, despite the republication of the notice of sale caused by Syjuco in January,
1978 in an effort to end all dispute about the matter, and despite Judge Tecson's having been made
aware of Civil Case No. 112762. It should have been apparent to Judge Tecson that there was
nothing more to be done in Civil Case No. 75180 except to enforce the judgment, already final and
executory, authorizing the extrajudicial foreclosure of the mortgage, a judgment sanctioned, to
repeat, by both the Court of Appeals and the Supreme Court; that there was in truth no need for
another publication of the notice since the Lims had precisely waived such republication, this waiver
having been the condition under which they had earlier obtained an order restraining the first
scheduled sale; that, in any event, the republication effected by Syjuco had removed the only
asserted impediment to the holding of the same; and that, finally, the Lims were acting in bad faith:
they were maintaining proceedings in two (2) different courts for essentially the same
relief. 18 Incredibly, not only did Judge Tecson refuse to allow the holding of the auction sale, as was
the only just and lawful course indicated by the circumstances, 19 he authorized the Lims to sell the
mortgaged property in a private sale,20 with the evident intention that the proceeds of the sale, which
he directed to be deposited in court, would be divided between Syjuco and the Lims; this, in line with
the patently specious theory advocated by the Lims' counsel that the bond flied by them for the
postponement of the sale, set at P6 million by the Court (later increased by P 3 million) had
superseded and caused novation of the mortgage. 21 The case lay fallow for a year, certain other,
incidents arising and remaining unresolved on account of numerous postponements.

5. G.R. No. L-56014

Finally, on January 28, 1981, Syjuco betook itself to this Court, presumably no longer disposed to
await Judge Tecson's pleasure or the Lims' convenience. It filed a petition for certiorari and
prohibition, docketed as G.R. No. L-56014, alleging that in Civil Case No. 75180, Judge Tecson had
gravely abused discretion in:

(1) unreasonably delaying the foreclosure of the mortgage;

(2) entertaining the Lims' motion to discharge said mortgage grounded on the theory
that it had been superseded and novated by the Lims' act of filing the bond required
by Judge Tecson in connection with the postponement of the foreclosure sale, and
unreasonably delaying resolution of the issue; and

(3) authorizing the Lims to negotiate and consummate the private sale of the
mortgaged property and motu proprio extending the period granted the Lims for the
purpose, in disregard of the final and executory judgment rendered in the case.

By judgment rendered on September 21, 1982, after due proceedings, this

Court 22 issued the writ prayed for and nullified the orders and actuations of Judge
Tecson in Civil Case No. 75180. The judgment declared that:

(1) the republication by Syjuco of the notice of foreclosure sale rendered the
complaint in Civil Case No. 112762 moot and academic; hence, said case could not
operate to bar the sale;

(2) the Lims' bonds (of P 6 million and P 3 million), having by the terms thereof been
given to guarantee payment of damages to Syjuco and the Sheriff of Manila resulting
from the suspension of the auction sale, could not in any sense and from any aspect
have the effect of superseding the mortgage or novating it;

(3) in fact, the bonds had become worthless when, as shown by the record, the
bondsman's authority to transact non-life insurance business in the Philippines was
not renewed, for cause, as of July 1, 1981.

The decision consequently decreed that the Sheriff of Manila should proceed with the mortgage
sale, there being no further impediment thereto. 23

Notice of the decision was served on the Lims, through Atty. Canlas, on October 2, 1982. A motion
for reconsideration was filed, 24 but the same was denied with finality for lack of merit and entry of
final judgment was made on March 22,1983. 25

6. THE SECRET ACTION CIVIL CASE NO. Q-36845 OF THE

REGIONAL TRIAL COURT, QUEZON CITY, JUDGE JOSE P.
CASTRO, PRESIDING

Twelve (12) days after the Lims were served, as above mentioned, with notice of this Court's
judgment in G.R. No. 56014, or on October 14,1982, they caused the filing with the Regional Trial
Court of Quezon City of still another action, the third, also designed, like the first two, to preclude
enforcement of the mortgage held by Syjuco.

This time the complaint was presented, not in their individual names, but in the name of a
partnership of which they themselves were the only partners: "Heirs of Hugo Lim." The complaint
advocated the theory that the mortgage which they, together with their mother, had individually
constituted (and thereafter amended during the period from 1964 to 1967) over lands standing in
their names in the Property Registry as owners pro indiviso, in fact no longer belonged to them at
that time, having been earlier deeded over by them to the partnership, "Heirs of Hugo Lim", more
precisely, on March 30, 1959, hence, said mortgage was void because executed by them without
authority from the partnership.

The complaint was signed by a lawyer other than Atty. Canlas, but the records disclose that Atty.
Canlas took over as counsel as of November 4,1982. The case, docketed as Civil Case No. Q-
39295, was assigned to Branch 35 of the Quezon City Regional Trial Court, then presided over by
Judge Jose P. Castro.

Judge Castro issued a restraining order on October 15, 1982. Then, Sheriff Perfecto G. Dalangin
submitted a return of summons to the effect that on December 6, 1982 he —

.. served personally and left a copy of summons together with a copy of Complaint
and its annexes x x upon defendant's office formerly at 313 Quirino Ave., Paranaque,
Metro-Manila and now at 407 Dona Felisa Syjuco Building, Remedios St., corner Taft
Avenue, Manila, through the Manager, a person of sufficient age and discretion duly
authorized to receive service of such nature, but who refused to accept service and
signed receipt thereof.26

A vaguer return will be hard to find. It is impossible to discern from it where precisely the summons
was served, whether at Quirino Avenue, Paranaque, or Taft Avenue, Manila; and it is inexplicable
that the name of the person that the sheriff had been able to identify as the manager is not stated,
the latter being described merely as "a person of sufficient age and discretion." In any event, as it
was to claim later, Syjuco asserts that it was never so served with summons, or with any other
notice, pleading, or motion relative to the case, for that matter.

On February 10, 1983, Atty. Canlas filed an ex-parte motion to declare Syjuco in default. The order
of default issued the next day, also directing the plaintiff partnership to present evidence ex parte
within three (3) days. On February 22, 1983, judgment by default was rendered, declaring void the
mortgage in question because executed by the Lims without authority from the partnership which
was and had been since March 30,1959 the exclusive owner of the mortgaged property, and making
permanent an injunction against the foreclosure sale that had issued on January 14,1983. 27 Service
of notice of the default judgment was, according to the return of the same Sheriff Perfecto Dalangin,
effected on the following day, February 23, 1983. His return is a virtual copy of his earlier one
regarding service of summons: it also states the place of service as the defendant's office, either at
its former location, 313 Quirino Avenue, Paranaque, or at the later address, 407 Dona Felisa, Syjuco
Building, Taft Avenue, Manila; and it also fails to identify the person on whom service was made,
describing him only as "the clerk or person in charge" of the office. 28

Unaccountably, and contrary to what might be expected from the rapidity with which it was decided-
twelve (12) days from February 10, 1983, when the motion to declare defendant Syjuco in default
was filed-the case was afterwards allowed by Atty. Canlas to remain dormant for seventeen (17)
months. He made no effort to have the judgment executed, or to avail of it in other actions instituted
by him against Syjuco. The judgment was not to be invoked until sometime in or after July, 1984,
again to stop the extrajudicial mortgage sale scheduled at or about that time at the instance of
Syjuco, as shall presently be recounted.

7. Other Actions in the Interim:

a. CIVIL CASE No. 83-19018, RTC MANILA

While the Lims, through their partnership ("Heirs of Hugo Lim"), were prosecuting their action in the
sala of Judge Castro, as above narrated, Syjuco once again tried to proceed with the foreclosure
after entry of judgment had been made in G.R. No. 56014 on March 22, 1983. It scheduled the
auction sale on July 30, 1983. But once again it was frustrated. Another obstacle was put up by the
Lims and their counsel, Atty. Canlas. This was Civil Case No. 83-19018 of the Manila Regional Trial
Court. The case was filed to stop the sale on the theory that what was sought to be realized from the
sale was much in excess of the judgment in Civil Case No. 75180, and that there was absence of
the requisite notice. It is significant that the judgment by default rendered by Judge Castro in Civil
Case No. Q-36485 was not asserted as additional ground to support the cause of action. Be this as
it may, a restraining order was issued on July 20,1983 in said Civil Case No. 83-9018. 29

b. CIVIL CASE NO. Q-32924, RTC QUEZON CITY

What the outcome of this case, No. 83-19018, is not clear. What is certain is (1) that the auction sale
was re-scheduled for September 20, 1983, (2) that it was aborted because the Lims managed to
obtain still another restraining order in another case commenced by their lawyer, Atty. Canlas: Civil
Case No. Q-32924 of the Court of First Instance of Quezon City, grounded on the proposition that
the publication of the notice of sale was defective; and (3) that the action was dismissed by the
Regional Trial Court on February 3, 1984. 30

No other salient details about these two (2) cases are available in the voluminous records before the
Court, except that it was Atty. Canlas who had filed them. He admits having done so unequivocally:
"Thus, the undersigned counsel filed injunction cases in Civil Case No. 83-19018 and Civil Case No.
39294, Regional Trial Courts of Manila and Quezon City. ... " 31

7. RE-ACTIVATION OF CIVIL CASE NO. Q-36485, RTC, Q

QUEZON CITY, BRANCH XXXV

Upon the dismissal of Civil Case No. 39294, Syjuco once more resumed its efforts to effect the
mortgage sale which had already been stymied for more than fifteen (15) years. At its instance, the
sheriff once again set a date for the auction sale. But on the date of the sale, a letter of Atty. Canlas
was handed to the sheriff drawing attention to the permanent injunction of the sale embodied in the
judgment by default rendered by Judge Castro in Civil Case No. Q- 36485. 32 Syjuco lost no time in
inquiring about Civil Case No. Q-36485, and was very quickly made aware of the judgment by
default therein promulgated and the antecedent events leading thereto. It was also made known that
on July 9, 1984, Judge Castro had ordered execution of the judgment; that Judge Castro had on July
16, 1984 granted Atty. Canlas' motion to declare cancelled the titles to the Lims' mortgaged
properties and as nun and void the annotation of the mortgage and its amendments on said titles,
and to direct the Register of Deeds of Manila to issue new titles, in lieu of the old, in the name of the
partnership, "Heirs of Hugo Lim." 33

On July 17,1984, Syjuco filed in said Civil Case No. Q-36485 a motion for reconsideration of the
decision and for dismissal of the action, alleging that it had never been served with summons; that
granting arguendo that service had somehow been made, it had never received notice of the
decision and therefore the same had not and could not have become final; and that the action
should be dismissed on the ground of bar by prior judgment premised on the final decisions of the
Supreme Court in G.R. No. L-45752 and G.R. No. 56014.

Two other motions by Syjuco quickly followed. The first, dated July 20, 1984, prayed for abatement
of Judge Castro's order decreeing the issuance of new certificates of title over the mortgaged lands
in the name of the plaintiff partnership. 34 The second, filed on July 24, 1984, was a supplement to
the motion to dismiss earlier filed, asserting another ground for the dismissal of the action, i.e.,
failure to state a cause of action, it appearing that the mortgaged property remained registered in the
names of the individual members of the Lim family notwithstanding that the property had supposedly
been conveyed to the plaintiff partnership long before the execution of the mortgage and its
amendments,-and that even assuming ownership of the property by the partnership, the mortgage
executed by all the partners was valid and binding under Articles 1811 and 1819 of the Civil Code. 35

The motions having been opposed in due course by the plaintiff partnership, they remained pending
until January 31, 1985 when Syjuco moved for their immediate resolution. Syjuco now claims that
Judge Castro never acted on the motions. The latter however states that that he did issue an order
on February 22, 1985 declaring that he had lost jurisdiction to act thereon because, petitio principii,
his decision had already become final and executory.

8. G.R.NO.L-70403; THE PROCEEDING AT BAR

For the third time Syjuco is now before this Court on the same matter. It filed on April 3, 1985 the
instant petition for certiorari, prohibition and mandamus. It prays in its petition that the default
judgment rendered against it by Judge Castro in said Civil Case No. Q-36485 be annulled on the
ground of lack of service of summons, res judicata and laches, and failure of the complaint to state a
cause of action; that the sheriff be commanded to proceed with the foreclosure of the mortgage on
the property covered by Transfer Certificates of Title Numbered 75413, 75415, 75416 and 75418 of
the Manila Registry; and that the respondents the Lims, Judge Castro, the Sheriff and the Register
of Deeds of Manila, the partnership known as "Heirs of Hugo Lim," and Atty. Paterno R. Canlas,
counsel for-the Lims and their partnership-be perpetually enjoined from taking any further steps to
prevent the foreclosure.

The comment filed for the respondents by Atty. Canlas in substance alleged that (a) Syjuco was
validly served with summons in Civil Case No. Q-36485, hence, that the decision rendered by
default therein was also valid and, having been also duly served on said petitioner, became final by
operation of law after the lapse of the reglementary appeal period; (b) finality of said decision
removed the case from the jurisdiction of the trial court, which was powerless to entertain and act on
the motion for reconsideration and motion to dismiss; (c) the petition was in effect an action to annul
a judgment, a proceeding within the original jurisdiction of the Court of Appeals; (d) the plea of res
judicata came too late because raised after the decision had already become final; moreover, no
Identity of parties existed between the cases invoked, on the one hand, and Civil Case No. Q-36485,
on the other, the parties in the former being the Lims in their personal capacities and in the latter, the
Lim Partnership, a separate and distinct juridical entity; and the pleaded causes of action being
different, usury in the earlier cases and authority of the parties to encumber partnership property in
the case under review; (e) the plea of laches also came too late, not having been invoked in the
lower court; and (f) the property involved constituted assets of the Lim partnership, being registered
as such with the Securities and Exchange Commission. 36

On his own behalf Atty. Canlas submitted that he had no knowledge of the institution of Civil Case
No. Q-36485 (though he admitted being collaborating counsel in said case); that he did not
represent the Lims in all their cases against Syjuco, having been counsel for the former only since
1977, not for the last seventeen years as claimed by Syjuco; and that he had no duty to inform
opposing counsel of the pendency of Civil Case No. Q-36485. 37

Respondent Judge Castro also filed a comment 38 disclaiming knowledge of previous controversies
regarding the mortgaged property. He asserted that Syjuco had been properly declared in default for
having failed to answer the complaint despite service of summons upon it, and that his decision in
said case which was also properly served on Syjuco became final when it was not timely appealed,
after which he lost jurisdiction to entertain the motion for reconsideration and motion to dismiss. He
also denied having failed to act on said motions, adverting to an alleged order of February 22, 1985
where he declared his lack of jurisdiction to act thereon.

The respondent Register of Deeds for his part presented a comment wherein he stated that by virtue
of an order of execution in Civil Case No. Q-36485, he had cancelled TCTs Nos. 75413, 75415,
75416 and 75418 of his Registry and prepared new certificates of title in lieu thereof, but that
cancellation had been held in abeyance for lack of certain registration requirements and by reason
also of the motion of Syjuco's Atty. Formoso to hold in abeyance enforcement of the trial court's
order of July 16, 1984 as well as of the temporary restraining order subsequently issued by the
Court. 39

It is time to write finis to this unedifying narrative which is notable chiefly for the deception,
deviousness and trickery which have marked the private respondents' thus far successful attempts
to avoid the payment of a just obligation. The record of the present proceeding and the other records
already referred to, which the Court has examined at length, make it clear that the dispute should
have been laid to rest more than eleven years ago, with entry of judgment of this Court (on
September 24, 1977) in G.R. No. L-45752 sealing the fate of the Lims' appeal against the amended
decision in Civil Case No. 75180 where they had originally questioned the validity of the mortgage
and its foreclosure. That result, the records also show, had itself been nine (9) years in coming, Civil
Case No. 75180 having been instituted in December 1968 and, after trial and judgment, gone
through the Court of Appeals (in CA-G.R. No. 00242-R) and this Court (in G.R. No. 34683), both at
the instance of the Lims, on the question of reopening before the amended decision could be issued.

Unwilling, however, to concede defeat, the Lims moved (in Civil Case No. 75180) to stop the
foreclosure sale on the ground of lack of republication. On December 19,1977 they obtained a
restraining order in said case, but this notwithstanding, on the very same date they filed another
action (Civil Case No. 117262) in a different branch of the same Court of First Instance of Manila to
enjoin the foreclosure sale on the same ground of alleged lack of republication. At about this time,
Syjuco republished the notice of sale in order, as it was later to manifest, to end all further dispute.

That move met with no success. The Lims managed to persuade the judge in Civil Case No. 75180,
notwithstanding his conviction that the amended decision in said case had already become final, not
only to halt the foreclosure sale but also to authorize said respondents to dispose of the mortgaged
property at a private sale upon posting a bond of P6,000,000.00 (later increased by P3,000,000.00)
to guarantee payment of Syjuco's mortgage credit. This gave the Lims a convenient excuse for
further suspension of the foreclosure sale by introducing a new wrinkle into their contentions-that the
bond superseded the mortgage which should, they claimed, therefore be discharged instead of
foreclosed.

Thus from the final months of 1977 until the end of 1980, a period of three years, Syjuco found itself
fighting a legal battle on two fronts: in the already finally decided Civil Case No. 75180 and in Civil
Case No. 117262, upon the single issue of alleged lack of republication, an issue already mooted by
the Lims' earlier waiver of republication as a condition for the issuance of the original restraining
order of December 26,1968 in Civil Case No. 75180, not to mention the fact that said petitioner had
also tried to put an end to it by actually republishing the notice of sale.

With the advent of 1981, its pleas for early resolution having apparently fallen on deaf ears, Syjuco
went to this Court (in G.R. No. L-56014) from which, on September 21, 1982, it obtained the decision
already referred to holding, in fine, that there existed no further impediment to the foreclosure sale
and that the sheriff could proceed with the same.
Said decision, instead of deterring further attempts to derail the foreclosure, apparently gave the
signal for the clandestine filing this time — by the Partnership of the Heirs of Hugo Lim -on October
14,1982 of Civil Case No. Q-36485, the subject of the present petition, which for the first time
asserted the claim that the mortgaged property had been contributed to the plaintiff partnership long
before the execution of the Syjuco's mortgage in order to defeat the foreclosure.

Syjuco now maintains that it had no actual knowledge of the existence and pendency of Civil Case
No. Q-36485 until confronted, in the manner already adverted to, with the fait accompli of a "final"
judgment with permanent injunction therein, and nothing in the record disabuses the Court about the
truth of this disclaimer. Indeed, considering what had transpired up to that denouement, it becomes
quite evident that actuations of the Lims and their lawyer had been geared to keeping Syjuco in the
dark about said case. Their filing of two other cases also seeking to enjoin the foreclosure sale (Civil
Case No. 83-19018, Regional Trial Court of Manila in July 1983, and Civil Case No. Q-32924,
Regional Trial Court of Quezon City in September of the same year) after said sale had already
been permanently enjoined by default judgment in Civil Case No. Q-36485, appears in retrospect to
be nothing but a brace of feints calculated to keep Syjuco in that state of ignorance and to lull any
apprehensions it mat may have harbored about encountering further surprises from any other
quarter.

Further credence is lent to this appraisal by the unusually rapid movement of Civil Case No. Q-
36485 itself in its earlier stages, which saw the motion to declare Syjuco in default filed, an order of
default issued, evidence ex partefor the plaintiffs received and judgment by default rendered, all
within the brief span of twelve days, February 10-22, 1983. Notice of said judgment was "served" on
February 23, 1983, the day after it was handed down, only to be followed by an unaccountable lull of
well over a year before it was ordered executed on July 9, 1984 — unaccountable, considering that
previous flurry of activity, except in the context of a plan to rush the case to judgment and then divert
Syjuco's attention to the Lims' moves in other directions so as to prevent discovery of the existence
of the case until it was too late.

The Court cannot but condemn in the strongest terms this trifling with the judicial process which
degrades the administration of justice, mocks, subverts and misuses that process for purely dilatory
purposes, thus tending to bring it into disrepute, and seriously erodes public confidence in the will
and competence of the courts to dispense swift justice.

Upon the facts, the only defense to the foreclosure that could possibly have merited the full-blown
trial and appeal proceedings it actually went through was that of alleged usury pleaded in Civil Case
No. 75180 and finally decided against the respondent Lims in G.R. No. L-45752 in September 1977.
The other issues of failure to republish and discharge of mortgage by guarantee set up in
succeeding actions were sham issues, questions without substance raised only for purposes of
delay by the private respondents, in which they succeeded only too well. The claim urged in this
latest case: that the mortgaged property had been contributed to the respondent partnership and
was already property of said partnership when the individual Lims unauthorizedly mortgaged it to
Syjuco, is of no better stripe, and this, too, is clear from the undisputed facts and the legal
conclusions to be drawn therefrom.

The record shows that the respondent partnership is composed exclusively of the individual Lims in
whose name all the cases herein referred to, with the sole exception of Civil Case No. Q-36485,
were brought and prosecuted, their contribution to the partnership consisting chiefly, if not solely, of
the property subject of the Syjuco mortgage. It is also a fact that despite its having been contributed
to the partnership, allegedly on March 30, 1959, the property was never registered with the Register
of Deeds in the name of the partnership, but to this date remains registered in the names of the Lims
as owners in common. The original mortgage deed of November 14,1964 was executed by the Lims
as such owners, as were all subsequent amendments of the mortgage. There can be no dispute that
in those circumstances, the respondent partnership was chargeable with knowledge of the mortgage
from the moment of its execution. The legal fiction of a separate juridical personality and existence
will not shield it from the conclusion of having such knowledge which naturally and irresistibly flows
from the undenied facts. It would violate all precepts of reason, ordinary experience and common
sense to propose that a partnership, as commonly known to all the partners or of acts in which all of
the latter, without exception, have taken part, where such matters or acts affect property claimed as
its own by said partnership.

If, therefore, the respondent partnership was inescapably chargeable with knowledge of the
mortgage executed by all the partners thereof, its silence and failure to impugn said mortgage within
a reasonable time, let alone a space of more than seventeen years, brought into play the doctrine of
estoppel to preclude any attempt to avoid the mortgage as allegedly unauthorized.

The principles of equitable estoppel, sometimes called estoppel in pais, are made part of our law by
Art. 1432 of the Civil Code. Coming under this class is estoppel by silence, which obtains here and
as to which it has been held that:

... an estoppel may arise from silence as well as from words. 'Estoppel by silence'
arises where a person, who by force of circumstances is under a duty to another to
speak, refrains from doing so and thereby leads the other to believe in the existence
of a state of facts in reliance on which he acts to his prejudice. Silence may support
an estoppel whether the failure to speak is intentional or negligent.

Inaction or silence may under some circumstances amount to a misrepresentation

and concealment of the facts, so as to raise an equitable estoppel. When the silence
is of such a character and under such circumstances that it would become a fraud on
the other party to permit the party who has kept silent to deny what his silence has
induced the other to believe and act on, it will operate as an estoppel. This doctrine
rests on the principle that if one maintains silence, when in conscience he ought to
speak, equity will debar him from speaking when in conscience he ought to remain
silent. He who remains silent when he ought to speak cannot be heard to speak
when he should be silent. 40

And more to the point:

A property owner who knowingly permits another to sell or encumber the property,
without disclosing his title or objecting to the transaction, is estopped to set up his
title or interest as against a person who has been thereby misled to his injury.

xxx

An owner of real property who stands by and sees a third person selling or
mortgaging it under claim of title without asserting his own title or giving the
purchaser or mortgagee any notice thereof is estopped, as against such purchaser or
mortgagee, afterward to assert his title; and, although title does not pass under these
circumstances, a conveyance will be decreed by a court of equity. Especially is the
rule applicable where the party against whom the estoppel is claimed, in addition to
standing by, takes part in malting the sale or mortgage. 41

More specifically, the concept to which that species of estoppel which results from
the non-disclosure of an estate or interest in real property has ordinarily been
 referred is fraud, actual or constructive. ... Although fraud is not an essential element
of the original conduct working the estoppel, it may with perfect property be said that
it would be fraudulent for the party to repudiate his conduct, and to assert a right or
claim in contravention thereof. 42

Equally or even more preclusive of the respondent partnership's claim to the mortgaged property is
the last paragraph of Article 1819 of the Civil Code, which contemplates a situation duplicating the
circumstances that attended the execution of the mortgage in favor of Syjuco and therefore applies
foursquare thereto:

Where the title to real property is in the names of all the partners a conveyance
executed by all the partners passes all their rights in such property.

The term "conveyance" used in said provision, which is taken from Section 10 of the American
Uniform Partnership Act, includes a mortgage.

Interpreting Sec. 10 of the Uniform Partnership Act, it has been held that the right to
mortgage is included in the right to convey. This is different from the rule in agency
that a special power to sell excludes the power to mortgage (Art. 1879). 43

As indisputable as the propositions and principles just stated is that the cause of action in Civil Case
No. Q-36485 is barred by prior judgment. The right subsumed in that cause is the negation of the
mortgage, postulated on the claim that the parcels of land mortgaged by the Lims to Syjuco did not
in truth belong to them but to the partnership. Assuming this to be so, the right could have been
asserted at the time that the Lims instituted their first action on December 24, 1968 in the Manila
Court of First Instance, Civil Case No. 75180, or when they filed their subsequent actions: Civil Case
No. 112762, on December 19, 1977; Civil Case No. 83-19018, in 1983, and Civil Case No. Q-39294,
also in 1983. The claim could have been set up by the Lims, as members composing the
partnership, "Heirs of Hugo Lim." It could very well have been put forth by the partnership itself, as
co-plaintiff in the corresponding complaints, considering that the actions involved property
supposedly belonging to it and were being prosecuted by the entire membership of the partnership,
and therefore, the partnership was in actuality, the real party in interest. In fact, consistently with the
Lims' theory, they should be regarded, in all the actions presented by them, as having sued for
vindication, not of their individual rights over the property mortgaged, but those of the partnership.
There is thus no reason to distinguish between the Lims, as individuals, and the partnership itself,
since the former constituted the entire membership of the latter. In other words, despite the
concealment of the existence of the partnership, for all intents and purposes and consistently with
the Lims' own theory, it was that partnership which was the real party in interest in all the actions; it
was actually represented in said actions by all the individual members thereof, and consequently,
those members' acts, declarations and omissions cannot be deemed to be simply the individual acts
of said members, but in fact and in law, those of the partnership.

What was done by the Lims — or by the partnership of which they were the only members-was to
split their cause of action in violation of the well known rule that only one suit may be instituted for a
single cause of action. 44 The right sought to be enforced by them in all their actions was, at bottom,
to strike down the mortgage constituted in favor of Syjuco, a right which, in their view, resulted from
several circumstances, namely that the mortgage was constituted over property belonging to the
partnership without the latter's authority; that the principal obligation thereby secured was usurious;
that the publication of the notice of foreclosure sale was fatally defective, circumstances which had
already taken place at the time of the institution of the actions. They instituted four (4) actions for the
same purpose on one ground or the other, making each ground the subject of a separate action.
Upon these premises, application of the sanction indicated by law is caned for, i.e., the judgment on
the merits in any one is available as a bar in the others. 45

The first judgment-rendered in Civil Case No. 75180 and affirmed by both the Court of Appeals (CA-
G.R. No. 51752) and this Court (G.R. No. L-45752) should therefore have barred all the others, all
the requisites of res judicata being present. The judgment was a final and executory judgment; it had
been rendered by a competent court; and there was, between the first and subsequent cases, not
only identity of subject-matter and of cause of action, but also of parties. As already pointed out, the
plaintiffs in the first four (4) actions, the Lims, were representing exactly the same claims as those of
the partnership, the plaintiff in the fifth and last action, of which partnership they were the only
members, and there was hence no substantial difference as regards the parties plaintiff in all the
actions. Under the doctrine of res judicata, the judgment in the first was and should have been
regarded as conclusive in all other, actions not only "with respect to the matter directly adjudged,"
but also "as to any other matter that could have been raised in relation thereto. " 46 It being
indisputable that the matter of the partnership's being the owner of the mortgaged properties "could
have been raised in relation" to those expressly made issuable in the first action, it follows that that
matter could not be re-litigated in the last action, the fifth.

Though confronted with the facts thus precluding the respondent partnership's claim to the property
under both the principle of estoppel and the provisions of Article 1819, last paragraph, of the Civil
Code, as well as the familiar doctrine of res judicata, the respondent Judge refused to act on
Syjuco's motions on the ground that he no longer had jurisdiction to do so because they were filed
after judgment by default against Syjuco, which failed to answer the complaint despite valid service
of summons, had been rendered and become final. The sheriffs return, however, creates grave
doubts about the correctness of the Judge's basic premise that summons had been validly served on
Syjuco. For one thing, the return 47 is unspecific about where service was effected. No safe
conclusion about the place of service can be made from its reference to a former and a present
office of Syjuco in widely separate locations, with nothing to indicate whether service was effected at
one address or the other, or even at both. A more serious defect is the failure to name the person
served who is, with equal ambiguity, identified only as "the Manager" of the defendant corporation
(petitioner herein). Since the sheriffs return constitutes primary evidence of the manner and incidents
of personal service of a summons, the Rules are quite specific about what such a document should
contain:

SEC. 20. Proof of service. — The proof of service of a summons shall be made in
writing by the server and shall set forth the manner, place and date of service; shall
specify any papers which have been served with the process and the name of the
person who received the same; and shall be sworn to when made by a person other
than a sheriff or his deputy. 48

In the case of Delta Motor Sales Corporation vs. Mangosing 49 it was held that:"

(a) strict compliance with the mode of service is necessary to confer jurisdiction of the court over a
corporation. The officer upon whom service is made must be one who is named in the statute;
otherwise the service is insufficient. So, where the statute requires that in the case of a domestic
corporation summons should be served on 'the president or head of the corporation, secretary,
treasurer, cashier or managing agent thereof, service of summons on the secretary's wife did not
confer jurisdiction over the corporation in the foreclosure proceeding against it. Hence, the decree of
foreclosure and the deficiency judgment were void and should be vacated (Reader vs. District Court,
94 Pacific 2nd 858).
 The purpose is to render it reasonably certain that the corporation will receive prompt
and proper notice in an action against it or to insure that the summons be served on
a representative so integrated with the corporation that such person will know what to
do with the legal papers served on him. In other words, 'to bring home to the
corporation notice of the filing of the action'. (35 A C.J.S. 288 citing Jenkins vs. Lykes
Bros. S.S. Co., 48 F. Supp. 848; MacCarthy vs. Langston, D.C. Fla., 23 F.R.D. 249).

The liberal construction rule cannot be invoked and utilized as a substitute for the
plain legal requirements as to the manner in which summons should be served on a
domestic corporation (U.S. vs. Mollenhauer Laboratories, Inc., 267 Fed. Rep. 2nd
260).'

The rule cannot be any less exacting as regards adherence to the requirements of proof of service, it
being usually by such proof that sufficiency of compliance with the prescribed mode of service is
measured. Here the only proof of service of summons is the questioned sheriff's return which, as
already pointed out, is not only vague and unspecific as to the place of service, but also neglects to
Identify by name the recipient of the summons as required by Rule 20, Section 14, of the Rules of
Court. Where the sheriffs return is defective the presumption of regularity in the performance of
official functions will not lie. 50 The defective sheriffs return thus being insufficient and incompetent to
prove that summons was served in the manner prescribed for service upon corporations, there is no
alternative to affirming the petitioner's claim that it had not been validly summoned in Civil Case No.
Q-36485. It goes without saying that lacking such valid service, the Trial Court did not acquire
jurisdiction over the petitioner Syjuco, rendering null and void all subsequent proceedings and
issuances in the action from the order of default up to and including the judgment by default and the
order for its execution. 51

The respondents' contention that the petition is in effect an action to annul a judgment which is within
the exclusive original jurisdiction of the Court of Appeals 52 has already been answered
in Matanguihan vs. Tengco 53 where, by declaring that an action for annulment of judgment is not a
plain, speedy and adequate remedy, this Court in effect affirmed that certiorari is an appropriate
remedy against judgments or proceedings alleged to have been rendered or had without valid
service of summons. 54

Respondent Judge Castro begged the question when, instead of resolving on the merits the issue of
the invalidity of his default judgment and of the proceedings leading thereto because of absence of
valid service of summons on the defendant, which had been expressly raised in the defendant's
motion for reconsideration, he simply refused to do so on the excuse that he had lost jurisdiction
over the case. This refusal was, in the premises, a grave abuse of judicial discretion which must be
rectified.

What has been said makes unnecessary any further proceedings in the Court below, which might
otherwise be indicated by the consideration that two of the postulates of petitioner's unresolved
motions which the Court considers equally as decisive as res judicata, to wit: estoppel by silence
and Article 1819, last paragraph, of the Civil Code, do not constitute grounds for a motion to dismiss
under rule 16, of the Rules of Court. Such a step would only cause further delay. And delay has
been the bane of petitioner's cause, defying through all these years all its efforts to collect on a just
debt.

The undenied and undisputable facts make it perfectly clear that the claim to the mortgaged property
belatedly and in apparent bad faith pressed by the respondent partnership is foreclosed by both law
and equity. Further proceedings will not make this any clearer than it already is. The Court is clothed
with ample authority, in such a case, to call a halt to all further proceedings and pronounce judgment
on the basis of what is already manifestly of record.

So much for the merits; the consequences that should attend the inexcusable and indefensible
conduct of the respondents Lims, the respondent partnership and their counsel, Atty. Paterno R.
Canlas, should now be addressed. That the Lims and their partnership acted in bad faith and with
intent to defraud is manifest in the record of their actuations, presenting as they did, piecemeal and
in one case after another, defenses to the foreclosure or claims in derogation thereof that were
available to them from the very beginning — actuations that were to stave off the liquidation of an
undenied debt for more than twenty years and culminated in the clandestine filing and prosecution of
the action subject of the present petition.

What has happened here, it bears repeating, is nothing less than an abuse of process, a trifling with
the courts and with the rights of access thereto, for which Atty. Canlas must share responsibility
equally with his clients. The latter could not have succeeded so well in obstructing the course of
justice without his aid and advice and his tireless espousal of their claims and pretensions made in
the various cases chronicled here. That the cause to which he lent his advocacy was less than just
or worthy could not have escaped him, if not at the start of his engagement, in the years that
followed when with his willing assistance, if not instigation, it was shuttled from one forum to another
after each setback. This Court merely stated what is obvious and cannot be gainsaid when,
in Surigao Mineral Reservation Board vs. Cloribel, 55 it held that a party's lawyer of record has control
of the proceedings and that '(w)hatever steps his client takes should be within his knowledge and
responsibility."

In Prudential Bank vs. Castro, 56 strikingly similar actuations in a case, which are described in the
following paragraph taken from this Court's decision therein:

Respondents' foregoing actuations reveal an 'unholy alliance' between them and a

clear indication of partiality for the party represented by the other to the detriment of
the objective dispensation of justice. Writs of Attachment and Execution were issued
and implemented with lightning speed; the case itself was railroaded to a swift
conclusion through a similar judgment; astronomical sums were awarded as
damages and attorney's fees; and topping it all, the right to appeal was foreclosed by
clever maneuvers," and which, the Court found, followed a pattern of conduct in other
cases of which judicial notice was taken, were deemed sufficient cause for
disbarment.

Atty. Canlas even tried to mislead this Court by claiming that he became the Lims' lawyer only in
1977, 57 when the record indubitably shows that he has represented them since September 9, 1972
when he first appeared for them to prosecute their appeal in Civil Case No. 75180. 58 He has also
quite impenitently disclaimed a duty to inform opposing counsel in Civil Case No. Q-39294 of the
existence of Civil Case No. Q-36485, as plaintiffs' counsel in both actions, even while the former,
which involved the same mortgage, was already being litigated when the latter was filed, although in
the circumstances such disclosure was required by the ethics of his profession, if not indeed by his
lawyer's oath.

A clear case also exists for awarding at least nominal damages to petitioner, though damages are
not expressly prayed for, under the general prayer of the petition for "such other reliefs as may be
just and equitable under the premises," and the action being not only of certiorari and prohibition, but
also of mandamus-in which the payment of "damages sustained by the petitioner by reason of the
wrongful acts of the defendant' is expressly authorized. 59
There is no question in the Court's mind that such interests as may have accumulated on the
mortgage loan will not offset the prejudice visited upon the petitioner by the excruciatingly long delay
in the satisfaction of said debt that the private respondents have engineered and fomented.

These very same considerations dictate the imposition of exemplary damages in accordance with
Art. 2229 of the Civil Code.

WHEREFORE, so that complete justice may be dispensed here and, as far as consistent with that
end, all the matters and incidents with which these proceedings are concerned may be brought to a
swift conclusion:

(1) the assailed judgment by default in Civil Case No.Q-36485, the writ of execution
and all other orders issued in implementation thereof, and all proceedings in the case
leading to said judgment after the filing of the complaint are DECLARED null and
void and are hereby SET ASIDE; and the complaint in said case is DISMISSED for
being barred by prior judgment and estoppel, and for lack of merit;

(2) the City Sheriff of Manila is ORDERED, upon receipt of this Decision, to schedule
forthwith and thereafter conduct with all due dispatch the sale at public auction of the
mortgaged property in question for the satisfaction of the mortgage debt of the
respondents Lims to petitioner, in the principal amount of P2,460,000.00 as found in
the amended decision in Civil Case No. 75180 of the Court of First Instance of
Manila, interests thereon at the rate of twelve (12%) percent per annum from
November 8, 1967 until the date of sale, plus such other and additional sums for
commissions, expenses, fees, etc. as may be lawfully chargeable in extrajudicial
foreclosure and sale proceedings;

(3) the private respondents, their successors and assigns, are PERPETUALLY
ENJOINED from taking any action whatsoever to obstruct, delay or prevent said
auction sale;

(4) the private respondents (the Lims, the Partnership of the Heirs of Hugo Lim and
Atty. Paterno R. Canlas) are sentenced, jointly and severally, to pay the petitioner
P25,000.00 as nominal damages and P100,000.00 as exemplary damages, as well
as treble costs; and

(5) let this matter be referred to the Integrated Bar of the Philippines for investigation,
report, and recommendation insofar as the conduct of Atty. Canlas as counsel in this
case and in the other cases hereinabove referred to is concerned.

SO ORDERED.
G.R. No. 126881 October 3, 2000

HEIRS OF TAN ENG KEE, petitioners,

vs.
COURT OF APPEALS and BENGUET LUMBER COMPANY, represented by its President TAN
ENG LAY,respondents.

DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision1 dated March
13, 1996 of the former Fifth Division2 of the Court of Appeals in CA-G.R. CV No. 47937, the
dispositive portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the
complaint dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio,
collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedent's
brother TAN ENG LAY on February 19, 1990. The complaint, 3 docketed as Civil Case No. 1983-R in
the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay. On March 18, 1991,
the petitioners filed an amended complaint 4 impleading private respondent herein BENGUET
LUMBER COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the
trial court in its Order dated May 3, 1991.5

The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan
Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the
business of selling lumber and hardware and construction supplies. They named their enterprise
"Benguet Lumber" which they jointly managed until Tan Eng Kee's death. Petitioners herein averred
that the business prospered due to the hard work and thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his children caused the conversion of the partnership
"Benguet Lumber" into a corporation called "Benguet Lumber Company." The incorporation was
purportedly a ruse to deprive Tan Eng Kee and his heirs of their rightful participation in the profits of
the business. Petitioners prayed for accounting of the partnership assets, and the dissolution,
winding up and liquidation thereof, and the equal division of the net assets of Benguet Lumber.

After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment 6 on April 12, 1995, to wit:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

a) Declaring that Benguet Lumber is a joint venture which is akin to a particular partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or
partners in a business venture and/or particular partnership called Benguet Lumber and as
such should share in the profits and/or losses of the business venture or particular
partnership;
 c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet
Lumber Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee
have a legal right to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as
partner in a particular partnership have descended to the plaintiffs who are his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of
Benguet Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber
Company, Inc. so the plaintiffs know their proper share in the business;

f) Ordering the appointment of a receiver to preserve and/or administer the assets of

Benguet Lumber Company, Inc. until such time that said corporation is finally liquidated are
directed to submit the name of any person they want to be appointed as receiver failing in
which this Court will appoint the Branch Clerk of Court or another one who is qualified to act
as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in
filing the instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered
the assailed decision reversing the judgment of the trial court. Petitioners' motion for
reconsideration7 was denied by the Court of Appeals in a Resolution8 dated October 11, 1996.

Hence, the present petition.

As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay and
Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners
complained that Exhibits "4" to "4-U" offered by the defendants before the trial court, consisting of
payrolls indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on
the discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial
Court of Baguio City, Branch 1, wherein the charges were filed, rendered judgment9 dismissing the
cases for insufficiency of evidence.

In their assignment of errors, petitioners claim that:

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES; AND
(E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP (PAGE
13, DECISION).
 II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE SELF-

SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET LUMBER
WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN EMPLOYEE
THEREOF.

III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE FOLLOWING

FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH PARTIES DO NOT
SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE THERE WAS NO
ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE SECURITIES AND
EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING
AT THE BENGUET LUMBER COMPOUND;

b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE
EMPLOYEES OF BENGUET LUMBER;

c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE
EMPLOYEES THEREIN;

d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING
THE PRICES OF STOCKS TO BE SOLD TO THE PUBLIC; AND

e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS
TO THE SUPPLIERS (PAGE 18, DECISION).

IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE: ELPIDIO
TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ TANDOC,
ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT KNOWN IN
BAGUIO CITY AS BENGUET LUMBER WAS STARTED AS A PARTNERSHIP (PAGE 16-
17, DECISION).

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG LAY
BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS DEFINITELY
MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC INSTRUMENT
CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO SUCH PUBLIC
INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17, DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will not
be disturbed on appeal if such are supported by the evidence. 10 Our jurisdiction, it must be
emphasized, does not include review of factual issues. Thus:
 Filing of petition with Supreme Court. — A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the
Regional Trial Court or other courts whenever authorized by law, may file with the Supreme
Court a verified petition for review on certiorari. The petition shall raise only questions of law
which must be distinctly set forth.11 [emphasis supplied]

Admitted exceptions have been recognized, though, and when present, may compel us to analyze
the evidentiary basis on which the lower court rendered judgment. Review of factual issues is
therefore warranted:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and
such findings are contrary to the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly
considered, will justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on
which they are based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of
evidence but such findings are contradicted by the evidence on record. 12

In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs mentioned
only the existence of a partnership, the Court in turn went beyond that by justifying the
existence of a joint venture.

When mention is made of a joint venture, it would presuppose parity of standing between the
parties, equal proprietary interest and the exercise by the parties equally of the conduct of
the business, thus:

xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet
Lumber before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is
because during the war, the entire stocks of the pre-war Benguet Lumber were confiscated if
not burned by the Japanese. After the war, because of the absence of capital to start a
lumber and hardware business, Lay and Kee pooled the proceeds of their individual
businesses earned from buying and selling military supplies, so that the common fund would
be enough to form a partnership, both in the lumber and hardware business. That Lay and
Kee actually established the Benguet Lumber in Baguio City, was even testified to by
witnesses. Because of the pooling of resources, the post-war Benguet Lumber was
eventually established. That the father of the plaintiffs and Lay were partners, is obvious from
the fact that: (1) they conducted the affairs of the business during Kee's lifetime, jointly, (2)
they were the ones giving orders to the employees, (3) they were the ones preparing orders
from the suppliers, (4) their families stayed together at the Benguet Lumber compound, and
(5) all their children were employed in the business in different capacities.

xxx xxx xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no
firm account, no firm letterheads submitted as evidence, no certificate of partnership, no
agreement as to profits and losses, and no time fixed for the duration of the partnership.
There was even no attempt to submit an accounting corresponding to the period after the
war until Kee's death in 1984. It had no business book, no written account nor any
memorandum for that matter and no license mentioning the existence of a partnership
[citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification dated
March 4, 1971, Exhibit "2", mentioned co-defendant Lay as the only registered owner of the
Benguet Lumber and Hardware. His application for registration, effective 1954, in fact
mentioned that his business started in 1945 until 1985 (thereafter, the incorporation). The
deceased, Kee, on the other hand, was merely an employee of the Benguet Lumber
Company, on the basis of his SSS coverage effective 1958, Exhibit "3". In the Payrolls,
Exhibits "4" to "4-U", inclusive, for the years 1982 to 1983, Kee was similarly listed only as an
employee; precisely, he was on the payroll listing. In the Termination Notice, Exhibit "5", Lay
was mentioned also as the proprietor.

xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in
any form, but when an immovable is constituted, the execution of a public instrument
becomes necessary. This is equally true if the capitalization exceeds P3,000.00, in which
case a public instrument is also necessary, and which is to be recorded with the Securities
and Exchange Commission. In this case at bar, we can easily assume that the business
establishment, which from the language of the appellees, prospered (pars. 5 & 9, Complaint),
definitely exceeded P3,000.00, in addition to the accumulation of real properties and to the
fact that it is now a compound. The execution of a public instrument, on the other hand, was
never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay and
the members of his family. There is no proof either that the capital assets of the partnership,
assuming them to be in existence, were maliciously assigned or transferred by Lay,
supposedly to the corporation and since then have been treated as a part of the latter's
capital assets, contrary to the allegations in pars. 6, 7 and 8 of the complaint.

These are not evidences supporting the existence of a partnership:

 1) That Kee was living in a bunk house just across the lumber store, and then in a room in
the bunk house in Trinidad, but within the compound of the lumber establishment, as testified
to by Tandoc; 2) that both Lay and Kee were seated on a table and were "commanding
people" as testified to by the son, Elpidio Tan; 3) that both were supervising the laborers, as
testified to by Victoria Choi; and 4) that Dionisio Peralta was supposedly being told by Kee
that the proceeds of the 80 pieces of the G.I. sheets were added to the business.

Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or
written. However, if it involves real property or where the capital is P3,000.00 or more, the
execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3)
money property or industry contribution; 4) community of funds and interest, mentioning
equality of the partners or one having a proportionate share in the benefits; and 5) intention
to divide the profits, being the true test of the partnership. The intention to join in the
business venture for the purpose of obtaining profits thereafter to be divided, must be
established. We cannot see these elements from the testimonial evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had adjudged
that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint venture. In this connection,
we have held that whether a partnership exists is a factual matter; consequently, since the appeal is
brought to us under Rule 45, we cannot entertain inquiries relative to the correctness of the
assessment of the evidence by the court a quo. 13 Inasmuch as the Court of Appeals and the trial
court had reached conflicting conclusions, perforce we must examine the record to determine if the
reversal was justified.

The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet
Lumber. A contract of partnership is defined by law as one where:

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

Two or more persons may also form a partnership for the exercise of a profession. 14

Thus, in order to constitute a partnership, it must be established that (1) two or more persons
bound themselves to contribute money, property, or industry to a common fund, and (2) they
intend to divide the profits among themselves. 15 The agreement need not be formally reduced
into writing, since statute allows the oral constitution of a partnership, save in two instances:
(1) when immovable property or real rights are contributed,16 and (2) when the partnership
has a capital of three thousand pesos or more. 17 In both cases, a public instrument is
required.18 An inventory to be signed by the parties and attached to the public instrument is
also indispensable to the validity of the partnership whenever immovable property is
contributed to the partnership.19

The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint venture, which
it said is akin to a particular partnership. 20 A particular partnership is distinguished from a joint
adventure, to wit:

(a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal
partnership, with no firm name and no legal personality. In a joint account, the participating
merchants can transact business under their own name, and can be individually liable
therefor.
 (b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION,
although the business of pursuing to a successful termination may continue for a number of
years; a partnership generally relates to a continuing business of various transactions of a
certain kind.21

A joint venture "presupposes generally a parity of standing between the joint co-ventures or partners,
in which each party has an equal proprietary interest in the capital or property contributed, and
where each party exercises equal rights in the conduct of the business." 22 Nonetheless, in Aurbach,
et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,23 we expressed the view that a joint
venture may be likened to a particular partnership, thus:

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

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles of
partnership but there is none. The alleged partnership, though, was never formally organized. In
addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was
allegedly formed sometime in 1945, although the contrary may well be argued that nothing
prevented the parties from complying with the provisions of the New Civil Code when it took effect
on August 30, 1950. But all that is in the past. The net effect, however, is that we are asked to
determine whether a partnership existed based purely on circumstantial evidence. A review of the
record persuades us that the Court of Appeals correctly reversed the decision of the trial court. The
evidence presented by petitioners falls short of the quantum of proof required to establish a
partnership.

Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the business relationship between them. In the
absence of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly
contributed his resources to a common fund for the purpose of establishing a partnership. The
testimonies to that effect of petitioners' witnesses is directly controverted by Tan Eng Lay. It should
be noted that it is not with the number of witnesses wherein preponderance lies; 24 the quality of their
testimonies is to be considered. None of petitioners' witnesses could suitably account for the
beginnings of Benguet Lumber Company, except perhaps for Dionisio Peralta whose deceased wife
was related to Matilde Abubo.25 He stated that when he met Tan Eng Kee after the liberation, the
latter asked the former to accompany him to get 80 pieces of G.I. sheets supposedly owned by both
brothers.26 Tan Eng Lay, however, denied knowledge of this meeting or of the conversation between
Peralta and his brother.27 Tan Eng Lay consistently testified that he had his business and his brother
had his, that it was only later on that his said brother, Tan Eng Kee, came to work for him. Be that as
it may, co-ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the
existence of a partnership.28

Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly
in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the
partners share in the profits and losses. 29 Each has the right to demand an accounting as long as the
partnership exists.30 We have allowed a scenario wherein "[i]f excellent relations exist among the
partners at the start of the business and all the partners are more interested in seeing the firm grow
rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible."31 But in
the situation in the case at bar, the deferment, if any, had gone on too long to be plausible. A person
is presumed to take ordinary care of his concerns.32 As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second
place, she did not furnish any help or intervention in the management of the theatre. In the
third place, it does not appear that she has even demanded from defendant any accounting
of the expenses and earnings of the business. Were she really a partner, her first concern
should have been to find out how the business was progressing, whether the expenses were
legitimate, whether the earnings were correct, etc. She was absolutely silent with respect to
any of the acts that a partner should have done; all that she did was to receive her share of
P3,000.00 a month, which cannot be interpreted in any manner than a payment for the use
of the premises which she had leased from the owners. Clearly, plaintiff had always acted in
accordance with the original letter of defendant of June 17, 1945 (Exh. "A"), which shows
that both parties considered this offer as the real contract between them. 33 [emphasis
supplied]

A demand for periodic accounting is evidence of a partnership. 34 During his lifetime, Tan Eng Kee
appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.

This brings us to the matter of Exhibits "4" to "4-U" for private respondents, consisting of payrolls
purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then
called. The authenticity of these documents was questioned by petitioners, to the extent that they
filed criminal charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal
cases were dismissed for insufficiency of evidence. Exhibits "4" to "4-U" in fact shows that Tan Eng
Kee received sums as wages of an employee. In connection therewith, Article 1769 of the Civil Code
provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are
not partners as to third persons;

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

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property which the
returns are derived;
 (4) The receipt by a person of a share of the profits of a business is a prima facie evidence
that he is a partner in the business, but no such inference shall be drawn if such profits were
received in payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(c) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the
business;

(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee,
not a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to
square one, so to speak, since they did not present and offer evidence that would show that Tan
Eng Kee received amounts of money allegedly representing his share in the profits of the enterprise.
Petitioners failed to show how much their father, Tan Eng Kee, received, if any, as his share in the
profits of Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan
Eng Kee and Tan Eng Lay intended to divide the profits of the business between themselves, which
is one of the essential features of a partnership.

Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership
from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the
employees; that both were supervising the employees; that both were the ones who determined the
price at which the stocks were to be sold; and that both placed orders to the suppliers of the Benguet
Lumber Company. They also point out that the families of the brothers Tan Eng Kee and Tan Eng
Lay lived at the Benguet Lumber Company compound, a privilege not extended to its ordinary
employees.

However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above enumerated powers
and privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in
Benguet Lumber for the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. So long, therefore, that an employee's position is higher in rank, it is not
unusual that he orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the
owner, can order materials from suppliers for and in behalf of Benguet Lumber. Furthermore,
even a partner does not necessarily have to perform this particular task. It is, thus, not an
indication that Tan Eng Kee was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this
privilege was not accorded to other employees, the undisputed fact remains that Tan Eng
Kee is the brother of Tan Eng Lay. Naturally, close personal relations existed between them.
 Whatever privileges Tan Eng Lay gave his brother, and which were not given the other
employees, only proves the kindness and generosity of Tan Eng Lay towards a blood
relative.

(iv) and even if it is assumed that Tan Eng Kee was quarreling with Tan Eng Lay in
connection with the pricing of stocks, this does not adequately prove the existence of a
partnership relation between them. Even highly confidential employees and the owners of a
company sometimes argue with respect to certain matters which, in no way indicates that
they are partners as to each other.35

In the instant case, we find private respondent's arguments to be well-taken. Where circumstances
taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of the existence of the parties'
intent.36 Yet, in the case at bench, even the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the
operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood
that as a member of the family, he occupied a niche above the rank-and-file employees. He would
have enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet
Lumber Company compound. He would have moral, if not actual, superiority over his fellow
employees, thereby entitling him to exercise powers of supervision. It may even be that among his
duties is to place orders with suppliers. Again, the circumstances proffered by petitioners do not
provide a logical nexus to the conclusion desired; these are not inconsistent with the powers and
duties of a manager, even in a business organized and run as informally as Benguet Lumber
Company.

There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak
of. Hence, the petition must fail.

WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is
hereby AFFIRMED in toto. No pronouncement as to costs.

SO ORDERED.
G.R. No. 144214 July 14, 2003

LUZVIMINDA J. VILLAREAL, DIOGENES VILLAREAL and CARMELITO JOSE, petitioners,

vs.
DONALDO EFREN C. RAMIREZ and Spouses CESAR G. RAMIREZ JR. and CARMELITA C.
RAMIREZ,respondents.

PANGANIBAN, J.:

A share in a partnership can be returned only after the completion of the latter's dissolution,
liquidation and winding up of the business.

The Case

The Petition for Review on Certiorari before us challenges the March 23, 2000 Decision 1 and the
July 26, 2000 Resolution2 of the Court of Appeals3 (CA) in CA-GR CV No. 41026. The assailed
Decision disposed as follows:

"WHEREFORE, foregoing premises considered, the Decision dated July 21, 1992 rendered
by the Regional Trial Court, Branch 148, Makati City is hereby SET ASIDE and NULLIFIED
and in lieu thereof a new decision is rendered ordering the [petitioners] jointly and severally
to pay and reimburse to [respondents] the amount of P253,114.00. No pronouncement as to
costs."4

Reconsideration was denied in the impugned Resolution.

The Facts

On July 25, 1984, Luzviminda J. Villareal, Carmelito Jose and Jesus Jose formed a partnership with
a capital of P750,000 for the operation of a restaurant and catering business under the name
"Aquarius Food House and Catering Services."5 Villareal was appointed general manager and
Carmelito Jose, operations manager.

Respondent Donaldo Efren C. Ramirez joined as a partner in the business on September 5, 1984.
His capital contribution of P250,000 was paid by his parents, Respondents Cesar and Carmelita
Ramirez.6

After Jesus Jose withdrew from the partnership in January 1987, his capital contribution of P250,000
was refunded to him in cash by agreement of the partners. 7

In the same month, without prior knowledge of respondents, petitioners closed down the restaurant,
allegedly because of increased rental. The restaurant furniture and equipment were deposited in the
respondents' house for storage.8

On March 1, 1987, respondent spouses wrote petitioners, saying that they were no longer interested
in continuing their partnership or in reopening the restaurant, and that they were accepting the
latter's offer to return their capital contribution. 9

On October 13, 1987, Carmelita Ramirez wrote another letter informing petitioners of the
deterioration of the restaurant furniture and equipment stored in their house. She also reiterated the
request for the return of their one-third share in the equity of the partnership. The repeated oral and
written requests were, however, left unheeded. 10

Before the Regional Trial Court (RTC) of Makati, Branch 59, respondents subsequently filed a
Complaint11 dated November 10, 1987, for the collection of a sum of money from petitioners.

In their Answer, petitioners contended that respondents had expressed a desire to withdraw from the
partnership and had called for its dissolution under Articles 1830 and 1831 of the Civil Code; that
respondents had been paid, upon the turnover to them of furniture and equipment worth over
P400,000; and that the latter had no right to demand a return of their equity because their share,
together with the rest of the capital of the partnership, had been spent as a result of irreversible
business losses.12

In their Reply, respondents alleged that they did not know of any loan encumbrance on the
restaurant. According to them, if such allegation were true, then the loans incurred by petitioners
should be regarded as purely personal and, as such, not chargeable to the partnership. The former
further averred that they had not received any regular report or accounting from the latter, who had
solely managed the business. Respondents also alleged that they expected the equipment and the
furniture stored in their house to be removed by petitioners as soon as the latter found a better
location for the restaurant.13

Respondents filed an Urgent Motion for Leave to Sell or Otherwise Dispose of Restaurant Furniture
and Equipment14 on July 8, 1988. The furniture and the equipment stored in their house were
inventoried and appraised at P29,000.15 The display freezer was sold for P5,000 and the proceeds
were paid to them.16

After trial, the RTC 17 ruled that the parties had voluntarily entered into a partnership, which could
be dissolved at any time. Petitioners clearly intended to dissolve it when they stopped operating the
restaurant. Hence, the trial court, in its July 21, 1992 Decision, held there liable as follows:18

"WHEREFORE, judgment is hereby rendered in favor of [respondents] and against the

[petitioners] ordering the [petitioners] to pay jointly and severally the following:

(a) Actual damages in the amount of P250,000.00

(b) Attorney's fee in the amount of P30,000.00

(c) Costs of suit."

The CA Ruling

The CA held that, although respondents had no right to demand the return of their capital
contribution, the partnership was nonetheless dissolved when petitioners lost interest in continuing
the restaurant business with them. Because petitioners never gave a proper accounting of the
partnership accounts for liquidation purposes, and because no sufficient evidence was presented to
show financial losses, the CA. computed their liability as follows:

"Consequently, since what has been proven is only the outstanding obligation of the
partnership in the amount of P240,658.00, although contracted by the partnership before
[respondents'] have joined the partnership but in accordance with Article 1826 of the New
Civil Code, they are liable which must have to be deducted from the remaining capitalization
 of the said partnership which is in the amount of P1,000,000.00 resulting in the amount of
P759,342.00, and in order to get the share of [respondents], this amount of P759,342.00
must be divided into three (3) shares or in the amount of P253,114.00 for each share and
which is the only amount which [petitioner] will return to [respondents'] representing the
contribution to the partnership minus the outstanding debt thereof."19

Hence, this Petition.20

Issues

In their Memorandum,21 petitioners submit the following issues for our consideration:

"9.1. Whether the Honorable Court of Appeals' decision ordering the distribution of the
capital contribution, instead of the net capital after the dissolution and liquidation of a
partnership, thereby treating the capital contribution like a loan, is in accordance with law and
jurisprudence;

"9.2. Whether the Honorable Court of Appeals' decision ordering the petitioners to jointly and
severally pay and reimburse the amount of [P]253,114.00 is supported by the evidence on
record; and

"9.3. Whether the Honorable Court of Appeals was correct in making [n]o pronouncement as
to costs."22

On closer scrutiny, the issues are as follows: (1) whether petitioners are liable to respondents for the
latter's share in the partnership; (2) whether the CA's computation of P253,114 as respondents'
share is correct; and (3) whether the CA was likewise correct in not assessing costs.

This Court's Ruling

The Petition has merit.

First Issue:
Share in Partnership

Both the trial and the appellate courts found that a partnership had indeed existed, and that it was
dissolved on March 1, 1987. They found that the dissolution took place when respondents informed
petitioners of the intention to discontinue it because of the former's dissatisfaction with, and loss of
trust in, the latter's management of the partnership affairs. These findings were amply supported by
the evidence on record. Respondents consequently demanded from petitioners the return of their
one-third equity in the partnership.

We hold that respondents have no right to demand from petitioners the return of their equity share.
Except as managers of the partnership, petitioners did not personally hold its equity or assets. "The
partnership has a juridical personality separate and distinct from that of each of the partners." 23 Since
the capital was contributed to the partnership, not to petitioners, it is the partnership that must refund
the equity of the retiring partners.24

Second Issue:
What Must Be Returned?
Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words, it can
only pay out what it has in its coffers, which consists of all its assets. However, before the partners
can be paid their shares, the creditors of the partnership must first be compensated. 25 After all the
creditors have been paid, whatever is left of the partnership assets becomes available for the
payment of the partners' shares.

Evidently, in the present case, the exact amount of refund equivalent to respondents' one-third share
in the partnership cannot be determined until all the partnership assets will have been liquidated —
in other words, sold and converted to cash — and all partnership creditors, if any, paid. The CA's
computation of the amount to be refunded to respondents as their share was thus erroneous.

First, it seems that the appellate court was under the misapprehension that the total capital
contribution was equivalent to the gross assets to be distributed to the partners at the time of the
dissolution of the partnership. We cannot sustain the underlying idea that the capital contribution at
the beginning of the partnership remains intact, unimpaired and available for distribution or return to
the partners. Such idea is speculative, conjectural and totally without factual or legal support.

Generally, in the pursuit of a partnership business, its capital is either increased by profits earned or
decreased by losses sustained. It does not remain static and unaffected by the changing fortunes of
the business. In the present case, the financial statements presented before the trial court showed
that the business had made meager profits.26However, notable therefrom is the omission of any
provision for the depreciation27 of the furniture and the equipment. The amortization of the
goodwill28 (initially valued at P500,000) is not reflected either. Properly taking these non-cash items
into account will show that the partnership was actually sustaining substantial losses, which
consequently decreased the capital of the partnership. Both the trial and the appellate courts in fact
recognized the decrease of the partnership assets to almost nil, but the latter failed to recognize the
consequent corresponding decrease of the capital.

Second, the CA's finding that the partnership had an outstanding obligation in the amount of
P240,658 was not supported by evidence. We sustain the contrary finding of the RTC, which had
rejected the contention that the obligation belonged to the partnership for the following reason:

"x x x [E]vidence on record failed to show the exact loan owed by the partnership to its
creditors. The balance sheet (Exh. '4') does not reveal the total loan. The Agreement (Exh.
'A') par. 6 shows an outstanding obligation of P240,055.00 which the partnership owes to
different creditors, while the Certification issued by Mercator Finance (Exh. '8') shows that it
was Sps. Diogenes P. Villareal and Luzviminda J. Villareal, the former being the nominal
party defendant in the instant case, who obtained a loan of P355,000.00 on Oct. 1983, when
the original partnership was not yet formed."

Third, the CA failed to reduce the capitalization by P250,000, which was the amount paid by the
partnership to Jesus Jose when he withdrew from the partnership.

Because of the above-mentioned transactions, the partnership capital was actually reduced. When
petitioners and respondents ventured into business together, they should have prepared for the fact
that their investment would either grow or shrink. In the present case, the investment of respondents
substantially dwindled. The original amount of P250,000 which they had invested could no longer be
returned to them, because one third of the partnership properties at the time of dissolution did not
amount to that much.
It is a long established doctrine that the law does not relieve parties from the effects of unwise,
foolish or disastrous contracts they have entered into with all the required formalities and with full
awareness of what they were doing. Courts have no power to relieve them from obligations they
have voluntarily assumed, simply because their contracts turn out to be disastrous deals or unwise
investments.29

Petitioners further argue that respondents acted negligently by permitting the partnership assets in
their custody to deteriorate to the point of being almost worthless. Supposedly, the latter should have
liquidated these sole tangible assets of the partnership and considered the proceeds as payment of
their net capital. Hence, petitioners argue that the turnover of the remaining partnership assets to
respondents was precisely the manner of liquidating the partnership and fully settling the latter's
share in the partnership.

We disagree. The delivery of the store furniture and equipment to private respondents was for the
purpose of storage. They were unaware that the restaurant would no longer be reopened by
petitioners. Hence, the former cannot be faulted for not disposing of the stored items to recover their
capital investment.

Third Issue:
Costs

Section 1, Rule 142, provides:

"SECTION 1. Costs ordinarily follow results of suit. — Unless otherwise provided in these
rules, costs shall be allowed to the prevailing party as a matter of course, but the court shall
have power, for special reasons, to adjudge that either party shall pay the costs of an action,
or that the same be divided, as may be equitable. No costs shall be allowed against the
Republic of the Philippines unless otherwise provided by law."

Although, as a rule, costs are adjudged against the losing party, courts have discretion, "for special
reasons," to decree otherwise. When a lower court is reversed, the higher court normally does not
award costs, because the losing party relied on the lower court's judgment which is presumed to
have been issued in good faith, even if found later on to be erroneous. Unless shown to be patently
capricious, the award shall not be disturbed by a reviewing tribunal.

WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution SET ASIDE.
This disposition is without prejudice to proper proceedings for the accounting, the liquidation and the
distribution of the remaining partnership assets, if any. No pronouncement as to costs.

SO ORDERED.
G.R. No. 143340 August 15, 2001

LILIBETH SUNGA-CHAN and CECILIA SUNGA, petitioners,

vs.
LAMBERTO T. CHUA, respondent.

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari under Rule 45 of the Rules of Court of the Decision 1 of
the Court of Appeals dated January 31, 2000 in the case entitled "Lamberto T. Chua vs. Lilibeth
Sunga Chan and Cecilia Sunga" and of the Resolution dated May 23, 2000 denying the motion for
reconsideration of herein petitioners Lilibeth Sunga and Cecilia Sunga (hereafter collectively referred
to as petitioners).

The pertinent facts of this case are as follows:

On June 22, 1992, Lamberto T. Chua (hereafter respondent) filed a complaint against Lilibeth Sunga
Chan (hereafter petitioner Lilibeth) and Cecilia Sunga (hereafter petitioner Cecilia), daughter and
wife, respectively of the deceased Jacinto L. Sunga (hereafter Jacinto), for "Winding Up of
Partnership Affairs, Accounting, Appraisal and Recovery of Shares and Damages with Writ of
Preliminary Attachment" with the Regional Trial Court, Branch 11, Sindangan, Zamboanga del Norte.

Respondent alleged that in 1977, he verbally entered into a partnership with Jacinto in the
distribution of Shellane Liquefied Petroleum Gas (LPG) in Manila. For business convenience,
respondent and Jacinto allegedly agreed to register the business name of their partnership,
SHELLITE GAS APPLIANCE CENTER (hereafter Shellite), under the name of Jacinto as a sole
proprietorship. Respondent allegedly delivered his initial capital contribution of P100,000.00 to
Jacinto while the latter in turn produced P100,000.00 as his counterpart contribution, with the
intention that the profits would be equally divided between them. The partnership allegedly had
Jacinto as manager, assisted by Josephine Sy (hereafter Josephine), a sister of the wife respondent,
Erlinda Sy. As compensation, Jacinto would receive a manager's fee or remuneration of 10% of the
gross profit and Josephine would receive 10% of the net profits, in addition to her wages and other
remuneration from the business.

Allegedly, from the time that Shellite opened for business on July 8, 1977, its business operation
went quite and was profitable. Respondent claimed that he could attest to success of their business
because of the volume of orders and deliveries of filled Shellane cylinder tanks supplied by Pilipinas
Shell Petroleum Corporation. While Jacinto furnished respondent with the merchandise inventories,
balance sheets and net worth of Shellite from 1977 to 1989, respondent however suspected that the
amount indicated in these documents were understated and undervalued by Jacinto and Josephine
for their own selfish reasons and for tax avoidance.

Upon Jacinto's death in the later part of 1989, his surviving wife, petitioner Cecilia and particularly his
daughter, petitioner Lilibeth, took over the operations, control, custody, disposition and management
of Shellite without respondent's consent. Despite respondent's repeated demands upon petitioners
for accounting, inventory, appraisal, winding up and restitution of his net shares in the partnership,
petitioners failed to comply. Petitioner Lilibeth allegedly continued the operations of Shellite,
converting to her own use and advantage its properties.

On March 31, 1991, respondent claimed that after petitioner Lilibeth ran out the alibis and reasons to
evade respondent's demands, she disbursed out of the partnership funds the amount of
P200,000.00 and partially paid the same to respondent. Petitioner Lilibeth allegedly informed
respondent that the P200,000.00 represented partial payment of the latter's share in the partnership,
with a promise that the former would make the complete inventory and winding up of the properties
of the business establishment. Despite such commitment, petitioners allegedly failed to comply with
their duty to account, and continued to benefit from the assets and income of Shellite to the damage
and prejudice of respondent.

On December 19, 1992, petitioners filed a Motion to Dismiss on the ground that the Securities and
Exchange Commission (SEC) in Manila, not the Regional Trial Court in Zamboanga del Norte had
jurisdiction over the action. Respondent opposed the motion to dismiss.

On January 12, 1993, the trial court finding the complaint sufficient in from and substance denied the
motion to dismiss.

On January 30, 1993, petitioners filed their Answer with Compulsory Counter-claims, contending that
they are not liable for partnership shares, unreceived income/profits, interests, damages and
attorney's fees, that respondent does not have a cause of action against them, and that the trial
court has no jurisdiction over the nature of the action, the SEC being the agency that has original
and exclusive jurisdiction over the case. As counterclaim, petitioner sought attorney's fees and
expenses of litigation.

On August 2, 1993, petitioner filed a second Motion to Dismiss this time on the ground that the claim
for winding up of partnership affairs, accounting and recovery of shares in partnership affairs,
accounting and recovery of shares in partnership assets/properties should be dismissed and
prosecuted against the estate of deceased Jacinto in a probate or intestate proceeding.

On August 16, 1993, the trial denied the second motion to dismiss for lack of merit.

On November 26, 1993, petitioners filed their Petition for Certiorari, Prohibition and Mandamus with
the Court of Appeals docketed as CA-G.R. SP No. 32499 questioning the denial of the motion to
dismiss.

On November 29, 1993, petitioners filed with the trial court a Motion to Suspend Pre-trial
Conference.

On December 13, 1993, the trial court granted the motion to suspend pre-trial conference.

On November 15, 1994, the Court of Appeals denied the petition for lack of merit.

On January 16, 1995, this Court denied the petition for review on certiorari filed by petitioner, "as
petitioners failed to show that a reversible error was committed by the appellate court." 2

On February 20, 1995, entry of judgment was made by the Clerk of Court and the case was
remanded to the trial court on April 26, 1995.

On September 25, 1995, the trial court terminated the pre-trial conference and set the hearing of the
case of January 17, 1996. Respondent presented his evidence while petitioners were considered to
have waived their right to present evidence for their failure to attend the scheduled date for reception
of evidence despite notice.

On October 7, 1997, the trial court rendered its Decision ruling for respondent. The dispositive of the
Decision reads:
 "WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendants, as follows:

(1) DIRECTING them to render an accounting in acceptable form under accounting

procedures and standards of the properties, assets, income and profits of the Shellite
Gas Appliance Center Since the time of death of Jacinto L. Sunga, from whom they
continued the business operations including all businesses derived from Shellite Gas
Appliance Center, submit an inventory, and appraisal of all these properties, assets,
income, profits etc. to the Court and to plaintiff for approval or disapproval;

(2) ORDERING them to return and restitute to the partnership any and all properties,
assets, income and profits they misapplied and converted to their own use and
advantage the legally pertain to the plaintiff and account for the properties mentioned
in pars. A and B on pages 4-5 of this petition as basis;

(3) DIRECTING them to restitute and pay to the plaintiff ½ shares and interest of the
plaintiff in the partnership of the listed properties, assets and good will (sic) in
schedules A, B and C, on pages 4-5 of the petition;

(4) ORDERING them to pay the plaintiff earned but unreceived income and profits
from the partnership from 1988 to May 30, 1992, when the plaintiff learned of the
closure of the store the sum of P35,000.00 per month, with legal rate of interest until
fully paid;

(5) ORDERING them to wind up the affairs of the partnership and terminate its
business activities pursuant to law, after delivering to the plaintiff all the ½ interest,
shares, participation and equity in the partnership, or the value thereof in money or
money's worth, if the properties are not physically divisible;

(6) FINDING them especially Lilibeth Sunga-Chan guilty of breach of trust and in bad
faith and hold them liable to the plaintiff the sum of P50,000.00 as moral and
exemplary damages; and,

(7) DIRECTING them to reimburse and pay the sum of P25,000.00 as attorney's (sic)
and P25,000.00 as litigation expenses.

NO special pronouncements as to COSTS.

SO ORDERED."3

On October 28, 1997, petitioners filed a Notice of Appeal with the trial court, appealing the case to
the Court of Appeals.

On January 31, 2000, the Court of Appeals dismissed the appeal. The dispositive portion of the
Decision reads:

"WHEREFORE, the instant appeal is dismissed. The appealed decision is AFFIRMED in all
respects."4

On May 23, 2000, the Court of Appeals denied the motion for reconsideration filed by petitioner.
Hence, this petition wherein petitioner relies upon following grounds:

"1. The Court of Appeals erred in making a legal conclusion that there existed a partnership
between respondent Lamberto T. Chua and the late Jacinto L. Sunga upon the latter''
invitation and offer and that upon his death the partnership assets and business were taken
over by petitioners.

2. The Court of Appeals erred in making the legal conclusion that laches and/or prescription
did not apply in the instant case.

3. The Court of Appeals erred in making the legal conclusion that there was competent and
credible evidence to warrant the finding of a partnership, and assuming arguendo that
indeed there was a partnership, the finding of highly exaggerated amounts or values in the
partnership assets and profits."5

Petitioners question the correctness of the finding of the trial court and the Court of Appeals that a
partnership existed between respondent and Jacinto from 1977 until Jacinto's death. In the absence
of any written document to show such partnership between respondent and Jacinto, petitioners
argues that these courts were proscribes from hearing the testimonies of respondent and his
witness, Josephine, to prove the alleged partnership three years after Jacinto's death. To support
this argument, petitioners invoke the "Dead Man's Statute' or "Survivorship Rule" under Section 23,
Rule 130 of the Rules of Court that provides:

"SEC. 23. Disqualification by reason of death or insanity of adverse party. – Parties or

assignors of parties to a case, or persons in whose behalf a case is prosecuted, against an
executor or administrator or other representative of a deceased person, or against a person
of unsound mind, upon a claim or demand against the estate of such deceased person, or
against such person of unsound mind, cannot testify as to any matter of fact occurring before
the death of such deceased person or before such person became of unsound mind."

Petitioners thus implore this Court to rule that the testimonies of respondent and his alter ego,
Josephine, should not have been admitted to prove certain claims against a deceased person
(Jacinto), now represented by petitioners.

We are not persuaded.

A partnership may be constituted in any form, except where immovable property of real rights are
contributed thereto, in which case a public instrument shall necessary. 6 Hence, based on the
intention of the parties, as gathered from the facts and ascertained from their language and conduct,
a verbal contract of partnership may arise. 7 The essential profits that must be proven to that a
partnership was agreed upon are (1) mutual contribution to a common stock, and (2) a joint interest
in the profits.8 Understandably so, in view of the absence of the written contract of partnership
between respondent and Jacinto, respondent resorted to the introduction of documentary and
testimonial evidence to prove said partnership. The crucial issue to settle then is to whether or not
the "Dead Man's Statute" applies to this case so as to render inadmissible respondent's testimony
and that of his witness, Josephine.

The "Dead Man's Statute" provides that if one party to the alleged transaction is precluded from
testifying by death, insanity, or other mental disabilities, the surviving party is not entitled to the
undue advantage of giving his own uncontradicted and unexplained account of the transaction.9 But
before this rule can be successfully invoked to bar the introduction of testimonial evidence, it is
necessary that:
 "1. The witness is a party or assignor of a party to case or persons in whose behalf a case in
prosecuted.

2. The action is against an executor or administrator or other representative of a deceased

person or a person of unsound mind;

3. The subject-matter of the action is a claim or demand against the estate of such deceased
person or against person of unsound mind;

4. His testimony refers to any matter of fact of which occurred before the death of such
deceased person or before such person became of unsound mind." 10

Two reasons forestall the application of the "Dead Man's Statute" to this case.

First, petitioners filed a compulsory counterclaim 11 against respondents in their answer before the trial
court, and with the filing of their counterclaim, petitioners themselves effectively removed this case
from the ambit of the "Dead Man's Statute". 12 Well entrenched is the rule that when it is the executor
or administrator or representatives of the estates that sets up the counterclaim, the plaintiff, herein
respondent, may testify to occurrences before the death of the deceased to defeat the
counterclaim.13 Moreover, as defendant in the counterclaim, respondent is not disqualified from
testifying as to matters of facts occurring before the death of the deceased, said action not having
been brought against but by the estate or representatives of the deceased. 14

Second, the testimony of Josephine is not covered by the "Dead Man's Statute" for the simple
reason that she is not "a party or assignor of a party to a case or persons in whose behalf a case is
prosecuted." Records show that respondent offered the testimony of Josephine to establish the
existence of the partnership between respondent and Jacinto. Petitioners' insistence that Josephine
is the alter ego of respondent does not make her an assignor because the term "assignor" of a party
means "assignor of a cause of action which has arisen, and not the assignor of a right assigned
before any cause of action has arisen."15 Plainly then, Josephine is merely a witness of respondent,
the latter being the party plaintiff.

We are not convinced by petitioners' allegation that Josephine's testimony lacks probative value
because she was allegedly coerced coerced by respondent, her brother-in-law, to testify in his favor,
Josephine merely declared in court that she was requested by respondent to testify and that if she
were not requested to do so she would not have testified. We fail to see how we can conclude from
this candid admission that Josephine's testimony is involuntary when she did not in any way
categorically say that she was forced to be a witness of respondent.

Also, the fact that Josephine is the sister of the wife of respondent does not diminish the value of her
testimony since relationship per se, without more, does not affect the credibility of witnesses.16

Petitioners' reliance alone on the "Dead Man's Statute" to defeat respondent's claim cannot prevail
over the factual findings of the trial court and the Court of Appeals that a partnership was established
between respondent and Jacinto. Based not only on the testimonial evidence, but the documentary
evidence as well, the trial court and the Court of Appeals considered the evidence for respondent as
sufficient to prove the formation of partnership, albeit an informal one.

Notably, petitioners did not present any evidence in their favor during trial. By the weight of judicial
precedents, a factual matter like the finding of the existence of a partnership between respondent
and Jacinto cannot be inquired into by this Court on review. 17 This Court can no longer be tasked to
go over the proofs presented by the parties and analyze, assess and weigh them to ascertain if the
trial court and the appellate court were correct in according superior credit to this or that piece of
evidence of one party or the other.18 It must be also pointed out that petitioners failed to attend the
presentation of evidence of respondent. Petitioners cannot now turn to this Court to question the
admissibility and authenticity of the documentary evidence of respondent when petitioners failed to
object to the admissibility of the evidence at the time that such evidence was offered. 19

With regard to petitioners' insistence that laches and/or prescription should have extinguished
respondent's claim, we agree with the trial court and the Court of Appeals that the action for
accounting filed by respondents three (3) years after Jacinto's death was well within the prescribed
period. The Civil Code provides that an action to enforce an oral contract prescribes in six (6)
years20 while the right to demand an accounting for a partner's interest as against the person
continuing the business accrues at the date of dissolution, in the absence of any contrary
agreement.21 Considering that the death of a partner results in the dissolution of the partnership 22 , in
this case, it was Jacinto's death that respondent as the surviving partner had the right to an account
of his interest as against petitioners. It bears stressing that while Jacinto's death dissolved the
partnership, the dissolution did not immediately terminate the partnership. The Civil Code 23 expressly
provides that upon dissolution, the partnership continues and its legal personality is retained until the
complete winding up of its business, culminating in its termination. 24

In a desperate bid to cast doubt on the validity of the oral partnership between respondent and
Jacinto, petitioners maintain that said partnership that had initial capital of P200,000.00 should have
been registered with the Securities and Exchange Commission (SEC) since registration is mandated
by the Civil Code, True, Article 1772 of the Civil Code requires that partnerships with a capital of
P3,000.00 or more must register with the SEC, however, this registration requirement is not
mandatory. Article 1768 of the Civil Code25 explicitly provides that the partnership retains its juridical
personality even if it fails to register. The failure to register the contract of partnership does not
invalidate the same as among the partners, so long as the contract has the essential requisites,
because the main purpose of registration is to give notice to third parties, and it can be assumed that
the members themselves knew of the contents of their contract.26 In the case at bar, non-compliance
with this directory provision of the law will not invalidate the partnership considering that the totality
of the evidence proves that respondent and Jacinto indeed forged the partnership in question.

WHEREFORE, in view of the foregoing, the petition is DENIED and the appealed decision is
AFFIRMED.

SO ORDERED. 1âwphi1.nêt
G.R. No. 110782 September 25, 1998

IRMA IDOS, petitioner,

vs.
COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.

QUISUMBING, J.:

Before this Court is the petition for review of the Decision of respondent Court of
Appeals 1 dismissing petitioner's appeal in CA-G.R. CR No. 11960; and affirming her conviction as
well as the sentence imposed on her by the Regional Trial Court of Malolos, Bulacan, in Criminal
Case No. 1395-M-88 2 as follows:

WHEREFORE . . . the (c)ourt finds the accused Irma Idos guilty beyond reasonable
doubt and is hereby sentenced to suffer the penalty of imprisonment of six (6)
months and to pay a fine of P135,000.00 and to pay private complainant Eddie
Alarilla the amount of the check in question of P135,000.00 at 12% interest from the
time of the filing of the (i)nformation (August 10, 1988) until said amount has been
fully paid.

Elevated from the Third Division3 of this Court, the case was accepted for resolution en banc on the
initial impression that here, a constitutional question might be involved. 4 It was opined that
petitioner's sentence, particularly six months' imprisonment, might be in violation of the constitutional
guarantee against imprisonment for non-payment of a debt.5

A careful consideration of the issues presented in the petition as well as the comments thereon and
the findings of fact by the courts below in the light of applicable laws and precedents convinces us,
however, that the constitutional dimension need not be reached in order to resolve those issues
adequately. For, as herein discussed, the merits of the petition could be determined without delving
into aspects of the cited constitutional guarantee vis-a-visprovisions of the Bouncing Checks Law
(Batas Pambansa Blg. 22). There being no necessity therefor, we lay aside discussions of the
constitutional challenge to said law in deciding this petition.

The petitioner herein, Irma L. Idos, is a businesswoman engaged in leather tanning. Her accuser for
violation of B.P. 22 is her erstwhile supplier and business partner, the complainant below, Eddie
Alarilla.

As narrated by the Court of Appeals, the background of this case is as follows:

The complainant Eddie Alarilla supplied chemicals and rawhide to the accused-
appellant Irma L. Idos for use in the latter's business of manufacturing leather. In
1985, he joined the accused-appellant's business and formed with her a partnership
under the style "Tagumpay Manufacturing," with offices in Bulacan and Cebu City.

However, the partnership was short lived. In January, 1986 the parties agreed to
terminate their partnership. Upon liquidation of the business the partnership had as
of May 1986 receivables and stocks worth P1,800,000.00. The complainant's share
 of the assets was P900,000.00 to pay for which the accused-appellant issued the
following postdated checks, all drawn against Metrobank Branch in Mandaue, Cebu:

CHECK NO. DATE AMOUNT

1) 103110295 8-15-86 P135,828.87

2) 103110294 P135,828.87

3) 103115490 9-30-86 P135,828.87

4) 103115491 10-30-86 P126,656.01

The complainant was able to encash the first, second, and fourth checks, but the
third check (Exh. A) which is the subject of this case, was dishonored on October 14,
1986 for insufficiency of funds. The complainant demanded payment from the
accused-appellant but the latter failed to pay. Accordingly, on December 18, 1986,
through counsel, he made a formal demand for payment. (Exh. B) In a letter dated
January 2, 1987, the accused-appellant denied liability. She claimed that the check
had been given upon demand of complainant in May 1986 only as "assurance" of his
share in the assets of the partnership and that it was not supposed to be deposited
until the stocks had been sold.

Complainant then filed his complaint in the Office of the Provincial Fiscal of Bulacan
which on August 22, 1988 filed an information for violation of BP Blg. 22 against
accused-appellant.

Complainant danied that the checks issued to him by accused-appellant were subject
to the disposition of the stocks and the collection of receivables of the business. But
the accused-appellant insisted that the complainant had known that the checks were
to be funded from the proceeds of the sale of the stocks and the collection of
receivables. She claimed that the complainant himself asked for the checks because
he did not want to continue in the tannery business and had no use for a share of the
stocks. (TSN, p. 7, April 14, 1991; id., pp. 8-9, Nov. 13, 1989; id., pp. 12, 16, 20, Feb.
14, 1990; id, p. 14, June 4, 1990).

On February 15, 1992, the trial court rendered judgment finding the accused-
appellant guilty of the crime charged. The accused-appellant's motion for annulment
of the decision and for reconsideration was denied by the trial court in its order dated
April 12, 1991.6

Herein respondent court thereafter affirmed on appeal the decision of the trial court. Petitioner timely
moved for a reconsideration, but this was subsequently denied by respondent court in its
Resolution7 dated June 11, 1993. Petitioner has now appealed to us by way of a petition
for certiorari under Rule 45 of the Rules of Court.

During the pendency of this petition, this Court by a resolutions 8 dated August 30, 1993, took note of
the compromise agreement executed between the parties, regarding the civil aspect of the case, as
manifested by petitioner in a Motion to Render Judgment based on Compromise Agreement 9 filed on
August 5, 1993. After submission of the Comment 10 by the Solicitor General, and the Reply11 by
petitioner, this case was deemed submitted for decision.
Contending that the Court of Appeals erred in its affirmance of the trial court's decision, petitioner
cites the following reasons to justify the review of her case:

1. The Honorable Court of Appeals has decided against the

innocence of the accused based on mere probabilities which, on the
contrary, should have warranted her acquittal on reasonable doubt.
Even then, the conclusion of the trial court is contrary to the evidence
on record, including private complainant's judicial admission that
there was no consideration for the check.

2 The Honorable Court of Appeals has confused and merged into one
the legal concepts of dissolution, liquidation and termination of a
partnership and on the basis of such misconception of the law,
disregarded the fact of absence of consideration of the check and
convicted the accused.

3 While this appeal was pending, the parties submitted for the
approval of the Honorable Court a compromise agreement on the civil
liability. The accused humbly submits that this supervening event,
which by its terms puts to rest any doubt the Court of Appeals had
entertained against the defense of lack of consideration, should have
a legal effect favorable to the accused, considering that the
dishonored check constitutes a private transaction between partners
which does not involve the public interest, and considering further
that the offense is not one involving moral turpitude.

4 The Honorable Court of Appeals failed to appreciate the fact that

the accused had warned private complainant that the check was not
sufficiently funded, which should have exonerated the accused
pursuant to the ruling in the recent case of Magno vs. Court of
Appeals, 210 SCRA 471, which calls for a more flexible and less rigid
application of the Bouncing Checks law. 12

For a thorough consideration of the merits of petitioner's appeal, we find pertinent and decisive the
following issues:

1. Whether respondent court erred in holding that the subject check was issued by petitioner to apply
on account or for value, that is, as part of the consideration of a "buy-out" of said complainant's
interest in the partnership, and not merely as a commitment on petitioner's part to return the
investment share of complainant, along with any profit pertaining to said share, in the partnership.

2. Whether the respondent court erred in concluding that petitioner issued the subject check knowing
at the time of issue that she did not have sufficient funds in or credit with the drawee bank and
without communicating this fact of insufficiency of funds to the complainant.

Both inquiries boil down into one ultimate issue: Did the respondent court err in affirming the trial
court's judgment that she violated Batas Pambansa Blg. 22?

Considering that penal statutes are strictly construed against the state and liberally in favor of the
accused, it bears stressing that for an act to be punishable under the B.P. 22, it "must come clearly
within both the spirit and the letter of the statue. 13 Otherwise, the act has to be declared outside the
law's ambit and a plea of innocence by the accused must be sustained.
The relevant provisions of B.P. 22 state that:

Sec. 1. Checks without sufficient funds. — Any person who makes or draws and
issues any check to apply on account or for value, knowing at the time of issue that
he does not have sufficient funds in or credit with the drawee bank for the payment of
such check in full upon its presentment, which check is subsequently dishonored by
the drawee bank for insufficiency of funds or credit or would have been dishonored
for the same reason had not the drawer, without any valid reason, ordered the bank
to stop payment, shall be punished by imprisonment of not less than thirty days but
not more than one (1) year or by a fine of not less than but not more than double the
amount of the check which fine shall in no case exceed Two hundred thousand
pesos, or both such fine and imprisonment at the discretion of the court.

The same penalty shall be imposed upon any person who having sufficient funds in
or credit with the drawee bank when he makes or draws and issues a check, shall fail
to keep sufficient funds or to maintain a credit or to cover the full amount of the check
if presented within a period of ninety (90) days from the date appearing thereon, for
which reason it is dishonored by the drawee bank.

Where the check is drawn by a corporation, company or entity, the person or persons
who actually signed the check in behalf of such drawer shall be liable under this Act.

Sec. 2. Evidence of knowledge of insufficient funds. — The making, drawing and

issuance of a check payment of which is refused by the drawee because of
insufficient funds in or credit with such bank, when presented within ninety (90) days
from the date of the check, shall be prima facie evidence of knowledge of such
insufficiency of funds or credit unless such maker or drawer pays the holder thereof
the amount due thereon or makes arrangements for payment in full by the drawee of
such check within five (5) banking days after receiving notice that such check has not
been paid by the drawee. (Emphasis supplied)

As decided by this Court, the elements of the offense penalized under B.P. 22, are as follows: "(1)
the making, drawing and issuance of any check to apply to account or for value; (2) the knowledge
of the maker, drawer or issuer that at the time of issue he does not have sufficient funds in or credit
with the drawee bank for the payment of such check in full upon its presentment; and (3) subsequent
dishonor of the check by the drawee bank for insufficiency of funds or credit or dishonor for the same
reason had not the drawer, without any valid cause, ordered the bank to stop payment. 14

In the present case, with regard to the first issue, evidence on record would show that the subject
check was to be funded from receivables to be collected and goods to be sold by the partnership,
and only when such collection and sale were realized. 15 Thus, there is sufficient basis for the
assertion that the petitioner issued the subject check (Metrobank Check No. 103115490 dated
October 30, 1986, in the amount of P135,828.87) to evidence only complainant's share or interest in
the partnership, or at best, to show her commitment that when receivables are collected and goods
are sold, she would give to private complainant the net amount due him representing his interest in
the partnership. It did not involve a debt of or any account due and payable by the petitioner.

Two facts stand out. Firstly, three of four checks were properly encashed by complainant; only one
(the third) was not. But eventually even this one was redeemed by petitioner. Secondly, even private
complainant admitted that there was no consideration whatsoever for the issuance of the check,
whose funding was dependent on future sales of goods and receipts of payment of account
receivables.
Now, it could not be denied that though the parties — petitioner and complainant — had agreed to
dissolve the partnership, such ageement did not automatically put an end to the partnership, since
they still had to sell the goods on hand and collect the receivables from debtors. In short, they were
still in the process of "winding up" the affairs of the partnership, when the check in question was
issued.

Under the Civil Code, the three final stages of a partnership are (1) dissolution; (2) winding-up; and
(3) termination. These stages are distinguished, to wit:

(1) Dissolution Defined

Dissolution is the change in the relation of the

partners caused by any partner ceasing to be
associated in the carrying on of the business (Art.
1828). It is that point of time the time the partners
cease to carry on the business tonether. (Citation
omitted).

(2) Winding Up Defined

Winding up is the process of settling business affairs

of dissolution.

(NOTE: Examples of winding up: the paying of

previous obligations; the collecting of assets
previously demandable; even new business if needed
to wind up, as the contracting with a demolition
company for the demolition of the garage used in a
"used car" partnership.)

(3) Termination Defined

Termination is the point in time after all the partnership affairs have been wound up. 16 [Citation
omitted] (Emphasis supplied).

These final stages in the life of a partnership are recognized under the Civil Code that explicitly
declares that upon dissolution, the partnership is not terminated, to wit:

Art 1828. The dissolution of a partnership is the change in the relation of the partners
caused by any partner ceasing to be associated in the carrying on as distinguished
from the winding up of the business.

Art. 1829. On dissolution the partnership is not terminated, but continues until the
winding up of partnership affairs is completed. (Emphasis supplied.)

The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. The check was thus issued by the petitioner to complainant, as would a
partner to another, and not as payment from a debtor to a creditor.
The more tenable view, one in favor of the accused, is that the check was issued merely to evidence
the complainant's share in the partnership property, or to assure the latter that he would receive in
time his due share therein. The alternative view that the check was in consideration of a "buy out" is
but a theory, favorable to the complainant, but lacking support in the record; and must necessarily be
discarded.

For there is nothing on record which even slightly suggest that petitioner ever became interested in
acquiring, much less keeping, the shares of the complainant. What is very clear therefrom is that the
petitioner exerted her best efforts to sell the remaining goods and to collect the receivables of the
partnership, in order to come up with the amount necessary to satisfy the value of complainant's
interest in the partnership at the dissolution thereof. To go by accepted custom of the trade, we are
more inclined to the view that the subject check was issued merely to evidence complainant's
interest in the partnership. Thus, we are persuaded that the check was not intended to apply on
account or for value; rather it should be deemed as having been drawn without consideration at the
time of issue.

Absent the first element of the offense penalized under B.P. 22, which is "the making, drawing and
issuance of any check to apply on account or for value", petitioner's issuance of the subject check
was not an act contemplated in nor made punishable by said statute.

As to the second issue, the Solicitor General contends that under the Bouncing Checks Law, the
elements of deceit and damage are not essential or required to constitute a violation thereof. In his
view, the only essential element is the knowledge on the part of the maker or drawer of the check of
the insufficiency of his/her funds at the time of the issuance of said check.

The Bouncing Checks Law makes the mere act of issuing a bad or worthless check a special
offense punishable by law. "Malice or intent in issuing the worthless check is immaterial, the offense
being malum
prohibitum," 17 so goes the argument for the public respondents.

But of course this could not be an absolute proposition without descending to absurdity. For if a
check were issued by a kidnap victim to a kidnapper for ransom, it would be absurd to hold the
drawer liable under B.P. 22, if the check is dishonored and unpaid. That would go against public
policy and common sense.

Public respondents further contend that "since petitioner issued the check in favor of complainant.
Alarilla and when notified that it was returned for insufficiency of funds, failed to make good the
check, then petitioner is liable for violation of B.P. 22.18 Again, this matter could not be all that simple.
For while "the maker's knowledge of the insufficiency of funds is legally presumed from the dishonor
of his checks for insufficiency of funds,19 this presumption is rebuttable.

In the instant case, there is only a prima facie presumption which did not preclude the presentation
of contrary evidence.20 In fact, such contrary evidence on two points could be gleaned from the
record concerning (1) lack of actual knowledge of insufficiency of funds; and (2) lack of adequate
notice of dishonor.

Noteworthy for the defense, knowledge of insufficiency of funds or credit in the drawee bank for the
payment of a check upon its presentment is an essential element of the offense. 21 It must be proved,
particularly where the prima facie presumption of the existence of this element has been rebutted.
The prima facie presumption arising from the fact of drawing, issuing or making a check, the
payment of which was subsequently refused for insufficiency of funds is, moreover, not sufficient
proof of guilt by the issuer.
In the case of Nieva v. Court of Appeals,22 it was held that the subsequent dishonor of the subject
check issued by accused merely engendered the prima facie presumption that she knew of the
insufficiency of funds, but did not render the accused automatically guilty under B.P. 22.23

The prosecution has a duty to prove all the elements of the crime, including the acts
that give rise to the prima facie presumption; petitioner, on the other hand, has a right
to rebut the prima faciepresumption. Therefore, if such knowledge of insufficiency of
funds is proven to be actually absent or non-existent, the accused should not be held
liable for the offense defined under the first paragraph of Section 1 of B.P. 22.
Although the offense charged is a malum prohibitum, the prosecution is not thereby
excused from its responsibility of proving beyond reasonable doubt all the elements
of the offense, one of which is knowledge of the insufficiency of funds.

Sec. 1 of B.P. 22 specifically requires that the person in making, drawing or issuing the check, be
shown that he knows at the time of issue, that he does not have sufficient funds in or credit with the
drawee bank for the payment of such check in full upon its presentment.

In the case at bar, as earlier discussed, petitioner issued the check merely to evidence the
proportionate share of complainant in the partnership assets upon its dissolution. Payment of that
share in the partnership was conditioned on the subsequent realization of profits from the unsold
goods and collection of the receivables of the firm. This condition must be satisfied or complied with
before the complainant can actually "encash" the check. The reason for the condition is that
petitioner has no independent means to satisfy or discharge the complainant's share, other than by
the future sale and collection of the partnership assets. Thus, prior to the selling of the goods and
collecting of the receivables, the complainant could not, as of yet, demand his proportionate share in
the business. This situation would hold true until after the winding up, and subsequent termination of
the partnership. For only then, when the goods were already sold and receivables paid that cash
money could be availed of by the erstwhile partners.

Complainant did not present any evidence that petitioner signed and issued four checks actually
knowing that funds therefor would be insufficient at the time complainant would present them to the
drawee bank. For it was uncertain at the time of issuance of the checks whether the unsold goods
would have been sold, or whether the receivables would have been collected by the time the checks
would be encashed. As it turned out, three were fully funded when presented to the bank; the
remaining one was settled only later on.

Since petitioner issued these four checks without actual knowledge of the insufficiency of funds, she
could not be held liable under B.P. 22 when one was not honored right away. For it is basic doctrine
that penal statutes such as B.P. 22 "must be construed with such strictness as to carefully safeguard
the rights of the defendant . . ." 24 The element of knowledge of insufficiency of funds has to be proved
by the prosecution; absent said proof, petitioner could not be held criminally liable under that law.
Moreover, the presumption of prima facie knowledge of such insufficiency in this case was actually
rebutted by petitioner's evidence.

Further, we find that the prosecution also failed to prove adequate notice of dishonor of the subject
check on petitioner's part, thus precluding any finding of prima facie evidence of knowledge of
insufficiency of funds. There is no proof that notice of dishonor was actually sent by the complainant
or by the drawee bank to the petitioner. On this point, the record is bereft of evidence to the contrary.

But in fact, while the subject check initially bounced, it was later made good by petitioner. In addition,
the terms of the parties' compromise agreement, entered into during the pendency of this case,
effectively invalidates the allegation of failure to pay or to make arrangement for the payment of the
check in full. Verily, said compromise agreement constitutes an arrangement for the payment in full
of the subject check.

The absence of notice of dishonor is crucial in the present case. As held by this Court in prior cases:

Because no notice of dishonor was actually sent to and received by the petitioner,
the prima faciepresumption that she knew about the insufficiency of funds cannot
apply. Section 2 of B.P. 22 clearly provides that this presumption arises not from the
mere fact of drawing, making and issuing a bum check; there must also be a showing
that, within five banking days from receipt of the notice of dishonor, such maker or
drawer failed to pay the holder of the check the amount due thereon or to make
arrangement for its payment in full by the drawee of such check. 25 [Emphasis
supplied.]

The absence of a notice of dishonor necessarily deprives an accused an opportunity

to preclude a criminal prosecution. Accordingly, procedural due process clearly
enjoins that a notice of dishonor be actually served on petitioner. Petitioner has a
right to demand — and the basic postulates of fairness require — that the notice of
dishonor be actually sent to and received by her to afford her the opportunity to avert
prosecution under
B.P. 26

Further, what militates strongly against public respondents' stand is the fact that petitioner repeatedly
notified the complainant of the insufficiency of funds. Instructive is the following pronouncement of
this Court in Magno v. Court of Appeals:

Furthermore, the element of "knowing at the time of issue that he does not have
sufficient funds in or credit with the drawee bank for the payment of such check in full
upon its presentment, which check is subsequently dishonored by the drawee bank
for insufficiency of funds or credit or would have been dishonored for the same
reason . . ." is inversely applied in this case. From the very beginning. petitioner
never hid the fact that he did not have the funds with which to put up the warranty
deposit and as a matter of fact, he openly intimated this to the vital conduit of the
transaction, Joey Gomez, to whom petitioner was introduced by Mrs. Teng. It would
have been different if this predicament was not communicated to all the parties he
dealt with regarding the lease agreement the financing or which was covered by L.S.
Finance Management. " 27

In the instant case, petitioner intimated to private complainant the possibility that funds might be
insufficient to cover the subject check, due to the fact that the partnership's goods were yet to be
sold and receivables yet to be collected.

As Magno had well observed:

For all intents and purposes, the law was devised to safeguard the interest of the
banking system and the legitimate public checking account user. It did not intend to
shelter or favor nor encourage users of the system to enrich themselves through
manipulations and circumvention of the noble purpose and objective of the law. Least
should it be used also as a means of jeopardizing honest-to-goodness transactions
with some color of "get-rich" scheme to the prejudice of well-meaning businessmen
who are the pillars of society.
 xxx xxx xxx

Thus, it behooves upon a court of law that in applying the punishment imposed upon
the accused, the objective of retribution of a wronged society, should be directed
against the "actual and potential wrongdoers". In the instant case, there is no doubt
that petitioner's four (4) checks were used to collateralize an accommodation, and
not to cover the receipt of an actual "account or credit for value" as this was absent,
and therefore petitioner should not be punished for mere issuance of the checks in
question. Following the aforecited theory, in petitioner's stead the "potential
wrongdoer," whose operation could be a menace to society, should not be glorified
by convicting the petitioner. 28

Under the circumstances obtaining in this case, we find the petitioner to have issued the check in
good faith, with every intention of abiding by her commitment to return, as soon as able, the
investments of complainant in the partnership. Evidently, petitioner issued the check with benign
considerations in mind, and not for the purpose of committing fraud, deceit, or violating public policy.

To recapitulate, we find the petition impressed with merit. Petitioner may not be held liable for
violation of B.P. 22 for the following reasons: (1) the subject check was not made, drawn and issued
by petitioner in exchange for value received as to qualify it as a check on account or for value; (2)
there is no sufficient basis to conclude that petitioner, at the time of issue of the check, had actual
knowledge of the insufficiency of funds; and (3) there was no notice of dishonor of said check
actually served on petitioner, thereby depriving her of the opportunity to pay or make arrangements
for the payment of the check, to avoid criminal prosecution.

Having resolved the foregoing principal issues, and finding the petition meritorious, we no longer
need to pass upon the validity and legality or necessity of the purported compromise agreement on
civil liability between the petitioner and the complainant.

WHEREFORE, the instant petition is hereby GRANTED AND THE PETITIONER ACQUITTED. The
Decision of the respondent Court of Appeals in CA-G.R. CR No. 11960 is hereby REVERSED and
the Decision of Regional Trial Court in Criminal Case No. 1395-M-88 is hereby SET ASIDE.

NO COSTS.

SO ORDERED.
G.R. No. 97212 June 30, 1993

BENJAMIN YU, petitioner,

vs.
NATIONAL LABOR RELATIONS COMMISSION and JADE MOUNTAIN PRODUCTS COMPANY
LIMITED, WILLY CO, RHODORA D. BENDAL, LEA BENDAL, CHIU SHIAN JENG and CHEN HO-
FU, respondents.

Jose C. Guico for petitioner.

Wilfredo Cortez for private respondents.

FELICIANO, J.:

Petitioner Benjamin Yu was formerly the Assistant General Manager of the marble quarrying and
export business operated by a registered partnership with the firm name of "Jade Mountain Products
Company Limited" ("Jade Mountain"). The partnership was originally organized on 28 June 1984
with Lea Bendal and Rhodora Bendal as general partners and Chin Shian Jeng, Chen Ho-Fu and Yu
Chang, all citizens of the Republic of China (Taiwan), as limited partners. The partnership business
consisted of exploiting a marble deposit found on land owned by the Sps. Ricardo and Guillerma
Cruz, situated in Bulacan Province, under a Memorandum Agreement dated 26 June 1984 with the
Cruz spouses. 1 The partnership had its main office in Makati, Metropolitan Manila.

Benjamin Yu was hired by virtue of a Partnership Resolution dated 14 March 1985, as Assistant
General Manager with a monthly salary of P4,000.00. According to petitioner Yu, however, he
actually received only half of his stipulated monthly salary, since he had accepted the promise of the
partners that the balance would be paid when the firm shall have secured additional operating funds
from abroad. Benjamin Yu actually managed the operations and finances of the business; he had
overall supervision of the workers at the marble quarry in Bulacan and took charge of the
preparation of papers relating to the exportation of the firm's products.

Sometime in 1988, without the knowledge of Benjamin Yu, the general partners Lea Bendal and
Rhodora Bendal sold and transferred their interests in the partnership to private respondent Willy Co
and to one Emmanuel Zapanta. Mr. Yu Chang, a limited partner, also sold and transferred his
interest in the partnership to Willy Co. Between Mr. Emmanuel Zapanta and himself, private
respondent Willy Co acquired the great bulk of the partnership interest. The partnership now
constituted solely by Willy Co and Emmanuel Zapanta continued to use the old firm name of Jade
Mountain, though they moved the firm's main office from Makati to Mandaluyong, Metropolitan
Manila. A Supplement to the Memorandum Agreement relating to the operation of the marble quarry
was entered into with the Cruz spouses in February of 1988.2 The actual operations of the business
enterprise continued as before. All the employees of the partnership continued working in the
business, all, save petitioner Benjamin Yu as it turned out.

On 16 November 1987, having learned of the transfer of the firm's main office from Makati to
Mandaluyong, petitioner Benjamin Yu reported to the Mandaluyong office for work and there met
private respondent Willy Co for the first time. Petitioner was informed by Willy Co that the latter had
bought the business from the original partners and that it was for him to decide whether or not he
was responsible for the obligations of the old partnership, including petitioner's unpaid salaries.
Petitioner was in fact not allowed to work anymore in the Jade Mountain business enterprise. His
unpaid salaries remained unpaid.3
On 21 December 1988. Benjamin Yu filed a complaint for illegal dismissal and recovery of unpaid
salaries accruing from November 1984 to October 1988, moral and exemplary damages and
attorney's fees, against Jade Mountain, Mr. Willy Co and the other private respondents. The
partnership and Willy Co denied petitioner's charges, contending in the main that Benjamin Yu was
never hired as an employee by the present or new partnership. 4

In due time, Labor Arbiter Nieves Vivar-De Castro rendered a decision holding that petitioner had
been illegally dismissed. The Labor Arbiter decreed his reinstatement and awarded him his claim for
unpaid salaries, backwages and attorney's fees. 5

On appeal, the National Labor Relations Commission ("NLRC") reversed the decision of the Labor
Arbiter and dismissed petitioner's complaint in a Resolution dated 29 November 1990. The NLRC
held that a new partnership consisting of Mr. Willy Co and Mr. Emmanuel Zapanta had bought the
Jade Mountain business, that the new partnership had not retained petitioner Yu in his original
position as Assistant General Manager, and that there was no law requiring the new partnership to
absorb the employees of the old partnership. Benjamin Yu, therefore, had not been illegally
dismissed by the new partnership which had simply declined to retain him in his former managerial
position or any other position. Finally, the NLRC held that Benjamin Yu's claim for unpaid wages
should be asserted against the original members of the preceding partnership, but these though
impleaded had, apparently, not been served with summons in the proceedings before the Labor
Arbiter.6

Petitioner Benjamin Yu is now before the Court on a Petition for Certiorari, asking us to set aside
and annul the Resolution of the NLRC as a product of grave abuse of discretion amounting to lack or
excess of jurisdiction.

The basic contention of petitioner is that the NLRC has overlooked the principle that a partnership
has a juridical personality separate and distinct from that of each of its members. Such independent
legal personality subsists, petitioner claims, notwithstanding changes in the identities of the partners.
Consequently, the employment contract between Benjamin Yu and the partnership Jade Mountain
could not have been affected by changes in the latter's membership. 7

Two (2) main issues are thus posed for our consideration in the case at bar: (1) whether the
partnership which had hired petitioner Yu as Assistant General Manager had been extinguished and
replaced by a new partnerships composed of Willy Co and Emmanuel Zapanta; and (2) if indeed a
new partnership had come into existence, whether petitioner Yu could nonetheless assert his rights
under his employment contract as against the new partnership.

In respect of the first issue, we agree with the result reached by the NLRC, that is, that the legal
effect of the changes in the membership of the partnership was the dissolution of the old partnership
which had hired petitioner in 1984 and the emergence of a new firm composed of Willy Co and
Emmanuel Zapanta in 1987.

The applicable law in this connection — of which the NLRC seemed quite unaware — is found in the
Civil Code provisions relating to partnerships. Article 1828 of the Civil Code provides as follows:

Art. 1828. The dissolution of a partnership is the change in the relation of the
partners caused by any partner ceasing to be associated in the carrying on as
distinguished from the winding up of the business. (Emphasis supplied)

Article 1830 of the same Code must also be noted:

 Art. 1830. Dissolution is caused:

(1) without violation of the agreement between the partners;

xxx xxx xxx

(b) by the express will of any partner, who must act in

good faith, when no definite term or particular
undertaking is specified;

xxx xxx xxx

(2) in contravention of the agreement between the

partners, where the circumstances do not permit a
dissolution under any other provision of this article, by
the express will of any partner at any time;

xxx xxx xxx

(Emphasis supplied)

In the case at bar, just about all of the partners had sold their partnership interests (amounting to
82% of the total partnership interest) to Mr. Willy Co and Emmanuel Zapanta. The record does not
show what happened to the remaining 18% of the original partnership interest. The acquisition of
82% of the partnership interest by new partners, coupled with the retirement or withdrawal of the
partners who had originally owned such 82% interest, was enough to constitute a new partnership.

The occurrence of events which precipitate the legal consequence of dissolution of a partnership do
not, however, automatically result in the termination of the legal personality of the old partnership.
Article 1829 of the Civil Code states that:

[o]n dissolution the partnership is not terminated, but continues until the winding up
of partnership affairs is completed.

In the ordinary course of events, the legal personality of the expiring partnership persists for the
limited purpose of winding up and closing of the affairs of the partnership. In the case at bar, it is
important to underscore the fact that the business of the old partnership was simply continued by the
new partners, without the old partnership undergoing the procedures relating to dissolution and
winding up of its business affairs. In other words, the new partnership simply took over the business
enterprise owned by the preceeding partnership, and continued using the old name of Jade
Mountain Products Company Limited, without winding up the business affairs of the old partnership,
paying off its debts, liquidating and distributing its net assets, and then re-assembling the said assets
or most of them and opening a new business enterprise. There were, no doubt, powerful tax
considerations which underlay such an informal approach to business on the part of the retiring and
the incoming partners. It is not, however, necessary to inquire into such matters.

What is important for present purposes is that, under the above described situation, not only the
retiring partners (Rhodora Bendal, et al.) but also the new partnership itself which continued the
business of the old, dissolved, one, are liable for the debts of the preceding partnership. In Singson,
et al. v. Isabela Saw Mill, et al,8 the Court held that under facts very similar to those in the case at
bar, a withdrawing partner remains liable to a third party creditor of the old partnership. 9 The liability
of the new partnership, upon the other hand, in the set of circumstances obtaining in the case at bar,
is established in Article 1840 of the Civil Code which reads as follows:

Art. 1840. In the following cases creditors of the dissolved partnership

are also creditors of the person or partnership continuing the business:

(1) When any new partner is admitted into an existing partnership, or when any
partner retires and assigns (or the representative of the deceased partner assigns)
his rights in partnership property to two or more of the partners, or to one or more of
the partners and one or more third persons, if the business is continued without
liquidation of the partnership affairs;

(2) When all but one partner retire and assign (or the representative of a deceased
partner assigns) their rights in partnership property to the remaining partner,
who continues the business without liquidation of partnership affairs, either alone or
with others;

(3) When any Partner retires or dies and the business of the dissolved partnership is
continued as set forth in Nos. 1 and 2 of this Article, with the consent of the retired
partners or the representative of the deceased partner, but without any assignment
of his right in partnership property;

(4) When all the partners or their representatives assign their rights in partnership
property to one or more third persons who promise to pay the debts and who
continue the business of the dissolved partnership;

(5) When any partner wrongfully causes a dissolution and remaining partners
continue the business under the provisions of article 1837, second paragraph, No.
2, either alone or with others, and without liquidation of the partnership affairs;

(6) When a partner is expelled and the remaining partners continue the business
either alone or with others without liquidation of the partnership affairs;

The liability of a third person becoming a partner in the partnership continuing the
business, under this article, to the creditors of the dissolved partnership shall be
satisfied out of the partnership property only, unless there is a stipulation to the
contrary.

When the business of a partnership after dissolution is continued under any

conditions set forth in this article the creditors of the retiring or deceased partner or
the representative of the deceased partner, have a prior right to any claim of the
retired partner or the representative of the deceased partner against the person or
partnership continuing the business on account of the retired or deceased partner's
interest in the dissolved partnership or on account of any consideration promised for
such interest or for his right in partnership property.

Nothing in this article shall be held to modify any right of creditors to set assignment
on the ground of fraud.

xxx xxx xxx

 (Emphasis supplied)

Under Article 1840 above, creditors of the old Jade Mountain are also creditors of the new Jade
Mountain which continued the business of the old one without liquidation of the partnership affairs.
Indeed, a creditor of the old Jade Mountain, like petitioner Benjamin Yu in respect of his claim for
unpaid wages, is entitled to priority vis-a-vis any claim of any retired or previous partner insofar as
such retired partner's interest in the dissolved partnership is concerned. It is not necessary for the
Court to determine under which one or mare of the above six (6) paragraphs, the case at bar would
fall, if only because the facts on record are not detailed with sufficient precision to permit such
determination. It is, however, clear to the Court that under Article 1840 above, Benjamin Yu is
entitled to enforce his claim for unpaid salaries, as well as other claims relating to his employment
with the previous partnership, against the new Jade Mountain.

It is at the same time also evident to the Court that the new partnership was entitled to appoint and
hire a new general or assistant general manager to run the affairs of the business enterprise take
over. An assistant general manager belongs to the most senior ranks of management and a new
partnership is entitled to appoint a top manager of its own choice and confidence. The non-retention
of Benjamin Yu as Assistant General Manager did not therefore constitute unlawful termination, or
termination without just or authorized cause. We think that the precise authorized cause for
termination in the case at bar was redundancy. 10 The new partnership had its own new General
Manager, apparently Mr. Willy Co, the principal new owner himself, who personally ran the business
of Jade Mountain. Benjamin Yu's old position as Assistant General Manager thus became
superfluous or redundant. 11It follows that petitioner Benjamin Yu is entitled to separation pay at the
rate of one month's pay for each year of service that he had rendered to the old partnership, a
fraction of at least six (6) months being considered as a whole year.

While the new Jade Mountain was entitled to decline to retain petitioner Benjamin Yu in its employ,
we consider that Benjamin Yu was very shabbily treated by the new partnership. The old partnership
certainly benefitted from the services of Benjamin Yu who, as noted, previously ran the whole marble
quarrying, processing and exporting enterprise. His work constituted value-added to the business
itself and therefore, the new partnership similarly benefitted from the labors of Benjamin Yu. It is
worthy of note that the new partnership did not try to suggest that there was any cause consisting of
some blameworthy act or omission on the part of Mr. Yu which compelled the new partnership to
terminate his services. Nonetheless, the new Jade Mountain did not notify him of the change in
ownership of the business, the relocation of the main office of Jade Mountain from Makati to
Mandaluyong and the assumption by Mr. Willy Co of control of operations. The treatment (including
the refusal to honor his claim for unpaid wages) accorded to Assistant General Manager Benjamin
Yu was so summary and cavalier as to amount to arbitrary, bad faith treatment, for which the new
Jade Mountain may legitimately be required to respond by paying moral damages. This Court,
exercising its discretion and in view of all the circumstances of this case, believes that an indemnity
for moral damages in the amount of P20,000.00 is proper and reasonable.

In addition, we consider that petitioner Benjamin Yu is entitled to interest at the legal rate of six
percent (6%) per annum on the amount of unpaid wages, and of his separation pay, computed from
the date of promulgation of the award of the Labor Arbiter. Finally, because the new Jade Mountain
compelled Benjamin Yu to resort to litigation to protect his rights in the premises, he is entitled to
attorney's fees in the amount of ten percent (10%) of the total amount due from private respondent
Jade Mountain.

WHEREFORE, for all the foregoing, the Petition for Certiorari is GRANTED DUE COURSE, the
Comment filed by private respondents is treated as their Answer to the Petition for Certiorari, and the
Decision of the NLRC dated 29 November 1990 is hereby NULLIFIED and SET ASIDE. A new
Decision is hereby ENTERED requiring private respondent Jade Mountain Products Company
Limited to pay to petitioner Benjamin Yu the following amounts:

(a) for unpaid wages which, as found by the Labor Arbiter, shall be
computed at the rate of P2,000.00 per month multiplied by thirty-six
(36) months (November 1984 to December 1987) in the total amount
of P72,000.00;

(b) separation pay computed at the rate of P4,000.00 monthly pay

multiplied by three (3) years of service or a total of P12,000.00;

(c) indemnity for moral damages in the amount of P20,000.00;

(d) six percent (6%) per annum legal interest computed on items (a)
and (b) above, commencing on 26 December 1989 and until fully
paid; and

(e) ten percent (10%) attorney's fees on the total amount due from
private respondent Jade Mountain.

Costs against private respondents.

SO ORDERED.
G.R. No. 109248 July 3, 1995

GREGORIO F. ORTEGA, TOMAS O. DEL CASTILLO, JR., and BENJAMIN T.

BACORRO, petitioners,
vs.
HON. COURT OF APPEALS, SECURITIES AND EXCHANGE COMMISSION and JOAQUIN L.
MISA, respondents.

VITUG, J.:

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

The antecedents of the controversy, summarized by respondent Commission and quoted at length
by the appellate court in its decision, are hereunder restated.

The law firm of ROSS, LAWRENCE, SELPH and CARRASCOSO was duly registered in the
Mercantile Registry on 4 January 1937 and reconstituted with the Securities and Exchange
Commission on 4 August 1948. The SEC records show that there were several subsequent
amendments to the articles of partnership on 18 September 1958, to change the firm [name]
to ROSS, SELPH and CARRASCOSO; on 6 July 1965 . . . to ROSS, SELPH, SALCEDO,
DEL ROSARIO, BITO & MISA; on 18 April 1972 to SALCEDO, DEL ROSARIO, BITO, MISA
& LOZADA; on 4 December 1972 to SALCEDO, DEL ROSARIO, BITO, MISA & LOZADA;
on 11 March 1977 to DEL ROSARIO, BITO, MISA & LOZADA; on 7 June 1977 to BITO,
MISA & LOZADA; on 19 December 1980, [Joaquin L. Misa] appellees Jesus B. Bito and
Mariano M. Lozada associated themselves together, as senior partners with respondents-
appellees Gregorio F. Ortega, Tomas O. del Castillo, Jr., and Benjamin Bacorro, as junior
partners.

On February 17, 1988, petitioner-appellant wrote the respondents-appellees a letter stating:

I am withdrawing and retiring from the firm of Bito, Misa and Lozada, effective
at the end of this month.

"I trust that the accountants will be instructed to make the proper liquidation
of my participation in the firm."

On the same day, petitioner-appellant wrote respondents-appellees another letter stating:

"Further to my letter to you today, I would like to have a meeting with all of
you with regard to the mechanics of liquidation, and more particularly, my
interest in the two floors of this building. I would like to have this resolved
soon because it has to do with my own plans."

On 19 February 1988, petitioner-appellant wrote respondents-appellees another letter

stating:
 "The partnership has ceased to be mutually satisfactory because of the
working conditions of our employees including the assistant attorneys. All my
efforts to ameliorate the below subsistence level of the pay scale of our
employees have been thwarted by the other partners. Not only have they
refused to give meaningful increases to the employees, even attorneys, are
dressed down publicly in a loud voice in a manner that deprived them of their
self-respect. The result of such policies is the formation of the union,
including the assistant attorneys."

On 30 June 1988, petitioner filed with this Commission's Securities Investigation and
Clearing Department (SICD) a petition for dissolution and liquidation of partnership, docketed
as SEC Case No. 3384 praying that the Commission:

"1. Decree the formal dissolution and order the immediate liquidation of (the
partnership of) Bito, Misa & Lozada;

"2. Order the respondents to deliver or pay for petitioner's share in the
partnership assets plus the profits, rent or interest attributable to the use of
his right in the assets of the dissolved partnership;

"3. Enjoin respondents from using the firm name of Bito, Misa & Lozada in
any of their correspondence, checks and pleadings and to pay petitioners
damages for the use thereof despite the dissolution of the partnership in the
amount of at least P50,000.00;

"4. Order respondents jointly and severally to pay petitioner attorney's fees
and expense of litigation in such amounts as maybe proven during the trial
and which the Commission may deem just and equitable under the premises
but in no case less than ten (10%) per cent of the value of the shares of
petitioner or P100,000.00;

"5. Order the respondents to pay petitioner moral damages with the amount
of P500,000.00 and exemplary damages in the amount of P200,000.00.

"Petitioner likewise prayed for such other and further reliefs that the
Commission may deem just and equitable under the premises."

On 13 July 1988, respondents-appellees filed their opposition to the petition.

On 13 July 1988, petitioner filed his Reply to the Opposition.

On 31 March 1989, the hearing officer rendered a decision ruling that:

"[P]etitioner's withdrawal from the law firm Bito, Misa & Lozada did not
dissolve the said law partnership. Accordingly, the petitioner and respondents
are hereby enjoined to abide by the provisions of the Agreement relative to
the matter governing the liquidation of the shares of any retiring or
withdrawing partner in the partnership interest." 1

On appeal, the SEC en banc reversed the decision of the Hearing Officer and held that the
withdrawal of Attorney Joaquin L. Misa had dissolved the partnership of "Bito, Misa & Lozada." The
Commission ruled that, being a partnership at will, the law firm could be dissolved by any partner at
anytime, such as by his withdrawal therefrom, regardless of good faith or bad faith, since no partner
can be forced to continue in the partnership against his will. In its decision, dated 17 January 1990,
the SEC held:

WHEREFORE, premises considered the appealed order of 31 March 1989 is hereby

REVERSED insofar as it concludes that the partnership of Bito, Misa & Lozada has not been
dissolved. The case is hereby REMANDED to the Hearing Officer for determination of the
respective rights and obligations of the parties. 2

The parties sought a reconsideration of the above decision. Attorney Misa, in addition, asked for an
appointment of a receiver to take over the assets of the dissolved partnership and to take charge of
the winding up of its affairs. On 4 April 1991, respondent SEC issued an order denying
reconsideration, as well as rejecting the petition for receivership, and reiterating the remand of the
case to the Hearing Officer.

The parties filed with the appellate court separate appeals (docketed CA-G.R. SP No. 24638 and
CA-G.R. SP No. 24648).

During the pendency of the case with the Court of Appeals, Attorney Jesus Bito and Attorney
Mariano Lozada both died on, respectively, 05 September 1991 and 21 December 1991. The death
of the two partners, as well as the admission of new partners, in the law firm prompted Attorney Misa
to renew his application for receivership (in CA G.R. SP No. 24648). He expressed concern over the
need to preserve and care for the partnership assets. The other partners opposed the prayer.

The Court of Appeals, finding no reversible error on the part of respondent Commission,
AFFIRMED in toto the SEC decision and order appealed from. In fine, the appellate court held, per
its decision of 26 February 1993, (a) that Atty. Misa's withdrawal from the partnership had changed
the relation of the parties and inevitably caused the dissolution of the partnership; (b) that such
withdrawal was not in bad faith; (c) that the liquidation should be to the extent of Attorney Misa's
interest or participation in the partnership which could be computed and paid in the manner
stipulated in the partnership agreement; (d) that the case should be remanded to the SEC Hearing
Officer for the corresponding determination of the value of Attorney Misa's share in the partnership
assets; and (e) that the appointment of a receiver was unnecessary as no sufficient proof had been
shown to indicate that the partnership assets were in any such danger of being lost, removed or
materially impaired.

In this petition for review under Rule 45 of the Rules of Court, petitioners confine themselves to the
following issues:

1. Whether or not the Court of Appeals has erred in holding that the partnership of Bito, Misa
& Lozada (now Bito, Lozada, Ortega & Castillo) is a partnership at will;

2. Whether or not the Court of Appeals has erred in holding that the withdrawal of private
respondent dissolved the partnership regardless of his good or bad faith; and

3. Whether or not the Court of Appeals has erred in holding that private respondent's
demand for the dissolution of the partnership so that he can get a physical partition of
partnership was not made in bad faith;

to which matters we shall, accordingly, likewise limit ourselves.

A partnership that does not fix its term is a partnership at will. That the law firm "Bito, Misa &
Lozada," and now "Bito, Lozada, Ortega and Castillo," is indeed such a partnership need not be
unduly belabored. We quote, with approval, like did the appellate court, the findings and disquisition
of respondent SEC on this matter; viz:

The partnership agreement (amended articles of 19 August 1948) does not provide for a
specified period or undertaking. The "DURATION" clause simply states:

"5. DURATION. The partnership shall continue so long as mutually

satisfactory and upon the death or legal incapacity of one of the partners,
shall be continued by the surviving partners."

The hearing officer however opined that the partnership is one for a specific undertaking and
hence not a partnership at will, citing paragraph 2 of the Amended Articles of Partnership (19
August 1948):

"2. Purpose. The purpose for which the partnership is formed, is to act as
legal adviser and representative of any individual, firm and corporation
engaged in commercial, industrial or other lawful businesses and
occupations; to counsel and advise such persons and entities with respect to
their legal and other affairs; and to appear for and represent their principals
and client in all courts of justice and government departments and offices in
the Philippines, and elsewhere when legally authorized to do so."

The "purpose" of the partnership is not the specific undertaking referred to in the law.
Otherwise, all partnerships, which necessarily must have a purpose, would all be considered
as partnerships for a definite undertaking. There would therefore be no need to provide for
articles on partnership at will as none would so exist. Apparently what the law contemplates,
is a specific undertaking or "project" which has a definite or definable period of completion.3

The birth and life of a partnership at will is predicated on the mutual desire and consent of the
partners. The right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of
that mutual resolve, along with each partner's capability to give it, and the absence of a cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership 4 but that it can result in a
liability for damages.5

In passing, neither would the presence of a period for its specific duration or the statement of a
particular purpose for its creation prevent the dissolution of any partnership by an act or will of a
partner.6 Among partners,7 mutual agency arises and the doctrine of delectus personae allows them
to have the power, although not necessarily theright, to dissolve the partnership. An unjustified
dissolution by the partner can subject him to a possible action for damages.

The dissolution of a partnership is the change in the relation of the parties caused by any partner
ceasing to be associated in the carrying on, as might be distinguished from the winding up of, the
business.8 Upon its dissolution, the partnership continues and its legal personality is retained until
the complete winding up of its business culminating in its termination.9

The liquidation of the assets of the partnership following its dissolution is governed by various
provisions of the Civil Code; 10 however, an agreement of the partners, like any other contract, is
binding among them and normally takes precedence to the extent applicable over the Code's
general provisions. We here take note of paragraph 8 of the "Amendment to Articles of Partnership"
reading thusly:

. . . In the event of the death or retirement of any partner, his interest in the partnership shall
be liquidated and paid in accordance with the existing agreements and his partnership
participation shall revert to the Senior Partners for allocation as the Senior Partners may
determine; provided, however, that with respect to the two (2) floors of office condominium
which the partnership is now acquiring, consisting of the 5th and the 6th floors of the Alpap
Building, 140 Alfaro Street, Salcedo Village, Makati, Metro Manila, their true value at the time
of such death or retirement shall be determined by two (2) independent appraisers, one to be
appointed (by the partnership and the other by the) retiring partner or the heirs of a deceased
partner, as the case may be. In the event of any disagreement between the said appraisers a
third appraiser will be appointed by them whose decision shall be final. The share of the
retiring or deceased partner in the aforementioned two (2) floor office condominium shall be
determined upon the basis of the valuation above mentioned which shall be paid monthly
within the first ten (10) days of every month in installments of not less than P20,000.00 for
the Senior Partners, P10,000.00 in the case of two (2) existing Junior Partners and
P5,000.00 in the case of the new Junior Partner. 11

The term "retirement" must have been used in the articles, as we so hold, in a generic sense to
mean the dissociation by a partner, inclusive of resignation or withdrawal, from the partnership that
thereby dissolves it.

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

WHEREFORE, the decision appealed from is AFFIRMED. No pronouncement on costs.

SO ORDERED
G.R. No. L-40504 July 29, 1983

FORTUNATO RECENTES, BENJAMIN DE GRACIA and RAMONA MERCED, petitioners,

vs.
COURT OF FIRST INSTANCE OF ZAMBOANGA DEL NORTE, BRANCH I, PRESIDED BY HON.
DIMALANES E. BUISSAN, and CONCEPCION V. ZOSA, respondents.

Bar Pacatang for petitioners.

Uldarico B. Mejorado & Associates for private respondent.

ABAD SANTOS, J.:

Petition to set aside several orders issued in Civil Case No. 2080 of the defunct Court of First
Instance of Zamboanga del Norte, namely the orders of June 13, 1974 (Annex L), July 5, 1974
(Annex M), January 9, 1975 (Annex O), February 21, 1975 (Annex Q) and March 31, 1975 (Annex
S) which are described below.

Concepcion V. Zosa filed a complaint dated September 8, 1970, in the CFI of Zamboanga del Sur
(Civil Case No. 2080) against Fortunato Recentes, Benjamin de Gracia and Ramona Merced for
accounting and payment of money alleged to be due to her as their partner in Zamboanga Ports
Terminal and Arrastre Service. The answer alleged that proper accounting and payment had already
been made.

Two years after issues had been joined but the case still unterminated, Zosa asked the Court to
appoint Ramona Merced as receiver of the partnership. She alleged that the assets of the
partnership were being squandered by mismanagement. The court, thru Judge Onofre Abalos,
appointed Merced as receiver and she qualified.

Subsequently, Fortunato Recentes and Benjamin de Gracia filed a motion to annul and dissolve the
receivership. Reason given: the partnership was no longer in existence because its term of ten years
expired in 1967.

Judge Rafael T. Mendoza, granted the motion. However, Judge Dimalanes B. Buissan who
succeeded Judge Mendoza reconsidered the latter's action by reinstating the receivership in his
order dated June 6, 1974.

In the order dated June 13, 1974 (Annex L), Judge Buissan explained why he reinstated the
receivership:

The order of Honorable Judge Mendoza terminating the receivership appears to be

premised on the fact that the partnership known as the Zamboanga Ports Terminal
and Arrastre Service has automatically been dissolved after the termination of its ten-
year existence provided for in the partnership disregarding the fact that, after the
termination of the ten-year period from January 1967, the defendants Recentes and
de Gracia and the treasurer of the partnership never rendered an accounting for the
purpose of dissolving the partnership even up to the present, so that ordinarily the
partnership still continuously exists as usual. However, defendants de Gracia and
Recentes formed another partnership known as the Zamboanga Ports Arrastre and
 Stevedoring Service and continued the business that was conducted by the former
partnership. This is shown by the fact that the last partnership is doing business with
the clientele of the old partnership. It should be noted also that only plaintiff
Concepcion Zosa was not included in the so-called new partnership.

xxx xxx xxx

The movant failed to consider the fact that while the existence of the former
partnership may have been already terminated, its existence as such partnership
with respect to its members and third parties who may have interest therein, is not
terminated until the officers who are defendants in this case, and who were charged
by law to make the necessary accounting and liquidation for the purpose of
terminating the previous partnership shall comply with the requisites of the law.

The order dated July 5, 1974 (Annex M), directed that:

... the management and operation of the partnership will remain with the officers of
said partnership and that Ramona Merced as receiver will only receive the net profit
of the partnership and to keep each income, account for them when required by this
court until such time as the same win be distributed to those who may be entitled to
it.

The order dated January 9, 1975 (Annex O), reiterated the order dated July 5, 1974.

The order dated February 21, 1975 (Annex Q), directed the defendants and Ramona Merced, the
receiver, to submit an accounting of the partnership affairs under pain of contempt.

And the order of March 31, 1975 (Annex S), reiterated the previous orders.

The issue in this case is simple: Was there lack of jurisdiction or grave abuse of discretion in the
issuance of the questioned orders? The answer is equally simple: No.

Art. 1829 of the Civil Code stipulates:

Art. 1829. On dissolution the partnership is terminated, but continues until the
winding up of partnership affairs is completed.

Obviously, all the questioned orders are intended to wind up the partnership affairs in an orderly
manner and to protect the interest of the plaintiff who is the private respondent in this case. The
respondent judge not only had jurisdiction to issue the orders, he also acted prudently in the
premises.

WHEREFORE, the petition is hereby denied for lack of merit. Costs against the petitioners.

SO ORDERED.