BusOrg General Provisions PDF

BUS ORG GEN PROVISIONS 1
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-49982 April 27, 1988
ELIGIO ESTANISLAO, JR., petitioner,
vs.
THE HONORABLE COURT OF APPEALS, REMEDIOS
ESTANISLAO, EMILIO and LEOCADIO
SANTIAGO,respondents.
Agustin O. Benitez for petitioner.
Benjamin C. Yatco for private respondents.

GANCAYCO, J .:
By this petition for certiorari the Court is asked to determine if a
partnership exists between members of the same family arising
from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters who
are co-owners of certain lots at the corner of Annapolis and
Aurora Blvd., QuezonCity which were then being leased to the
Shell Company of the Philippines Limited (SHELL). They agreed
to open and operate a gas station thereat to be known as
Estanislao Shell Service Station with an initial investment of P
15,000.00 to be taken from the advance rentals due to them
from SHELL for the occupancy of the said lots owned in
common by them. A joint affidavit was executed by them on
April 11, 1966 which was prepared byAtty. Democrito

Angeles
1
They agreed to help their brother, petitioner herein, by
allowing him to operate and manage the gasoline service station
of the family. They negotiated with SHELL. For practical
purposes and in order not to run counter to the company's policy
of appointing only one dealer, it was agreed that petitioner
would apply for the dealership. Respondent Remedios helped in
managing the bussiness with petitioner from May 3, 1966 up to
February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional
Cash Pledge Agreement with SHELL wherein it was reiterated
that the P 15,000.00 advance rental shall be deposited with
SHELL to cover advances of fuel to petitioner as dealer with a
proviso that said agreement "cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the co-owners."
2

For sometime, the petitioner submitted financial statements
regarding the operation of the business to private respondents,
but therafter petitioner failed to render subsequent accounting.
Hence through Atty. Angeles, a demand was made on petitioner
to render an accounting of the profits.
The financial report of December 31, 1968 shows that the
business was able to make a profit of P 87,293.79 and that by
the year ending 1969, a profit of P 150,000.00 was realized.
3

Thus, on August 25, 1970 private respondents filed a complaint
in the Court of First Instance of Rizal against petitioner praying
among others that the latter be ordered:
1. to execute a public document embodying all the
provisions of the partnership agreement entered
into between plaintiffs and defendant as provided
in Article 1771 of the New Civil Code;
2. to render a formal accounting of the business
operation covering the period from May 6, 1966 up
to December 21, 1968 and from January 1, 1969
up to the time the order is issued and that the
same be subject to proper audit;
3. to pay the plaintiffs their lawful shares and
participation in the net profits of the business in an
amount of no less than P l50,000.00 with interest
at the rate of 1% per month from date of demand
until full payment thereof for the entire duration of
the business; and
4. to pay the plaintiffs the amount of P 10,000.00
as attorney's fees and costs of the suit (pp. 13-14
Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino Anover
who was then the temporary presiding judge of Branch IV of the
trial court, rendered judgment dismissing the complaint and
counterclaim and ordering private respondents to pay petitioner
P 3,000.00 attorney's fee and costs. Private respondent filed a
motion for reconsideration of the decision. On December 10,
1975, Hon. Ricardo Tensuan who was the newly appointed
presiding judge of the same branch, set aside the aforesaid
derision and rendered another decision in favor of said
respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court dated
October 14, 1975 is hereby reconsidered and a
new judgment is hereby rendered in favor of the
plaintiffs and as against the defendant:
(1) Ordering the defendant to execute a public
instrument embodying all the provisions of the
partnership agreement entered into between

plaintiffs and defendant as provided for in Article
1771, Civil Code of the Philippines;
(2) Ordering the defendant to render a formal
accounting of the business operation from April
1969 up to the time this order is issued, the same
to be subject to examination and audit by the
plaintiff,
(3) Ordering the defendant to pay plaintiffs their
lawful shares and participation in the net profits of
the business in the amount of P 150,000.00, with
interest thereon at the rate of One (1%) Per Cent
per month from date of demand until full payment
thereof;
(4) Ordering the defendant to pay the plaintiffs the
sum of P 5,000.00 by way of attorney's fees of
plaintiffs' counsel; as well as the costs of suit. (pp.
161-162. Record on Appeal).
Petitioner then interposed an appeal to the Court of Appeals
enumerating seven (7) errors allegedly committed by the trial
court. In due course, a decision was rendered by the Court of
Appeals on November 28,1978 affirming in toto the decision of
the lower court with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner
was denied on January 30, 1979. Not satisfied therewith, the
petitioner now comes to this court by way of this petition for
certiorari alleging that the respondent court erred:
1. In interpreting the legal import of the Joint
Affidavit (Exh. 'A') vis-a-vis the Additional Cash
Pledge Agreement (Exhs. "B-2","6", and "L"); and
2. In declaring that a partnership was established
by and among the petitioner and the private
respondents as regards the ownership and or
operation of the gasoline service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit of
April 11, 1966 (Exhibit A) and the Additional Cash Pledge
Agreement of May 20, 1966 (Exhibit 6) which are herein
reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels of land
fully describe in Transfer Certificates of Title Nos.
45071 and 71244 of the Register of Deeds of
Quezon City, in favor of the LESSEE - SHELL
COMPANY OF THE PHILIPPINES LIMITED a
corporation duly licensed to do business in the
Philippines;
(2) That we have requested the said SHELL
COMPANY OF THE PHILIPPINE LIMITED
advanced rentals in the total amount of FIFTEEN
THOUSAND PESOS (P l5,000.00) Philippine
Currency, so that we can use the said amount to
augment our capital investment in the operation of
that gasoline station constructed ,by the said
company on our two lots aforesaid by virtue of an
outstanding Lease Agreement we have entered
into with the said company;
(3) That the and SHELL COMPANY OF THE
PHILIPPINE LIMITED out of its benevolence and
desire to help us in aumenting our capital
investment in the operation of the said gasoline
station, has agreed to give us the said amount of

P 15,000.00, which amount will partake the nature
of ADVANCED RENTALS;
(4) That we have freely and voluntarily agreed that
upon receipt of the said amount of FIFTEEN
THOUSAND PESOS (P l6,000.00) from he SHELL
COMPANY OF THE PHILIPPINES LIMITED, the
said sum as ADVANCED RENTALS to us be
applied as monthly rentals for the sai two lots
under our Lease Agreement starting on the 25th of
May, 1966 until such time that the said of P
15,000.00 be applicable, which time to our
estimate and one-half months from May 25, 1966
or until the 10th of October, 1966 more or less;
(5) That we have likewise agreed among
ourselves that the SHELL COMPANY OF THE
PHILIPPINES LIMITED execute an instrument for
us to sign embodying our conformity that the said
amount that it will generously grant us as
requested be applied as ADVANCED RENTALS;
and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966,
Exhibit 6, is as follows:
WHEREAS, under the lease Agreement dated
13th November, 1963 (identified as doc. Nos. 491
& 1407, Page Nos. 99 & 66, Book Nos. V & III,
Series of 1963 in the Notarial Registers of
Notaries Public Rosauro Marquez, and R.D.
Liwanag, respectively) executed in favour of
SHELL by the herein CO-OWNERS and another
Lease Agreement dated 19th March 1964 . . . also
executed in favour of SHELL by CO-OWNERS
Remedios and MARIA ESTANISLAO for the lease
of adjoining portions of two parcels of land at
Aurora Blvd./ Annapolis, Quezon City, the CO
OWNERS RECEIVE a total monthly rental of
PESOS THREE THOUSAND THREE HUNDRED
EIGHTY TWO AND 29/100 (P 3,382.29),
Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao Jr. is
the Dealer of the Shell Station constructed on the
leased land, and as Dealer under the Cash Pledge
Agreement dated llth May 1966, he deposited to
SHELL in cash the amount of PESOS TEN
THOUSAND (P 10,000), Philippine Currency, to
secure his purchase on credit of Shell petroleum
products; . . .
WHEREAS, said DEALER, in his desire, to be
granted an increased the limit up to P 25,000, has
secured the conformity of his CO-OWNERS to
waive and assign to SHELL the total monthly
rentals due to all of them to accumulate the
equivalent amount of P 15,000, commencing 24th
May 1966, this P 15,000 shall be treated as
additional cash deposit to SHELL under the same
terms and conditions of the aforementioned Cash
Pledge Agreement dated llth May 1966.
NOW, THEREFORE, for and in consideration of
the foregoing premises,and the mutual covenants
among the CO-OWNERS herein and SHELL, said
parties have agreed and hereby agree as follows:
l. The CO-OWNERS dohere by waive in favor of
DEALER the monthly rentals due to all CO-
OWNERS, collectively, under the above describe
two Lease Agreements, one dated 13th November

1963 and the other dated 19th March 1964 to
enable DEALER to increase his existing cash
deposit to SHELL, from P 10,000 to P 25,000, for
such purpose, the SHELL CO-OWNERS and
DEALER hereby irrevocably assign to SHELL the
monthly rental of P 3,382.29 payable to them
respectively as they fall due, monthly,
commencing 24th May 1966, until such time that
the monthly rentals accumulated, shall be equal to
P l5,000.
2. The above stated monthly rentals accumulated
shall be treated as additional cash deposit by
DEALER to SHELL, thereby in increasing his
credit limit from P 10,000 to P 25,000. This
agreement, therefore, cancels and supersedes the
Joint affidavit dated 11 April 1966 executed by the
CO-OWNERS.
3. Effective upon the signing of this agreement,
SHELL agrees to allow DEALER to purchase from
SHELL petroleum products, on credit, up to the
amount of P 25,000.
4. This increase in the credit shall also be subject
to the same terms and conditions of the above-
mentioned Cash Pledge Agreement dated llth May
1966. (Exhs. "B-2," "L," and "6"; emphasis
supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is
clearly stipulated by the parties that the P 15,000.00 advance
rental due to them from SHELL shall augment their "capital
investment" in the operation of the gasoline station, which
advance rentals shall be credited as rentals from May 25, 1966
up to four and one-half months or until 10 October 1966, more
or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge
Agreement" above reproduced (Exhibit 6), the private
respondents and petitioners assigned to SHELL the monthly
rentals due them commencing the 24th of May 1966 until such
time that the monthly rentals accumulated equal P 15,000.00
which private respondents agree to be a cash deposit of
petitioner in favor of SHELL to increase his credit limit as dealer.
As above-stated it provided therein that "This agreement,
therefore, cancels and supersedes the Joint Affidavit dated 11
April 1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation
cancelling and superseding that previous Joint Affidavit,
whatever partnership agreement there was in said previous
agreement had thereby been abrogated. We find no merit in this
argument. Said cancelling provision was necessary for the Joint
Affidavit speaks of P 15,000.00 advance rentals starting May
25, 1966 while the latter agreement also refers to advance
rentals of the same amount starting May 24, 1966. There is,
therefore, a duplication of reference to the P 15,000.00 hence
the need to provide in the subsequent document that it "cancels
and supersedes" the previous one. True it is that in the latter
document, it is silent as to the statement in the Joint Affidavit
that the P 15,000.00 represents the "capital investment" of the
parties in the gasoline station business and it speaks of
petitioner as the sole dealer, but this is as it should be for in the
latter document SHELL was a signatory and it would be against
its policy if in the agreement it should be stated that the
business is a partnership with private respondents and not a
sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in
fact such partnership agreement between the parties. This is
attested by the testimonies of private respondent Remedies
Estanislao and Atty. Angeles. Petitioner submitted to private
respondents periodic accounting of the business.
4
Petitioner
gave a written authority to private respondent Remedies

Estanislao, his sister, to examine and audit the books of their
"common business' aming negosyo).
5
Respondent Remedios
assisted in the running of the business. There is no doubt that
the parties hereto formed a partnership when they bound
themselves to contribute money to a common fund with the
intention of dividing the profits among themselves.
6
The sole
dealership by the petitioner and the issuance of all government
permits and licenses in the name of petitioner was in
compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the
SHELL products.
Further, the findings of facts of the respondent court are
conclusive in this proceeding, and its conclusion based on the
said facts are in accordancewith the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in
toto with costs against petitioner. This decision is immediately
executory and no motion for extension of time to file a motion for
reconsideration shag beentertained.
SO ORDERED.
G.R. No. L-17295 July 30, 1962
ANG PUE & COMPANY, ET AL., plaintiffs-appellants,
vs.
SECRETARY OF COMMERCE AND INDUSTRY, defendant-
appellee.
Felicisimo E. Escaran for plaintiffs-appellants.
Office of the Solicitor General for defendant-appellee.
DIZON, J .:
Action for declaratory relief filed in the Court of First Instance of
Iloilo by Ang Pue & Company, Ang Pue and Tan Siong against
the Secretary of Commerce and Industry to secure judgment
"declaring that plaintiffs could extend for five years the term of
the partnership pursuant to the provisions of plaintiffs'
Amendment to the Article of Co-partnership."
The answer filed by the defendant alleged, in substance, that
the extension for another five years of the term of the plaintiffs'
partnership would be in violation of the provisions of Republic
Act No. 1180.
It appears that on May 1, 1953, Ang Pue and Tan Siong, both
Chinese citizens, organized the partnership Ang Pue &
Company for a term of five years from May 1, 1953, extendible
by their mutual consent. The purpose of the partnership was "to
maintain the business of general merchandising, buying and
selling at wholesale and retail, particularly of lumber, hardware
and other construction materials for commerce, either native or
foreign." The corresponding articles of partnership (Exhibit B)
were registered in the Office of the Securities & Exchange
Commission on June 16, 1953.
On June 19, 1954 Republic Act No. 1180 was enacted to
regulate the retail business. It provided, among other things,
that, after its enactment, a partnership not wholly formed by
Filipinos could continue to engage in the retail business until the
expiration of its term.
On April 15, 1958 prior to the expiration of the five-year term
of the partnership Ang Pue & Company, but after the enactment
of the Republic Act 1180, the partners already mentioned
amended the original articles of part ownership (Exhibit B) so as
to extend the term of life of the partnership to another five years.
When the amended articles were presented for registration in
the Office of the Securities & Exchange Commission on April
16, 1958, registration was refused upon the ground that the
extension was in violation of the aforesaid Act.

From the decision of the lower court dismissing the action, with
costs, the plaintiffs interposed this appeal.
The question before us is too clear to require an extended
discussion. To organize a corporation or a partnership that
could claim a juridical personality of its own and transact
business as such, is not a matter of absolute right but a privilege
which may be enjoyed only under such terms as the State may
deem necessary to impose. That the State, through Congress,
and in the manner provided by law, had the right to enact
Republic Act No. 1180 and to provide therein that only Filipinos
and concerns wholly owned by Filipinos may engage in the
retail business can not be seriously disputed. That this provision
was clearly intended to apply to partnership already existing at
the time of the enactment of the law is clearly showing by its
provision giving them the right to continue engaging in their
retail business until the expiration of their term or life.
To argue that because the original articles of partnership
provided that the partners could extend the term of the
partnership, the provisions of Republic Act 1180 cannot be
adversely affect appellants herein, is to erroneously assume
that the aforesaid provision constitute a property right of which
the partners can not be deprived without due process or without
their consent. The agreement contain therein must be deemed
subject to the law existing at the time when the partners came to
agree regarding the extension. In the present case, as already
stated, when the partners amended the articles of partnership,
the provisions of Republic Act 1180 were already in force, and
there can be not the slightest doubt that the right claimed by
appellants to extend the original term of their partnership to
another five years would be in violation of the clear intent and
purpose of the law aforesaid.
WHEREFORE, the judgment appealed from is affirmed, with
costs.
G.R. No. L-68118 October 29, 1985
JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P.
OBILLOS and REMEDIOS P. OBILLOS, brothers and
sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF
TAX APPEALS, respondents.
Demosthenes B. Gadioma for petitioners.

AQUINO, J .:
This case is about the income tax liability of four brothers and
sisters who sold two parcels of land which they had acquired
from their father.
On March 2, 1973 Jose Obillos, Sr. completed payment to
Ortigas & Co., Ltd. on two lots with areas of 1,124 and 963
square meters located at Greenhills, San Juan, Rizal. The next
day he transferred his rights to his four children, the petitioners,
to enable them to build their residences. The company sold the
two lots to petitioners for P178,708.12 on March 13 (Exh. A and
B, p. 44, Rollo). Presumably, the Torrens titles issued to them
would show that they were co-owners of the two lots.
In 1974, or after having held the two lots for more than a year,
the petitioners resold them to the Walled City Securities
Corporation and Olga Cruz Canda for the total sum of P313,050
(Exh. C and D). They derived from the sale a total profit of
P134,341.88 or P33,584 for each of them. They treated the
profit as a capital gain and paid an income tax on one-half
thereof or of P16,792.

In April, 1980, or one day before the expiration of the five-year
prescriptive period, the Commissioner of Internal Revenue
required the four petitioners to pay corporate income tax on the
total profit of P134,336 in addition to individual income tax on
their shares thereof He assessed P37,018 as corporate income
tax, P18,509 as 50% fraud surcharge and P15,547.56 as 42%
accumulated interest, or a total of P71,074.56.
Not only that. He considered the share of the profits of each
petitioner in the sum of P33,584 as a " taxable in full (not a mere
capital gain of which is taxable) and required them to pay
deficiency income taxes aggregating P56,707.20 including the
50% fraud surcharge and the accumulated interest.
Thus, the petitioners are being held liable for deficiency income
taxes and penalties totalling P127,781.76 on their profit of
P134,336, in addition to the tax on capital gains already paid by
them.
The Commissioner acted on the theory that the four petitioners
had formed an unregistered partnership or joint venture within
the meaning of sections 24(a) and 84(b) of the Tax Code
(Collector of Internal Revenue vs. Batangas Trans. Co., 102
Phil. 822).
The petitioners contested the assessments. Two Judges of the
Tax Court sustained the same. Judge Roaquin dissented.
Hence, the instant appeal.
We hold that it is error to consider the petitioners as having
formed a partnership under article 1767 of the Civil Code simply
because they allegedly contributed P178,708.12 to buy the two
lots, resold the same and divided the profit among themselves.
To regard the petitioners as having formed a taxable
unregistered partnership would result in oppressive taxation and
confirm the dictum that the power to tax involves the power to
destroy. That eventuality should be obviated.
As testified by Jose Obillos, Jr., they had no such intention.
They were co-owners pure and simple. To consider them as
partners would obliterate the distinction between a co-ownership
and a partnership. The petitioners were not engaged in any joint
venture by reason of that isolated transaction.
Their original purpose was to divide the lots for residential
purposes. If later on they found it not feasible to build their
residences on the lots because of the high cost of construction,
then they had no choice but to resell the same to dissolve the
co-ownership. The division of the profit was merely incidental to
the dissolution of the co-ownership which was in the nature of
things a temporary state. It had to be terminated sooner or later.
Castan Tobeas says:
Como establecer el deslinde entre la comunidad
ordinaria o copropiedad y la sociedad?
El criterio diferencial-segun la doctrina mas
generalizada-esta: por razon del origen, en que la
sociedad presupone necesariamente la
convencion, mentras que la comunidad puede
existir y existe ordinariamente sin ela; y por razon
del fin objecto, en que el objeto de la sociedad es
obtener lucro, mientras que el de la indivision es
solo mantener en su integridad la cosa comun y
favorecer su conservacion.
Reflejo de este criterio es la sentencia de 15 de
Octubre de 1940, en la que se dice que si en
nuestro Derecho positive se ofrecen a veces
dificultades al tratar de fijar la linea divisoria entre
comunidad de bienes y contrato de sociedad, la
moderna orientacion de la doctrina cientifica

seala como nota fundamental de diferenciacion
aparte del origen de fuente de que surgen, no
siempre uniforme, la finalidad perseguida por los
interesados: lucro comun partible en la sociedad,
y mera conservacion y aprovechamiento en la
comunidad. (Derecho Civil Espanol, Vol. 2, Part 1,
10 Ed., 1971, 328- 329).
Article 1769(3) of the Civil Code provides that "the sharing of
gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived".
There must be an unmistakable intention to form a partnership
or joint venture.*
Such intent was present in Gatchalian vs. Collector of Internal
Revenue, 67 Phil. 666, where 15 persons contributed small
amounts to purchase a two-peso sweepstakes ticket with the
agreement that they would divide the prize The ticket won the
third prize of P50,000. The 15 persons were held liable for
income tax as an unregistered partnership.
The instant case is distinguishable from the cases where the
parties engaged in joint ventures for profit. Thus, in Oa vs.
** This view is supported by the following rulings of respondent
Commissioner:
Co-owership distinguished from partnership.We
find that the case at bar is fundamentally similar to
the De Leon case. Thus, like the De Leon heirs,
the Longa heirs inherited the 'hacienda' in
questionpro-indiviso from their deceased parents;
they did not contribute or invest additional ' capital
to increase or expand the inherited properties;
they merely continued dedicating the property to
the use to which it had been put by their forebears;
they individually reported in their tax returns their
corresponding shares in the income and expenses
of the 'hacienda', and they continued for many
years the status of co-ownership in order, as
conceded by respondent, 'to preserve its (the
'hacienda') value and to continue the existing
contractual relations with the Central Azucarera de
Bais for milling purposes. Longa vs. Aranas, CTA
Case No. 653, July 31, 1963).
All co-ownerships are not deemed unregistered
pratnership.Co-Ownership who own properties
which produce income should not automatically be
considered partners of an unregistered
partnership, or a corporation, within the purview of
the income tax law. To hold otherwise, would be to
subject the income of all
co-ownerships of inherited properties to the tax on
corporations, inasmuch as if a property does not
produce an income at all, it is not subject to any
kind of income tax, whether the income tax on
individuals or the income tax on corporation. (De
Leon vs. CI R, CTA Case No. 738, September 11,
1961, cited in Araas, 1977 Tax Code Annotated,
Vol. 1, 1979 Ed., pp. 77-78).
Commissioner of Internal Revenue, L-19342, May 25, 1972, 45
SCRA 74, where after an extrajudicial settlement the co-heirs
used the inheritance or the incomes derived therefrom as a
common fund to produce profits for themselves, it was held that
they were taxable as an unregistered partnership.
It is likewise different from Reyes vs. Commissioner of Internal
Revenue, 24 SCRA 198, where father and son purchased a lot
and building, entrusted the administration of the building to an
administrator and divided equally the net income, and from
Evangelista vs. Collector of Internal Revenue, 102 Phil. 140,

where the three Evangelista sisters bought four pieces of real
property which they leased to various tenants and derived
rentals therefrom. Clearly, the petitioners in these two cases
had formed an unregistered partnership.
In the instant case, what the Commissioner should have
investigated was whether the father donated the two lots to the
petitioners and whether he paid the donor's tax (See Art. 1448,
Civil Code). We are not prejudging this matter. It might have
already prescribed.
WHEREFORE, the judgment of the Tax Court is reversed and
set aside. The assessments are cancelled. No costs.
SO ORDERED.
G.R. No. 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
No. 14413 for
P146,868.00 dated
February 13, 1990;
iii. Accrued interest of
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. 127347 November 25, 1999
ALFREDO N. AGUILA, JR., petitioner,
vs.
HONORABLE COURT OF APPEALS and FELICIDAD S.
VDA. DE ABROGAR, respondents.

MENDOZA, J .:
This is a petition for review on certiorari of the decision
1
of the
Court of Appeals, dated November 29, 1990, which reversed
the decision of the Regional Trial Court, Branch 273, Marikina,
Metro Manila, dated April 11, 1995. The trial court dismissed the
petition for declaration of nullity of a deed of sale filed by private
respondent Felicidad S. Vda. de Abrogar against petitioner
Alfredo N. Aguila, Jr.
The facts are as follows:
Petitioner is the manager of A.C. Aguila & Sons, Co., a
partnership engaged in lending activities. Private respondent
and her late husband, Ruben M. Abrogar, were the registered
owners of a house and lot, covered by Transfer Certificate of
Title No. 195101, in Marikina, Metro Manila. On April 18, 1991,
private respondent, with the consent of her late husband, and
A.C. Aguila & Sons, Co., represented by petitioner, entered into
a Memorandum of Agreement, which provided:
(1) That the SECOND PARTY [A.C. Aguila &
Sons, Co.] shall buy the above-described property
from the FIRST PARTY [Felicidad S. Vda. de
Abrogar], and pursuant to this agreement, a Deed
of Absolute Sale shall be executed by the FIRST

PARTY conveying the property to the SECOND
PARTY for and in consideration of the sum of Two
Hundred Thousand Pesos (P200,000.00),
Philippine Currency;
(2) The FIRST PARTY is hereby given by the
SECOND PARTY the option to repurchase the
said property within a period of ninety (90) days
from the execution of this memorandum of
agreement effective April 18, 1991, for the amount
of TWO HUNDRED THIRTY THOUSAND PESOS
(P230,000.00);
(3) In the event that the FIRST PARTY fail to
exercise her option to repurchase the said
property within a period of ninety (90) days, the
FIRST PARTY is obliged to deliver peacefully the
possession of the property to the SECOND
PARTY within fifteen (15) days after the expiration
of the said 90 day grace period;
(4) During the said grace period, the FIRST
PARTY obliges herself not to file any lis
pendens or whatever claims on the property nor
shall be cause the annotation of say claim at the
back of the title to the said property;
(5) With the execution of the deed of absolute
sale, the FIRST PARTY warrants her ownership of
the property and shall defend the rights of the
SECOND PARTY against any party whom may
have any interests over the property;
(6) All expenses for documentation and other
incidental expenses shall be for the account of the
FIRST PARTY;
(7) Should the FIRST PARTY fail to deliver
peaceful possession of the property to the
SECOND PARTY after the expiration of the 15-
day grace period given in paragraph 3 above, the
FIRST PARTY shall pay an amount equivalent to
Five Percent of the principal amount of TWO
HUNDRED PESOS (P200.00) or P10,000.00 per
month of delay as and for rentals and liquidated
damages;
(8) Should the FIRST PARTY fail to exercise her
option to repurchase the property within ninety
(90) days period above-mentioned, this
memorandum of agreement shall be deemed
cancelled and the Deed of Absolute Sale,
executed by the parties shall be the final contract
considered as entered between the parties and
the SECOND PARTY shall proceed to transfer
ownership of the property above described to its
name free from lines and encumbrances.
2

On the same day, April 18, 1991, the parties likewise executed
a deed of absolute sale,
3
dated June 11, 1991, wherein private
respondent, with the consent of her late husband, sold the
subject property to A.C. Aguila & Sons, Co., represented by
petitioner, for P200,000,00. In a special power of attorney dated
the same day, April 18, 1991, private respondent authorized
petitioner to cause the cancellation of TCT No. 195101 and the
issuance of a new certificate of title in the name of A.C. Aguila
and Sons, Co., in the event she failed to redeem the subject
property as provided in the Memorandum of Agreement.
4

Private respondent failed to redeem the property within the 90-
day period as provided in the Memorandum of Agreement.
Hence, pursuant to the special power of attorney mentioned
above, petitioner caused the cancellation of TCT No. 195101

and the issuance of a new certificate of title in the name of A.C.
Aguila and Sons, Co.
5

Private respondent then received a letter dated August 10, 1991
from Atty. Lamberto C. Nanquil, counsel for A.C. Aguila & Sons,
Co., demanding that she vacate the premises within 15 days
after receipt of the letter and surrender its possession peacefully
to A.C. Aguila & Sons, Co. Otherwise, the latter would bring the
appropriate action in court.
6

Upon the refusal of private respondent to vacate the subject
premises, A.C. Aguila & Sons, Co. filed an ejectment case
against her in the Metropolitan Trial Court, Branch 76, Marikina,
Metro Manila. In a decision, dated April 3, 1992, the
Metropolitan Trial Court ruled in favor of A.C. Aguila & Sons,
Co. on the ground that private respondent did not redeem the
subject property before the expiration of the 90-day period
provided in the Memorandum of Agreement. Private respondent
appealed first to the Regional Trial Court, Branch 163, Pasig,
Metro Manila, then to the Court of Appeals, and later to this
Court, but she lost in all the cases.
Private respondent then filed a petition for declaration of nullity
of a deed of sale with the Regional Trial Court, Branch 273,
Marikina, Metro Manila on December 4, 1993. She alleged that
the signature of her husband on the deed of sale was a forgery
because he was already dead when the deed was supposed to
have been executed on June 11, 1991.
It appears, however, that private respondent had filed a criminal
complaint for falsification against petitioner with the Office of the
Prosecutor of Quezon City which was dismissed in a resolution,
dated February 14, 1994.
On April 11, 1995, Branch 273 of RTC-Marikina rendered its
decision:
Plaintiff's claim therefore that the Deed of Absolute
Sale is a forgery because they could not
personally appear before Notary Public Lamberto
C. Nanquil on June 11, 1991 because her
husband, Ruben Abrogar, died on May 8, 1991 or
one month and 2 days before the execution of the
Deed of Absolute Sale, while the plaintiff was still
in the Quezon City Medical Center recuperating
from wounds which she suffered at the same
vehicular accident on May 8, 1991, cannot be
sustained. The Court is convinced that the three
required documents, to wit: the Memorandum of
Agreement, the Special Power of Attorney, and
the Deed of Absolute Sale were all signed by the
parties on the same date on April 18, 1991. It is a
common and accepted business practice of those
engaged in money lending to prepare an undated
absolute deed of sale in loans of money secured
by real estate for various reasons, foremost of
which is the evasion of taxes and surcharges. The
plaintiff never questioned receiving the sum of
P200,000.00 representing her loan from the
defendant. Common sense dictates that an
established lending and realty firm like the Aguila
& Sons, Co. would not part with P200,000.00 to
the Abrogar spouses, who are virtual strangers to
it, without the simultaneous accomplishment and
signing of all the required documents, more
particularly the Deed of Absolute Sale, to protect
its interest.
xxx xxx xxx
WHEREFORE, foregoing premises considered,
the case in caption is hereby ORDERED
DISMISSED, with costs against the plaintiff.

On appeal, the Court of Appeals reversed. It held:
The facts and evidence show that the transaction
between plaintiff-appellant and defendant-appellee
is indubitably an equitable mortgage. Article 1602
of the New Civil Code finds strong application in
the case at bar in the light of the following
circumstances.
First: The purchase price for the alleged sale with
right to repurchase is unusually inadequate. The
property is a two hundred forty (240) sq. m. lot. On
said lot, the residential house of plaintiff-appellant
stands. The property is inside a
subdivision/village. The property is situated in
Marikina which is already part of Metro Manila.
The alleged sale took place in 1991 when the
value of the land had considerably increased.
For this property, defendant-appellee pays only a
measly P200,000.00 or P833.33 per square meter
for both the land and for the house.
Second: The disputed Memorandum of Agreement
specifically provides that plaintiff-appellant is
obliged to deliver peacefully the possession of the
property to the SECOND PARTY within fifteen
(15) days after the expiration of the said ninety
(90) day grace period. Otherwise stated, plaintiff-
appellant is to retain physical possession of the
thing allegedly sold.
In fact, plaintiff-appellant retained possession of
the property "sold" as if they were still the absolute
owners. There was no provision for maintenance
or expenses, much less for payment of rent.
Third: The apparent vendor, plaintiff-appellant
herein, continued to pay taxes on the property
"sold". It is well-known that payment of taxes
accompanied by actual possession of the land
covered by the tax declaration, constitute evidence
of great weight that a person under whose name
the real taxes were declared has a claim of right
over the land.
It is well-settled that the presence of even one of
the circumstances in Article 1602 of the New Civil
Code is sufficient to declare a contract of sale with
right to repurchase an equitable mortgage.
Considering that plaintiff-appellant, as vendor, was
paid a price which is unusually inadequate, has
retained possession of the subject property and
has continued paying the realty taxes over the
subject property, (circumstances mentioned in par.
(1) (2) and (5) of Article 1602 of the New Civil
Code), it must be conclusively presumed that the
transaction the parties actually entered into is an
equitable mortgage, not a sale with right to
repurchase. The factors cited are in support to the
finding that the Deed of Sale/Memorandum of
Agreement with right to repurchase is in actuality
an equitable mortgage.
Moreover, it is undisputed that the deed of sale
with right of repurchase was executed by reason
of the loan extended by defendant-appellee to
plaintiff-appellant. The amount of loan being the
same with the amount of the purchase price.
xxx xxx xxx

Since the real intention of the party is to secure
the payment of debt, now deemed to be
repurchase price: the transaction shall then be
considered to be an equitable mortgage.
Being a mortgage, the transaction entered into by
the parties is in the nature of a pactum
commissorium which is clearly prohibited by
Article 2088 of the New Civil Code. Article 2088 of
the New Civil Code reads:
Art. 2088. The creditor cannot
appropriate the things given by way
of pledge or mortgage, or dispose of
them. Any stipulation to the contrary
is null and void.
The aforequoted provision furnishes the two
elements for pactum commissorium to exist: (1)
that there should be a pledge or mortgage wherein
a property is pledged or mortgaged by way of
security for the payment of principal obligation;
and (2) that there should be a stipulation for an
automatic appropriation by the creditor of the thing
pledged and mortgaged in the event of non-
payment of the principal obligation within the
stipulated period.
In this case, defendant-appellee in reality
extended a P200,000.00 loan to plaintiff-appellant
secured by a mortgage on the property of plaintiff-
appellant. The loan was payable within ninety (90)
days, the period within which plaintiff-appellant
can repurchase the property. Plaintiff-appellant will
pay P230,000.00 and not P200,000.00, the
P30,000.00 excess is the interest for the loan
extended. Failure of plaintiff-appellee to pay the
P230,000.00 within the ninety (90) days period,
the property shall automatically belong to
defendant-appellee by virtue of the deed of sale
executed.
Clearly, the agreement entered into by the parties
is in the nature of pactum commissorium.
Therefore, the deed of sale should be declared
void as we hereby so declare to be invalid, for
being violative of law.
xxx xxx xxx
WHEREFORE, foregoing considered, the
appealed decision is hereby REVERSED and SET
ASIDE. The questioned Deed of Sale and the
cancellation of the TCT No. 195101 issued in favor
of plaintiff-appellant and the issuance of TCT No.
267073 issued in favor of defendant-appellee
pursuant to the questioned Deed of Sale is hereby
declared VOID and is hereby ANNULLED.
Transfer Certificate of Title No. 195101 of the
Registry of Marikina is hereby ordered
REINSTATED. The loan in the amount of
P230,000.00 shall be paid within ninety (90) days
from the finality of this decision. In case of failure
to pay the amount of P230,000.00 from the period
therein stated, the property shall be sold at public
auction to satisfy the mortgage debt and costs and
if there is an excess, the same is to be given to the
owner.
Petitioner now contends that: (1) he is not the real party in
interest but A.C. Aguila & Co., against which this case should
have been brought; (2) the judgment in the ejectment case is a
bar to the filing of the complaint for declaration of nullity of a
deed of sale in this case; and (3) the contract between A.C.

Aguila & Sons, Co. and private respondent is a pacto de
retro sale and not an equitable mortgage as held by the
appellate court.
The petition is meritorious.
Rule 3, 2 of the Rules of Court of 1964, under which the
complaint in this case was filed, provided that "every action
must be prosecuted and defended in the name of the real party
in interest." A real party in interest is one who would be
benefited or injured by the judgment, or who is entitled to the
avails of the suit.
7
This ruling is now embodied in Rule 3, 2 of
the 1997 Revised Rules of Civil Procedure. Any decision
rendered against a person who is not a real party in interest in
the case cannot be executed.
8
Hence, a complaint filed against
such a person should be dismissed for failure to state a cause
of action.
9

Under Art. 1768 of the Civil Code, a partnership "has a juridical
personality separate and distinct from that of each of the
partners." The partners cannot be held liable for the obligations
of the partnership unless it is shown that the legal fiction of a
different juridical personality is being used for fraudulent, unfair,
or illegal purposes.
10
In this case, private respondent has not
shown that A.C. Aguila & Sons, Co., as a separate juridical
entity, is being used for fraudulent, unfair, or illegal purposes.
Moreover, the title to the subject property is in the name of A.C.
Aguila & Sons, Co. and the Memorandum of Agreement was
executed between private respondent, with the consent of her
late husband, and A.C. Aguila & Sons, Co., represented by
petitioner. Hence, it is the partnership, not its officers or agents,
which should be impleaded in any litigation involving property
registered in its name. A violation of this rule will result in the
dismissal of the complaint.
11
We cannot understand why both
the Regional Trial Court and the Court of Appeals sidestepped
this issue when it was squarely raised before them by petitioner.
Our conclusion that petitioner is not the real party in interest
against whom this action should be prosecuted makes it
unnecessary to discuss the other issues raised by him in this
appeal.
WHEREFORE, the decision of the Court of Appeals is hereby
REVERSED and the complaint against petitioner is
DISMISSED.
SO ORDERED.
G.R. No. L-19342 May 25, 1972
LORENZO T. OA and HEIRS OF JULIA BUALES, namely:
RODOLFO B. OA, MARIANO B. OA, LUZ B. OA,
VIRGINIA B. OA and LORENZO B. OA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.
Orlando Velasco for petitioners.
Office of the Solicitor General Arturo A. Alafriz, Assistant
Solicitor General Felicisimo R. Rosete, and Special Attorney
Purificacion Ureta for respondent.

BARREDO, J .:p
Petition for review of the decision of the Court of Tax Appeals in
CTA Case No. 617, similarly entitled as above, holding that
petitioners have constituted an unregistered partnership and
are, therefore, subject to the payment of the deficiency
corporate income taxes assessed against them by respondent
Commissioner of Internal Revenue for the years 1955 and 1956
in the total sum of P21,891.00, plus 5% surcharge and 1%
monthly interest from December 15, 1958, subject to the

provisions of Section 51 (e) (2) of the Internal Revenue Code,
as amended by Section 8 of Republic Act No. 2343 and the
costs of the suit,
1
as well as the resolution of said court denying
petitioners' motion for reconsideration of said decision.
The facts are stated in the decision of the Tax Court as follows:
Julia Buales died on March 23, 1944, leaving as
heirs her surviving spouse, Lorenzo T. Oa and
her five children. In 1948, Civil Case No. 4519 was
instituted in the Court of First Instance of Manila
for the settlement of her estate. Later, Lorenzo T.
Oa the surviving spouse was appointed
administrator of the estate of said deceased
(Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949,
the administrator submitted the project of partition,
which was approved by the Court on May 16,
1949 (See Exhibit K). Because three of the heirs,
namely Luz, Virginia and Lorenzo, Jr., all
surnamed Oa, were still minors when the project
of partition was approved, Lorenzo T. Oa, their
father and administrator of the estate, filed a
petition in Civil Case No. 9637 of the Court of First
Instance of Manila for appointment as guardian of
said minors. On November 14, 1949, the Court
appointed him guardian of the persons and
property of the aforenamed minors (See p. 3, BIR
rec.).
The project of partition (Exhibit K; see also pp. 77-
70, BIR rec.) shows that the heirs have undivided
one-half (1/2) interest in ten parcels of land with a
total assessed value of P87,860.00, six houses
with a total assessed value of P17,590.00 and an
undetermined amount to be collected from the
War Damage Commission. Later, they received
from said Commission the amount of P50,000.00,
more or less. This amount was not divided among
them but was used in the rehabilitation of
properties owned by them in common (t.s.n., p.
46). Of the ten parcels of land aforementioned,
two were acquired after the death of the decedent
with money borrowed from the Philippine Trust
Company in the amount of P72,173.00 (t.s.n., p.
24; Exhibit 3, pp. 31-34 BIR rec.).
The project of partition also shows that the estate
shares equally with Lorenzo T. Oa, the
administrator thereof, in the obligation of
P94,973.00, consisting of loans contracted by the
latter with the approval of the Court (see p. 3 of
Exhibit K; or see p. 74, BIR rec.).
Although the project of partition was approved by
the Court on May 16, 1949, no attempt was made
to divide the properties therein listed. Instead, the
properties remained under the management of
Lorenzo T. Oa who used said properties in
business by leasing or selling them and investing
the income derived therefrom and the proceeds
from the sales thereof in real properties and
securities. As a result, petitioners' properties and
investments gradually increased from
P105,450.00 in 1949 to P480,005.20 in 1956 as
can be gleaned from the following year-end
balances:
Year Investment Land Building
Account Account Account
1949 P87,860.00 P17,590.00
1950 P24,657.65 128,566.72 96,076.26

1951 51,301.31 120,349.28 110,605.11
1952 67,927.52 87,065.28 152,674.39
1953 61,258.27 84,925.68 161,463.83
1954 63,623.37 99,001.20 167,962.04
1955 100,786.00 120,249.78 169,262.52
1956 175,028.68 135,714.68 169,262.52
(See Exhibits 3 & K t.s.n., pp. 22, 25-26, 40, 50,
102-104)
From said investments and properties petitioners
derived such incomes as profits from installment
sales of subdivided lots, profits from sales of
stocks, dividends, rentals and interests (see p. 3 of
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The
said incomes are recorded in the books of account
kept by Lorenzo T. Oa where the corresponding
shares of the petitioners in the net income for the
year are also known. Every year, petitioners
returned for income tax purposes their shares in
the net income derived from said properties and
securities and/or from transactions involving them
(Exhibit 3,supra; t.s.n., pp. 25-26). However,
petitioners did not actually receive their shares in
the yearly income. (t.s.n., pp. 25-26, 40, 98, 100).
The income was always left in the hands of
Lorenzo T. Oa who, as heretofore pointed out,
invested them in real properties and securities.
(See Exhibit 3, t.s.n., pp. 50, 102-104).
On the basis of the foregoing facts, respondent
(Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and
therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section
84(b), of the Tax Code. Accordingly, he assessed
against the petitioners the amounts of P8,092.00
and P13,899.00 as corporate income taxes for
1955 and 1956, respectively. (See Exhibit 5,
amended by Exhibit 17, pp. 50 and 86, BIR rec.).
Petitioners protested against the assessment and
asked for reconsideration of the ruling of
respondent that they have formed an unregistered
partnership. Finding no merit in petitioners'
request, respondent denied it (See Exhibit 17, p.
86, BIR rec.). (See pp. 1-4, Memorandum for
Respondent, June 12, 1961).
The original assessment was as follows:
1955
Net income as per investigation
................ P40,209.89

Income tax due thereon ...............................
8,042.00
25% surcharge ..............................................
2,010.50
Compromise for non-filing .......................... 50.00
Total ...............................................................
P10,102.50
1956
Net income as per investigation
................ P69,245.23

Income tax due thereon ...............................
13,849.00
25% surcharge ..............................................
3,462.25
Compromise for non-filing .......................... 50.00
Total ...............................................................
P17,361.25
(See Exhibit 13, page 50, BIR records)
Upon further consideration of the case, the 25%
surcharge was eliminated in line with the ruling of
the Supreme Court in Collector v. Batangas
Transportation Co., G.R. No. L-9692, Jan. 6, 1958,
so that the questioned assessment refers solely to
the income tax proper for the years 1955 and 1956
and the "Compromise for non-filing," the latter item
obviously referring to the compromise in lieu of the
criminal liability for failure of petitioners to file the
corporate income tax returns for said years. (See
Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C
to Petition)
Petitioners have assigned the following as alleged errors of the
Tax Court:
I.
THE COURT OF TAX APPEALS ERRED IN
HOLDING THAT THE PETITIONERS FORMED
AN UNREGISTERED PARTNERSHIP;
II.
THE COURT OF TAX APPEALS ERRED IN NOT
HOLDING THAT THE PETITIONERS WERE CO-
OWNERS OF THE PROPERTIES INHERITED
AND (THE) PROFITS DERIVED FROM
TRANSACTIONS THEREFROM (sic);
III.
THE COURT OF TAX APPEALS ERRED IN
HOLDING THAT PETITIONERS WERE LIABLE
FOR CORPORATE INCOME TAXES FOR 1955
AND 1956 AS AN UNREGISTERED
PARTNERSHIP;
IV.
ON THE ASSUMPTION THAT THE
PETITIONERS CONSTITUTED AN
UNREGISTERED PARTNERSHIP, THE COURT
OF TAX APPEALS ERRED IN NOT HOLDING
THAT THE PETITIONERS WERE AN
UNREGISTERED PARTNERSHIP TO THE
EXTENT ONLY THAT THEY INVESTED THE
PROFITS FROM THE PROPERTIES OWNED IN
COMMON AND THE LOANS RECEIVED USING
THE INHERITED PROPERTIES AS
COLLATERALS;
V .
ON THE ASSUMPTION THAT THERE WAS AN
UNREGISTERED PARTNERSHIP, THE COURT
OF TAX APPEALS ERRED IN NOT DEDUCTING
THE VARIOUS AMOUNTS PAID BY THE
PETITIONERS AS INDIVIDUAL INCOME TAX ON
THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES
OWNED IN COMMON, FROM THE DEFICIENCY
TAX OF THE UNREGISTERED PARTNERSHIP.

In other words, petitioners pose for our resolution the following
questions: (1) Under the facts found by the Court of Tax
Appeals, should petitioners be considered as co-owners of the
properties inherited by them from the deceased Julia Buales
and the profits derived from transactions involving the same, or,
must they be deemed to have formed an unregistered
partnership subject to tax under Sections 24 and 84(b) of the
National Internal Revenue Code? (2) Assuming they have
formed an unregistered partnership, should this not be only in
the sense that they invested as a common fund the profits
earned by the properties owned by them in common and the
loans granted to them upon the security of the said properties,
with the result that as far as their respective shares in the
inheritance are concerned, the total income thereof should be
considered as that of co-owners and not of the unregistered
partnership? And (3) assuming again that they are taxable as an
unregistered partnership, should not the various amounts
already paid by them for the same years 1955 and 1956 as
individual income taxes on their respective shares of the profits
accruing from the properties they owned in common be
deducted from the deficiency corporate taxes, herein involved,
assessed against such unregistered partnership by the
respondent Commissioner?
Pondering on these questions, the first thing that has struck the
Court is that whereas petitioners' predecessor in interest died
way back on March 23, 1944 and the project of partition of her
estate was judicially approved as early as May 16, 1949, and
presumably petitioners have been holding their respective
shares in their inheritance since those dates admittedly under
the administration or management of the head of the family, the
widower and father Lorenzo T. Oa, the assessment in question
refers to the later years 1955 and 1956. We believe this point to
be important because, apparently, at the start, or in the years
1944 to 1954, the respondent Commissioner of Internal
Revenue did treat petitioners as co-owners, not liable to
corporate tax, and it was only from 1955 that he considered
them as having formed an unregistered partnership. At least,
there is nothing in the record indicating that an earlier
assessment had already been made. Such being the case, and
We see no reason how it could be otherwise, it is easily
understandable why petitioners' position that they are co-owners
and not unregistered co-partners, for the purposes of the
impugned assessment, cannot be upheld. Truth to tell,
petitioners should find comfort in the fact that they were not
similarly assessed earlier by the Bureau of Internal Revenue.
The Tax Court found that instead of actually distributing the
estate of the deceased among themselves pursuant to the
project of partition approved in 1949, "the properties remained
under the management of Lorenzo T. Oa who used said
properties in business by leasing or selling them and investing
the income derived therefrom and the proceed from the sales
thereof in real properties and securities," as a result of which
said properties and investments steadily increased yearly from
P87,860.00 in "land account" and P17,590.00 in "building
account" in 1949 to P175,028.68 in "investment account,"
P135.714.68 in "land account" and P169,262.52 in "building
account" in 1956. And all these became possible because,
admittedly, petitioners never actually received any share of the
income or profits from Lorenzo T. Oa and instead, they allowed
him to continue using said shares as part of the common fund
for their ventures, even as they paid the corresponding income
taxes on the basis of their respective shares of the profits of
their common business as reported by the said Lorenzo T. Oa.
It is thus incontrovertible that petitioners did not, contrary to their
contention, merely limit themselves to holding the properties
inherited by them. Indeed, it is admitted that during the material
years herein involved, some of the said properties were sold at
considerable profit, and that with said profit, petitioners
engaged, thru Lorenzo T. Oa, in the purchase and sale of
corporate securities. It is likewise admitted that all the profits
from these ventures were divided among petitioners

proportionately in accordance with their respective shares in the
inheritance. In these circumstances, it is Our considered view
that from the moment petitioners allowed not only the incomes
from their respective shares of the inheritance but even the
inherited properties themselves to be used by Lorenzo T. Oa
as a common fund in undertaking several transactions or in
business, with the intention of deriving profit to be shared by
them proportionally, such act was tantamonut to actually
contributing such incomes to a common fund and, in effect, they
thereby formed an unregistered partnership within the purview
of the above-mentioned provisions of the Tax Code.
It is but logical that in cases of inheritance, there should be a
period when the heirs can be considered as co-owners rather
than unregistered co-partners within the contemplation of our
corporate tax laws aforementioned. Before the partition and
distribution of the estate of the deceased, all the income thereof
does belong commonly to all the heirs, obviously, without them
becoming thereby unregistered co-partners, but it does not
necessarily follow that such status as co-owners continues until
the inheritance is actually and physically distributed among the
heirs, for it is easily conceivable that after knowing their
respective shares in the partition, they might decide to continue
holding said shares under the common management of the
administrator or executor or of anyone chosen by them and
engage in business on that basis. Withal, if this were to be
allowed, it would be the easiest thing for heirs in any inheritance
to circumvent and render meaningless Sections 24 and 84(b) of
the National Internal Revenue Code.
It is true that in Evangelista vs. Collector, 102 Phil. 140, it was
stated, among the reasons for holding the appellants therein to
be unregistered co-partners for tax purposes, that their common
fund "was not something they found already in existence" and
that "it was not a property inherited by them pro indiviso," but it
is certainly far fetched to argue therefrom, as petitioners are
doing here, that ergo, in all instances where an inheritance is
not actually divided, there can be no unregistered co-
partnership. As already indicated, for tax purposes, the co-
ownership of inherited properties is automatically converted into
an unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a
common fund with intent to produce profits for the heirs in
proportion to their respective shares in the inheritance as
determined in a project partition either duly executed in an
extrajudicial settlement or approved by the court in the
corresponding testate or intestate proceeding. The reason for
this is simple. From the moment of such partition, the heirs are
entitled already to their respective definite shares of the estate
and the incomes thereof, for each of them to manage and
dispose of as exclusively his own without the intervention of the
other heirs, and, accordingly he becomes liable individually for
all taxes in connection therewith. If after such partition, he
allows his share to be held in common with his co-heirs under a
single management to be used with the intent of making profit
thereby in proportion to his share, there can be no doubt that,
even if no document or instrument were executed for the
purpose, for tax purposes, at least, an unregistered partnership
is formed. This is exactly what happened to petitioners in this
case.
In this connection, petitioners' reliance on Article 1769,
paragraph (3), of the Civil Code, providing that: "The sharing of
gross returns does not of itself establish a partnership, whether
or not the persons sharing them have a joint or common right or
interest in any property from which the returns are derived," and,
for that matter, on any other provision of said code on
partnerships is unavailing. In Evangelista, supra, this Court
clearly differentiated the concept of partnerships under the Civil
Code from that of unregistered partnerships which are
considered as "corporations" under Sections 24 and 84(b) of the
National Internal Revenue Code. Mr. Justice Roberto
Concepcion, now Chief Justice, elucidated on this point thus:

To begin with, the tax in question is one imposed
upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When
our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on
"corporations", said Code must allude, therefore,
to organizations which are not
necessarily "partnerships", in the technical sense
of the term. Thus, for instance, section 24 of said
Code exempts from the aforementioned tax "duly
registered general partnerships," which constitute
precisely one of the most typical forms of
partnerships in this jurisdiction. Likewise, as
defined in section 84(b) of said Code, "the term
corporation includes partnerships, no matter how
created or organized." This qualifying expression
clearly indicates that a joint venture need not be
undertaken in any of the standard forms, or in
confirmity with the usual requirements of the law
on partnerships, in order that one could be
deemed constituted for purposes of the tax on
corporation. Again, pursuant to said section
84(b),the term "corporation" includes, among
others, "joint accounts,(cuentas en participacion)"
and "associations", none of which has a legal
personality of its own, independent of that of its
members. Accordingly, the lawmaker could not
have regarded that personality as a condition
essential to the existence of the partnerships
therein referred to. In fact, as above stated, "duly
registered general co-partnerships" which are
possessed of the aforementioned personality
have been expressly excluded by law (sections 24
and 84[b]) from the connotation of the term
"corporation." ....
xxx xxx xxx
Similarly, the American Law
... provides its own concept of a
partnership. Under the term
"partnership" it includes not only a
partnership as known in common law
but, as well, a syndicate, group,
pool, joint venture, or other
unincorporated organization which
carries on any business, financial
operation, or venture, and which is
not, within the meaning of the Code,
a trust, estate, or a corporation. ... .
(7A Merten's Law of Federal Income
Taxation, p. 789; emphasis ours.)
The term "partnership" includes a
syndicate, group, pool, joint venture
or other unincorporated organization,
through or by means of which any
business, financial operation, or
venture is carried on. ... . (8 Merten's
Law of Federal Income Taxation, p.
562 Note 63; emphasis ours.)
For purposes of the tax on corporations, our
National Internal Revenue Code includes these
partnerships with the exception only of duly
registered general copartnerships within the
purview of the term "corporation." It is, therefore,
clear to our mind that petitioners herein constitute
a partnership, insofar as said Code is concerned,
and are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs.
Commissioner of Internal Revenue, G. R. Nos. L-24020-21, July

29, 1968, 24 SCRA 198, wherein the Court ruled against a
theory of co-ownership pursued by appellants therein.
As regards the second question raised by petitioners about the
segregation, for the purposes of the corporate taxes in question,
of their inherited properties from those acquired by them
subsequently, We consider as justified the following
ratiocination of the Tax Court in denying their motion for
reconsideration:
In connection with the second ground, it is alleged
that, if there was an unregistered partnership, the
holding should be limited to the business engaged
in apart from the properties inherited by
petitioners. In other words, the taxable income of
the partnership should be limited to the income
derived from the acquisition and sale of real
properties and corporate securities and should not
include the income derived from the inherited
properties. It is admitted that the inherited
properties and the income derived therefrom were
used in the business of buying and selling other
real properties and corporate securities.
Accordingly, the partnership income must include
not only the income derived from the purchase
and sale of other properties but also the income of
the inherited properties.
Besides, as already observed earlier, the income derived from
inherited properties may be considered as individual income of
the respective heirs only so long as the inheritance or estate is
not distributed or, at least, partitioned, but the moment their
respective known shares are used as part of the common
assets of the heirs to be used in making profits, it is but proper
that the income of such shares should be considered as the part
of the taxable income of an unregistered partnership. This, We
hold, is the clear intent of the law.
Likewise, the third question of petitioners appears to have been
adequately resolved by the Tax Court in the aforementioned
resolution denying petitioners' motion for reconsideration of the
decision of said court. Pertinently, the court ruled this wise:
In support of the third ground, counsel for
petitioners alleges:
Even if we were to yield to the
decision of this Honorable Court that
the herein petitioners have formed
an unregistered partnership and,
therefore, have to be taxed as such,
it might be recalled that the
petitioners in their individual income
tax returns reported their shares of
the profits of the unregistered
partnership. We think it only fair and
equitable that the various amounts
paid by the individual petitioners as
income tax on their respective
shares of the unregistered
partnership should be deducted from
the deficiency income tax found by
this Honorable Court against the
unregistered partnership. (page 7,
Memorandum for the Petitioner in
Support of Their Motion for
Reconsideration, Oct. 28, 1961.)
In other words, it is the position of petitioners that
the taxable income of the partnership must be
reduced by the amounts of income tax paid by
each petitioner on his share of partnership profits.
This is not correct; rather, it should be the other
way around. The partnership profits distributable
to the partners (petitioners herein) should be

reduced by the amounts of income tax assessed
against the partnership. Consequently, each of the
petitioners in his individual capacity overpaid his
income tax for the years in question, but the
income tax due from the partnership has been
correctly assessed. Since the individual income
tax liabilities of petitioners are not in issue in this
proceeding, it is not proper for the Court to pass
upon the same.
Petitioners insist that it was error for the Tax Court to so rule
that whatever excess they might have paid as individual income
tax cannot be credited as part payment of the taxes herein in
question. It is argued that to sanction the view of the Tax Court
is to oblige petitioners to pay double income tax on the same
income, and, worse, considering the time that has lapsed since
they paid their individual income taxes, they may already be
barred by prescription from recovering their overpayments in a
separate action. We do not agree. As We see it, the case of
petitioners as regards the point under discussion is simply that
of a taxpayer who has paid the wrong tax, assuming that the
failure to pay the corporate taxes in question was not deliberate.
Of course, such taxpayer has the right to be reimbursed what he
has erroneously paid, but the law is very clear that the claim and
action for such reimbursement are subject to the bar of
prescription. And since the period for the recovery of the excess
income taxes in the case of herein petitioners has already
lapsed, it would not seem right to virtually disregard prescription
merely upon the ground that the reason for the delay is
precisely because the taxpayers failed to make the proper
return and payment of the corporate taxes legally due from
them. In principle, it is but proper not to allow any relaxation of
the tax laws in favor of persons who are not exactly above
suspicion in their conduct vis-a-vis their tax obligation to the
State.
IN VIEW OF ALL THE FOREGOING, the judgment of the Court
of Tax Appeals appealed from is affirm with costs against
petitioners.
G.R. No. L-47045 November 22, 1988
NOBIO SARDANE, petitioner,
vs.
THE COURT OF APPEALS and ROMEO J.
ACOJEDO, respondents.
Y.G. Villaruz & Associates for petitioner.
Pelagio R. Lachica for private respondent.

REGALADO, J .:
The extensive discussion and exhaustive disquisition in the
decision 1 of the respondent Court 2 should have written finis to
this case without further recourse to Us. The assignment of
errors and arguments raised in the respondent Court by herein
private respondent, as the petitioner therein, having been
correctly and justifiedly sustained by said court without any
reversible error in its conclusions, the present petition must fail.
The assailed decision details the facts and proceedings which
spawned the present controversy as follows:
Petitioner brought an action in the City Court of
Dipolog for collection of a sum of P5,217.25 based
on promissory notes executed by the herein
private respondent Nobio Sardane in favor of the
herein petitioner. Petitioner bases his right to
collect on Exhibits B, C, D, E, F, and G executed
on different dates and signed by private

respondent Nobio Sardane. Exhibit B is a printed
promissory note involving Pl,117.25 and dated
May 13, 1972. Exhibit C is likewise a printed
promissory note and denotes on its face that the
sum loaned was Pl,400.00. Exhibit D is also a
printed promissory note dated May 31, 1977
involving an amount of P100.00. Exhibit E is what
is commonly known to the layman as 'vale' which
reads: 'Good for: two hundred pesos (Sgd) Nobio
Sardane'. Exhibit F is stated in the following tenor:
'Received from Mr. Romeo Acojedo the sum
Pesos: Two Thousand Two Hundred (P2,200.00)
ONLY, to be paid on or before December 25,
1975. (Sgd) Nobio Sardane.' Exhibit G and H are
both vales' involving the same amount of one
hundred pesos, and dated August 25, 1972 and
September 12, 1972 respectively.
It has been established in the trial court that on
many occasions, the petitioner demanded the
payment of the total amount of P5,217.25. The
failure of the private respondent to pay the said
amount prompted the petitioner to seek the
services of lawyer who made a letter (Exhibit 1)
formally demanding the return of the sum loaned.
Because of the failure of the private respondent to
heed the demands extrajudicially made by the
petitioner, the latter was constrained to bring an
action for collection of sum of money.
During the scheduled day for trial, private
respondent failed to appear and to file an answer.
On motion by the petitioner, the City Court of
Dipolog issued an order dated May 18, 1976
declaring the private respondent in default and
allowed the petitioner to present his evidence ex-
parte. Based on petitioner's evidence, the City
Court of Dipolog rendered judgment by default in
favor of the petitioner.
Private respondent filed a motion to lift the order of
default which was granted by the City Court in an
order dated May 24, 1976, taking into
consideration that the answer was filed within two
hours after the hearing of the evidence
presented ex-parte by the petitioner.
After the trial on the merits, the City Court of
Dipolog rendered its decision on September 14,
1976, the dispositive portion of which reads:
IN VIEW OF THE FOREGOING, judgment is
hereby rendered in favor of the plaintiff and
against the defendant as follows:
(a) Ordering the defendant to pay unto the plaintiff
the sum of Five Thousand Two Hundred
Seventeen Pesos and Twenty-five centavos
(P5,217.25) plus legal interest to commence from
April 23, 1976 when this case was filed in court;
and
(b) Ordering the defendant to pay the plaintiff the
sum of P200.00 as attorney's fee and to pay the
cost of this proceeding. 3
Therein defendant Sardane appealed to the Court of First
Instance of Zamboanga del Norte which reversed the decision
of the lower court by dismissing the complaint and ordered the
plaintiff-appellee Acojedo to pay said defendant-appellant
P500.00 each for actual damages, moral damages, exemplary
damages and attorney's fees, as well as the costs of suit.
Plaintiff-appellee then sought the review of said decision by
petition to the respondent Court.

The assignment of errors in said petition for review can be
capsulized into two decisive issues, firstly, whether the oral
testimony for the therein private respondent Sardane that a
partnership existed between him and therein petitioner Acojedo
are admissible to vary the meaning of the abovementioned
promissory notes; and, secondly, whether because of the failure
of therein petitioner to cross-examine therein private respondent
on his sur-rebuttal testimony, there was a waiver of the
presumption accorded in favor of said petitioner by Section 8,
Rule 8 of the Rules of Court.
On the first issue, the then Court of First Instance held that "the
pleadings of the parties herein put in issue the imperfection or
ambiguity of the documents in question", hence "the appellant
can avail of the parol evidence rule to prove his side of the case,
that is, the said amount taken by him from appellee is or was
not his personal debt to appellee, but expenses of the
partnership between him and appellee."
Consequently, said trial court concluded that the promissory
notes involved were merely receipts for the contributions to said
partnership and, therefore, upheld the claim that there was
ambiguity in the promissory notes, hence parol evidence was
allowable to vary or contradict the terms of the represented loan
contract.
The parol evidence rule in Rule 130 provides:
Sec. 7. Evidence of written agreements.When
the terms of an agreement have been reduced to
writing, it is to be considered as containing all such
terms, and, therefore, there can be, between the
parties and their successors in interest, no
evidence of the terms of the agreement other than
the contents of the writing except in the following
cases:
(a) Where a mistake or imperfection of the writing
or its failure to express the the true intent and
agreement of the parties, or the validity of the
agreement is put in issue by the pleadings;
(b) When there is an intrinsic ambiguity in the
writing.
As correctly pointed out by the respondent Court the exceptions
to the rule do not apply in this case as there is no ambiguity in
the writings in question, thus:
In the case at bar, Exhibits B, C, and D are printed
promissory notes containing a promise to pay a
sum certain in money, payable on demand and the
promise to bear the costs of litigation in the event
of the private respondent's failure to pay the
amount loaned when demanded extrajudicially.
Likewise, the vales denote that the private
respondent is obliged to return the sum loaned to
him by the petitioner. On their face, nothing
appears to be vague or ambigous, for the terms of
the promissory notes clearly show that it was
incumbent upon the private respondent to pay the
amount involved in the promissory notes if and
when the petitioner demands the same. It was
clearly the intent of the parties to enter into a
contract of loan for how could an educated man
like the private respondent be deceived to sign a
promissory note yet intending to make such a
writing to be mere receipts of the petitioner's
supposed contribution to the alleged partnership
existing between the parties?
It has been established in the trial court that, the
private respondent has been engaged in business
for quite a long period of time--as owner of the

Sardane Trucking Service, entering into contracts
with the government for the construction of wharfs
and seawall; and a member of the City Council of
Dapitan (TSN, July 20, 1976, pp. 57-
58).<re||an1w> It indeed puzzles us how the
private respondent could have been misled into
signing a document containing terms which he did
not mean them to be. ...
xxx xxx xxx
The private respondent admitted during the cross-
examination made by petitioner's counsel that he
was the one who was responsible for the printing
of Exhibits B, C, and D (TSN, July 28, 1976, p.
64). How could he purportedly rely on such a
flimsy pretext that the promissory notes were
receipts of the petitioner's contribution? 4
The Court of Appeals held, and We agree, that even if
evidence aliunde other than the promissory notes may be
admitted to alter the meaning conveyed thereby, still the
evidence is insufficient to prove that a partnership existed
between the private parties hereto.
As manager of the basnig Sarcado naturally some degree of
control over the operations and maintenance thereof had to be
exercised by herein petitioner. The fact that he had received
50% of the net profits does not conclusively establish that he
was a partner of the private respondent herein. Article 1769(4)
of the Civil Code is explicit that while the receipt by a person of
a share of the profits of a business is prima facie evidence that
he is a partner in the business, no such inference shall be
drawn if such profits were received in payment as wages of an
employee. Furthermore, herein petitioner had no voice in the
management of the affairs of the basnig. Under similar facts,
this Court in the early case of Fortis vs. Gutierrez
Hermanos, 5 in denying the claim of the plaintiff therein that he
was a partner in the business of the defendant, declared:
This contention cannot be sustained. It was a
mere contract of employment. The plaintiff had no
voice nor vote in the management of the affairs of
the company. The fact that the compensation
received by him was to be determined with
reference to the profits made by the defendant in
their business did not in any sense make him a
partner therein. ...
The same rule was reiterated in Bastida vs. Menzi & Co., Inc., et
al. 6 which involved the same factual and legal milieu.
There are other considerations noted by respondent Court
which negate herein petitioner's pretension that he was a
partner and not a mere employee indebted to the present
private respondent. Thus, in an action for damages filed by
herein private respondent against the North Zamboanga Timber
Co., Inc. arising from the operations of the business, herein
petitioner did not ask to be joined as a party plaintiff. Also,
although he contends that herein private respondent is the
treasurer of the alleged partnership, yet it is the latter who is
demanding an accounting. The advertence of the Court of First
Instance to the fact that the casco bears the name of herein
petitioner disregards the finding of the respondent Court that it
was just a concession since it was he who obtained the engine
used in the Sardaco from the Department of Local Government
and Community Development. Further, the use by the parties of
the pronoun "our" in referring to "our basnig, our catch", "our
deposit", or "our boseros" was merely indicative of the
camaraderie and not evidentiary of a partnership, between
them.
The foregoing factual findings, which belie the further claim that
the aforesaid promissory notes do not express the true intent

and agreement of the parties, are binding on Us since there is
no showing that they fall within the exceptions to the rule limiting
the scope of appellate review herein to questions of law.
On the second issue, the pertinent rule on actionable
documents in Rule 8, for ready reference, reads:
Sec. 8. How to contest genuineness of such
documents.When an action or defense is
founded upon a written instrument, copied in or
attached to the corresponding pleading as
provided in the preceding section, the
genuineness and due execution of the instrument
shall be deemed admitted unless the adverse
party, under oath, specifically denies them, and
sets forth what he claims to be the facts; but this
provision does not apply when the adverse party
does not appear to be a party to the instrument or
when compliance with an order for the inspection
of the original instrument is refused.
The record shows that herein petitioner did not deny under oath
in his answer the authenticity and due execution of the
promissory notes which had been duly pleaded and attached to
the complaint, thereby admitting their genuineness and due
execution. Even in the trial court, he did not at all question the
fact that he signed said promissory notes and that the same
were genuine. Instead, he presented parol evidence to vary the
import of the promissory notes by alleging that they were mere
receipts of his contribution to the alleged partnership.
His arguments on this score reflect a misapprehension of the
rule on parol evidence as distinguished from the rule on
actionable documents. As the respondent Court correctly
explained to herein petitioner, what he presented in the trial
Court was testimonial evidence that the promissory notes were
receipts of his supposed contributions to the alleged partnership
which testimony, in the light of Section 7, Rule 130, could not be
admitted to vary or alter the explicit meaning conveyed by said
promissory notes. On the other hand, the presumed
genuineness and due execution of said promissory notes were
not affected, pursuant to the provisions of Section 8, Rule 8,
since such aspects were not at all questioned but, on the
contrary, were admitted by herein petitioner.
Petitioner's invocation of the doctrines in Yu Chuck, et al. vs.
Kong Li Po, 7 which was reiterated in Central Surety &
Insurance Co. vs. C. N. Hodges, et al. 8 does not sustain his
thesis that the herein private respondent had "waived the mantle
of protection given him by Rule 8, Sec. 8". It is true that such
implied admission of genuineness and due execution may be
waived by a party but only if he acts in a manner indicative of
either an express or tacit waiver thereof. Petitioner, however,
either overlooked or ignored the fact that, as held in Yu
Chuck, and the same is true in other cases of Identical factual
settings, such a finding of waiver is proper where a case has
been tried in complete disregard of the rule and the plaintiff
having pleaded a document by copy, presents oral evidence to
prove the due execution of the document and no objections are
made to the defendant's evidence in refutation. This situation
does not obtain in the present case hence said doctrine is
obviously inapplicable.
Neither did the failure of herein private respondent to cross-
examine herein petitioner on the latter's sur-rebuttal testimony
constitute a waiver of the aforesaid implied admission. As found
by the respondent Court, said sur-rebuttal testimony consisted
solely of the denial of the testimony of herein private respondent
and no new or additional matter was introduced in that sur-
rebuttal testimony to exonerate herein petitioner from his
obligations under the aforesaid promissory notes.
On the foregoing premises and considerations, the respondent
Court correctly reversed and set aside the appealed decision of

the Court of First Instance of Zamboanga del Norte and affirmed
in full the decision of the City Court of Dipolog City in Civil Case
No. A-1838, dated September 14, 1976.
Belatedly, in his motion for reconsideration of said decision of
the respondent Court, herein petitioner, as the private
respondent therein, raised a third unresolved issue that the
petition for review therein should have been dismissed for lack
of jurisdiction since the lower Court's decision did not affirm in
full the judgment of the City Court of Dipolog, and which he
claimed was a sine qua non for such a petition under the law
then in force. He raises the same point in his present appeal
and We will waive the procedural technicalities in order to put
this issue at rest.
Parenthetically, in that same motion for reconsideration he had
sought affirmative relief from the respondent Court praying that
it sustain the decision of the trial Court, thereby invoking and
submitting to its jurisdiction which he would now assail.
Furthermore, the objection that he raises is actually not one of
jurisdiction but of procedure. 9
At any rate, it will be noted that petitioner anchors his said
objection on the provisions of Section 29, Republic Act 296 as
amended by Republic Act 5433 effective September 9, 1968.
Subsequently, the procedure for appeal to the Court of Appeals
from decisions of the then courts of first instance in the exercise
of their appellate jurisdiction over cases originating from the
municipal courts was provided for by Republic Act 6031,
amending Section 45 of the Judiciary Act effective August 4,
1969. The requirement for affirmance in full of the inferior court's
decision was not adopted or reproduced in Republic Act 6031.
Also, since Republic Act 6031 failed to provide for the procedure
or mode of appeal in the cases therein contemplated, the Court
of Appeals en banc provided thereof in its Resolution of August
12, 1971, by requiring a petition for review but which also did
not require for its availability that the judgment of the court of
first instance had affirmed in full that of the lower court. Said
mode of appeal and the procedural requirements thereof
governed the appeal taken in this case from the aforesaid Court
of First Instance to the Court of Appeals in 1977. 10 Herein
petitioner's plaint on this issue is, therefore, devoid of merit.
WHEREFORE, the judgment of the respondent Court of
Appeals is AFFIRMED, with costs against herein petitioner.
SO ORDERED.
G.R. No. 31057 September 7, 1929
ADRIANO ARBES, ET AL., plaintiffs-appellees,
vs.
VICENTE POLISTICO, ET AL., defendants-appellants.
Marcelino Lontok and Manuel dela Rosa for appellants.
Sumulong & Lavides for appellees.
VILLAMOR, J .:
This is an action to bring about liquidation of the funds and
property of the association called "Turnuhan Polistico & Co."
The plaintiffs were members or shareholders, and the
defendants were designated as president-treasurer, directors
and secretary of said association.
It is well to remember that this case is now brought before the
consideration of this court for the second time. The first one was
when the same plaintiffs appeared from the order of the court
below sustaining the defendant's demurrer, and requiring the
former to amend their complaint within a period, so as to include
all the members of "Turnuhan Polistico & Co.," either as
plaintiffs or as a defendants. This court held then that in an
action against the officers of a voluntary association to wind up
its affairs and enforce an accounting for money and property in

their possessions, it is not necessary that all members of the
association be made parties to the action. (Borlasa vs. Polistico,
47 Phil., 345.) The case having been remanded to the court of
origin, both parties amend, respectively, their complaint and
their answer, and by agreement of the parties, the court
appointed Amadeo R. Quintos, of the Insular Auditor's Office,
commissioner to examine all the books, documents, and
accounts of "Turnuhan Polistico & Co.," and to receive whatever
evidence the parties might desire to present.
The commissioner rendered his report, which is attached to the
record, with the following resume:
Income:
Member's shares............................ 97,263.70
Credits paid................................ 6,196.55
Interest received........................... 4,569.45
Miscellaneous...............................
1,891.00

P109,620.70
Expenses:
Premiums to members....................... 68,146.25
Loans on real-estate....................... 9,827.00
Loans on promissory notes.............. 4,258.55
Salaries.................................... 1,095.00
Miscellaneous...............................
1,686.10

85,012.90
Cash on hand........................................ 24,607.80
The defendants objected to the commissioner's report, but the
trial court, having examined the reasons for the objection, found
the same sufficiently explained in the report and the evidence,
and accepting it, rendered judgment, holding that the
association "Turnuhan Polistico & Co." is unlawful, and
sentencing the defendants jointly and severally to return the
amount of P24,607.80, as well as the documents showing the
uncollected credits of the association, to the plaintiffs in this
case, and to the rest of the members of the said association
represented by said plaintiffs, with costs against the defendants.
The defendants assigned several errors as grounds for their
appeal, but we believe they can all be reduced to two points, to
wit: (1) That not all persons having an interest in this association
are included as plaintiffs or defendants; (2) that the objection to
the commissioner's report should have been admitted by the
court below.
As to the first point, the decision on the case of Borlasa vs.
Polistico, supra, must be followed.
With regard to the second point, despite the praiseworthy efforts
of the attorney of the defendants, we are of opinion that, the trial
court having examined all the evidence touching the grounds for
the objection and having found that they had been explained
away in the commissioner's report, the conclusion reached by
the court below, accepting and adopting the findings of fact
contained in said report, and especially those referring to the
disposition of the association's money, should not be disturbed.
In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil.,
516), it was held that the findings of facts made by a referee

appointed under the provisions of section 135 of the Code of
Civil Procedure stand upon the same basis, when approved by
the Court, as findings made by the judge himself. And in Kriedt
vs. E. C. McCullogh & Co.(37 Phil., 474), the court held: "Under
section 140 of the Code of Civil Procedure it is made the duty of
the court to render judgment in accordance with the report of the
referee unless the court shall unless for cause shown set aside
the report or recommit it to the referee. This provision places
upon the litigant parties of the duty of discovering and exhibiting
to the court any error that may be contained therein." The
appellants stated the grounds for their objection. The trial
examined the evidence and the commissioner's report, and
accepted the findings of fact made in the report. We find no
convincing arguments on the appellant's brief to justify a
reversal of the trial court's conclusion admitting the
commissioner's findings.
There is no question that "Turnuhan Polistico & Co." is an
unlawful partnership (U.S. vs. Baguio, 39 Phil., 962), but the
appellants allege that because it is so, some charitable
institution to whom the partnership funds may be ordered to be
turned over, should be included, as a party defendant. The
appellants refer to article 1666 of the Civil Code, which
provides:
A partnership must have a lawful object, and must be
established for the common benefit of the partners.
When the dissolution of an unlawful partnership is
decreed, the profits shall be given to charitable
institutions of the domicile of the partnership, or, in
default of such, to those of the province.
Appellant's contention on this point is untenable. According to
said article, no charitable institution is a necessary party in the
present case of determination of the rights of the parties. The
action which may arise from said article, in the case of unlawful
partnership, is that for the recovery of the amounts paid by the
member from those in charge of the administration of said
partnership, and it is not necessary for the said parties to base
their action to the existence of the partnership, but on the fact
that of having contributed some money to the partnership
capital. And hence, the charitable institution of the domicile of
the partnership, and in the default thereof, those of the province
are not necessary parties in this case. The article cited above
permits no action for the purpose of obtaining the earnings
made by the unlawful partnership, during its existence as result
of the business in which it was engaged, because for the
purpose, as Manresa remarks, the partner will have to base his
action upon the partnership contract, which is to annul and
without legal existence by reason of its unlawful object; and it is
self evident that what does not exist cannot be a cause of
action. Hence, paragraph 2 of the same article provides that
when the dissolution of the unlawful partnership is decreed, the
profits cannot inure to the benefit of the partners, but must be
given to some charitable institution.
We deem in pertinent to quote Manresa's commentaries on
article 1666 at length, as a clear explanation of the scope and
spirit of the provision of the Civil Code which we are concerned.
Commenting on said article Manresa, among other things says:
When the subscriptions of the members have been paid
to the management of the partnership, and employed by
the latter in transactions consistent with the purposes of
the partnership may the former demand the return of the
reimbursement thereof from the manager or administrator
withholding them?
Apropos of this, it is asserted: If the partnership has no
valid existence, if it is considered juridically non-existent,
the contract entered into can have no legal effect; and in
that case, how can it give rise to an action in favor of the
partners to judicially demand from the manager or the

administrator of the partnership capital, each one's
contribution?
The authors discuss this point at great length, but Ricci
decides the matter quite clearly, dispelling all doubts
thereon. He holds that the partner who limits himself to
demanding only the amount contributed by him need not
resort to the partnership contract on which to base his
action. And he adds in explanation that the partner
makes his contribution, which passes to the managing
partner for the purpose of carrying on the business or
industry which is the object of the partnership; or in other
words, to breathe the breath of life into a partnership
contract with an objection forbidden by law. And as said
contrast does not exist in the eyes of the law, the
purpose from which the contribution was made has not
come into existence, and the administrator of the
partnership holding said contribution retains what
belongs to others, without any consideration; for which
reason he is not bound to return it and he who has paid
in his share is entitled to recover it.
But this is not the case with regard to profits earned in
the course of the partnership, because they do not
constitute or represent the partner's contribution but are
the result of the industry, business or speculation which
is the object of the partnership, and therefor, in order to
demand the proportional part of the said profits, the
partner would have to base his action on the contract
which is null and void, since this partition or distribution of
the profits is one of the juridical effects thereof.
Wherefore considering this contract asnon-existent, by
reason of its illicit object, it cannot give rise to the
necessary action, which must be the basis of the judicial
complaint. Furthermore, it would be immoral and unjust
for the law to permit a profit from an industry prohibited
by it.
Hence the distinction made in the second paragraph of
this article of this Code, providing that the profits obtained
by unlawful means shall not enrich the partners, but shall
upon the dissolution of the partnership, be given to the
charitable institutions of the domicile of the partnership,
or, in default of such, to those of the province.
This is a new rule, unprecedented by our law, introduced
to supply an obvious deficiency of the former law, which
did not describe the purpose to which those profits
denied the partners were to be applied, nor state what to
be done with them.
The profits are so applied, and not the contributions,
because this would be an excessive and unjust sanction
for, as we have seen, there is no reason, in such a case,
for depriving the partner of the portion of the capital that
he contributed, the circumstances of the two cases being
entirely different.
Our Code does not state whether, upon the dissolution of
the unlawful partnership, the amounts contributed are to
be returned by the partners, because it only deals with
the disposition of the profits; but the fact that said
contributions are not included in the disposal prescribed
profits, shows that in consequences of said exclusion, the
general law must be followed, and hence the partners
should reimburse the amount of their respective
contributions. Any other solution is immoral, and the law
will not consent to the latter remaining in the possession
of the manager or administrator who has refused to
return them, by denying to the partners the action to
demand them. (Manresa, Commentaries on the Spanish
Civil Code, vol. XI, pp. 262-264)
The judgment appealed from, being in accordance with law,
should be, as it is hereby, affirmed with costs against the

appellants; provided, however, the defendants shall pay the
legal interest on the sum of P24,607.80 from the date of the
decision of the court, and provided, further, that the defendants
shall deposit this sum of money and other documents
evidencing uncollected credits in the office of the clerk of the
trial court, in order that said court may distribute them among
the members of said association, upon being duly identified in
the manner that it may deem proper. 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 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 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) years
20
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
Code
25
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.1wphi1.nt
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
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
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.
18
Accordingly, 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. 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 (compaias colectivas) with the
personality of the individual partners for income tax purposes.
But this rule is exceptional in its disregard of a cardinal tenet of
our partnership laws, and can not be extended by mere
implication to limited partnerships.
The rulings cited by the petitioner (Collector of Internal Revenue
vs. University of the Visayas, L-13554, Resolution of 30 October
1964, and Koppel [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 (compaia colectiva) and a limited
partnership, when the code plainly differentiates the two. Thus,
the code taxes the latter on its income, but not the former,
because it is in the case of compaias colectivas that the
members, and not the firm, are taxable in their individual
capacities for any dividend or share of the profit derived from
the duly registered general partnership (Section 26, N.I.R.C.;
Araas, Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp.
88-89).lawphi1.nt
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.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro,
Fernando, Capistrano and Teehankee, JJ., concur.
Barredo, J., took no part.
G.R. No. 75875 December 15, 1989
WOLRGANG AURBACH, JOHN GRIFFIN, DAVID P.
WHITTINGHAM and CHARLES CHAMSAY, petitioners,
vs.

SANITARY WARES MANUFACTURING CORPORATOIN,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG and AVELINO V.
CRUZ, respondents.
G.R. No. 75951 December 15, 1989
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO R. LAGDAMEO, ENRIQUE B. LAGDAMEO,
GEORGE FL .EE RAUL A. BONCAN, BALDWIN YOUNG and
AVELINO V. CRUX, petitioners,
vs.
THE COURT OF APPEALS, WOLFGANG AURBACH, JOHN
GRIFFIN, DAVID P. WHITTINGHAM, CHARLES CHAMSAY
and LUCIANO SALAZAR, respondents.
G.R. Nos. 75975-76 December 15, 1989
LUCIANO E. SALAZAR, petitioner,
vs.
SANITARY WARES MANUFACTURING CORPORATION,
ERNESTO V. LAGDAMEO, ERNESTO R. LAGDAMEO, JR.,
ENRIQUE R. LAGDAMEO, GEORGE F. LEE, RAUL A.
BONCAN, BALDWIN YOUNG, AVELINO V. CRUZ and the
COURT OF APPEALS, respondents.
Belo, Abiera & Associates for petitioners in 75875.
Sycip, Salazar, Hernandez & Gatmaitan for Luciano E. Salazar.

GUTIERREZ, JR., J .:
These consolidated petitions seek the review of the amended
decision of the Court of Appeals in CA-G.R. SP Nos. 05604 and
05617 which set aside the earlier decision dated June 5, 1986,
of the then Intermediate Appellate Court and directed that in all
subsequent elections for directors of Sanitary Wares
Manufacturing Corporation (Saniwares), American Standard Inc.
(ASI) cannot nominate more than three (3) directors; that the
Filipino stockholders shall not interfere in ASI's choice of its
three (3) nominees; that, on the other hand, the Filipino
stockholders can nominate only six (6) candidates and in the
event they cannot agree on the six (6) nominees, they shall vote
only among themselves to determine who the six (6) nominees
will be, with cumulative voting to be allowed but without
interference from ASI.
The antecedent facts can be summarized as follows:
In 1961, Saniwares, a domestic corporation was incorporated
for the primary purpose of manufacturing and marketing sanitary
wares. One of the incorporators, Mr. Baldwin Young went
abroad to look for foreign partners, European or American who
could help in its expansion plans. On August 15, 1962, ASI, a
foreign corporation domiciled in Delaware, United States
entered into an Agreement with Saniwares and some Filipino
investors whereby ASI and the Filipino investors agreed to
participate in the ownership of an enterprise which would
engage primarily in the business of manufacturing in the
Philippines and selling here and abroad vitreous china and
sanitary wares. The parties agreed that the business operations
in the Philippines shall be carried on by an incorporated
enterprise and that the name of the corporation shall initially be
"Sanitary Wares Manufacturing Corporation."
The Agreement has the following provisions relevant to the
issues in these cases on the nomination and election of the
directors of the corporation:
3. Articles of Incorporation

(a) The Articles of Incorporation of the Corporation
shall be substantially in the form annexed hereto
as Exhibit A and, insofar as permitted under
Philippine law, shall specifically provide for
(1) Cumulative voting for directors:
xxx xxx xxx
5. Management
(a) The management of the Corporation shall be
vested in a Board of Directors, which shall consist
of nine individuals. As long as American-Standard
shall own at least 30% of the outstanding stock of
the Corporation, three of the nine directors shall
be designated by American-Standard, and the
other six shall be designated by the other
stockholders of the Corporation. (pp. 51 & 53,
Rollo of 75875)
At the request of ASI, the agreement contained provisions
designed to protect it as a minority group, including the grant of
veto powers over a number of corporate acts and the right to
designate certain officers, such as a member of the Executive
Committee whose vote was required for important corporate
transactions.
Later, the 30% capital stock of ASI was increased to 40%. The
corporation was also registered with the Board of Investments
for availment of incentives with the condition that at least 60% of
the capital stock of the corporation shall be owned by Philippine
nationals.
The joint enterprise thus entered into by the Filipino investors
and the American corporation prospered. Unfortunately, with the
business successes, there came a deterioration of the initially
harmonious relations between the two groups. According to the
Filipino group, a basic disagreement was due to their desire to
expand the export operations of the company to which ASI
objected as it apparently had other subsidiaries of joint joint
venture groups in the countries where Philippine exports were
contemplated. On March 8, 1983, the annual stockholders'
meeting was held. The meeting was presided by Baldwin
Young. The minutes were taken by the Secretary, Avelino Cruz.
After disposing of the preliminary items in the agenda, the
stockholders then proceeded to the election of the members of
the board of directors. The ASI group nominated three persons
namely; Wolfgang Aurbach, John Griffin and David P.
Whittingham. The Philippine investors nominated six, namely;
Ernesto Lagdameo, Sr., Raul A. Boncan, Ernesto R. Lagdameo,
Jr., George F. Lee, and Baldwin Young. Mr. Eduardo R, Ceniza
then nominated Mr. Luciano E. Salazar, who in turn nominated
Mr. Charles Chamsay. The chairman, Baldwin Young ruled the
last two nominations out of order on the basis of section 5 (a) of
the Agreement, the consistent practice of the parties during the
past annual stockholders' meetings to nominate only nine
persons as nominees for the nine-member board of directors,
and the legal advice of Saniwares' legal counsel. The following
events then, transpired:
... There were protests against the action of the
Chairman and heated arguments ensued. An
appeal was made by the ASI representative to the
body of stockholders present that a vote be taken
on the ruling of the Chairman. The Chairman,
Baldwin Young, declared the appeal out of order
and no vote on the ruling was taken. The
Chairman then instructed the Corporate Secretary
to cast all the votes present and represented by
proxy equally for the 6 nominees of the Philippine
Investors and the 3 nominees of ASI, thus
effectively excluding the 2 additional persons
nominated, namely, Luciano E. Salazar and

Charles Chamsay. The ASI representative, Mr.
Jaqua protested the decision of the Chairman and
announced that all votes accruing to ASI shares, a
total of 1,329,695 (p. 27, Rollo, AC-G.R. SP No.
05617) were being cumulatively voted for the three
ASI nominees and Charles Chamsay, and
instructed the Secretary to so vote. Luciano E.
Salazar and other proxy holders announced that
all the votes owned by and or represented by them
467,197 shares (p. 27, Rollo, AC-G.R. SP No.
05617) were being voted cumulatively in favor of
Luciano E. Salazar. The Chairman, Baldwin
Young, nevertheless instructed the Secretary to
cast all votes equally in favor of the three ASI
nominees, namely, Wolfgang Aurbach, John
Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely,
Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F.
Lee, and Baldwin Young. The Secretary then
certified for the election of the following Wolfgang
Aurbach, John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique
Lagdameo, George F. Lee, Raul A. Boncan,
Baldwin Young. The representative of ASI then
moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p.
28, Rollo, AC-G.R. SP No. 05617). This motion to
adjourn was accepted by the Chairman, Baldwin
Young, who announced that the motion was
carried and declared the meeting adjourned.
Protests against the adjournment were registered
and having been ignored, Mr. Jaqua the ASI
representative, stated that the meeting was not
adjourned but only recessed and that the meeting
would be reconvened in the next room. The
Chairman then threatened to have the
stockholders who did not agree to the decision of
the Chairman on the casting of votes bodily thrown
out. The ASI Group, Luciano E. Salazar and other
stockholders, allegedly representing 53 or 54% of
the shares of Saniwares, decided to continue the
meeting at the elevator lobby of the American
Standard Building. The continued meeting was
presided by Luciano E. Salazar, while Andres
Gatmaitan acted as Secretary. On the basis of the
cumulative votes cast earlier in the meeting, the
ASI Group nominated its four nominees; Wolfgang
Aurbach, John Griffin, David Whittingham and
Charles Chamsay. Luciano E. Salazar voted for
himself, thus the said five directors were certified
as elected directors by the Acting Secretary,
Andres Gatmaitan, with the explanation that there
was a tie among the other six (6) nominees for the
four (4) remaining positions of directors and that
the body decided not to break the tie. (pp. 37-39,
Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by
the parties with the Securities and Exchange Commission
(SEC). The first petition filed was for preliminary injunction by
Saniwares, Emesto V. Lagdameo, Baldwin Young, Raul A.
Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and
George F. Lee against Luciano Salazar and Charles Chamsay.
The case was denominated as SEC Case No. 2417. The
second petition was for quo warranto and application for
receivership by Wolfgang Aurbach, John Griffin, David
Whittingham, Luciano E. Salazar and Charles Chamsay against
the group of Young and Lagdameo (petitioners in SEC Case
No. 2417) and Avelino F. Cruz. The case was docketed as SEC
Case No. 2718. Both sets of parties except for Avelino Cruz
claimed to be the legitimate directors of the corporation.

The two petitions were consolidated and tried jointly by a
hearing officer who rendered a decision upholding the election
of the Lagdameo Group and dismissing the quo warranto
petition of Salazar and Chamsay. The ASI Group and Salazar
appealed the decision to the SEC en banc which affirmed the
hearing officer's decision.
The SEC decision led to the filing of two separate appeals with
the Intermediate Appellate Court by Wolfgang Aurbach, John
Griffin, David Whittingham and Charles Chamsay (docketed as
AC-G.R. SP No. 05604) and by Luciano E. Salazar (docketed
as AC-G.R. SP No. 05617). The petitions were consolidated
and the appellate court in its decision ordered the remand of the
case to the Securities and Exchange Commission with the
directive that a new stockholders' meeting of Saniwares be
ordered convoked as soon as possible, under the supervision of
the Commission.
Upon a motion for reconsideration filed by the appellees
Lagdameo Group) the appellate court (Court of Appeals)
rendered the questioned amended decision. Petitioners
Wolfgang Aurbach, John Griffin, David P. Whittingham and
Charles Chamsay in G.R. No. 75875 assign the following errors:
I. THE COURT OF APPEALS, IN EFFECT,
UPHELD THE ALLEGED ELECTION OF
PRIVATE RESPONDENTS AS MEMBERS OF
THE BOARD OF DIRECTORS OF SANIWARES
WHEN IN FACT THERE WAS NO ELECTION AT
ALL.
II. THE COURT OF APPEALS PROHIBITS THE
STOCKHOLDERS FROM EXERCISING THEIR
FULL VOTING RIGHTS REPRESENTED BY THE
NUMBER OF SHARES IN SANIWARES, THUS
DEPRIVING PETITIONERS AND THE
CORPORATION THEY REPRESENT OF THEIR
PROPERTY RIGHTS WITHOUT DUE PROCESS
OF LAW.
III. THE COURT OF APPEALS IMPOSES
CONDITIONS AND READS PROVISIONS INTO
THE AGREEMENT OF THE PARTIES WHICH
WERE NOT THERE, WHICH ACTION IT
CANNOT LEGALLY DO. (p. 17, Rollo-75875)
Petitioner Luciano E. Salazar in G.R. Nos. 75975-76 assails the
amended decision on the following grounds:
11.1.
ThatAmendedDecisionwouldsanctiontheCA'sdisre
gard 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:
I
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. 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 Decision
1
dated March 13, 1996 of the former
Fifth Division
2
of the Court of Appeals in CA-G.R. CV No.
47937, the dispositive portion of which states:
THE FOREGOING CONSIDERED, the appealed
decision is hereby set aside, and the complaint
dismissed.

The facts are:
Following the death of Tan Eng Kee on September 13, 1984,
Matilde Abubo, the common-law spouse of the decedent, joined
by their children Teresita, Nena, Clarita, Carlos, Corazon and
Elpidio, collectively known as herein petitioners HEIRS OF TAN
ENG KEE, filed suit against the decedent's brother TAN ENG
LAY on February 19, 1990. The complaint,
3
docketed as Civil
Case No. 1983-R in the Regional Trial Court of Baguio City was
for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee
and Tan Eng Lay. On March 18, 1991, the petitioners filed an
amended complaint
4
impleading private respondent herein
BENGUET LUMBER COMPANY, as represented by Tan Eng
Lay. The amended complaint was admitted by the trial court in
its Order dated May 3, 1991.
5

The amended complaint principally alleged that after the second
World War, Tan Eng Kee and Tan Eng Lay, pooling their
resources and industry together, entered into a partnership
engaged in the business of selling lumber and hardware and
construction supplies. They named their enterprise "Benguet
Lumber" which they jointly managed until Tan Eng Kee's death.
Petitioners herein averred that the business prospered due to
the hard work and thrift of the alleged partners. However, they
claimed that in 1981, Tan Eng Lay and his children caused the
conversion of the partnership "Benguet Lumber" into a
corporation called "Benguet Lumber Company." The
incorporation was purportedly a ruse to deprive Tan Eng Kee
and his heirs of their rightful participation in the profits of the
business. Petitioners prayed for accounting of the partnership
assets, and the dissolution, winding up and liquidation thereof,
and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7
rendered judgment
6
on April 12, 1995, to wit:
WHEREFORE, in view of all the foregoing, judgment is
hereby rendered:
a) Declaring that Benguet Lumber is a joint venture which
is akin to a particular partnership;
b) Declaring that the deceased Tan Eng Kee and Tan
Eng Lay are joint adventurers and/or partners in a
business venture and/or particular partnership called
Benguet Lumber and as such should share in the profits
and/or losses of the business venture or particular
partnership;
c) Declaring that the assets of Benguet Lumber are the
same assets turned over to Benguet Lumber Co. Inc. and
as such the heirs or legal representatives of the
deceased Tan Eng Kee have a legal right to share in said
assets;
d) Declaring that all the rights and obligations of Tan Eng
Kee as joint adventurer and/or as partner in a particular
partnership have descended to the plaintiffs who are his
legal heirs.
e) Ordering the defendant Tan Eng Lay and/or the
President and/or General Manager of Benguet Lumber
Company Inc. to render an accounting of all the assets of
Benguet Lumber Company, Inc. so the plaintiffs know
their proper share in the business;
f) Ordering the appointment of a receiver to preserve
and/or administer the assets of Benguet Lumber
Company, Inc. until such time that said corporation is
finally liquidated are directed to submit the name of any
person they want to be appointed as receiver failing in
which this Court will appoint the Branch Clerk of Court or
another one who is qualified to act as such.

g) Denying the award of damages to the plaintiffs for lack
of proof except the expenses in filing the instant case.
h) Dismissing the counter-claim of the defendant for lack
of merit.
SO ORDERED.
Private respondent sought relief before the Court of Appeals
which, on March 13, 1996, rendered the assailed decision
reversing the judgment of the trial court. Petitioners' motion for
reconsideration
7
was denied by the Court of Appeals in a
Resolution
8
dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case
No. 78856 against Tan Eng Lay and Wilborn Tan for the use of
allegedly falsified documents in a judicial proceeding.
Petitioners complained that Exhibits "4" to "4-U" offered by the
defendants before the trial court, consisting of payrolls indicating
that Tan Eng Kee was a mere employee of Benguet Lumber,
were fake, based on the discrepancy in the signatures of Tan
Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and
Willy, all surnamed Tan, for alleged falsification of commercial
documents by a private individual. On March 20, 1999, the
Municipal Trial Court of Baguio City, Branch 1, wherein the
charges were filed, rendered judgment
9
dismissing the cases for
insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THERE WAS NO PARTNERSHIP
BETWEEN THE LATE TAN ENG KEE AND HIS
BROTHER TAN ENG LAY BECAUSE: (A) THERE WAS
NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C)
THERE WAS NO CERTIFICATE OF PARTNERSHIP;
(D) THERE WAS NO AGREEMENT AS TO PROFITS
AND LOSSES; AND (E) THERE WAS NO TIME FIXED
FOR THE DURATION OF THE PARTNERSHIP (PAGE
13, DECISION).
II
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
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
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).
V
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.
Bolaos, 95 Phil. 906 [1954]) (Campos and Lopez-
Campos Comments, Notes and Selected Cases,
Corporation Code 1981).
Undoubtedly, the best evidence would have been the contract of
partnership itself, or the articles of partnership but there is none.
The alleged partnership, though, was never formally organized.
In addition, petitioners point out that the New Civil Code was not
yet in effect when the partnership was allegedly formed
sometime in 1945, although the contrary may well be argued
that nothing prevented the parties from complying with the
provisions of the New Civil Code when it took effect on August
30, 1950. But all that is in the past. The net effect, however, is
that we are asked to determine whether a partnership existed
based purely on circumstantial evidence. A review of the record
persuades us that the Court of Appeals correctly reversed the
decision of the trial court. The evidence presented by petitioners
falls short of the quantum of proof required to establish a
partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away.
Only he, aside from Tan Eng Lay, could have expounded on the
precise nature of the business relationship between them. In the
absence of evidence, we cannot accept as an established fact
that Tan Eng Kee allegedly contributed his resources to a
common fund for the purpose of establishing a partnership. The
testimonies to that effect of petitioners' witnesses is directly
controverted by Tan Eng Lay. It should be noted that it is not
with the number of witnesses wherein preponderance lies;
24
the
quality of their testimonies is to be considered. None of
petitioners' witnesses could suitably account for the beginnings
of Benguet Lumber Company, except perhaps for Dionisio
Peralta whose deceased wife was related to Matilde
Abubo.
25
He stated that when he met Tan Eng Kee after the
liberation, the latter asked the former to accompany him to get
80 pieces of G.I. sheets supposedly owned by both
brothers.
26
Tan Eng Lay, however, denied knowledge of this
meeting or of the conversation between Peralta and his
brother.
27
Tan Eng Lay consistently testified that he had his
business and his brother had his, that it was only later on that
his said brother, Tan Eng Kee, came to work for him. Be that as
it may, co-ownership or co-possession (specifically here, of the
G.I. sheets) is not an indicium of the existence of a
partnership.
28

Besides, it is indeed odd, if not unnatural, that despite the forty
years the partnership was allegedly in existence, Tan Eng Kee
never asked for an accounting. The essence of a partnership is
that the partners share in the profits and losses.
29
Each has the
right to demand an accounting as long as the partnership
exists.
30
We have allowed a scenario wherein "[i]f excellent
relations exist among the partners at the start of the business
and all the partners are more interested in seeing the firm grow
rather than get immediate returns, a deferment of sharing in the
profits is perfectly plausible."
31
But in the situation in the case at
bar, the deferment, if any, had gone on too long to be plausible.
A person is presumed to take ordinary care of his
concerns.
32
As we explained in another case:

In the first place, plaintiff did not furnish the supposed
P20,000.00 capital. In the second place, she did not
furnish any help or intervention in the management of the
theatre. In the third place, it does not appear that she has
even demanded from defendant any accounting of the
expenses and earnings of the business. Were she really
a partner, her first concern should have been to find out
how the business was progressing, whether the
expenses were legitimate, whether the earnings were
correct, etc. She was absolutely silent with respect to any
of the acts that a partner should have done; all that she
did was to receive her share of P3,000.00 a month, which
cannot be interpreted in any manner than a payment for
the use of the premises which she had leased from the
owners. Clearly, plaintiff had always acted in accordance
with the original letter of defendant of June 17, 1945
(Exh. "A"), which shows that both parties considered this
offer as the real contract between them.
33
[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 herebyAFFIRMED in toto.
No pronouncement as to costs.
SO ORDERED.

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BUS ORG GEN PROVISIONS 1

G.R. No. 78133 October 18, 1988

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