G.R. No.

L-9996 October 15, 1957

EUFEMIA EVANGELISTA, MANUELA EVANGELISTA, and
FRANCISCA EVANGELISTA, petitioners,
vs.
THE COLLECTOR OF INTERNAL REVENUE and THE
COURT OF TAX APPEALS, respondents.
This is a petition filed by Eufemia Evangelista, Manuela
Evangelista and Francisca Evangelista, for review of a
decision of the Court of Tax Appeals, the dispositive part of
which reads:
FOR ALL THE FOREGOING, we hold that the
petitioners are liable for the income tax, real estate
dealer's tax and the residence tax for the years 1945
to 1949, inclusive, in accordance with the
respondent's assessment for the same in the total
amount of P6,878.34, which is hereby affirmed and
the petition for review filed by petitioner is hereby
dismissed with costs against petitioners.
It appears from the stipulation submitted by the parties:
1. That the petitioners borrowed from their father the
sum of P59,1400.00 which amount together with
their personal monies was used by them for the
purpose of buying real properties,.
2. That on February 2, 1943, they bought from Mrs.
Josefina Florentino a lot with an area of 3,713.40 sq.
m. including improvements thereon from the sum of
P100,000.00; this property has an assessed value of
P57,517.00 as of 1948;
3. That on April 3, 1944 they purchased from Mrs.
Josefa Oppus 21 parcels of land with an aggregate
area of 3,718.40 sq. m. including improvements
thereon for P130,000.00; this property has an
assessed value of P82,255.00 as of 1948;
4. That on April 28, 1944 they purchased from the
Insular Investments Inc., a lot of 4,353 sq. m.
including improvements thereon for P108,825.00.
This property has an assessed value of P4,983.00
as of 1948;
5. That on April 28, 1944 they bought form Mrs.
Valentina Afable a lot of 8,371 sq. m. including
improvements thereon for P237,234.34. This
property has an assessed value of P59,140.00 as of
1948;
6. That in a document dated August 16, 1945, they
appointed their brother Simeon Evangelista to
'manage their properties with full power to lease; to
collect and receive rents; to issue receipts therefor;
in default of such payment, to bring suits against the
defaulting tenants; to sign all letters, contracts, etc.,
for and in their behalf, and to endorse and deposit all
notes and checks for them;
7. That after having bought the above-mentioned
real properties the petitioners had the same rented
or leases to various tenants;
8. That from the month of March, 1945 up to an
including December, 1945, the total amount
collected as rents on their real properties was
P9,599.00 while the expenses amounted to
P3,650.00 thereby leaving them a net rental income
of P5,948.33;
9. That on 1946, they realized a gross rental income
of in the sum of P24,786.30, out of which amount
was deducted in the sum of P16,288.27 for
expenses thereby leaving them a net rental income
of P7,498.13;
10. That in 1948, they realized a gross rental income
of P17,453.00 out of the which amount was
deducted the sum of P4,837.65 as expenses,
thereby leaving them a net rental income of
P12,615.35.
It further appears that on September 24, 1954 respondent
Collector of Internal Revenue demanded the payment of
income tax on corporations, real estate dealer's fixed tax and
corporation residence tax for the years 1945-1949, computed,
according to assessment made by said officer, as follows:
INCOME TAXES
1945 14.84
1946 1,144.71
1947 10.34
1948 1,912.30
1949 1,575.90
Total including surcharge and compromise P6,157.09
REAL ESTATE DEALER'S FIXED TAX
1946 P37.50
1947 150.00
1948 150.00
1949 150.00
Total including penalty P527.00
RESIDENCE TAXES OF CORPORATION
1945 P38.75
1946 38.75
1947 38.75
1948 38.75
1949 38.75
Total including surcharge P193.75
TOTAL TAXES DUE P6,878.34.
Said letter of demand and corresponding assessments were
delivered to petitioners on December 3, 1954, whereupon they
instituted the present case in the Court of Tax Appeals, with a
prayer that "the decision of the respondent contained in his
letter of demand dated September 24, 1954" be reversed, and
that they be absolved from the payment of the taxes in
question, with costs against the respondent.
After appropriate proceedings, the Court of Tax Appeals the
above-mentioned decision for the respondent, and a petition
for reconsideration and new trial having been subsequently
denied, the case is now before Us for review at the instance of
the petitioners.
The issue in this case 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 section 24 and 84
of said Code, the pertinent parts of which read:
SEC. 24. Rate of 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
(compaias colectivas), 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
participacion), associations or insurance companies,
but does not include duly registered general
copartnerships. (compaias 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, properly, or
industry to a common fund, with the intention of
dividing the profits among themselves.
Pursuant to the 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 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 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 transactions 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 the petitioners in February,
1943. In other words, one cannot but perceive a
character of habitually peculiar to business
transactions engaged in the purpose 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 Evangelista, 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 and 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 Evangelista 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.
Petitioners insist, however, that they are mere co-owners, not
copartners, for, in consequence of the acts performed by them,
a legal entity, with a personality independent of that of its
members, did not come into existence, and some of the
characteristics of partnerships are lacking in the case at bar.
This pretense was correctly rejected by the Court of Tax
Appeals.
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 conformity with the usual requirements of the law
on partnerships, in order that one could be deemed constituted
for purposes of the tax on corporations. Again, pursuant to said
section 84(b), the term "corporation" includes, among other,
joint accounts, (cuentas en participation)" 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
copartnerships" 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" It
may not be amiss to add that petitioners' allegation to the
effect that their liability in connection with the leasing of the lots
above referred to, under the management of one person
even if true, on which we express no opinion tends
to increase the similarity between the nature of their venture
and that corporations, and is, therefore, an additional
argument in favor of the imposition of said tax on corporations.
Under the Internal Revenue Laws of the United States,
"corporations" are taxed differently from "partnerships". By
specific provisions of said laws, such "corporations" include
"associations, joint-stock companies and insurance
companies." However, the term "association" is not used in the
aforementioned laws.
. . . in any narrow or technical sense. It includes any
organization, created for the transaction of designed
affairs, or the attainment of some object, which like a
corporation, continues notwithstanding that its
members or participants change, and the affairs of
which, like corporate affairs, are conducted by a
single individual, a committee, a board, or some
other group, acting in a representative capacity. It is
immaterial whether such organization is created by
an agreement, a declaration of trust, a statute, or
otherwise. It includes a voluntary association, a joint-
stock corporation or company, a 'business' trusts a
'Massachusetts' trust, a 'common law' trust, and
'investment' trust (whether of the fixed or the
management type), an interinsuarance exchange
operating through an attorney in fact, a partnership
association, and any other type of organization (by
whatever name known) which is not, within the
meaning of the Code, a trust or an estate, or a
partnership. (7A Mertens Law of Federal Income
Taxation, p. 788; emphasis supplied.).
Similarly, the American Law.
. . . provides its own concept of a partnership, under
the term 'partnership 'it includes not only a
partnership as known at common law but, as well, a
syndicate, group, pool, joint venture or other
unincorporated organizations 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 supplied.)
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 supplied.) .
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.
As regards the residence of tax for corporations, section 2 of
Commonwealth Act No. 465 provides in part:
Entities liable to residence tax.-Every corporation, no
matter how created or organized, whether domestic
or resident foreign, engaged in or doing business in
the Philippines shall pay an annual residence tax of
five pesos and an annual additional tax which in no
case, shall exceed one thousand pesos, in
accordance with the following schedule: . . .
The term 'corporation' as used in this Act includes
joint-stock company, partnership, joint account
(cuentas en participacion), association or insurance
company, no matter how created or organized.
(emphasis supplied.)
Considering that the pertinent part of this provision is
analogous to that of section 24 and 84 (b) of our National
Internal Revenue Code (commonwealth Act No. 466), and that
the latter was approved on June 15, 1939, the day immediately
after the approval of said Commonwealth Act No. 465 (June
14, 1939), it is apparent that the terms "corporation" and
"partnership" are used in both statutes with substantially the
same meaning. Consequently, petitioners are subject, also, to
the residence tax for corporations.
Lastly, the records show that petitioners have habitually
engaged in leasing the properties above mentioned for a
period of over twelve years, and that the yearly gross rentals of
said properties from June 1945 to 1948 ranged from P9,599 to
P17,453. Thus, they are subject to the tax provided in section
193 (q) of our National Internal Revenue Code, for "real estate
dealers," inasmuch as, pursuant to section 194 (s) thereof:
'Real estate dealer' includes any person engaged in
the business of buying, selling, exchanging, leasing,
or renting property or his own account as
principal and holding himself out as a full or part time
dealer in real estate or as an owner of rental property
or properties rented or offered to rent for an
aggregate amount of three thousand pesos or more
a year. . . (emphasis supplied.)
Wherefore, the appealed decision of the Court of Tax appeals
is hereby affirmed with costs against the petitioners herein. It is
so ordered.
Bengzon, Paras, C.J., Padilla, Reyes, A., Reyes, J.B.L.,
Endencia and Felix, JJ., concur.
BAUTISTA ANGELO, J., concurring:
I agree with the opinion that petitioners have actually
contributed money to a common fund with express purpose of
engaging in real estate business for profit. The series of
transactions which they had undertaken attest to this. This
appears in the following portion of the decision:
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. On
April 3, 1944, they purchase 21 lots for P18,000.
This was soon followed on April 23, 1944, by the
acquisition of another real state for P108,825. Five
(5) days later (April 28, 1944), they got a fourth lot for
P237,234.14. The number of lots (24) acquired and
transactions 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 the
petitioner in February, 1943, In other words, we
cannot but perceive a character of habitually peculiar
to business transactions engaged in for purposes of
gain.
I wish however to make 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 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 partnership, whether or not the person
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 shared or do not share any profits made
by the use of 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 judicial 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 Floyd R.
Mechem, 2n Ed., section 83, p. 74.)
A joint venture purchase of land, by two, does not
constitute a copartnership in respect thereto; nor
does not agreement to share the profits and loses on
the sale of land create a partnership; the parties are
only tenants in common. (Clark vs. Sideway, 142
U.S. 682, 12 S Ct. 327, 35 L. Ed., 1157.)
Where plaintiff, his brother, and another agreed to
become owners of a single tract of reality, 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 plaintiff's commissions, no
partnership existed as between the parties, whatever
relation may have been as to third parties. (Magee
vs. Magee, 123 N. E. 6763, 233 Mass. 341.)
In order to constitute a partnership inter sese there
must be: (a) An intent to form the same; (b) generally
a 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 Ill. 470.)
The common ownership of property does not itself
create a partnership between the owners, though
they may use it for 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.)
This is impliedly recognized in the following portion of the
decision: "Although, taken singly, they might not suffice to
establish the intent necessary to constitute a partnership, the
collective effect of these circumstances (referring to the series
of transactions) such as to leave no room for doubt on the
existence of said intent in petitioners herein."
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.
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.

G.R. No. 136448 November 3, 1999
LIM TONG LIM, petitioner,
vs.
PHILIPPINE FISHING GEAR INDUSTRIES, INC., respondent.
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.
Ac
cru
ed
inte
res
t of
P7
3,2
21.
00
on
Inv
oic
e
No.
14
40
7
for
P3
85,
37
7.8
0
dat
ed
Fe
bru
ary
9,
19
90;
ii.
Ac
cru
ed
inte
res
t
for
P2
7,9
04.
02
on
Inv
oic
e
No.
14
41
3
for
P1
46,
86
8.0
0
dat
ed
Fe
bru
ary
13,
19
90;
iii.
Ac
cru
ed
inte
res
t of
P1
2,9
20.
00
on
Inv
oic
e
No.
14
42
6
for
P6
8,0
00.
00
dat
ed
Fe
bru
ary
19,
19
90;
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.
Melo, Purisima and Gonzaga-Reyes, JJ., concur.
Vitug, J., pls. see concurring opinion.
Separate Opinions
VITUG, J., concurring opinion;
I share the views expressed in the ponencia of an esteemed
colleague, Mr. Justice Artemio V. Panganiban, particularly the
finding that Antonio Chua, Peter Yao and petitioner Lim Tong
Lim have incurred the liabilities of general partners. I merely
would wish to elucidate a bit, albeit briefly, the liability of
partners in a general partnership.
When a person by his act or deed represents himself as a
partner in an existing partnership or with one or more persons
not actual partners, he is deemed an agent of such persons
consenting to such representation and in the same manner, if
he were a partner, with respect to persons who rely upon the
representation.
1
The association formed by Chua, Yao and
Lim, should be, as it has been deemed, a de facto partnership
with all the consequent obligations for the purpose of enforcing
the rights of third persons. The liability of general partners (in a
general partnership as so opposed to a limited partnership) is
laid down in Article 1816
2
which posits that all partners shall
be liable pro rata beyond the partnership assets for all the
contracts which may have been entered into in its name, under
its signature, and by a person authorized to act for the
partnership. This rule is to be construed along with other
provisions of the Civil Code which postulate that the partners
can be held solidarily liable with the partnership specifically in
these instances (1) where, by any wrongful act or omission
of any partner acting in the ordinary course of the business of
the partnership or with the authority of his co-partners, loss or
injury is caused to any person, not being a partner in the
partnership, or any penalty is incurred, the partnership is liable
therefor to the same extent as the partner so acting or omitting
to act; (2) where one partner acting within the scope of his
apparent authority receives money or property of a third
person and misapplies it; and (3) where the partnership in the
course of its business receives money or property of a third
person and the money or property so received is misapplied by
any partner while it is in the custody of the partnership
3

consistently with the rules on the nature of civil liability in
delicts and quasi-delicts.
G.R. No. L-41182-3 April 16, 1988
DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-
appellants,
vs.
THE COURT OF APPEALS, TOURIST WORLD SERVICE,
INC., ELISEO S.CANILAO, and SEGUNDINA
NOGUERA, respondents-appellees.
The petitioners invoke the provisions on human relations of the
Civil Code in this appeal by certiorari. The facts are beyond
dispute:
xxx xxx xxx
On the strength of a contract (Exhibit A for
the appellant Exhibit 2 for the appellees)
entered into on Oct. 19, 1960 by and
between Mrs. Segundina Noguera, party of
the first part; the Tourist World Service,
Inc., represented by Mr. Eliseo Canilao as
party of the second part, and hereinafter
referred to as appellants, the Tourist World
Service, Inc. leased the premises
belonging to the party of the first part at
Mabini St., Manila for the former-s use as a
branch office. In the said contract the party
of the third part held herself solidarily liable
with the party of the part for the prompt
payment of the monthly rental agreed on.
When the branch office was opened, the
same was run by the herein appellant Una
0. Sevilla payable to Tourist World Service
Inc. by any airline for any fare brought in
on the efforts of Mrs. Lina Sevilla, 4% was
to go to Lina Sevilla and 3% was to be
withheld by the Tourist World Service, Inc.
On or about November 24, 1961 (Exhibit
16) the Tourist World Service, Inc. appears
to have been informed that Lina Sevilla
was connected with a rival firm, the
Philippine Travel Bureau, and, since the
branch office was anyhow losing, the
Tourist World Service considered closing
down its office. This was firmed up by two
resolutions of the board of directors of
Tourist World Service, Inc. dated Dec. 2,
1961 (Exhibits 12 and 13), the first
abolishing the office of the manager and
vice-president of the Tourist World Service,
Inc., Ermita Branch, and the
second,authorizing the corporate secretary
to receive the properties of the Tourist
World Service then located at the said
branch office. It further appears that on
Jan. 3, 1962, the contract with the
appellees for the use of the Branch Office
premises was terminated and while the
effectivity thereof was Jan. 31, 1962, the
appellees no longer used it. As a matter of
fact appellants used it since Nov. 1961.
Because of this, and to comply with the
mandate of the Tourist World Service, the
corporate secretary Gabino Canilao went
over to the branch office, and, finding the
premises locked, and, being unable to
contact Lina Sevilla, he padlocked the
premises on June 4, 1962 to protect the
interests of the Tourist World Service.
When neither the appellant Lina Sevilla nor
any of her employees could enter the
locked premises, a complaint wall filed by
the herein appellants against the appellees
with a prayer for the issuance of
mandatory preliminary injunction. Both
appellees answered with counterclaims.
For apparent lack of interest of the parties
therein, the trial court ordered the
dismissal of the case without prejudice.
The appellee Segundina Noguera sought
reconsideration of the order dismissing her
counterclaim which the court a quo, in an
order dated June 8, 1963, granted
permitting her to present evidence in
support of her counterclaim.
On June 17,1963, appellant Lina Sevilla
refiled her case against the herein
appellees and after the issues were joined,
the reinstated counterclaim of Segundina
Noguera and the new complaint of
appellant Lina Sevilla were jointly heard
following which the court a quo ordered
both cases dismiss for lack of merit, on the
basis of which was elevated the instant
appeal on the following assignment of
errors:
I. THE LOWER COURT ERRED EVEN IN
APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O.
SEVILLA'S COMPLAINT.
II. THE LOWER COURT ERRED IN
HOLDING THAT APPELLANT MRS. LINA
0. SEVILA'S ARRANGEMENT (WITH
APPELLEE TOURIST WORLD SERVICE,
INC.) WAS ONE MERELY OF
EMPLOYER-EMPLOYEE RELATION AND
IN FAILING TO HOLD THAT THE SAID
ARRANGEMENT WAS ONE OF JOINT
BUSINESS VENTURE.
III. THE LOWER COURT ERRED IN
RULING THAT PLAINTIFF-APPELLANT
MRS. LINA O. SEVILLA IS ESTOPPED
FROM DENYING THAT SHE WAS A
MERE EMPLOYEE OF DEFENDANT-
APPELLEE TOURIST WORLD SERVICE,
INC. EVEN AS AGAINST THE LATTER.
IV. THE LOWER COURT ERRED IN NOT
HOLDING THAT APPELLEES HAD NO
RIGHT TO EVICT APPELLANT MRS.
LINA O. SEVILLA FROM THE A. MABINI
OFFICE BY TAKING THE LAW INTO
THEIR OWN HANDS.
V. THE LOWER COURT ERRED IN NOT
CONSIDERING AT .ALL APPELLEE
NOGUERA'S RESPONSIBILITY FOR
APPELLANT LINA O. SEVILLA'S
FORCIBLE DISPOSSESSION OF THE A.
MABINI PREMISES.
VI. THE LOWER COURT ERRED IN
FINDING THAT APPELLANT APPELLANT
MRS. LINA O. SEVILLA SIGNED MERELY
AS GUARANTOR FOR RENTALS.
On the foregoing facts and in the light of the errors asigned the
issues to be resolved are:
1. Whether the appellee Tourist World
Service unilaterally disco the telephone
line at the branch office on Ermita;
2. Whether or not the padlocking of the
office by the Tourist World Service was
actionable or not; and
3. Whether or not the lessee to the office
premises belonging to the appellee
Noguera was appellees TWS or TWS and
the appellant.
In this appeal, appealant Lina Sevilla
claims that a joint bussiness venture was
entered into by and between her and
appellee TWS with offices at the Ermita
branch office and that she was not an
employee of the TWS to the end that her
relationship with TWS was one of a joint
business venture appellant made
declarations showing:
1. Appellant Mrs. Lina
0. Sevilla, a prominent
figure and wife of an
eminent eye, ear and
nose specialist as well
as a imediately
columnist had been in
the travel business
prior to the
establishment of the
joint business venture
with appellee Tourist
World Service, Inc. and
appellee Eliseo
Canilao, her compadre,
she being the
godmother of one of
his children, with her
own clientele, coming
mostly from her own
social circle (pp. 3-6
tsn. February 16,1965).
2. Appellant Mrs.
Sevilla was signatory
to a lease agreement
dated 19 October 1960
(Exh. 'A') covering the
premises at A. Mabini
St., she expressly
warranting and holding
[sic] herself 'solidarily'
liable with appellee
Tourist World Service,
Inc. for the prompt
payment of the
monthly rentals thereof
to other appellee Mrs.
Noguera (pp. 14-15,
tsn. Jan. 18,1964).
3. Appellant Mrs.
Sevilla did not receive
any salary from
appellee Tourist World
Service, Inc., which
had its own, separate
office located at the
Trade & Commerce
Building; nor was she
an employee thereof,
having no participation
in nor connection with
said business at the
Trade & Commerce
Building (pp. 16-18 tsn
Id.).
4. Appellant Mrs.
Sevilla earned
commissions for her
own passengers, her
own bookings her own
business (and not for
any of the business of
appellee Tourist World
Service, Inc.) obtained
from the airline
companies. She
shared the 7%
commissions given by
the airline companies
giving appellee Tourist
World Service, Lic. 3%
thereof aid retaining
4% for herself (pp. 18
tsn. Id.)
5. Appellant Mrs.
Sevilla likewise shared
in the expenses of
maintaining the A.
Mabini St. office,
paying for the salary of
an office secretary,
Miss Obieta, and other
sundry expenses,
aside from desicion the
office furniture and
supplying some of fice
furnishings (pp. 15,18
tsn. April 6,1965),
appellee Tourist World
Service, Inc.
shouldering the rental
and other expenses in
consideration for the
3% split in the co
procured by appellant
Mrs. Sevilla (p. 35 tsn
Feb. 16,1965).
6. It was the
understanding
between them that
appellant Mrs. Sevilla
would be given the title
of branch manager for
appearance's sake
only (p. 31 tsn. Id.),
appellee Eliseo
Canilao admit that it
was just a title for
dignity (p. 36 tsn. June
18, 1965- testimony of
appellee Eliseo
Canilao pp. 38-39 tsn
April 61965-testimony
of corporate secretary
Gabino Canilao (pp- 2-
5, Appellants' Reply
Brief)
Upon the other hand, appellee TWS
contend that the appellant was an
employee of the appellee Tourist World
Service, Inc. and as such was designated
manager.
1

xxx xxx xxx
The trial court
2
held for the private respondent on the premise
that the private respondent, Tourist World Service, Inc., being
the true lessee, it was within its prerogative to terminate the
lease and padlock the premises.
3
It likewise found the
petitioner, Lina Sevilla, to be a mere employee of said Tourist
World Service, Inc. and as such, she was bound by the acts of
her employer.
4
The respondent Court of Appeal
5
rendered an
affirmance.
The petitioners now claim that the respondent Court, in
sustaining the lower court, erred. Specifically, they state:
I
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
HOLDING THAT "THE PADLOCKING OF THE PREMISES BY
TOURIST WORLD SERVICE INC. WITHOUT THE
KNOWLEDGE AND CONSENT OF THE APPELLANT LINA
SEVILLA ... WITHOUT NOTIFYING MRS. LINA O. SEVILLA
OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING
COUNSEL FOR THE APPELLANT (SEVILIA), WHO
IMMEDIATELY BEFORE THE PADLOCKING INCIDENT,
WAS IN CONFERENCE WITH THE CORPORATE
SECRETARY OF TOURIST WORLD SERVICE
(ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID
OFFICE), IN THEIR ATTEMP AMICABLY SETTLE THE
CONTROVERSY BETWEEN THE APPELLANT (SEVILLA)
AND THE TOURIST WORLD SERVICE ... (DID NOT)
ENTITLE THE LATTER TO THE RELIEF OF DAMAGES"
(ANNEX "A" PP. 7,8 AND ANNEX "B" P. 2) DECISION
AGAINST DUE PROCESS WHICH ADHERES TO THE RULE
OF LAW.
II
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE
HAD "OFFERED TO WITHDRAW HER COMP PROVIDED
THAT ALL CLAIMS AND COUNTERCLAIMS LODGED BY
BOTH APPELLEES WERE WITHDRAWN." (ANNEX "A" P. 8)
III
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING-IN FACT NOT PASSING AND RESOLVING-
APPELLANT SEVILLAS CAUSE OF ACTION FOUNDED ON
ARTICLES 19, 20 AND 21 OF THE CIVIL CODE ON
RELATIONS.
IV
THE COURT OF APPEALS ERRED ON A QUESTION OF
LAW AND GRAVELY ABUSED ITS DISCRETION IN
DENYING APPEAL APPELLANT SEVILLA RELIEF YET NOT
RESOLVING HER CLAIM THAT SHE WAS IN JOINT
VENTURE WITH TOURIST WORLD SERVICE INC. OR AT
LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH
COULD NOT BE TERMINATED OR REVOKED
UNILATERALLY BY TOURIST WORLD SERVICE INC.
6

As a preliminary inquiry, the Court is asked to declare the true
nature of the relation between Lina Sevilla and Tourist World
Service, Inc. The respondent Court of see fit to rule on the
question, the crucial issue, in its opinion being "whether or not
the padlocking of the premises by the Tourist World Service,
Inc. without the knowledge and consent of the appellant Lina
Sevilla entitled the latter to the relief of damages prayed for
and whether or not the evidence for the said appellant
supports the contention that the appellee Tourist World
Service, Inc. unilaterally and without the consent of the
appellant disconnected the telephone lines of the Ermita
branch office of the appellee Tourist World Service,
Inc.
7
Tourist World Service, Inc., insists, on the other hand,
that Lina SEVILLA was a mere employee, being "branch
manager" of its Ermita "branch" office and that inferentially,
she had no say on the lease executed with the private
respondent, Segundina Noguera. The petitioners contend,
however, that relation between the between parties was one of
joint venture, but concede that "whatever might have been the
true relationship between Sevilla and Tourist World
Service," the Rule of Law enjoined Tourist World Service and
Canilao from taking the law into their own hands,
8
in reference
to the padlocking now questioned.
The Court finds the resolution of the issue material, for if, as
the private respondent, Tourist World Service, Inc., maintains,
that the relation between the parties was in the character of
employer and employee, the courts would have been without
jurisdiction to try the case, labor disputes being the exclusive
domain of the Court of Industrial Relations, later, the Bureau
Of Labor Relations, pursuant to statutes then in force.
9

In this jurisdiction, there has been no uniform test to determine
the evidence of an employer-employee relation. In general, we
have relied on the so-called right of control test, "where the
person for whom the services are performed reserves a right to
control not only the end to be achieved but also the means to
be used in reaching such end."
10
Subsequently, however, we
have considered, in addition to the standard of right-of control,
the existing economic conditions prevailing between the
parties, like the inclusion of the employee in the payrolls, in
determining the existence of an employer-employee
relationship.
11

The records will show that the petitioner, Lina Sevilla, was not
subject to control by the private respondent Tourist World
Service, Inc., either as to the result of the enterprise or as to
the means used in connection therewith. In the first place,
under the contract of lease covering the Tourist Worlds Ermita
office, she had bound herself in solidumas and for rental
payments, an arrangement that would be like claims of a
master-servant relationship. True the respondent Court would
later minimize her participation in the lease as one of mere
guaranty,
12
that does not make her an employee of Tourist
World, since in any case, a true employee cannot be made to
part with his own money in pursuance of his employer's
business, or otherwise, assume any liability thereof. In that
event, the parties must be bound by some other relation, but
certainly not employment.
In the second place, and as found by the Appellate Court,
'[w]hen the branch office was opened, the same was run by the
herein appellant Lina O. Sevilla payable to Tourist World
Service, Inc. by any airline for any fare brought in on the effort
of Mrs. Lina Sevilla.
13
Under these circumstances, it cannot be
said that Sevilla was under the control of Tourist World
Service, Inc. "as to the means used." Sevilla in pursuing the
business, obviously relied on her own gifts and capabilities.
It is further admitted that Sevilla was not in the company's
payroll. For her efforts, she retained 4% in commissions from
airline bookings, the remaining 3% going to Tourist World.
Unlike an employee then, who earns a fixed salary usually, she
earned compensation in fluctuating amounts depending on her
booking successes.
The fact that Sevilla had been designated 'branch manager"
does not make her, ergo, Tourist World's employee. As we
said, employment is determined by the right-of-control test and
certain economic parameters. But titles are weak indicators.
In rejecting Tourist World Service, Inc.'s arguments however,
we are not, as a consequence, accepting Lina Sevilla's own,
that is, that the parties had embarked on a joint venture or
otherwise, a partnership. And apparently, Sevilla herself did
not recognize the existence of such a relation. In her letter of
November 28, 1961, she expressly 'concedes your [Tourist
World Service, Inc.'s] right to stop the operation of your branch
office
14
in effect, accepting Tourist World Service, Inc.'s
control over the manner in which the business was run. A joint
venture, including a partnership, presupposes generally a of
standing between the joint co-venturers or partners, in which
each party has an equal proprietary interest in the capital or
property contributed
15
and where each party exercises equal
rights in the conduct of the business.
16
furthermore, the parties
did not hold themselves out as partners, and the building itself
was embellished with the electric sign "Tourist World Service,
Inc.
17
in lieu of a distinct partnership name.
It is the Court's considered opinion, that when the petitioner,
Lina Sevilla, agreed to (wo)man the private respondent, Tourist
World Service, Inc.'s Ermita office, she must have done so
pursuant to a contract of agency. It is the essence of this
contract that the agent renders services "in representation or
on behalf of another.
18
In the case at bar, Sevilla solicited
airline fares, but she did so for and on behalf of her principal,
Tourist World Service, Inc. As compensation, she received 4%
of the proceeds in the concept of commissions. And as we
said, Sevilla herself based on her letter of November 28, 1961,
pre-assumed her principal's authority as owner of the business
undertaking. We are convinced, considering the circumstances
and from the respondent Court's recital of facts, that the ties
had contemplated a principal agent relationship, rather than a
joint managament or a partnership..
But unlike simple grants of a power of attorney, the agency
that we hereby declare to be compatible with the intent of the
parties, cannot be revoked at will. The reason is that it is one
coupled with an interest, the agency having been created for
mutual interest, of the agent and the principal.
19
It appears
that Lina Sevilla is a bona fide travel agent herself, and as
such, she had acquired an interest in the business entrusted to
her. Moreover, she had assumed a personal obligation for the
operation thereof, holding herself solidarily liable for the
payment of rentals. She continued the business, using her own
name, after Tourist World had stopped further operations. Her
interest, obviously, is not to the commissions she earned as a
result of her business transactions, but one that extends to the
very subject matter of the power of management delegated to
her. It is an agency that, as we said, cannot be revoked at the
pleasure of the principal. Accordingly, the revocation
complained of should entitle the petitioner, Lina Sevilla, to
damages.
As we have stated, the respondent Court avoided this issue,
confining itself to the telephone disconnection and padlocking
incidents. Anent the disconnection issue, it is the holding of the
Court of Appeals that there is 'no evidence showing that the
Tourist World Service, Inc. disconnected the telephone lines at
the branch office.
20
Yet, what cannot be denied is the fact that
Tourist World Service, Inc. did not take pains to have them
reconnected. Assuming, therefore, that it had no hand in the
disconnection now complained of, it had clearly condoned it,
and as owner of the telephone lines, it must shoulder
responsibility therefor.
The Court of Appeals must likewise be held to be in error with
respect to the padlocking incident. For the fact that Tourist
World Service, Inc. was the lessee named in the lease con-
tract did not accord it any authority to terminate that contract
without notice to its actual occupant, and to padlock the
premises in such fashion. As this Court has ruled, the
petitioner, Lina Sevilla, had acquired a personal stake in the
business itself, and necessarily, in the equipment pertaining
thereto. Furthermore, Sevilla was not a stranger to that
contract having been explicitly named therein as a third party
in charge of rental payments (solidarily with Tourist World,
Inc.). She could not be ousted from possession as summarily
as one would eject an interloper.
The Court is satisfied that from the chronicle of events, there
was indeed some malevolent design to put the petitioner, Lina
Sevilla, in a bad light following disclosures that she had worked
for a rival firm. To be sure, the respondent court speaks of
alleged business losses to justify the closure '21 but there is no
clear showing that Tourist World Ermita Branch had in fact
sustained such reverses, let alone, the fact that Sevilla had
moonlit for another company. What the evidence discloses, on
the other hand, is that following such an information (that
Sevilla was working for another company), Tourist World's
board of directors adopted two resolutions abolishing the office
of 'manager" and authorizing the corporate secretary, the
respondent Eliseo Canilao, to effect the takeover of its branch
office properties. On January 3, 1962, the private respondents
ended the lease over the branch office premises, incidentally,
without notice to her.
It was only on June 4, 1962, and after office hours significantly,
that the Ermita office was padlocked, personally by the
respondent Canilao, on the pretext that it was necessary to
Protect the interests of the Tourist World Service. "
22
It is
strange indeed that Tourist World Service, Inc. did not find
such a need when it cancelled the lease five months earlier.
While Tourist World Service, Inc. would not pretend that it
sought to locate Sevilla to inform her of the closure, but
surely, it was aware that after office hours, she could not have
been anywhere near the premises. Capping these series of
"offensives," it cut the office's telephone lines, paralyzing
completely its business operations, and in the process,
depriving Sevilla articipation therein.
This conduct on the part of Tourist World Service, Inc. betrays
a sinister effort to punish Sevillsa it had perceived to be
disloyalty on her part. It is offensive, in any event, to
elementary norms of justice and fair play.
We rule therefore, that for its unwarranted revocation of the
contract of agency, the private respondent, Tourist World
Service, Inc., should be sentenced to pay damages. Under the
Civil Code, moral damages may be awarded for "breaches of
contract where the defendant acted ... in bad faith.
23

We likewise condemn Tourist World Service, Inc. to pay further
damages for the moral injury done to Lina Sevilla from its
brazen conduct subsequent to the cancellation of the power of
attorney granted to her on the authority of Article 21 of the Civil
Code, in relation to Article 2219 (10) thereof
ART. 21. Any person who wilfully causes
loss or injury to another in a manner that is
contrary to morals, good customs or public
policy shall compensate the latter for the
damage.
24

ART. 2219. Moral damages
25
may be
recovered in the following and analogous
cases:
xxx xxx xxx
(10) Acts and actions refered into article
21, 26, 27, 28, 29, 30, 32, 34, and 35.
The respondent, Eliseo Canilao, as a joint tortfeasor is likewise
hereby ordered to respond for the same damages in a solidary
capacity.
Insofar, however, as the private respondent, Segundina
Noguera is concerned, no evidence has been shown that she
had connived with Tourist World Service, Inc. in the
disconnection and padlocking incidents. She cannot therefore
be held liable as a cotortfeasor.
The Court considers the sums of P25,000.00 as and for moral
damages,24 P10,000.00 as exemplary damages,
25
and
P5,000.00 as nominal
26
and/or temperate
27
damages, to be
just, fair, and reasonable under the circumstances.
WHEREFORE, the Decision promulgated on January 23, 1975
as well as the Resolution issued on July 31, 1975, by the
respondent Court of Appeals is hereby REVERSED and SET
ASIDE. The private respondent, Tourist World Service, Inc.,
and Eliseo Canilao, are ORDERED jointly and severally to
indemnify the petitioner, Lina Sevilla, the sum of 25,00.00 as
and for moral damages, the sum of P10,000.00, as and for
exemplary damages, and the sum of P5,000.00, as and for
nominal and/or temperate damages.
Costs against said private respondents.
SO ORDERED.
Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ.,
concur.
G.R. No. 134559 December 9, 1999
ANTONIA TORRES assisted by her husband, ANGELO
TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:
Courts may not extricate parties from the necessary
consequences of their acts. That the terms of a contract turn
out to be financially disadvantageous to them will not relieve
them of their obligations therein. The lack of an inventory of
real property will not ipso facto release the contracting partners
from their respective obligations to each other arising from acts
executed in accordance with their agreement.
The Case
The Petition for Review on Certiorari before us assails the
March 5, 1998 Decision
1
of the Court of Appeals
2
(CA) in CA-
GR CV No. 42378 and its June 25, 1998 Resolution denying
reconsideration. The assailed Decision affirmed the ruling of
the Regional Trial Court (RTC) of Cebu City in Civil Case No.
R-21208, which disposed as follows:
WHEREFORE, for all the foregoing
considerations, the Court, finding for the
defendant and against the plaintiffs, orders
the dismissal of the plaintiffs complaint.
The counterclaims of the defendant are
likewise ordered dismissed. No
pronouncement as to costs.
3

The Facts
Sisters Antonia Torres and Emeteria Baring, herein petitioners,
entered into a "joint venture agreement" with Respondent
Manuel Torres for the development of a parcel of land into a
subdivision. Pursuant to the contract, they executed a Deed of
Sale covering the said parcel of land in favor of respondent,
who then had it registered in his name. By mortgaging the
property, respondent obtained from Equitable Bank a loan of
P40,000 which, under the Joint Venture Agreement, was to be
used for the development of the subdivision.
4
All three of them
also agreed to share the proceeds from the sale of the
subdivided lots.
The project did not push through, and the land was
subsequently foreclosed by the bank.
According to petitioners, the project failed because of
"respondent's lack of funds or means and skills." They add that
respondent used the loan not for the development of the
subdivision, but in furtherance of his own company, Universal
Umbrella Company.
On the other hand, respondent alleged that he used the loan to
implement the Agreement. With the said amount, he was able
to effect the survey and the subdivision of the lots. He secured
the Lapu Lapu City Council's approval of the subdivision
project which he advertised in a local newspaper. He also
caused the construction of roads, curbs and gutters. Likewise,
he entered into a contract with an engineering firm for the
building of sixty low-cost housing units and actually even set
up a model house on one of the subdivision lots. He did all of
these for a total expense of P85,000.
Respondent claimed that the subdivision project failed,
however, because petitioners and their relatives had
separately caused the annotations of adverse claims on the
title to the land, which eventually scared away prospective
buyers. Despite his requests, petitioners refused to cause the
clearing of the claims, thereby forcing him to give up on the
project.
5

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

Ruling of the Court of Appeals
In affirming the trial court, the Court of Appeals held that
petitioners and respondent had formed a partnership for the
development of the subdivision. Thus, they must bear the loss
suffered by the partnership in the same proportion as their
share in the profits stipulated in the contract. Disagreeing with
the trial court's pronouncement that losses as well as profits in
a joint venture should be distributed equally,
7
the CA invoked
Article 1797 of the Civil Code which provides:
Art. 1797 The losses and profits shall be
distributed in conformity with the
agreement. If only the share of each
partner in the profits has been agreed
upon, the share of each in the losses shall
be in the same proportion.
The CA elucidated further:
In the absence of stipulation, the share of
each partner in the profits and losses shall
be in proportion to what he may have
contributed, but the industrial partner shall
not be liable for the losses. As for the
profits, the industrial partner shall receive
such share as may be just and equitable
under the circumstances. If besides his
services he has contributed capital, he
shall also receive a share in the profits in
proportion to his capital.
The Issue
Petitioners impute to the Court of Appeals the following error:
. . . [The] Court of Appeals erred in
concluding that the transaction
. . . between the petitioners and
respondent was that of a joint
venture/partnership, ignoring outright the
provision of Article 1769, and other related
provisions of the Civil Code of the
Philippines.
8

The Court's Ruling
The Petition is bereft of merit.
Main Issue:
Existence of a Partnership
Petitioners deny having formed a partnership with respondent.
They contend that the Joint Venture Agreement and the earlier
Deed of Sale, both of which were the bases of the appellate
court's finding of a partnership, were void.
In the same breath, however, they assert that under those very
same contracts, respondent is liable for his failure to
implement the project. Because the agreement entitled them to
receive 60 percent of the proceeds from the sale of the
subdivision lots, they pray that respondent pay them damages
equivalent to 60 percent of the value of the property.
9

The pertinent portions of the Joint Venture Agreement read as
follows:
KNOW ALL MEN BY THESE PRESENTS:
This AGREEMENT, is made and entered
into at Cebu City, Philippines, this 5th day
of March, 1969, by and between MR.
MANUEL R. TORRES, . . . the FIRST
PARTY, likewise, MRS. ANTONIA B.
TORRES, and MISS EMETERIA BARING,
. . . the SECOND PARTY:
WITNESSETH:
That, whereas, the SECOND PARTY,
voluntarily offered the FIRST PARTY, this
property located at Lapu-Lapu City, Island
of Mactan, under Lot No. 1368 covering
TCT No. T-0184 with a total area of 17,009
square meters, to be sub-divided by the
FIRST PARTY;
Whereas, the FIRST PARTY had given the
SECOND PARTY, the sum of: TWENTY
THOUSAND (P20,000.00) Pesos,
Philippine Currency upon the execution of
this contract for the property entrusted by
the SECOND PARTY, for sub-division
projects and development purposes;
NOW THEREFORE, for and in
consideration of the above covenants and
promises herein contained the respective
parties hereto do hereby stipulate and
agree as follows:
ONE: That the SECOND PARTY signed an
absolute Deed of Sale . . . dated March 5,
1969, in the amount of TWENTY FIVE
THOUSAND FIVE HUNDRED THIRTEEN
& FIFTY CTVS. (P25,513.50) Philippine
Currency, for 1,700 square meters at ONE
[PESO] & FIFTY CTVS. (P1.50) Philippine
Currency, in favor of the FIRST PARTY,
but the SECOND PARTY did not actually
receive the payment.
SECOND: That the SECOND PARTY, had
received from the FIRST PARTY, the
necessary amount of TWENTY
THOUSAND (P20,000.00) pesos,
Philippine currency, for their personal
obligations and this particular amount will
serve as an advance payment from the
FIRST PARTY for the property mentioned
to be sub-divided and to be deducted from
the sales.
THIRD: That the FIRST PARTY, will not
collect from the SECOND PARTY, the
interest and the principal amount involving
the amount of TWENTY THOUSAND
(P20,000.00) Pesos, Philippine Currency,
until the sub-division project is terminated
and ready for sale to any interested
parties, and the amount of TWENTY
THOUSAND (P20,000.00) pesos,
Philippine currency, will be deducted
accordingly.
FOURTH: That all general expense[s] and
all cost[s] involved in the sub-division
project should be paid by the FIRST
PARTY, exclusively and all the expenses
will not be deducted from the sales after
the development of the sub-division
project.
FIFTH: That the sales of the sub-divided
lots will be divided into SIXTY
PERCENTUM 60% for the SECOND
PARTY and FORTY PERCENTUM 40%
for the FIRST PARTY, and additional
profits or whatever income deriving from
the sales will be divided equally according
to the . . . percentage [agreed upon] by
both parties.
SIXTH: That the intended sub-division
project of the property involved will start
the work and all improvements upon the
adjacent lots will be negotiated in both
parties['] favor and all sales shall [be]
decided by both parties.
SEVENTH: That the SECOND PARTIES,
should be given an option to get back the
property mentioned provided the amount of
TWENTY THOUSAND (P20,000.00)
Pesos, Philippine Currency, borrowed by
the SECOND PARTY, will be paid in full to
the FIRST PARTY, including all necessary
improvements spent by the FIRST PARTY,
and-the FIRST PARTY will be given a
grace period to turnover the property
mentioned above.
That this AGREEMENT shall be binding
and obligatory to the parties who executed
same freely and voluntarily for the uses
and purposes therein stated.
10

A reading of the terms embodied in the Agreement indubitably
shows the existence of a partnership pursuant to Article 1767
of the Civil Code, which provides:
Art. 1767. By the contract of partnership
two or more persons bind themselves to
contribute money, property, or industry to a
common fund, with the intention of dividing
the profits among themselves.
Under the above-quoted Agreement, petitioners would
contribute property to the partnership in the form of land which
was to be developed into a subdivision; while respondent
would give, in addition to his industry, the amount needed for
general expenses and other costs. Furthermore, the income
from the said project would be divided according to the
stipulated percentage. Clearly, the contract manifested the
intention of the parties to form a partnership.
11

It should be stressed that the parties implemented the contract.
Thus, petitioners transferred the title to the land to facilitate its
use in the name of the respondent. On the other hand,
respondent caused the subject land to be mortgaged, the
proceeds of which were used for the survey and the
subdivision of the land. As noted earlier, he developed the
roads, the curbs and the gutters of the subdivision and entered
into a contract to construct low-cost housing units on the
property.
Respondent's actions clearly belie petitioners' contention that
he made no contribution to the partnership. Under Article 1767
of the Civil Code, a partner may contribute not only money or
property, but also industry.
Petitioners Bound by
Terms of Contract
Under Article 1315 of the Civil Code, contracts bind the parties
not only to what has been expressly stipulated, but also to all
necessary consequences thereof, as follows:
Art. 1315. Contracts are perfected by mere
consent, and from that moment the parties
are bound not only to the fulfillment of what
has been expressly stipulated but also to
all the consequences which, according to
their nature, may be in keeping with good
faith, usage and law.
It is undisputed that petitioners are educated and are thus
presumed to have understood the terms of the contract they
voluntarily signed. If it was not in consonance with their
expectations, they should have objected to it and insisted on
the provisions they wanted.
Courts are not authorized to extricate parties from the
necessary consequences of their acts, and the fact that the
contractual stipulations may turn out to be financially
disadvantageous will not relieve parties thereto of their
obligations. They cannot now disavow the relationship formed
from such agreement due to their supposed misunderstanding
of its terms.
Alleged Nullity of the
Partnership Agreement
Petitioners argue that the Joint Venture Agreement is void
under Article 1773 of the Civil Code, which provides:
Art. 1773. A contract of partnership is void,
whenever immovable property is
contributed thereto, if an inventory of said
property is not made, signed by the
parties, and attached to the public
instrument.
They contend that since the parties did not make, sign or
attach to the public instrument an inventory of the real property
contributed, the partnership is void.
We clarify. First, Article 1773 was intended primarily to protect
third persons. Thus, the eminent Arturo M. Tolentino states
that under the aforecited provision which is a complement of
Article 1771,
12
"The execution of a public instrument would be
useless if there is no inventory of the property contributed,
because without its designation and description, they cannot
be subject to inscription in the Registry of Property, and their
contribution cannot prejudice third persons. This will result in
fraud to those who contract with the partnership in the belief
[in] the efficacy of the guaranty in which the immovables may
consist. Thus, the contract is declared void by the law when no
such inventory is made." The case at bar does not involve third
parties who may be prejudiced.
Second, petitioners themselves invoke the allegedly void
contract as basis for their claim that respondent should pay
them 60 percent of the value of the property.
13
They cannot in
one breath deny the contract and in another recognize it,
depending on what momentarily suits their purpose. Parties
cannot adopt inconsistent positions in regard to a contract and
courts will not tolerate, much less approve, such practice.
In short, the alleged nullity of the partnership will not prevent
courts from considering the Joint Venture Agreement an
ordinary contract from which the parties' rights and obligations
to each other may be inferred and enforced.
Partnership Agreement Not the Result
of an Earlier Illegal Contract
Petitioners also contend that the Joint Venture Agreement is
void under Article 1422
14
of the Civil Code, because it is the
direct result of an earlier illegal contract, which was for the sale
of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly
states that the consideration for the sale was the expectation
of profits from the subdivision project. Its first stipulation states
that petitioners did not actually receive payment for the parcel
of land sold to respondent. Consideration, more properly
denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another.
15

In this case, the cause of the contract of sale consisted not in
the stated peso value of the land, but in the expectation of
profits from the subdivision project, for which the land was
intended to be used. As explained by the trial court, "the land
was in effect given to the partnership as [petitioner's]
participation therein. . . . There was therefore a consideration
for the sale, the [petitioners] acting in the expectation that,
should the venture come into fruition, they [would] get sixty
percent of the net profits."
Liability of the Parties
Claiming that rerpondent was solely responsible for the failure
of the subdivision project, petitioners maintain that he should
be made to pay damages equivalent to 60 percent of the value
of the property, which was their share in the profits under the
Joint Venture Agreement.
We are not persuaded. True, the Court of Appeals held that
petitioners' acts were not the cause of the failure of the
project.
16
But it also ruled that neither was respondent
responsible therefor.
17
In imputing the blame solely to him,
petitioners failed to give any reason why we should disregard
the factual findings of the appellate court relieving him of fault.
Verily, factual issues cannot be resolved in a petition for review
under Rule 45, as in this case. Petitioners have not alleged,
not to say shown, that their Petition constitutes one of the
exceptions to this doctrine.
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
Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
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.
By this petition for certiorari the Court is asked to determine if a
partnership exists between members of the same family
arising from their joint ownership of certain properties.
Petitioner and private respondents are brothers and sisters
who are co-owners of certain lots at the corner of Annapolis
and Aurora Blvd., QuezonCity which were then being leased to
the Shell Company of the Philippines Limited (SHELL). They
agreed to open and operate a gas station thereat to be known
as Estanislao Shell Service Station with an initial investment of
P 15,000.00 to be taken from the advance rentals due to them
from SHELL for the occupancy of the said lots owned in
common by them. A joint affidavit was executed by them on
April 11, 1966 which was prepared byAtty. Democrito
Angeles
1
They agreed to help their brother, petitioner herein,
by allowing him to operate and manage the gasoline service
station of the family. They negotiated with SHELL. For practical
purposes and in order not to run counter to the company's
policy of appointing only one dealer, it was agreed that
petitioner would apply for the dealership. Respondent
Remedios helped in managing the bussiness with petitioner
from May 3, 1966 up to February 16, 1967.
On May 26, 1966, the parties herein entered into an Additional
Cash Pledge Agreement with SHELL wherein it was reiterated
that the P 15,000.00 advance rental shall be deposited with
SHELL to cover advances of fuel to petitioner as dealer with a
proviso that said agreement "cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the co-owners."
2

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

Thus, on August 25, 1970 private respondents filed a
complaint in the Court of First Instance of Rizal against
petitioner praying among others that the latter be ordered:
1. to execute a public document
embodying all the provisions of the
partnership agreement entered into
between plaintiffs and defendant as
provided in Article 1771 of the New Civil
Code;
2. to render a formal accounting of the
business operation covering the period
from May 6, 1966 up to December 21,
1968 and from January 1, 1969 up to the
time the order is issued and that the same
be subject to proper audit;
3. to pay the plaintiffs their lawful shares
and participation in the net profits of the
business in an amount of no less than P
l50,000.00 with interest at the rate of 1%
per month from date of demand until full
payment thereof for the entire duration of
the business; and
4. to pay the plaintiffs the amount of P
10,000.00 as attorney's fees and costs of
the suit (pp. 13-14 Record on Appeal.)
After trial on the merits, on October 15, 1975, Hon. Lino
Anover who was then the temporary presiding judge of Branch
IV of the trial court, rendered judgment dismissing the
complaint and counterclaim and ordering private respondents
to pay petitioner P 3,000.00 attorney's fee and costs. Private
respondent filed a motion for reconsideration of the decision.
On December 10, 1975, Hon. Ricardo Tensuan who was the
newly appointed presiding judge of the same branch, set aside
the aforesaid derision and rendered another decision in favor
of said respondents.
The dispositive part thereof reads as follows:
WHEREFORE, the Decision of this Court
dated October 14, 1975 is hereby
reconsidered and a new judgment is
hereby rendered in favor of the plaintiffs
and as against the defendant:
(1) Ordering the defendant to execute a
public instrument embodying all the
provisions of the partnership agreement
entered into between plaintiffs and
defendant as provided for in Article 1771,
Civil Code of the Philippines;
(2) Ordering the defendant to render a
formal accounting of the business
operation from April 1969 up to the time
this order is issued, the same to be subject
to examination and audit by the plaintiff,
(3) Ordering the defendant to pay plaintiffs
their lawful shares and participation in the
net profits of the business in the amount of
P 150,000.00, with interest thereon at the
rate of One (1%) Per Cent per month from
date of demand until full payment thereof;
(4) Ordering the defendant to pay the
plaintiffs the sum of P 5,000.00 by way of
attorney's fees of plaintiffs' counsel; as well
as the costs of suit. (pp. 161-162. Record
on Appeal).
Petitioner then interposed an appeal to the Court of Appeals
enumerating seven (7) errors allegedly committed by the trial
court. In due course, a decision was rendered by the Court of
Appeals on November 28,1978 affirming in toto the decision of
the lower court with costs against petitioner. *
A motion for reconsideration of said decision filed by petitioner
was denied on January 30, 1979. Not satisfied therewith, the
petitioner now comes to this court by way of this petition for
certiorari alleging that the respondent court erred:
1. In interpreting the legal import of the
Joint Affidavit (Exh. 'A') vis-a-vis the
Additional Cash Pledge Agreement (Exhs.
"B-2","6", and "L"); and
2. In declaring that a partnership was
established by and among the petitioner
and the private respondents as regards the
ownership and or operation of the gasoline
service station business.
Petitioner relies heavily on the provisions of the Joint Affidavit
of April 11, 1966 (Exhibit A) and the Additional Cash Pledge
Agreement of May 20, 1966 (Exhibit 6) which are herein
reproduced-
(a) The joint Affidavit of April 11, 1966, Exhibit A reads:
(1) That we are the Lessors of two parcels
of land fully describe in Transfer
Certificates of Title Nos. 45071 and 71244
of the Register of Deeds of Quezon City, in
favor of the LESSEE - SHELL COMPANY
OF THE PHILIPPINES LIMITED a
corporation duly licensed to do business in
the Philippines;
(2) That we have requested the said
SHELL COMPANY OF THE PHILIPPINE
LIMITED advanced rentals in the total
amount of FIFTEEN THOUSAND PESOS
(P l5,000.00) Philippine Currency, so that
we can use the said amount to augment
our capital investment in the operation of
that gasoline station constructed ,by the
said company on our two lots aforesaid by
virtue of an outstanding Lease Agreement
we have entered into with the said
company;
(3) That the and SHELL COMPANY OF
THE PHILIPPINE LIMITED out of its
benevolence and desire to help us in
aumenting our capital investment in the
operation of the said gasoline station, has
agreed to give us the said amount of P
15,000.00, which amount will partake the
nature of ADVANCED RENTALS;
(4) That we have freely and voluntarily
agreed that upon receipt of the said
amount of FIFTEEN THOUSAND PESOS
(P l6,000.00) from he SHELL COMPANY
OF THE PHILIPPINES LIMITED, the said
sum as ADVANCED RENTALS to us be
applied as monthly rentals for the sai two
lots under our Lease Agreement starting
on the 25th of May, 1966 until such time
that the said of P 15,000.00 be applicable,
which time to our estimate and one-half
months from May 25, 1966 or until the 10th
of October, 1966 more or less;
(5) That we have likewise agreed among
ourselves that the SHELL COMPANY OF
THE PHILIPPINES LIMITED execute an
instrument for us to sign embodying our
conformity that the said amount that it will
generously grant us as requested be
applied as ADVANCED RENTALS; and
(6) FURTHER AFFIANTS SAYETH NOT.,
(b) The Additional Cash Pledge Agreement of May 20,1966,
Exhibit 6, is as follows:
WHEREAS, under the lease Agreement
dated 13th November, 1963 (identified as
doc. Nos. 491 & 1407, Page Nos. 99 & 66,
Book Nos. V & III, Series of 1963 in the
Notarial Registers of Notaries Public
Rosauro Marquez, and R.D. Liwanag,
respectively) executed in favour of SHELL
by the herein CO-OWNERS and another
Lease Agreement dated 19th March 1964 .
. . also executed in favour of SHELL by
CO-OWNERS Remedios and MARIA
ESTANISLAO for the lease of adjoining
portions of two parcels of land at Aurora
Blvd./ Annapolis, Quezon City, the CO
OWNERS RECEIVE a total monthly rental
of PESOS THREE THOUSAND THREE
HUNDRED EIGHTY TWO AND 29/100 (P
3,382.29), Philippine Currency;
WHEREAS, CO-OWNER Eligio Estanislao
Jr. is the Dealer of the Shell Station
constructed on the leased land, and as
Dealer under the Cash Pledge Agreement
dated llth May 1966, he deposited to
SHELL in cash the amount of PESOS TEN
THOUSAND (P 10,000), Philippine
Currency, to secure his purchase on credit
of Shell petroleum products; . . .
WHEREAS, said DEALER, in his desire, to
be granted an increased the limit up to P
25,000, has secured the conformity of his
CO-OWNERS to waive and assign to
SHELL the total monthly rentals due to all
of them to accumulate the equivalent
amount of P 15,000, commencing 24th
May 1966, this P 15,000 shall be treated
as additional cash deposit to SHELL under
the same terms and conditions of the
aforementioned Cash Pledge Agreement
dated llth May 1966.
NOW, THEREFORE, for and in
consideration of the foregoing
premises,and the mutual covenants among
the CO-OWNERS herein and SHELL, said
parties have agreed and hereby agree as
follows:
l. The CO-OWNERS dohere by waive in
favor of DEALER the monthly rentals due
to all CO-OWNERS, collectively, under the
above describe two Lease Agreements,
one dated 13th November 1963 and the
other dated 19th March 1964 to enable
DEALER to increase his existing cash
deposit to SHELL, from P 10,000 to P
25,000, for such purpose, the SHELL CO-
OWNERS and DEALER hereby irrevocably
assign to SHELL the monthly rental of P
3,382.29 payable to them respectively as
they fall due, monthly, commencing 24th
May 1966, until such time that the monthly
rentals accumulated, shall be equal to P
l5,000.
2. The above stated monthly rentals
accumulated shall be treated as additional
cash deposit by DEALER to SHELL,
thereby in increasing his credit limit from P
10,000 to P 25,000. This agreement,
therefore, cancels and supersedes the
Joint affidavit dated 11 April 1966 executed
by the CO-OWNERS.
3. Effective upon the signing of this
agreement, SHELL agrees to allow
DEALER to purchase from SHELL
petroleum products, on credit, up to the
amount of P 25,000.
4. This increase in the credit shall also be
subject to the same terms and conditions
of the above-mentioned Cash Pledge
Agreement dated llth May 1966. (Exhs. "B-
2," "L," and "6"; emphasis supplied)
In the aforesaid Joint Affidavit of April 11, 1966 (Exhibit A), it is
clearly stipulated by the parties that the P 15,000.00 advance
rental due to them from SHELL shall augment their "capital
investment" in the operation of the gasoline station, which
advance rentals shall be credited as rentals from May 25, 1966
up to four and one-half months or until 10 October 1966, more
or less covering said P 15,000.00.
In the subsequent document entitled "Additional Cash Pledge
Agreement" above reproduced (Exhibit 6), the private
respondents and petitioners assigned to SHELL the monthly
rentals due them commencing the 24th of May 1966 until such
time that the monthly rentals accumulated equal P 15,000.00
which private respondents agree to be a cash deposit of
petitioner in favor of SHELL to increase his credit limit as
dealer. As above-stated it provided therein that "This
agreement, therefore, cancels and supersedes the Joint
Affidavit dated 11 April 1966 executed by the CO-OWNERS."
Petitioner contends that because of the said stipulation
cancelling and superseding that previous Joint Affidavit,
whatever partnership agreement there was in said previous
agreement had thereby been abrogated. We find no merit in
this argument. Said cancelling provision was necessary for the
Joint Affidavit speaks of P 15,000.00 advance rentals starting
May 25, 1966 while the latter agreement also refers to
advance rentals of the same amount starting May 24, 1966.
There is, therefore, a duplication of reference to the P
15,000.00 hence the need to provide in the subsequent
document that it "cancels and supersedes" the previous one.
True it is that in the latter document, it is silent as to the
statement in the Joint Affidavit that the P 15,000.00 represents
the "capital investment" of the parties in the gasoline station
business and it speaks of petitioner as the sole dealer, but this
is as it should be for in the latter document SHELL was a
signatory and it would be against its policy if in the agreement
it should be stated that the business is a partnership with
private respondents and not a sole proprietorship of petitioner.
Moreover other evidence in the record shows that there was in
fact such partnership agreement between the parties. This is
attested by the testimonies of private respondent Remedies
Estanislao and Atty. Angeles. Petitioner submitted to private
respondents periodic accounting of the business.
4
Petitioner
gave a written authority to private respondent Remedies
Estanislao, his sister, to examine and audit the books of their
"common business' aming negosyo).
5
Respondent Remedios
assisted in the running of the business. There is no doubt that
the parties hereto formed a partnership when they bound
themselves to contribute money to a common fund with the
intention of dividing the profits among themselves.
6
The sole
dealership by the petitioner and the issuance of all government
permits and licenses in the name of petitioner was in
compliance with the afore-stated policy of SHELL and the
understanding of the parties of having only one dealer of the
SHELL products.
Further, the findings of facts of the respondent court are
conclusive in this proceeding, and its conclusion based on the
said facts are in accordancewith the applicable law.
WHEREFORE, the judgment appealed from is AFFIRMED in
toto with costs against petitioner. This decision is immediately
executory and no motion for extension of time to file a motion
for reconsideration shag beentertained.
SO ORDERED.
Narvasa, Cruz and Grio-Aquino, JJ., concur.
G.R. No. 112675 January 25, 1999
AFISCO INSURANCE CORPORATION; CCC INSURANCE
CORPORATION; CHARTER INSURANCE CO., INC.;
CIBELES INSURANCE CORPORATION; COMMONWEALTH
INSURANCE COMPANY; CONSOLIDATED INSURANCE
CO., INC.; DEVELOPMENT INSURANCE & SURETY
CORPORATION DOMESTIC INSURANCE COMPANY OF
THE PHILIPPINE; EASTERN ASSURANCE COMPANY &
SURETY CORP; EMPIRE INSURANCE COMPANY;
EQUITABLE INSURANCE CORPORATION; FEDERAL
INSURANCE CORPORATION INC.; FGU INSURANCE
CORPORATION; FIDELITY & SURETY COMPANY OF THE
PHILS., INC.; FILIPINO MERCHANTS' INSURANCE CO.,
INC.; GOVERNMENT SERVICE INSURANCE SYSTEM;
MALAYAN INSURANCE CO., INC.; MALAYAN ZURICH
INSURANCE CO.; INC.; MERCANTILE INSURANCE CO.,
INC.; METROPOLITAN INSURANCE COMPANY; METRO-
TAISHO INSURANCE CORPORATION; NEW ZEALAND
INSURANCE CO., LTD.; PAN-MALAYAN INSURANCE
CORPORATION; PARAMOUNT INSURANCE
CORPORATION; PEOPLE'S TRANS-EAST ASIA
INSURANCE CORPORATION; PERLA COMPANIA DE
SEGUROS, INC.; PHILIPPINE BRITISH ASSURANCE CO.,
INC.; PHILIPPINE FIRST INSURANCE CO., INC.; PIONEER
INSURANCE & SURETY CORP.; PIONEER
INTERCONTINENTAL INSURANCE CORPORATION;
PROVIDENT INSURANCE COMPANY OF THE
PHILIPPINES; PYRAMID INSURANCE CO., INC.;
RELIANCE SURETY & INSURANCE COMPANY; RIZAL
SURETY & INSURANCE COMPANY; SANPIRO
INSURANCE CORPORATION; SEABOARD-EASTERN
INSURANCE CO., INC.; SOLID GUARANTY, INC.; SOUTH
SEA SURETY & INSURANCE CO., INC.; STATE BONDING
& INSURANCE CO., INC.; SUMMA INSURANCE
CORPORATION; TABACALERA INSURANCE CO., INC.
all assessed as "POOL OF MACHINERY
INSURERS, petitioner,
vs.
COURT OF APPEALS, COURT OF TAX APPEALS and
COMISSIONER OF INTERNAL REVENUE, respondent.
Pursuant to "reinsurance treaties," a number of local insurance
firms formed themselves into a "pool" in order to facilitate the
handling of business contracted with a nonresident foreign
insurance company. May the "clearing house" or "insurance
pool" so formed be deemed a partnership or an association
that is taxable as a corporation under the National Internal
Revenue Code (NIRC)? Should the pool's remittances to the
member companies and to the said foreign firm be taxable as
dividends? Under the facts of this case, has the goverment's
right to assess and collect said tax prescribed?
The Case
These are the main questions raised in the Petition for Review
on Certiorari before us, assailing the October 11, 1993
Decision
1
of the Court of Appeals
2
in CA-GR SP 25902,
which dismissed petitioners' appeal of the October 19, 1992
Decision
3
of the Court of Tax Appeals
4
(CTA) which had
previously sustained petitioners' liability for deficiency income
tax, interest and withholding tax. The Court of Appeals ruled:
WHEREFORE, the petition is DISMISSED,
with costs against petitioner
5

The petition also challenges the November 15, 1993 Court of
Appeals (CA) Resolution
6
denying reconsideration.
The Facts
The antecedent facts,
7
as found by the Court of Appeals, are
as follows:
The petitioners are 41 non-life insurance
corporations, organized and existing under
the laws of the Philippines. Upon issuance
by them of Erection, Machinery
Breakdown, Boiler Explosion and
Contractors' All Risk insurance policies, the
petitioners on August 1, 1965 entered into
a Quota Share Reinsurance Treaty and a
Surplus Reinsurance Treaty with the
Munchener Ruckversicherungs-
Gesselschaft (hereafter called Munich), a
non-resident foreign insurance corporation.
The reinsurance treaties required
petitioners to form a [p]ool. Accordingly, a
pool composed of the petitioners was
formed on the same day.
On April 14, 1976, the pool of machinery
insurers submitted a financial statement
and filed an "Information Return of
Organization Exempt from Income Tax" for
the year ending in 1975, on the basis of
which it was assessed by the
Commissioner of Internal Revenue
deficiency corporate taxes in the amount of
P1,843,273.60, and withholding taxes in
the amount of P1,768,799.39 and
P89,438.68 on dividends paid to Munich
and to the petitioners, respectively. These
assessments were protested by the
petitioners through its auditors Sycip,
Gorres, Velayo and Co.
On January 27, 1986, the Commissioner of
Internal Revenue denied the protest and
ordered the petitioners, assessed as "Pool
of Machinery Insurers," to pay deficiency
income tax, interest, and with [h]olding tax,
itemized as follows:
Net income per information return
P3,737,370.00
===========
Income tax due thereon P1,298,080.00
Add: 14% Int. fr. 4/15/76
to 4/15/79 545,193.60

TOTAL AMOUNT DUE & P1,843,273.60
COLLECTIBLE
Dividend paid to Munich
Reinsurance Company P3,728,412.00

35% withholding tax at
source due thereon P1,304,944.20
Add: 25% surcharge 326,236.05
14% interest from
1/25/76 to 1/25/79 137,019.14
Compromise penalty-
non-filing of return 300.00
late payment 300.00

TOTAL AMOUNT DUE & P1,768,799.39
COLLECTIBLE ===========
Dividend paid to Pool Members
P655,636.00
===========
10% withholding tax at
source due thereon P65,563.60
Add: 25% surcharge 16,390.90
14% interest from
1/25/76 to 1/25/79 6,884.18
Compromise penalty-
non-filing of return 300.00
late payment 300.00

TOTAL AMOUNT DUE & P89,438.68
COLLECTIBLE ===========
8

The CA ruled in the main that the pool of machinery insurers
was a partnership taxable as a corporation, and that the latter's
collection of premiums on behalf of its members, the ceding
companies, was taxable income. It added that prescription did
not bar the Bureau of Internal Revenue (BIR) from collecting
the taxes due, because "the taxpayer cannot be located at the
address given in the information return filed." Hence, this
Petition for Review before us.
9

The Issues
Before this Court, petitioners raise the following issues:
1. Whether or not the Clearing House,
acting as a mere agent and performing
strictly administrative functions, and which
did not insure or assume any risk in its own
name, was a partnership or association
subject to tax as a corporation;
2. Whether or not the remittances to
petitioners and MUNICHRE of their
respective shares of reinsurance
premiums, pertaining to their individual and
separate contracts of reinsurance, were
"dividends" subject to tax; and
3. Whether or not the respondent
Commissioner's right to assess the
Clearing House had already prescribed.
10

The Court's Ruling
The petition is devoid of merit. We sustain the ruling of the
Court of Appeals that the pool is taxable as a corporation, and
that the government's right to assess and collect the taxes had
not prescribed.
First Issue:
Pool Taxable as a Corporation
Petitioners contend that the Court of Appeals erred in finding
that the pool of clearing house was an informal partnership,
which was taxable as a corporation under the NIRC. They
point out that the reinsurance policies were written by them
"individually and separately," and that their liability was limited
to the extent of their allocated share in the original risk thus
reinsured.
11
Hence, the pool did not act or earn income as a
reinsurer.
12
Its role was limited to its principal function of
"allocating and distributing the risk(s) arising from the original
insurance among the signatories to the treaty or the members
of the pool based on their ability to absorb the risk(s) ceded[;]
as well as the performance of incidental functions, such as
records, maintenance, collection and custody of funds, etc."
13

Petitioners belie the existence of a partnership in this case,
because (1) they, the reinsurers, did not share the same risk or
solidary liability,
14
(2) there was no common fund;
15
(3) the
executive board of the pool did not exercise control and
management of its funds, unlike the board of directors of a
corporation;
16
and (4) the pool or clearing house "was not and
could not possibly have engaged in the business of
reinsurance from which it could have derived income for
itself."
17

The Court is not persuaded. The opinion or ruling of the
Commission of Internal Revenue, the agency tasked with the
enforcement of tax law, is accorded much weight and even
finality, when there is no showing. that it is patently
wrong,
18
particularly in this case where the findings and
conclusions of the internal revenue commissioner were
subsequently affirmed by the CTA, a specialized body created
for the exclusive purpose of reviewing tax cases, and the Court
of Appeals.
19
Indeed,
[I]t has been the long standing policy and
practice of this Court to respect the
conclusions of quasi-judicial agencies,
such as the Court of Tax Appeals which,
by the nature of its functions, is dedicated
exclusively to the study and consideration
of tax problems and has necessarily
developed an expertise on the subject,
unless there has been an abuse or
improvident exercise of its authority.
20

This Court rules that the Court of Appeals, in affirming the CTA
which had previously sustained the internal revenue
commissioner, committed no reversible error. Section 24 of the
NIRC, as worded in the year ending 1975, provides:
Sec. 24. Rate of tax on corporations.
(a) Tax on domestic corporations. A tax
is hereby imposed upon the taxable net
income received during each 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-partnership (compaias
colectivas), general professional
partnerships, private educational
institutions, and building and loan
associations . . . .
Ineludibly, the Philippine legislature included in the concept of
corporations those entities that resembled them such as
unregistered partnerships and associations. Parenthetically,
the NIRC's inclusion of such entities in the tax on corporations
was made even clearer by the tax Reform Act of
1997,
21
which amended the Tax Code. Pertinent provisions of
the new law read as follows:
Sec. 27. Rates of Income Tax on Domestic
Corporations.
(A) In General. Except as otherwise
provided in this Code, an income tax of
thirty-five percent (35%) is hereby imposed
upon the taxable income derived during
each taxable year from all sources within
and without the Philippines by every
corporation, as defined in Section 22 (B) of
this Code, and taxable under this Title as a
corporation . . . .
Sec. 22. Definition. When used in
this Title:
xxx xxx xxx
(B) The term "corporation" shall include
partnerships, no matter how created or
organized, joint-stock companies, joint
accounts (cuentas en participacion),
associations, or insurance companies, but
does not include general professional
partnerships [or] a joint venture or
consortium formed for the purpose of
undertaking construction projects or
engaging in petroleum, coal, geothermal
and other energy operations pursuant to
an operating or consortium agreement
under a service contract without the
Government. "General professional
partnerships" are partnerships formed by
persons for the sole purpose of exercising
their common profession, no part of the
income of which is derived from engaging
in any trade or business.
xxx xxx xxx
Thus, the Court in Evangelista v. Collector of Internal
Revenue
22
held that Section 24 covered these unregistered
partnerships and even associations or joint accounts, which
had no legal personalities apart from their individual
members.
23
The Court of Appeals astutely
appliedEvangelista.
24

. . . Accordingly, a pool of individual real
property owners dealing in real estate
business was considered a corporation for
purposes of the tax in sec. 24 of the Tax
Code in Evangelista v. Collector of Internal
Revenue, supra. The Supreme Court said:
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)
Art. 1767 of the Civil Code recognizes the creation of a
contract of partnership when "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."
25
Its requisites are: "(1) mutual contribution to a
common stock, and (2) a joint interest in the profits."
26
In other
words, a partnership is formed when persons contract "to
devote to a common purpose either money, property, or labor
with the intention of dividing the profits between
themselves."
27
Meanwhile, an association implies associates
who enter into a "joint enterprise . . . for the transaction of
business."
28

In the case before us, the ceding companies entered into a
Pool Agreement
29
or an association
30
that would handle all
the insurance businesses covered under their quota-share
reinsurance treaty
31
and surplus reinsurance treaty
32
with
Munich. The following unmistakably indicates a partnership or
an association covered by Section 24 of the NIRC:
(1) The pool has a common fund, consisting of money and
other valuables that are deposited in the name and credit of
the pool.
33
This common fund pays for the administration and
operation expenses of the pool.
24

(2) The pool functions through an executive board, which
resembles the board of directors of a corporation, composed of
one representative for each of the ceding companies.
35

(3) True, the pool itself is not a reinsurer and does not issue
any insurance policy; however, its work is indispensable,
beneficial and economically useful to the business of the
ceding companies and Munich, because without it they would
not have received their premiums. The ceding companies
share "in the business ceded to the pool" and in the
"expenses" according to a "Rules of Distribution" annexed to
the Pool Agreement.
36
Profit motive or business is, therefore,
the primordial reason for the pool's formation. As aptly found
by the CTA:
. . . The fact that the pool does not retain
any profit or income does not obliterate an
antecedent fact, that of the pool being
used in the transaction of business for
profit. It is apparent, and petitioners admit,
that their association or coaction was
indispensable [to] the transaction of the
business, . . . If together they have
conducted business, profit must have been
the object as, indeed, profit was earned.
Though the profit was apportioned among
the members, this is only a matter of
consequence, as it implies that profit
actually resulted.
37

The petitioners' reliance on Pascuals v. Commissioner
38
is
misplaced, because the facts obtaining therein are not on all
fours with the present case. In Pascual, there was no
unregistered partnership, but merely a co-ownership which
took up only two isolated transactions.
39
The Court of Appeals
did not err in applying Evangelista, which involved a
partnership that engaged in a series of transactions spanning
more than ten years, as in the case before us.
Second Issue:
Pool's Remittances are Taxable
Petitioners further contend that the remittances of the pool to
the ceding companies and Munich are not dividends subject to
tax. They insist that such remittances contravene Sections 24
(b) (I) and 263 of the 1977 NIRC and "would be tantamount to
an illegal double taxation as it would result in taxing the same
taxpayer"
40
Moreover, petitioners argue that since Munich was
not a signatory to the Pool Agreement, the remittances it
received from the pool cannot be deemed dividends.
41
They
add that even if such remittances were treated as dividends,
they would have been exempt under the previously mentioned
sections of the 1977 NIRC,
42
as well as Article 7 of paragraph
1
43
and Article 5 of paragraph 5
44
of the RP-West German
Tax Treaty.
45

Petitioners are clutching at straws. Double taxation means
taxing the same property twice when it should be taxed only
once. That is, ". . . taxing the same person twice by the same
jurisdiction for the same thing"
46
In the instant case, the pool is
a taxable entity distinct from the individual corporate entities of
the ceding companies. The tax on its income is obviously
different from the tax on thedividends received by the said
companies. Clearly, there is no double taxation here.
The tax exemptions claimed by petitioners cannot be granted,
since their entitlement thereto remains unproven and
unsubstantiated. It is axiomatic in the law of taxation that taxes
are the lifeblood of the nation. Hence, "exemptions therefrom
are highly disfavored in law and he who claims tax exemption
must be able to justify his claim or right."
47
Petitioners have
failed to discharge this burden of proof. The sections of the
1977 NIRC which they cite are inapplicable, because these
were not yet in effect when the income was earned and when
the subject information return for the year ending 1975 was
filed.
Referring, to the 1975 version of the counterpart sections of
the NIRC, the Court still cannot justify the exemptions claimed.
Section 255 provides that no tax shall ". . . be paid upon
reinsurance by any company that has already paid the tax . . ."
This cannot be applied to the present case because, as
previously discussed, the pool is a taxable entity distinct from
the ceding companies; therefore, the latter cannot individually
claim the income tax paid by the former as their own.
On the other hand, Section 24 (b) (1)
48
pertains to tax on
foreign corporations; hence, it cannot be claimed by the ceding
companies which are domestic corporations. Nor can Munich,
a foreign corporation, be granted exemption based solely on
this provision of the Tax Code, because the same subsection
specifically taxes dividends, the type of remittances forwarded
to it by the pool. Although not a signatory to the Pool
Agreement, Munich is patently an associate of the ceding
companies in the entity formed, pursuant to their reinsurance
treaties which required the creation of said pool.
Under its pool arrangement with the ceding companies;
Munich shared in their income and loss. This is manifest from
a reading of Article 3
49
and 10
50
of the Quota-Share
Reinsurance treaty and Articles 3
51
and 10
52
of the Surplus
Reinsurance Treaty. The foregoing interpretation of Section 24
(b) (1) is in line with the doctrine that a tax exemption must be
construed strictissimi juris, and the statutory exemption
claimed must be expressed in a language too plain to be
mistaken.
53

Finally the petitioners' claim that Munich is tax-exempt based
on the RP- West German Tax Treaty is likewise unpersuasive,
because the internal revenue commissioner assessed the pool
for corporate taxes on the basis of the information return it had
submitted for the year ending 1975, a taxable year when said
treaty was not yet in effect.
54
Although petitioners omitted in
their pleadings the date of effectivity of the treaty, the Court
takes judicial notice that it took effect only later, on December
14, 1984.
55

Third Issue:
Prescription
Petitioners also argue that the government's right to assess
and collect the subject tax had prescribed. They claim that the
subject information return was filed by the pool on April 14,
1976. On the basis of this return, the BIR telephoned
petitioners on November 11, 1981, to give them notice of its
letter of assessment dated March 27, 1981. Thus, the
petitioners contend that the five-year statute of limitations then
provided in the NIRC had already lapsed, and that the internal
revenue commissioner was already barred by prescription from
making an assessment.
56

We cannot sustain the petitioners. The CA and the CTA
categorically found that the prescriptive period was tolled
under then Section 333 of the NIRC,
57
because "the taxpayer
cannot be located at the address given in the information
return filed and for which reason there was delay in sending
the assessment."
58
Indeed, whether the government's right to
collect and assess the tax has prescribed involves facts which
have been ruled upon by the lower courts. It is axiomatic that
in the absence of a clear showing of palpable error or grave
abuse of discretion, as in this case, this Court must not
overturn the factual findings of the CA and the CTA.
Furthermore, petitioners admitted in their Motion for
Reconsideration before the Court of Appeals that the pool
changed its address, for they stated that the pool's information
return filed in 1980 indicated therein its "present address." The
Court finds that this falls short of the requirement of Section
333 of the NIRC for the suspension of the prescriptive period.
The law clearly states that the said period will be suspended
only "if the taxpayer informs the Commissioner of Internal
Revenue of any change in the address."
WHEREFORE, the petition is DENIED. The Resolution of the
Court of Appeals dated October 11, 1993 and November 15,
1993 are hereby AFFIRMED. Cost against
petitioners.1wphi1.nt
SO ORDERED.
Romero, Vitug, Purisima, Gonzaga-Reyes, JJ., concur.
G.R. No. 85496 May 7, 1991
SPOUSES ISHWAR JETHMAL RAMNANI AND SONYA JET
RAMNANI, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, ORTIGAS & CO.,
LTD. PARTNERSHIP, and OVERSEAS HOLDING CO.,
LTD., respondents.

This case involves the bitter quarrel of two brothers over two
(2) parcels of land and its improvements now worth a fortune.
The bone of contention is the apparently conflicting factual
findings of the trial court and the appellate court, the resolution
of which will materially affect the result of the contest.
The following facts are not disputed.
Ishwar, Choithram and Navalrai, all surnamed Jethmal
Ramnani, are brothers of the full blood. Ishwar and his spouse
Sonya had their main business based in New York. Realizing
the difficulty of managing their investments in the Philippines
they executed a general power of attorney on January 24,
1966 appointing Navalrai and Choithram as attorneys-in-fact,
empowering them to manage and conduct their business
concern in the Philippines.
1

On February 1, 1966 and on May 16, 1966, Choithram, in his
capacity as aforesaid attorney-in-fact of Ishwar, entered into
two agreements for the purchase of two parcels of land located
in Barrio Ugong, Pasig, Rizal, from Ortigas & Company, Ltd.
Partnership (Ortigas for short) with a total area of
approximately 10,048 square meters.
2
Per agreement,
Choithram paid the down payment and installments on the lot
with his personal checks. A building was constructed thereon
by Choithram in 1966 and this was occupied and rented by
Jethmal Industries and a wardrobe shop called Eppie's
Creation. Three other buildings were built thereon by
Choithram through a loan of P100,000.00 obtained from the
Merchants Bank as well as the income derived from the first
building. The buildings were leased out by Choithram as
attorney-in-fact of Ishwar. Two of these buildings were later
burned.
Sometime in 1970 Ishwar asked Choithram to account for the
income and expenses relative to these properties during the
period 1967 to 1970. Choithram failed and refused to render
such accounting. As a consequence, on February 4, 1971,
Ishwar revoked the general power of attorney. Choithram and
Ortigas were duly notified of such revocation on April 1, 1971
and May 24, 1971, respectively.
3
Said notice was also
registered with the Securities and Exchange Commission on
March 29, 1971
4
and was published in the April 2, 1971 issue
of The Manila Times for the information of the general public.
5

Nevertheless, Choithram as such attorney-in-fact of Ishwar,
transferred all rights and interests of Ishwar and Sonya in favor
of his daughter-in-law, Nirmla Ramnani, on February 19, 1973.
Her husband is Moti, son of Choithram. Upon complete
payment of the lots, Ortigas executed the corresponding deeds
of sale in favor of Nirmla.
6
Transfer Certificates of Title Nos.
403150 and 403152 of the Register of Deeds of Rizal were
issued in her favor.
Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar
for short) filed a complaint in the Court of First Instance of
Rizal against Choithram and/or spouses Nirmla and Moti
(Choithram et al. for brevity) and Ortigas for reconveyance of
said properties or payment of its value and damages. An
amended complaint for damages was thereafter filed by said
spouses.
After the issues were joined and the trial on the merits, a
decision was rendered by the trial court on December 3, 1985
dismissing the complaint and counterclaim. A motion for
reconsideration thereof filed by spouses Ishwar was denied on
March 3, 1986.
An appeal therefrom was interposed by spouses Ishwar to the
Court of Appeals wherein in due course a decision was
promulgated on March 14, 1988, the dispositive part of which
reads as follows:
WHEREFORE, judgment is hereby
rendered reversing and setting aside the
appealed decision of the lower court dated
December 3, 1985 and the Order dated
March 3, 1986 which denied plaintiffs-
appellants' Motion for Reconsideration
from aforesaid decision. A new decision is
hereby rendered sentencing defendants-
appellees Choithram Jethmal Ramnani,
Nirmla V. Ramnani, Moti C. Ramnani, and
Ortigas and Company Limited Partnership
to pay, jointly and severally, plaintiffs-
appellants the following:
1. Actual or compensatory damages to the
extent of the fair market value of the
properties in question and all
improvements thereon covered by Transfer
Certificate of Title No. 403150 and
Transfer Certificate of Title No. 403152 of
the Registry of Deeds of Rizal, prevailing
at the time of the satisfaction of the
judgment but in no case shall such
damages be less than the value of said
properties as appraised by Asian
Appraisal, Inc. in its Appraisal Report
dated August 1985 (Exhibits T to T-14,
inclusive).
2. All rental incomes paid or ought to be
paid for the use and occupancy of the
properties in question and all
improvements thereon consisting of
buildings, and to be computed as follows:
a) On Building C
occupied by Eppie's
Creation and Jethmal
Industries from 1967 to
1973, inclusive, based
on the 1967 to 1973
monthly rentals paid by
Eppie's Creation;
b) Also on Building C
above, occupied by
Jethmal Industries and
Lavine from 1974 to
1978, the rental
incomes based on then
rates prevailing as
shown under Exhibit
"P"; and from 1979 to
1981, based on then
prevailing rates as
indicated under Exhibit
"Q";
c) On Building A
occupied by
Transworld Knitting
Mills from 1972 to
1978, the rental
incomes based upon
then prevailing rates
shown under Exhibit
"P", and from 1979 to
1981, based on
prevailing rates per
Exhibit "Q";
d) On the two Bays
Buildings occupied by
Sigma-Mariwasa from
1972 to 1978, the
rentals based on the
Lease Contract, Exhibit
"P", and from 1979 to
1980, the rentals
based on the Lease
Contract, Exhibit "Q",
and thereafter commencing 1982, to
account for and turn over the rental
incomes paid or ought to be paid for the
use and occupancy of the properties and
all improvements totalling 10,048 sq. m
based on the rate per square meter
prevailing in 1981 as indicated annually
cumulative up to 1984. Then, commencing
1985 and up to the satisfaction of the
judgment, rentals shall be computed at ten
percent (10%) annually of the fair market
values of the properties as appraised by
the Asian Appraisal, Inc. in August 1985
(Exhibits T to T-14, inclusive.)
3. Moral damages in the sum of
P200,000.00;
4. Exemplary damages in the sum of
P100,000.00;
5. Attorney's fees equivalent to 10% of the
award herein made;
6. Legal interest on the total amount
awarded computed from first demand in
1967 and until the full amount is paid and
satisfied; and
7. The cost of suit.
7

Acting on a motion for reconsideration filed by Choithram, et al.
and Ortigas, the appellate court promulgated an amended
decision on October 17, 1988 granting the motion for
reconsideration of Ortigas by affirming the dismissal of the
case by the lower court as against Ortigas but denying the
motion for reconsideration of Choithram, et al.
8

Choithram, et al. thereafter filed a petition for review of said
judgment of the appellate court alleging the following grounds:
1. The Court of Appeals gravely abused its
discretion in making a factual finding not
supported by and contrary, to the evidence
presented at the Trial Court.
2. The Court of Appeals acted in excess of
jurisdiction in awarding damages based on
the value of the real properties in question
where the cause of action of private
respondents is recovery of a sum of
money.
ARGUMENTS
I
THE COURT OF APPEALS ACTED IN
GRAVE ABUSE OF ITS DISCRETION IN
MAKING A FACTUAL FINDING THAT
PRIVATE RESPONDENT ISHWAR
REMITTED THE AMOUNT OF US
$150,000.00 TO PETITIONER
CHOITHRAM IN THE ABSENCE OF
PROOF OF SUCH REMITTANCE.
II
THE COURT OF APPEALS ACTED WITH
GRAVE ABUSE OF DISCRETION AND
MANIFEST PARTIALITY IN
DISREGARDING THE TRIAL COURTS
FINDINGS BASED ON THE DIRECT
DOCUMENTARY AND TESTIMONIAL
EVIDENCE PRESENTED BY
CHOITHRAM IN THE TRIAL COURT
ESTABLISHING THAT THE PROPERTIES
WERE PURCHASED WITH PERSONAL
FUNDS OF PETITIONER CHOITHRAM
AND NOT WITH MONEY ALLEGEDLY
REMITTED BY RESPONDENT ISHWAR.
III
THE COURT OF APPEALS ACTED IN
EXCESS OF JURISDICTION IN
AWARDING DAMAGES BASED ON THE
VALUE OF THE PROPERTIES AND THE
FRUITS OF THE IMPROVEMENTS
THEREON.
9

Similarly, spouses Ishwar filed a petition for review of said
amended decision of the appellate court exculpating Ortigas of
liability based on the following assigned errors
I
THE RESPONDENT HONORABLE
COURT OF APPEALS COMMITTED
GRAVE ERROR AND HAS DECIDED A
QUESTION OF SUBSTANCE NOT IN
ACCORD WITH LAW AND/OR WITH
APPLICABLE DECISIONS OF THIS
HONORABLE COURT
A) IN
PROMULGATING THE
QUESTIONED
AMENDED DECISION
(ANNEX "A")
RELIEVING
RESPONDENT
ORTIGAS FROM
LIABILITY AND
DISMISSING
PETITIONERS'
AMENDED
COMPLAINT IN CIVIL
CASE NO. 534-P, AS
AGAINST SAID
RESPONDENT
ORTIGAS;
B) IN HOLDING IN
SAID AMENDED
DECISION THAT AT
ANY RATE NO ONE
EVER TESTIFIED
THAT ORTIGAS WAS
A SUBSCRIBER TO
THE MANILA TIMES
PUBLICATION OR
THAT ANY OF ITS
OFFICERS READ THE
NOTICE AS
PUBLISHED IN THE
MANILA TIMES,
THEREBY
ERRONEOUSLY
CONCLUDING THAT
FOR RESPONDENT
ORTIGAS TO BE
CONSTRUCTIVELY
BOUND BY THE
PUBLISHED NOTICE
OF REVOCATION,
ORTIGAS AND/OR
ANY OF ITS
OFFICERS MUST BE
A SUBSCRIBER
AND/OR THAT ANY
OF ITS OFFICERS
SHOULD READ THE
NOTICE AS
ACTUALLY
PUBLISHED;
C) IN HOLDING IN
SAID AMENDED
DECISION THAT
ORTIGAS COULD
NOT BE HELD LIABLE
JOINTLY AND
SEVERALLY WITH
THE DEFENDANTS-
APPELLEES
CHOITHRAM, MOTI
AND NIRMLA
RAMNANI, AS
ORTIGAS RELIED ON
THE WORD OF
CHOITHRAM THAT
ALL ALONG HE WAS
ACTING FOR AND IN
BEHALF OF HIS
BROTHER ISHWAR
WHEN IT
TRANSFERRED THE
RIGHTS OF THE
LATTER TO NIRMLA
V. RAMNANI;
D) IN IGNORING THE
EVIDENCE DULY
PRESENTED AND
ADMITTED DURING
THE TRIAL THAT
ORTIGAS WAS
PROPERLY NOTIFIED
OF THE NOTICE OF
REVOCATION OF
THE GENERAL
POWER OF
ATTORNEY GIVEN
TO CHOITHRAM,
EVIDENCED BY THE
PUBLICATION IN THE
MANILA TIMES ISSUE
OF APRIL 2, 1971
(EXH. F) WHICH
CONSTITUTES
NOTICE TO THE
WHOLE WORLD; THE
RECEIPT OF THE
NOTICE OF SUCH
REVOCATION WHICH
WAS SENT TO
ORTIGAS ON MAY 22,
1971 BY ATTY.
MARIANO P.
MARCOS AND
RECEIVED BY
ORTIGAS ON MAY 24,
1971 (EXH. G) AND
THE FILING OF THE
NOTICE WITH THE
SECURITIES AND
EXCHANGE
COMMISSION ON
MARCH 29,1971
(EXH. H);
E) IN DISCARDING
ITS FINDINGS
CONTAINED IN ITS
DECISION OF 14
MARCH 1988 (ANNEX
B) THAT ORTIGAS
WAS DULY NOTIFIED
OF THE
REVOCATION OF
THE POWER OF
ATTORNEY OF
CHOITHRAM, HENCE
ORTIGAS ACTED IN
BAD FAITH IN
EXECUTING THE
DEED OF SALE TO
THE PROPERTIES IN
QUESTION IN FAVOR
OF NIRMLA V.
RAMNANI;
F) IN SUSTAINING
RESPONDENT
ORTIGAS VACUOUS
REHASHED
ARGUMENTS IN ITS
MOTION FOR
RECONSIDERATION
THAT IT WOULD NOT
GAIN ONE CENTAVO
MORE FROM
CHOITHRAM FOR
THE SALE OF SAID
LOTS AND THE
SUBSEQUENT
TRANSFER OF THE
SAME TO THE
MATTER'S
DAUGHTER-IN-LAW,
AND THAT IT WAS IN
GOOD FAITH WHEN
IT TRANSFERRED
ISHWAR'S RIGHTS
TO THE LOTS IN
QUESTION.
II
THE RESPONDENT HONORABLE
COURT OF APPEALS HAS SO FAR
DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL
PROCEEDING WHEN IT HELD IN THE
QUESTIONED AMENDED DECISION OF
17 NOVEMBER 1988 (ANNEX A) THAT
RESPONDENT ORTIGAS & CO., LTD., IS
NOT JOINTLY AND SEVERALLY LIABLE
WITH DEFENDANTS-APPELLEES
CHOITHRAM, MOTI AND NIRMLA
RAMNANI IN SPITE OF ITS ORIGINAL
DECISION OF 14 MARCH 1988 THAT
ORTIGAS WAS DULY NOTIFIED OF THE
REVOCATION OF THE POWER OF
ATTORNEY OF CHOITHRAM
RAMNANI.
10

The center of controversy is the testimony of Ishwar that during
the latter part of 1965, he sent the amount of US $150,000.00
to Choithram in two bank drafts of US$65,000.00 and
US$85,000.00 for the purpose of investing the same in real
estate in the Philippines. The trial court considered this lone
testimony unworthy of faith and credit. On the other hand, the
appellate court found that the trial court misapprehended the
facts in complete disregard of the evidence, documentary and
testimonial.
Another crucial issue is the claim of Choithram that because
he was then a British citizen, as a temporary arrangement, he
arranged the purchase of the properties in the name of Ishwar
who was an American citizen and who was then qualified to
purchase property in the Philippines under the then Parity
Amendment. The trial court believed this account but it was
debunked by the appellate court.
As to the issue of whether of not spouses Ishwar actually sent
US$150,000.00 to Choithram precisely to be used in the real
estate business, the trial court made the following disquisition

After a careful, considered and
conscientious examination of the evidence
adduced in the case at bar, plaintiff Ishwar
Jethmal Ramanani's main evidence, which
centers on the alleged payment by sending
through registered mail from New York two
(2) US$ drafts of $85,000.00 and
$65,000.00 in the latter part of 1965 (TSN
28 Feb. 1984, p. 10-11). The sending of
these moneys were before the execution of
that General Power of Attorney, which was
dated in New York, on January 24, 1966.
Because of these alleged remittances of
US $150,000.00 and the subsequent
acquisition of the properties in question,
plaintiffs averred that they constituted a
trust in favor of defendant Choithram
Jethmal Ramnani. This Court can be in full
agreement if the plaintiffs were only able to
prove preponderantly these
remittances. The entire record of this case
is bereft of even a shred of proof to that
effect. It is completely barren. His
uncorroborated testimony that he remitted
these amounts in the "later part of 1965"
does not engender enough faith and
credence. Inadequacy of details of such
remittance on the two (2) US dollar drafts
in such big amounts is completely not
positive, credible, probable and entirely not
in accord with human experience. This is a
classic situation, plaintiffs not exhibiting
any commercial document or any
document and/or paper as regard to these
alleged remittances. Plaintiff Ishwar
Ramnani is not an ordinary businessman
in the strict sense of the word. Remember
his main business is based in New York,
and he should know better how to send
these alleged remittances. Worst, plaintiffs
did not present even a scum of proof, that
defendant Choithram Ramnani received
the alleged two US dollar drafts.
Significantly, he does not know even the
bank where these two (2) US dollar drafts
were purchased. Indeed, plaintiff Ishwar
Ramnani's lone testimony is unworthy of
faith and credit and, therefore, deserves
scant consideration, and since the
plaintiffs' theory is built or based on such
testimony, their cause of action collapses
or falls with it.
Further, the rate of exchange that time in
1966 was P4.00 to $1.00. The alleged two
US dollar drafts amounted to $150,000.00
or about P600,000.00. Assuming the cash
price of the two (2) lots was only
P530,000.00 (ALTHOUGH he said: "Based
on my knowledge I have no evidence,"
when asked if he even knows the cash
price of the two lots). If he were really the
true and bonafide investor and purchaser
for profit as he asserted, he could have
paid the price in full in cash directly and
obtained the title in his name and not thru
"Contracts To Sell" in installments paying
interest and thru an attorney-in fact (TSN
of May 2, 1984, pp. 10-11) and, again,
plaintiff Ishwar Ramnani told this Courtthat
he does not know whether or not his late
father-in-law borrowed the two US dollar
drafts from the Swiss Bank or whether or
not his late father-in-law had any debit
memo from the Swiss Bank (TSN of May 2,
1984, pp. 9-10).
11

On the other hand, the appellate court, in giving credence to
the version of Ishwar, had this to say
While it is true, that generally the findings
of fact of the trial court are binding upon
the appellate courts, said rule admits of
exceptions such as when (1) the
conclusion is a finding grounded entirely
on speculations, surmises and conjectures;
(2) when the inferences made is manifestly
mistaken, absurd and impossible; (3) when
there is grave abuse of discretion; (4)
when the judgment is based on a
misapprehension of facts and when the
court, in making its findings, went beyond
the issues of the case and the same are
contrary to the admissions of both
appellant and appellee (Ramos vs. Court
of Appeals, 63 SCRA 33; Philippine
American Life Assurance Co. vs.
Santamaria, 31 SCRA 798; Aldaba vs.
Court of Appeals, 24 SCRA 189).
The evidence on record shows that the t
court acted under a misapprehension of
facts and the inferences made on the
evidence palpably a mistake.
The trial court's observation that "the entire
records of the case is bereft of even a
shred of proof" that plaintiff-appellants
have remitted to defendant-appellee
Choithram Ramnani the amount of US $
150,000.00 for investment in real estate in
the Philippines, is not borne by the
evidence on record and shows the trial
court's misapprehension of the facts if not
a complete disregard of the evidence, both
documentary and testimonial.
Plaintiff-appellant Ishwar Jethmal Ramnani
testifying in his own behalf, declared that
during the latter part of 1965, he sent the
amount of US $150,000.00 to his brother
Choithram in two bank drafts of US
$65,000.00 and US $85,000.00 for the
purpose of investing the same in real
estate in the Philippines. His testimony is
as follows:
ATTY. MARAPAO:
Mr. Witness, you said
that your attorney-in-
fact paid in your behalf.
Can you tell this
Honorable Court where
your attorney-in-fact
got the money to pay
this property?
ATTY. CRUZ:
Wait. It is now clear it
becomes incompetent
or hearsay.
COURT:
Witness can answer.
A I paid through my
attorney-in-fact. I am
the one who gave him
the money.
ATTY. MARAPAO:
Q You gave him the
money?
A That's right.
Q How much money
did you give him?
A US $ 150,000.00.
Q How was it given
then?
A Through Bank drafts.
US $65,000.00 and US
$85,000.00 bank
drafts. The total
amount which is $
150,000.00 (TSN, 28
February 1984, p. 10;
Emphasis supplied.)
xxx xxx xxx
ATTY. CRUZ:
Q The two bank drafts
which you sent I
assume you bought
that from some banks
in New York?
A No, sir.
Q But there is no
question those two
bank drafts were for
the purpose of paying
down payment and
installment of the two
parcels of land?
A Down payment,
installment and to put
up the building.
Q I thought you said
that the buildings were
constructed . . . subject
to our continuing
objection from rentals
of first building?
ATTY. MARAPAO:
Your Honor, that is
misleading.
COURT;
Witness (may) answer.
A Yes, the first building
was immediately put
up after the purchase
of the two parcels of
land that was in 1966
and the finds were
used for the
construction of the
building from the US
$150,000.00 (TSN, 7
March 1984, page 14;
Emphasis supplied.)
xxx xxx xxx
Q These two bank
drafts which you
mentioned and the use
for it you sent them by
registered mail, did you
send them from New
Your?
A That is right.
Q And the two bank
drafts which were put
in the registered mail,
the registered mail was
addressed to whom?
A Choithram Ramnani.
(TSN, 7 March 1984,
pp. 14-15).
On cross-examination, the witness reiterated the remittance of
the money to his brother Choithram, which was sent to him by
his father-in-law, Rochiram L. Mulchandoni from Switzerland, a
man of immense wealth, which even defendants-appellees'
witness Navalrai Ramnani admits to be so (tsn., p. 16, S. Oct.
13, 1985). Thus, on cross-examination, Ishwar testified as
follows:
Q How did you receive
these two bank drafts
from the bank the
name of which you
cannot remember?
A I got it from my
father-in-law.
Q From where did your
father- in-law sent
these two bank drafts?
A From Switzerland.
Q He was in
Switzerland.
A Probably, they sent
out these two drafts
from Switzerland.
(TSN, 7 March 1984, pp. 16-17; Emphasis
supplied.)
This positive and affirmative testimony of
plaintiff-appellant that he sent the two (2)
bank drafts totalling US $ 150,000.00 to his
brother, is proof of said remittance. Such
positive testimony has greater probative
force than defendant-appellee's denial of
receipt of said bank drafts, for a witness
who testifies affirmatively that something
did happen should be believed for it is
unlikely that a witness will remember what
never happened (Underhill's Cr. Guidance,
5th Ed., Vol. 1, pp. 10-11).
That is not all. Shortly thereafter, plaintiff-
appellant Ishwar Ramnani executed a
General Power of Attorney (Exhibit "A")
dated January 24, 1966 appointing his
brothers, defendants-appellees Navalrai
and Choithram as attorney-in-fact
empowering the latter to conduct and
manage plaintiffs-appellants'business
affairs in the Philippines and specifically
No. 14. To acquire,
purchase for us, real
estates and
improvements for the
purpose of real estate
business anywhere in
the Philippines and to
develop, subdivide,
improve and to resell to
buying public
(individual, firm or
corporation); to enter in
any contract of sale in
oar behalf and to enter
mortgages between
the vendees and the
herein grantors that
may be needed to
finance the real estate
business being
undertaken.
Pursuant thereto, on February 1, 1966 and
May 16, 1966, Choithram Jethmal
Ramnani entered into Agreements
(Exhibits "B' and "C") with the other
defendant. Ortigas and Company, Ltd., for
the purchase of two (2) parcels of land
situated at Barrio Ugong, Pasig, Rizal, with
said defendant-appellee signing the
Agreements in his capacity as Attorney-in-
fact of Ishwar Jethmal Ramnani.
Again, on January 5, 1972, almost seven
(7) years after Ishwar sent the US $
150,000.00 in 1965, Choithram
Ramnani, as attorney-in fact of Ishwar
entered into a Contract of Lease with
Sigma-Mariwasa (Exhibit "P") thereby re-
affirming the ownership of Ishwar over the
disputed property and the trust relationship
between the latter as principal and
Choithram as attorney-in-fact of Ishwar.
All of these facts indicate that if plaintiff-
appellant Ishwar had not earlier sent the
US $ 150,000.00 to his brother, Choithram,
there would be no purpose for him to
execute a power of attorney appointing his
brothers as s attorney-in-fact in buying real
estate in the Philippines.
As against Choithram's denial that he did
not receive the US $150,000.00 remitted
by Ishwar and that the Power of Attorney,
as well as the Agreements entered into
with Ortigas & Co., were only temporary
arrangements, Ishwar's testimony that he
did send the bank drafts to Choithram and
was received by the latter, is the more
credible version since it is natural,
reasonable and probable. It is in accord
with the common experience, knowledge
and observation of ordinary men (Gardner
vs. Wentors 18 Iowa 533). And in
determining where the superior weight of
the evidence on the issues involved lies,
the court may consider the probability or
improbability of the testimony of the
witness (Sec. 1, Rule 133, Rules of Court).
Contrary, therefore, to the trial court's
sweeping observation that 'the entire
records of the case is bereft of even a
shred of proof that Choithram received the
alleged bank drafts amounting to US $
150,000.00, we have not only testimonial
evidence but also documentary and
circumstantial evidence proving said
remittance of the money and the fiduciary
relationship between the former and
Ishwar.
12

The Court agrees. The environmental circumstances of this
case buttress the claim of Ishwar that he did entrust the
amount of US $ 150,000.00 to his brother, Choithram, which
the latter invested in the real property business subject of this
litigation in his capacity as attorney-in-fact of Ishwar.
True it is that there is no receipt whatever in the possession of
Ishwar to evidence the same, but it is not unusual among
brothers and close family members to entrust money and
valuables to each other without any formalities or receipt due
to the special relationship of trust between them.
And another proof thereof is the fact that Ishwar, out of
frustration when Choithram failed to account for the realty
business despite his demands, revoked the general power of
attorney he extended to Choithram and Navalrai. Thereafter,
Choithram wrote a letter to Ishwar pleading that the power of
attorney be renewed or another authority to the same effect be
extended, which reads as follows:
J
u
n
e

2
5
,
1
9
7
1
MR. ISHWAR JETHMAL
NEW YORK
(1) Send power of Atty. immediately,
because the case has been postponed for
two weeks. The same way as it has been
send before in favor of both names. Send it
immediately otherwise everything will be
lost unnecessarily, and then it will take us
in litigation. Now that we have gone ahead
with a case and would like to end it
immediately otherwise squatters will take
the entire land. Therefore, send it
immediately.
(2) Ortigas also has sued us because we
are holding the installments, because they
have refused to give a rebate of P5.00 per
meter which they have to give us as per
contract. They have filed the law suit that
since we have not paid the installment they
should get back the land. The hearing of
this case is in the month of July. Therefore,
please send the power immediately. In one
case DADA (Elder Brother) will represent
and in another one, I shall.
(3) In case if you do not want to give power
then make one letter in favor of Dada and
the other one in my favor showing that in
any litigation we can represent you and
your wife, and whatever the court decide it
will be acceptable by me. You can ask any
lawyer, he will be able to prepare these
letters. After that you can have these
letters ratify before P.I. Consulate. It
should be dated April 15, 1971.
(4) Try to send the power because it will be
more useful. Make it in any manner
whatever way you have confident in it. But
please send it immediately.
You have cancelled the power. Therefore,
you have lost your reputation everywhere.
What can I further write you about it. I have
told everybody that due to certain reasons
I have written you to do this that is why you
have done this. This way your reputation
have been kept intact. Otherwise if I want
to do something about it, I can show you
that inspite of the power you have
cancelled you can not do anything. You
can keep this letter because my
conscience is clear. I do not have anything
in my mind.
I should not be writing you this, but
because my conscience is clear do you
know that if I had predated papers what
could you have done? Or do you know that
I have many paper signed by you and if
had done anything or do then what can
you do about it? It is not necessary to write
further about this. It does not matter if you
have cancelled the power. At that time if I
had predated and done something about it
what could you have done? You do not
know me. I am not after money. I can earn
money anytime. It has been ten months
since I have not received a single penny
for expenses from Dada (elder brother).
Why there are no expenses? We can not
draw a single penny from knitting (factory).
Well I am not going to write you further, nor
there is any need for it. This much I am
writing you because of the way you have
conducted yourself. But
remember, whenever I hale the money I
will not keep it myself Right now I have not
got anything at all.
I am not going to write any further.
Keep your business clean with Naru.
Otherwise he will discontinue because he
likes to keep his business very clean.
13

The said letter was in Sindhi language. It was translated to
English by the First Secretary of the Embassy of Pakistan,
which translation was verified correct by the Chairman,
Department of Sindhi, University of Karachi.
14

From the foregoing letter what could be gleaned is that
1. Choithram asked for the issuance of another power of
attorney in their favor so they can continue to represent Ishwar
as Ortigas has sued them for unpaid installments. It also
appears therefrom that Ortigas learned of the revocation of the
power of attorney so the request to issue another.
2. Choithram reassured Ishwar to have confidence in him as
he was not after money, and that he was not interested in
Ishwar's money.
3. To demonstrate that he can be relied upon, he said that he
could have ante-dated the sales agreement of the Ortigas lots
before the issuance of the powers of attorney and acquired the
same in his name, if he wanted to, but he did not do so.
4. He said he had not received a single penny for expenses
from Dada (their elder brother Navalrai). Thus, confirming that
if he was not given money by Ishwar to buy the Ortigas lots, he
could not have consummated the sale.
5. It is important to note that in said letter Choithram never
claimed ownership of the property in question. He affirmed the
fact that he bought the same as mere agent and in behalf of
Ishwar. Neither did he mention the alleged temporary
arrangement whereby Ishwar, being an American citizen, shall
appear to be the buyer of the said property, but that after
Choithram acquires Philippine citizenship, its ownership shall
be transferred to Choithram.
This brings us to this temporary arrangement theory of
Choithram.
The appellate court disposed of this matter in this wise
Choithram's claim that he purchased the
two parcels of land for himself in 1966 but
placed it in the name of his younger
brother, Ishwar, who is an American
citizen, as a temporary arrangement,'
because as a British subject he is
disqualified under the 1935 Constitution to
acquire real property in the Philippines,
which is not so with respect to American
citizens in view of the Ordinance
Appended to the Constitution granting
them parity rights, there is nothing in the
records showing that Ishwar ever agreed
to such a temporary arrangement.
During the entire period from 1965, when
the US $ 150,000. 00 was transmitted to
Choithram, and until Ishwar filed a
complaint against him in 1982, or over 16
years, Choithram never mentioned of a
temporary arrangement nor can he present
any memorandum or writing evidencing
such temporary arrangement, prompting
plaintiff-appellant to observe:
The properties in
question which are
located in a prime
industrial site in Ugong,
Pasig, Metro Manila
have a present fair
market value of no less
than P22,364,000.00
(Exhibits T to T-14,
inclusive), and yet for
such valuable pieces
of property, Choithram
who now belatedly that
he purchased the
same for himself did
not document in writing
or in a memorandum
the alleged temporary
arrangement with
Ishwar' (pp. 4-41,
Appellant's Brief).
Such verbal allegation of a temporary
arrangement is simply improbable and
inconsistent. It has repeatedly been held
that important contracts made without
evidence are highly improbable.
The improbability of such temporary
arrangement is brought to fore when we
consider that Choithram has a son (Haresh
Jethmal Ramnani) who is an American
citizen under whose name the properties in
question could be registered, both during
the time the contracts to sell were
executed and at the time absolute title over
the same was to be delivered. At the time
the Agreements were entered into with
defendant Ortigas & Co. in 1966, Haresh,
was already 18 years old and
consequently, Choithram could have
executed the deeds in trust for his minor
son. But, he did not do this. Three (3)
years, thereafter, or in 1968 after Haresh
had attained the age of 21, Choithram
should have terminated the temporary
arrangement with Ishwar, which according
to him would be effective only pending the
acquisition of citizenship papers. Again, he
did not do anything.
Evidence to be
believed, said Vice
Chancellor Van Fleet
of New Jersey, must
not only proceed from
the mouth of a credible
witness, but it must be
credible in itselfsuch
as the common
experience and
observation of mankind
can approve as
probable under the
circumstances. We
have no test of the
truth of human
testimony, except its
conformity to our
knowledge,
observation and
experience. Whatever
is repugnant to these
belongs to the
miraculous and is
outside of judicial
cognizance. (Daggers
vs. Van Dyek 37 M.J.
Eq. 130, 132).
Another factor that can be counted against
the temporary arrangement excuse is
that upon the revocation on February
4, 1971 of the Power of attorney dated
January 24, 1966 in favor of Navalrai and
Choithram by Ishwar, Choithram wrote
(tsn, p. 21, S. July 19, 1985) a letter dated
June 25, 1971 (Exhibits R, R-1, R-2 and R-
3) imploring Ishwar to execute a new
power of attorney in their favor. That if he
did not want to give power, then Ishwar
could make a letter in favor of Dada and
another in his favor so that in any litigation
involving the properties in question, both of
them could represent Ishwar and his
wife. Choithram tried to convince Ishwar to
issue the power of attorney in whatever
manner he may want. In said letter no
mention was made at all of any temporary
arrangement.
On the contrary, said letter recognize(s)
the existence of principal and attorney-in-
fact relationship between Ishwar and
himself. Choithram wrote: . . . do you know
that if I had predated papers what could
you have done? Or do you know that I
have many papers signed by you and if I
had done anything or do then what can
you do about it?' Choithram was saying
that he could have repudiated the trust and
ran away with the properties of Ishwar by
predating documents and Ishwar would be
entirely helpless. He was bitter as a result
of Ishwar's revocation of the power of
attorney but no mention was made of any
temporary arrangement or a claim of
ownership over the properties in question
nor was he able to present any
memorandum or document to prove the
existence of such temporary arrangement.
Choithram is also estopped in pais or by
deed from claiming an interest over the
properties in question adverse to that of
Ishwar. Section 3(a) of Rule 131 of the
Rules of Court states that whenever a
party has, by his own declaration, act, or
omission intentionally and deliberately led
another to believe a particular thing true
and act upon such belief, he cannot in any
litigation arising out of such declaration, act
or omission be permitted to falsify it.' While
estoppel by deed is a bar which precludes
a party to a deed and his privies from
asserting as against the other and his
privies any right of title in derogation of the
deed, or from denying the truth of any
material fact asserted in it(31 C.J.S. 195;
19 Am. Jur. 603).
Thus, defendants-appellees are not
permitted to repudiate their admissions
and representations or to assert any right
or title in derogation of the deeds or from
denying the truth of any material fact
asserted in the (1) power of attorney dated
January 24, 1966 (Exhibit A); (2) the
Agreements of February 1, 1966 and May
16, 1966 (Exhibits B and C); and (3) the
Contract of Lease dated January 5, 1972
(Exhibit P).
. . . The doctrine of
estoppel is based upon
the grounds of public
policy, fair dealing,
good faith and justice,
and its purpose is to
forbid one to speak
against his own act,
representations, or
commitments to the
injury of one to whom
they were directed and
who reasonably relied
thereon. The doctrine
of estoppel springs
from equitable
principles and the
equities in the case. It
is designed to aid the
law in the
administration of
justice where without
its aid injustice might
result. It has been
applied by court
wherever and
whenever special
circumstances of a
case so demands'
(Philippine National
Bank vs. Court of
Appeals, 94 SCRA
357, 368 [1979]).
It was only after the services of counsel
has been obtained that Choithram alleged
for the first time in his Answer that the
General Power of attorney (Annex A) with
the Contracts to Sell (Annexes B and C)
were made only for the sole purpose of
assuring defendants' acquisition and
ownership of the lots described thereon in
due time under the law; that said
instruments do not reflect the true intention
of the parties (par. 2, Answer dated May
30, 1983), seventeen (17) long years from
the time he received the money
transmitted to him by his brother, Ishwar.
Moreover, Choithram's 'temporary
arrangement,' by which he claimed
purchasing the two (2) parcels in question
in 1966 and placing them in the name of
Ishwar who is an American citizen, to
circumvent the disqualification provision of
aliens acquiring real properties in the
Philippines under the 1935 Philippine
Constitution, as Choithram was then a
British subject, show a palpable disregard
of the law of the land and to sustain the
supposed "temporary arrangement" with
Ishwar would be sanctioning the
perpetration of an illegal act and culpable
violation of the Constitution.
Defendants-appellees likewise violated the
Anti-Dummy Law (Commonwealth Act
108, as amended),which provides in
Section 1 thereof that:
In all cases in which
any constitutional or
legal provision requires
Philippine or any other
specific citizenship as
a requisite for the
exercise or enjoyment
of a right, franchise or
privilege, . . . any alien
or foreigner profiting
thereby, shall be
punished . . . by
imprisonment . . . and
of a fine of not less
than the value of the
right, franchise or
privileges, which is
enjoyed or acquired in
violation of the
provisions hereof . . .
Having come to court with unclean
hands, Choithram must not be permitted
foist his 'temporary arrangement' scheme
as a defense before this court. Being in
delicto, he does not have any right
whatsoever being shielded from his own
wrong-doing, which is not so with respect
to Ishwar, who was not a party to such an
arrangement.
The falsity of Choithram's defense is
further aggravated by the material
inconsistencies and contradictions in his
testimony. While on January 23, 1985 he
testified that he purchased the land in
question on his own behalf (tsn, p. 4, S.
Jan. 23, 1985), in the July 18, 1985
hearing, forgetting probably what he stated
before, Choithram testified that he was
only an attorney-in-fact of Ishwar (tsn, p. 5,
S. July 18, 1985). Also in the hearing of
January 23, 1985, Choithram declared that
nobody rented the building that was
constructed on the parcels of land in
question (tsn, pp. 5 and 6), only to admit in
the hearing of October 30, 1985, that he
was in fact renting the building for
P12,000. 00 per annum (tsn, p. 3). Again,
in the hearing of July 19, 1985, Choithram
testified that he had no knowledge of the
revocation of the Power of Attorney (tsn,
pp. 20- 21), only to backtrack when
confronted with the letter of June 25, 1971
(Exhibits R to R-3), which he admitted to
be in "his own writing," indicating
knowledge of the revocation of the Power
of Attorney.
These inconsistencies are not minor but go
into the entire credibility of the testimony of
Choithram and the rule is that
contradictions on a very crucial point by a
witness, renders s testimony incredible
People vs. Rafallo, 80 Phil. 22). Not only
this the doctrine of falsus in uno, falsus in
omnibus is fully applicable as far as the
testimony of Choithram is concerned. The
cardinal rule, which has served in all ages,
and has been applied to all conditions of
men, is that a witness willfully falsifying the
truth in one particular, when upon oath,
ought never to be believed upon the
strength of his own testimony, whatever he
may assert (U.S. vs. Osgood 27 Feb. Case
No. 15971-a, p. 364); Gonzales vs.
Mauricio, 52 Phil, 728), for what ground of
judicial relief can there be left when the
party has shown such gross insensibility to
the difference between right and wrong,
between truth and falsehood? (The
Santisima Trinidad, 7 Wheat, 283, 5 U.S.
[L. ed.] 454).
True, that Choithram's testimony finds
corroboration from the testimony of his
brother, Navalrai, but the same would not
be of much help to Choithram. Not only is
Navalrai an interested and biased witness,
having admitted his close relationship with
Choithram and that whenever he or
Choithram had problems, they ran to each
other (tsn, pp. 17-18, S. Sept. 20, 1985),
Navalrai has a pecuniary interest in the
success of Choithram in the case in
question. Both he and Choithram are
business partners in Jethmal and Sons
and/or Jethmal Industries, wherein he
owns 60% of the company and Choithram,
40% (p. 62, Appellant's Brief). Since the
acquisition of the properties in question in
1966, Navalrai was occupying 1,200
square meters thereof as a factory site
plus the fact that his son (Navalrais) was
occupying the apartment on top of the
factory with his family rent free except the
amount of P l,000.00 a month to pay for
taxes on said properties (tsn, p. 17, S. Oct.
3, 1985).
Inherent contradictions also marked
Navalrai testimony. "While the latter was
very meticulous in keeping a receipt for the
P 10,000.00 that he paid Ishwar as
settlement in Jethmal Industries, yet in the
alleged payment of P 100,000.00 to
Ishwar, no receipt or voucher was ever
issued by him (tsn, p. 17, S. Oct. 3,
1983).
15

We concur.
The foregoing findings of facts of the Court of Appeals which
are supported by the evidence is conclusive on this Court. The
Court finds that Ishwar entrusted US$150,000.00 to Choithram
in 1965 for investment in the realty business. Soon thereafter,
a general power of attorney was executed by Ishwar in favor of
both Navalrai and Choithram. If it is true that the purpose only
is to enable Choithram to purchase realty temporarily in the
name of Ishwar, why the inclusion of their elder brother
Navalrai as an attorney-in-fact?
Then, acting as attorney-in-fact of Ishwar, Choithram
purchased two parcels of land located in Barrio Ugong Pasig,
Rizal, from Ortigas in 1966. With the balance of the money of
Ishwar, Choithram erected a building on said lot.
Subsequently, with a loan obtained from a bank and the
income of the said property, Choithram constructed three other
buildings thereon. He managed the business and collected the
rentals. Due to their relationship of confidence it was only in
1970 when Ishwar demanded for an accounting from
Choithram. And even as Ishwar revoked the general power of
attorney on February 4, 1971, of which Choithram was duly
notified, Choithram wrote to Ishwar on June 25, 1971
requesting that he execute a new power of attorney in their
favor.
16
When Ishwar did not respond thereto, Choithram
nevertheless proceeded as such attorney-in-fact to assign all
the rights and interest of Ishwar to his daughter-in-law Nirmla
in 1973 without the knowledge and consent of Ishwar. Ortigas
in turn executed the corresponding deeds of sale in favor of
Nirmla after full payment of the purchase accomplice of the
lots.
In the prefatory statement of their petition, Choithram pictured
Ishwar to be so motivated by greed and ungratefulness, who
squandered the family business in New York, who had to turn
to his wife for support, accustomed to living in ostentation and
who resorted to blackmail in filing several criminal and civil
suits against them. These statements find no support and
should be stricken from the records. Indeed, they are irrelevant
to the proceeding.
Moreover, assuming Ishwar is of such a low character as
Choithram proposes to make this Court to believe, why is it
that of all persons, under his temporary arrangement theory,
Choithram opted to entrust the purchase of valuable real
estate and built four buildings thereon all in the name of
Ishwar? Is it not an unconscious emergence of the truth that
this otherwise wayward brother of theirs was on the contrary
able to raise enough capital through the generosity of his
father-in-law for the purchase of the very properties in
question? As the appellate court aptly observed if truly this
temporary arrangement story is the only motivation, why
Ishwar of all people? Why not the own son of Choithram,
Haresh who is also an American citizen and who was already
18 years old at the time of purchase in 1966? The Court
agrees with the observation that this theory is an afterthought
which surfaced only when Choithram, Nirmla and Moti filed
their answer.
When Ishwar asked for an accounting in 1970 and revoked the
general power of attorney in 1971, Choithram had a total
change of heart. He decided to claim the property as his. He
caused the transfer of the rights and interest of Ishwar to
Nirmla. On his representation, Ortigas executed the deeds of
sale of the properties in favor of Nirmla. Choithram obviously
surmised Ishwar cannot stake a valid claim over the property
by so doing.
Clearly, this transfer to Nirmla is fictitious and, as admitted by
Choithram, was intended only to place the property in her
name until Choithram acquires Philippine citizenship.
17
What
appears certain is that it appears to be a scheme of Choithram
to place the property beyond the reach of Ishwar should he
successfully claim the same. Thus, it must be struck down.
Worse still, on September 27, 1990 spouses Ishwar filed an
urgent motion for the issuance of a writ of preliminary
attachment and to require Choithram, et al. to submit certain
documents, inviting the attention of this Court to the following:
a) Donation by Choithram of his 2,500
shares of stock in General Garments
Corporation in favor of his children on
December 29, 1989;
18

b) Sale on August 2, 1990 by Choithram of
his 100 shares in Biflex (Phils.), Inc., in
favor of his children;
19
and
c) Mortgage on June 20, 1989 by Nirmla
through her attorney-in-fact, Choithram, of
the properties subject of this litigation, for
the amount of $3 Million in favor of
Overseas Holding, Co. Ltd., (Overseas for
brevity), a corporation which appears to be
organized and existing under and by virtue
of the laws of Cayman Islands, with a
capital of only $100.00 divided into 100
shares of $1.00 each, and with address at
P.O. Box 1790, Grand Cayman, Cayman
Islands.
20

An opposition thereto was filed by Choithram, et al. but no
documents were produced. A manifestation and reply to the
opposition was filed by spouses Ishwar.
All these acts of Choithram, et al. appear to be fraudulent
attempts to remove these properties to the detriment of
spouses Ishwar should the latter prevail in this litigation.
On December 10, 1990 the court issued a resolution that
substantially reads as follows:
Considering the allegations of petitioners
Ishwar Jethmal Ramnani and Sonya
Ramnani that respondents Choithram
Jethmal Ramnani, Nirmla Ramnani and
Moti G. Ramnani have fraudulently
executed a simulated mortgage of the
properties subject of this litigation dated
June 20, 1989, in favor of Overseas
Holding Co., Ltd. which appears to be a
corporation organized in Cayman Islands,
for the amount of $ 3,000,000.00, which is
much more than the value of the properties
in litigation; that said alleged mortgagee
appears to be a "shell" corporation with a
capital of only $100.00; and that this
alleged transaction appears to be intended
to defraud petitioners Ishwar and Sonya
Jethmal Ramnani of any favorable
judgment that this Court may render in this
case;
Wherefore the Court Resolved to issue a
writ of preliminary injunction enjoining and
prohibiting said respondents Choithram
Jethmal Ramnani, Nirmla V. Ramnani, Moti
G. Ramnani and the Overseas Holding
Co., Ltd. from encumbering, selling or
otherwise disposing of the properties and
improvements subject of this litigation until
further orders of the Court. Petitioners
Ishwar and Sonya Jethmal Ramnani are
hereby required to post a bond of P
100,000.00 to answer for any damages d
respondents may suffer by way of this
injunction if the Court finally decides the
said petitioners are not entitled thereto.
The Overseas Holding Co., Ltd. with
address at P.O. Box 1790 Grand Cayman,
Cayman Islands, is hereby IMPLEADED as
a respondent in these cases, and is hereby
required to SUBMIT its comment on the
Urgent Motion for the Issuance of a Writ of
Preliminary Attachment and Motion for
Production of Documents, the
Manifestation and the Reply to the
Opposition filed by said petitioners, within
Sixty (60) days after service by publication
on it in accordance with the provisions of
Section 17, Rule 14 of the Rules of Court,
at the expense of petitioners Ishwar and
Sonya Jethmal Ramnani.
Let copies of this resolution be served on
the Register of Deeds of Pasig, Rizal, and
the Provincial Assessor of Pasig, Rizal,
both in Metro Manila, for its annotation on
the transfer Certificates of Titles Nos.
403150 and 403152 registered in the name
of respondent Nirmla V. Ramnani, and on
the tax declarations of the said properties
and its improvements subject of this
litigation.
21

The required injunction bond in the amount of P 100,000.00
was filed by the spouses Ishwar which was approved by the
Court. The above resolution of the Court was published in the
Manila Bulletin issue of December 17, 1990 at the expense of
said spouses.
22
On December 19, 1990 the said resolution
and petition for review with annexes in G.R. Nos. 85494 and
85496 were transmitted to respondent Overseas, Grand
Cayman Islands at its address c/o Cayman Overseas Trust
Co. Ltd., through the United Parcel Services Bill of
Lading
23
and it was actually delivered to said company on
January 23, 1991.
24

On January 22, 1991, Choithram, et al., filed a motion to
dissolve the writ of preliminary injunction alleging that there is
no basis therefor as in the amended complaint what is sought
is actual damages and not a reconveyance of the property,
that there is no reason for its issuance, and that acts already
executed cannot be enjoined. They also offered to file a
counterbond to dissolve the writ.
A comment/opposition thereto was filed by spouses Ishwar
that there is basis for the injunction as the alleged mortgage of
the property is simulated and the other donations of the shares
of Choithram to his children are fraudulent schemes to negate
any judgment the Court may render for petitioners.
No comment or answer was filed by Overseas despite due
notice, thus it is and must be considered to be in default and to
have lost the right to contest the representations of spouses
Ishwar to declare the aforesaid alleged mortgage nun and
void.
This purported mortgage of the subject properties in litigation
appears to be fraudulent and simulated. The stated amount of
$3 Million for which it was mortgaged is much more than the
value of the mortgaged properties and its improvements. The
alleged mortgagee-company (Overseas) was organized only
on June 26,1989 but the mortgage was executed much earlier,
on June 20, 1989, that is six (6) days before Overseas was
organized. Overseas is a "shelf" company worth only
$100.00.
25
In the manifestation of spouses Ishwar dated April
1, 1991, the Court was informed that this matter was brought
to the attention of the Central Bank (CB) for investigation, and
that in a letter of March 20, 1991, the CB informed counsel for
spouses Ishwar that said alleged foreign loan of Choithram, et
al. from Overseas has not been previously approved/registered
with the CB.
26

Obviously, this is another ploy of Choithram, et al. to place
these properties beyond the reach of spouses Ishwar should
they obtain a favorable judgment in this case. The Court finds
and so declares that this alleged mortgage should be as it is
hereby declared null and void.
All these contemporaneous and subsequent acts of Choithram,
et al., betray the weakness of their cause so they had to take
an steps, even as the case was already pending in Court, to
render ineffective any judgment that may be rendered against
them.
The problem is compounded in that respondent Ortigas is
caught in the web of this bitter fight. It had all the time been
dealing with Choithram as attorney-in-fact of Ishwar. However,
evidence had been adduced that notice in writing had been
served not only on Choithram, but also on Ortigas, of the
revocation of Choithram's power of attorney by Ishwar's
lawyer, on May 24, 1971.
27
A publication of said notice was
made in the April 2, 1971 issue of The Manila Times for the
information of the general public.
28
Such notice of revocation
in a newspaper of general circulation is sufficient warning to
third persons including Ortigas.
29
A notice of revocation was
also registered with the Securities and Exchange Commission
on March 29, 1 971.
30

Indeed in the letter of Choithram to Ishwar of June 25, 1971,
Choithram was pleading that Ishwar execute another power of
attorney to be shown to Ortigas who apparently learned of the
revocation of Choithram's power of attorney.
31
Despite said
notices, Ortigas nevertheless acceded to the representation of
Choithram, as alleged attorney-in-fact of Ishwar, to assign the
rights of petitioner Ishwar to Nirmla. While the primary blame
should be laid at the doorstep of Choithram, Ortigas is not
entirely without fault. It should have required Choithram to
secure another power of attorney from Ishwar. For recklessly
believing the pretension of Choithram that his power of
attorney was still good, it must, therefore, share in the latter's
liability to Ishwar.
In the original complaint, the spouses Ishwar asked for a
reconveyance of the properties and/or payment of its present
value and damages.
32
In the amended complaint they asked,
among others, for actual damages of not less than the present
value of the real properties in litigation, moral and exemplary
damages, attorneys fees, costs of the suit and further prayed
for "such other reliefs as may be deemed just and equitable in
the premises .
33
The amended complaint contain the following
positive allegations:
7. Defendant Choithram Ramnani, in
evident bad faith and despite due notice of
the revocation of the General Power of
Attorney, Annex 'D" hereof, caused the
transfer of the rights over the said parcels
of land to his daughter-in-law, defendant
Nirmla Ramnani in connivance with
defendant Ortigas & Co., the latter having
agreed to the said transfer despite
receiving a letter from plaintiffs' lawyer
informing them of the said revocation; copy
of the letter is hereto attached and made
an integral part hereof as Annex "H";
8. Defendant Nirmla Ramnani having
acquired the aforesaid property by fraud
is, by force of law,considered a trustee of
an implied trust for the benefit of plaintiff
and is obliged to return the same to the
latter:
9. Several efforts were made to settle the
matter within the family but defendants
(Choithram Ramnani, Nirmla Ramnani and
Moti Ramnani) refused and up to now fail
and still refuse to cooperate and respond
to the same; thus, the present case;
10. In addition to having been deprived of
their rights over the properties (described
in par. 3 hereof), plaintiffs, by reason of
defendants' fraudulent act, suffered actual
damages by way of lost rental on the
property which defendants (Choithram
Ramnani, Nirmla Ramnani and Moti
Ramnani have collected for themselves;
34

In said amended complaint, spouses Ishwar, among others,
pray for payment of actual damages in an amount no less than
the value of the properties in litigation instead of a
reconveyance as sought in the original complaint. Apparently
they opted not to insist on a reconveyance as they are
American citizens as alleged in the amended complaint.
The allegations of the amended complaint above reproduced
clearly spelled out that the transfer of the property to Nirmla
was fraudulent and that it should be considered to be held in
trust by Nirmla for spouses Ishwar. As above-discussed, this
allegation is well-taken and the transfer of the property to
Nirmla should be considered to have created an implied trust
by Nirmla as trustee of the property for the benefit of spouses
Ishwar.
35

The motion to dissolve the writ of preliminary injunction filed by
Choithram, et al. should be denied. Its issuance by this Court
is proper and warranted under the circumstances of the case.
Under Section 3(c) Rule 58 of the Rules of Court, a writ of
preliminary injunction may be granted at any time after
commencement of the action and before judgment when it is
established:
(c) that the defendant is doing, threatens,
or is about to do, or is procuring or
suffering to be done, some act probably in
violation of plaintiffs's rights respecting the
subject of the action, and tending to render
the judgment ineffectual.
As above extensively discussed, Choithram, et al. have
committed and threaten to commit further acts of disposition of
the properties in litigation as well as the other assets of
Choithram, apparently designed to render ineffective any
judgment the Court may render favorable to spouses Ishwar.
The purpose of the provisional remedy of preliminary injunction
is to preserve the status quo of the things subject of the
litigation and to protect the rights of the spouses Ishwar
respecting the subject of the action during the pendency of the
Suit
36
and not to obstruct the administration of justice or
prejudice the adverse party.
37
In this case for damages,
should Choithram, et al. continue to commit acts of disposition
of the properties subject of the litigation, an award of damages
to spouses Ishwar would thereby be rendered ineffectual and
meaningless.
38

Consequently, if only to protect the interest of spouses Ishwar,
the Court hereby finds and holds that the motion for the
issuance of a writ of preliminary attachment filed by spouses
Ishwar should be granted covering the properties subject of
this litigation.
Section 1, Rule 57 of the Rules of Court provides that at the
commencement of an action or at any time thereafter, the
plaintiff or any proper party may have the property of the
adverse party attached as security for the satisfaction of any
judgment that may be recovered, in, among others, the
following cases:
(d) In an action against a party who has
been guilty of a fraud in contracting the
debt or incurring the obligation upon which
the action is brought, or in concealing or
disposing of the property for the taking,
detention or conversion of which the action
is brought;
(e) In an action against a party who has
removed or disposed of his property, or is
about to do so, with intent to defraud his
creditors; . . .
Verily, the acts of Choithram, et al. of disposing the properties
subject of the litigation disclose a scheme to defraud spouses
Ishwar so they may not be able to recover at all given a
judgment in their favor, the requiring the issuance of the writ of
attachment in this instance.
Nevertheless, under the peculiar circumstances of this case
and despite the fact that Choithram, et al., have committed
acts which demonstrate their bad faith and scheme to defraud
spouses Ishwar and Sonya of their rightful share in the
properties in litigation, the Court cannot ignore the fact that
Choithram must have been motivated by a strong conviction
that as the industrial partner in the acquisition of said assets he
has as much claim to said properties as Ishwar, the capitalist
partner in the joint venture.
The scenario is clear. Spouses Ishwar supplied the capital of
$150,000.00 for the business. They entrusted the money to
Choithram to invest in a profitable business venture in the
Philippines. For this purpose they appointed Choithram as their
attorney-in-fact.
Choithram in turn decided to invest in the real estate business.
He bought the two (2) parcels of land in question from Ortigas
as attorney-in-fact of Ishwar- Instead of paying for the lots in
cash, he paid in installments and used the balance of the
capital entrusted to him, plus a loan, to build two buildings.
Although the buildings were burned later, Choithram was able
to build two other buildings on the property. He rented them
out and collected the rentals. Through the industry and genius
of Choithram, Ishwar's property was developed and improved
into what it is nowa valuable asset worth millions of pesos.
As of the last estimate in 1985, while the case was pending
before the trial court, the market value of the properties is no
less than P22,304,000.00.
39
It should be worth much more
today.
We have a situation where two brothers engaged in a business
venture. One furnished the capital, the other contributed his
industry and talent. Justice and equity dictate that the two
share equally the fruit of their joint investment and efforts.
Perhaps this Solomonic solution may pave the way towards
their reconciliation. Both would stand to gain. No one would
end up the loser. After all, blood is thicker than water.
However, the Court cannot just close its eyes to the devious
machinations and schemes that Choithram employed in
attempting to dispose of, if not dissipate, the properties to
deprive spouses Ishwar of any possible means to recover any
award the Court may grant in their favor. Since Choithram, et
al. acted with evident bad faith and malice, they should pay
moral and exemplary damages as well as attorney's fees to
spouses Ishwar.
WHEREFORE, the petition in G.R. No. 85494 is DENIED,
while the petition in G.R. No. 85496 is hereby given due
course and GRANTED. The judgment of the Court of Appeals
dated October 18, 1988 is hereby modified as follows:
1. Dividing equally between respondents spouses Ishwar, on
the one hand, and petitioner Choithram Ramnani, on the other,
(in G.R. No. 85494) the two parcels of land subject of this
litigation, including all the improvements thereon, presently
covered by transfer Certificates of Title Nos. 403150 and
403152 of the Registry of Deeds, as well as the rental income
of the property from 1967 to the present.
2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani,
Moti C. Ramnani and respondent Ortigas and Company,
Limited Partnership (in G.R. No. 85496) are ordered solidarily
to pay in cash the value of said one-half (1/2) share in the said
land and improvements pertaining to respondents spouses
Ishwar and Sonya at their fair market value at the time of the
satisfaction of this judgment but in no case less than their
value as appraised by the Asian Appraisal, Inc. in its Appraisal
Report dated August 1985 (Exhibits T to T-14, inclusive).
3. Petitioners Choithram, Nirmla and Moti Ramnani and
respondent Ortigas & Co., Ltd. Partnership shall also be jointly
and severally liable to pay to said respondents spouses Ishwar
and Sonya Ramnani one-half (1/2) of the total rental income of
said properties and improvements from 1967 up to the date of
satisfaction of the judgment to be computed as follows:
a. On Building C
occupied by Eppie's
Creation and Jethmal
Industries from 1967 to
1973, inclusive, based
on the 1967 to 1973
monthly rentals paid by
Eppie's Creation;
b. Also on Building C
above, occupied by
Jethmal Industries and
Lavine from 1974 to
1978, the rental
incomes based on then
rates prevailing as
shown under Exhibit
"P"; and from 1979 to
1981, based on then
prevailing rates as
indicated under Exhibit
"Q";
c. On Building A
occupied by
Transworld Knitting
Mills from 1972 to
1978, the rental
incomes based upon
then prevailing rates
shown under Exhibit
"P", and from 1979 to
1981, based on
prevailing rates per
Exhibit "Q";
d. On the two Bays
Buildings occupied by
Sigma-Mariwasa from
1972 to 1978, the
rentals based on the
Lease Contract, Exhibit
"P", and from 1979 to
1980, the rentals
based on the Lease
Contract, Exhibit "Q".
and thereafter commencing 1982, to
account for and turn over the rental
incomes paid or ought to be paid for the
use and occupancy of the properties and
all improvements totalling 10,048 sq. m.,
based on the rate per square meter
prevailing in 1981 as indicated annually
cumulative up to 1984. Then, commencing
1985 and up to the satisfaction of the
judgment, rentals shall be computed at ten
percent (10%) annually of the fair market
values of the properties as appraised by
the Asian Appraisals, Inc. in August 1985.
(Exhibits T to T-14, inclusive.)
4. To determine the market value of the properties at the time
of the satisfaction of this judgment and the total rental incomes
thereof, the trial court is hereby directed to hold a hearing with
deliberate dispatch for this purpose only and to have the
judgment immediately executed after such determination.
5. Petitioners Choithram, Nirmla and Moti, all surnamed
Ramnani, are also jointly and severally liable to pay
respondents Ishwar and Sonya Ramnani the amount of
P500,000.00 as moral damages, P200,000.00 as exemplary
damages and attorney's fees equal to 10% of the total award.
to said respondents spouses.
6. The motion to dissolve the writ of preliminary injunction
dated December 10, 1990 filed by petitioners Choithram,
Nirmla and Moti, all surnamed Ramnani, is hereby DENIED
and the said injunction is hereby made permanent. Let a writ of
attachment be issued and levied against the properties and
improvements subject of this litigation to secure the payment of
the above awards to spouses Ishwar and Sonya.
7. The mortgage constituted on the subject property dated
June 20, 1989 by petitioners Choithram and Nirmla, both
surnamed Ramnani in favor of respondent Overseas Holding,
Co. Ltd. (in G.R. No. 85496) for the amount of $3-M is hereby
declared null and void. The Register of Deeds of Pasig, Rizal,
is directed to cancel the annotation of d mortgage on the titles
of the properties in question.
8. Should respondent Ortigas Co., Ltd. Partnership pay the
awards to Ishwar and Sonya Ramnani under this judgment, it
shall be entitled to reimbursement from petitioners Choithram,
Nirmla and Moti, all surnamed Ramnani.
9. The above awards shag bear legal rate of interest of six
percent (6%) per annum from the time this judgment becomes
final until they are fully paid by petitioners Choithram Ramnani,
Nirmla V. Ramnani, Moti C. Ramnani and Ortigas, Co., Ltd.
Partnership. Said petitioners Choithram, et al. and respondent
Ortigas shall also pay the costs.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
[G.R. No. 122807. July 5, 1996]
ROGELIO P. MENDIOLA, petitioner, vs. COURT OF
APPEALS and PHILIPPINE NATIONAL
BANK,respondents.
R E S O L U T I O N
Sometime in December 1987, a certain Ms. Norma S.
Nora convinced petitioner Rogelio Mendiola to enter into a joint
venture with her for the export of prawns. As proposed by Ms.
Nora, they were to secure financing from private respondent
Philippine National Bank. The credit line, it was agreed on,
was to be secured by collaterals consisting of real estate
properties of the petitioner, particularly two (2) parcels of land,
situated in Marikina, and covered by Transfer Certificate of
Title No. 27307 issued by the Registry of Deeds of Marikina,
Rizal.
On January 27, 1988, the petitioner signed a Special
Power of Attorney authorizing Ms. Norma S. Nora to mortgage
his aforementioned properties to PNB in order to secure the
obligations of the joint venture with the said bank of up to Five
(5) Million (5,000,000.00) Pesos. The planned joint venture
became a failure even before it could take off the ground. But,
in the meantime, Ms. Norma S. Nora, on the strength of the
special power of attorney issued in her favor, obtained loans
from PNB in the amount of P8,101,440.62 for the account of
petitioner and secured by the parcels of land hereinabove
described.
On November 11, 1988, petitioner rather belatedly
revoked the special power of attorney in favor of Ms. Nora and
requested PNB to release his properties from the mortgage
executed by Ms. Nora in its favor. The request
notwithstanding, petitioner was notified under a Notice of
Sheriff Sale, dated April 20, 1989, that PNB had initiated
foreclosure proceedings against the properties of the
petitioner.
On May 16, 1989, petitioner filed a case for injunction
against the PNB, docketed as Civil Case No. 58173, with
Branch 162, of the Regional Trial Court of Pasig City, seeking
to enjoin the foreclosure of the properties in question. PNB
filed a motion to dismiss the case on the ground that the
complaint did not state a sufficient cause of action. After
hearing, the trial court, in its Order, dated August 17, 1989,
granted PNB's motion to dismiss in this wise:
"Since the Court finds that the complaint does not state a
sufficient cause of action, it follows therefore that the prayer,
for issuance of the writ of preliminary injunction has no leg to
stand on.
IN VIEW OF THE FOREGOING CONSIDERATIONS, the
complaint is hereby ordered dismissed, without
pronouncement as to costs. The temporary restraining order
under the date of May 16, 1989 is hereby lifted and set
aside."
[1]

Petitioner filed a Notice of Appeal from said Order, which
was noted by the lower court in an Order, dated November 16,
1989.
While Civil Case No. 58173 was pending appeal with the
court a quo, aforementioned properties were sold in an auction
sale on October 3, 1990. The PNB, as the highest bidder,
acquired petitioner's properties.
On October 10, 1990, petitioner filed an action to annul
the auction sale of October 3, 1990, which was docketed as
Civil Case No. 60012. The case was raffled to Branch 154 of
the Regional Trial Court of Pasig City.
PNB likewise filed a motion to dismiss Civil Case No.
60012 alleging that "another action is pending between the
same parties for the same cause of action." Apparently, PNB
was referring to Civil Case No. 58173 then pending with
respondent Court of Appeals. Attached to the motion to
dismiss was a copy of the complaint in Civil Case No. 58173
which had the same allegations as the complaint in Civil Case
No. 60012, except that the relief sought in the first case was to
enjoin the foreclosure of the mortgaged properties of the
petitioner.
Petitioner opposed said motion to dismiss.
After due hearing, Branch 154, RTC of Pasig, issued an
Order, dated February 28, 1991, granting PNB's motion to
dismiss Civil Case No. 60012 on the ground of litis
pendentia. The dispositive portion of the Order reads:
"WHEREFORE, the Motion to Dismiss is hereby GRANTED,
the injunction DENIED and the instant complaint DISMISSED
with prejudice, without costs."
[2]

A motion for reconsideration was filed by the petitioner
but the same was denied. Petitioner appealed before the
court a quo, which rendered its Decision, dated November 15,
1995 in CA-GR. CV No. 37940, affirming the Orders issued by
Branch 154 of the RTC-Pasig, to wit:
"WHEREFORE, the orders herein appealed from are hereby
affirmed in toto, with costs against the plaintiff-appellant."
[3]

Hence, the instant petition submitting the following
grounds.
I
THE HONORABLE COURT OF APPEALS ERRED IN
AFFIRMING IN TOTO THE ORDER DATED FEBRUARY 28,
1991 BASED ON THE ORDER DATED AUGUST 17, 1989
CONSIDERING THAT THE LATTER ORDER SIMPLY
RESOLVED THAT THE MORTGAGE IN FAVOR OF THE
PHILIPPINE NATIONAL BANK IS BINDING UPON
PETITIONER, BUT HAS NOT RESOLVED IN THE
DECRETAL PORTION OF SUCH LATTER ORDER
WHETHER PHILIPPINE NATIONAL BANK HAS THE RIGHT
TO FORECLOSE SUCH MORTGAGE BASED ON THE
DEFAULTED OBLIGATIONS OF NORMA NORA, AND IT
HAS NOT LIKEWISE RESOLVED IN THE DECRETAL
PORTION THEREOF WHETHER SUCH DEFAULTED
OBLIGATIONS OF NORMA NORA ARE SECURED BY THE
MORTGAGE IN FAVOR OF PHILIPPINE NATIONAL BANK;
AND
II
ASSUMING FOR THE SAKE OF ARGUMENT THAT RES
JUDICATA HAS SET IN, ITS APPLICATION WOULD
INVOLVE THE SACRIFICE OF JUSTICE TO
TECHNICALITY.
[4]

We deny the petition.
The instant petition has now become moot and
academic, because the first case, docketed as Civil Case No.
58173, which is an application for injunction filed by herein
petitioner before Branch 162 of the Regional Trial Court, Pasig
City against private respondent PNB to prevent the latter from
foreclosing his real properties, and which was then pending
appeal before the court a quo at the time the second action
(Civil Case No. 60012) was filed, has now been finally
dismissed by the respondent Court of Appeals in CA-G.R. CV
No. 29601, to wit:
"WHEREFORE, the appeal is hereby declared abandoned and
is dismissed pursuant to Section 1(d), Rule 50 of the Rules of
Court."
[5]

Consequently, the instant petition which prays for the
declaration of nullity of the auction sale by PNB of private
respondent's properties
[6]
becomes dismissible under the
principle of res judicata.
Section 49, Rule 39 of the Revised Rules of Court
provides in part:
"SEC. 49. Effect of judgments. - The effect of a judgment or
final order rendered by a court or judge of the Philippines,
having jurisdiction to pronounce the judgment or order, may be
as follows:
x x x x x x x x x
(b) In other cases the judgment or order is, with respect to
the matter directly adjudged or as to any other matter that
could have been raised in relation thereto, conclusive between
the parties and their successors-in-interest by title subsequent
to the commencement of the action or special proceeding,
litigating for the same thing and under the same title and; in the
same capacity;
(c) In any other litigation between the same parties of their
successors-in-interest, that only is deemed to have been
adjudged in a former judgment which appears upon its face to
have been so adjudged, or which was actually and necessarily
included therein or necessary thereto.
Section 49 (b) enunciates the first concept of res
judicata known as "bar by prior judgment," whereas, Section
49 is referred to as "conclusiveness of judgment."
There is "bar by former judgment" when, between the
first case where the judgment was rendered, and the second
case where such judgment is invoked, there is identity of
parties, subject matter and cause of action. When the three
identities are present, the judgment on the merits rendered in
the first constitutes an absolute bar to subsequent action. It is
final as to the claim or demand in controversy, including the
parties and those in privity with them, not only as to every
matter which was offered and received to sustain or defeat the
claim or demand, but as to any other admissible matter which
might have been offered for that purpose. But where between
the first case wherein judgment is rendered and the second
case wherein such judgment is invoked, there is no identity of
cause of action, the judgment is conclusive in the second case,
only as to those matters actually and directly controverted and
determined, and not as to matters merely involved
therein. This is what is termed conclusiveness of judgment.
[7]

It is res judicata in the first concept which finds relevant
application in the case at bar.
There are four (4) essential requisites which must concur
in order for res judicata as a "bar by former judgment" to
attach, viz.:
"1. The former judgment must be final;
2. It must have been rendered by a court having jurisdiction
over the subject matter and the parties;
3. It must be a judgment or order on the merits; and
4. There must be between the first and second action identity
of parties, identity of subject matter, and identity of causes of
action."
[8]

All the foregoing requisites obtain in the present
case. The Order of Branch 162, RTC - Pasig, dated August
17, 1989, denying petitioner Mendiola's application for
injunction of the foreclosure of his properties in Civil Case No.
58173, had long become final and executory in light of the
Decision of the Court of Appeals in CA-G.R. CV No. 29601
affirming the trial court's order. Petitioner did not appeal the
Decision of the court a quo in CA-G.R. CV No. 29601.
The parties do not dispute the fact that Branch 162,
RTC, Pasig, had obtained jurisdiction over the subject matter
of the first case as well as over the parties thereto.
The judgment of the trial court in Civil Case No. 58173,
as affirmed by the Court of Appeals, is a judgment on the
merits. A judgment is on the merits when it determines the
rights and liabilities of the parties based on the disclosed facts,
irrespective of formal, technical or dilatory objections. It is not
necessary, however, that there should have been a trial. If the
judgment is general, and not based on any technical defect or
objection, and the parties had a full legal opportunity to be
heard on their respective claims and contentions, it is on the
merits although there was no actual hearing or arguments on
the facts of the case.
[9]
In the case at bar, not only was
petitioner provided an opportunity to be heard in support of his
complaint for injunction; petitioner was given an actual hearing
to argue his complaint on its merits.
[10]
Evidently, the Order of
the trial court denying petitioner's application for injunction was
rendered only after due consideration of the facts and
evidence presented by both parties thereto. The said Order
cannot be said to be one on sheer technicality, it actually goes
into the very substance of the relief sought therein by
petitioner, that is, for the issuance of a writ of injunction against
the private respondent, and must thus be regarded as an
adjudication on the merits.
Finally, the fourth element is likewise extant in this
case. Required in order to satisfy this element are: (1) identity
of the parties and subject matter; and (2) identity of the causes
of action. In Civil Case No. 58173, the complaint was filed by
herein petitioner Mendiola against private respondent PNB,
Norma S. Nora, Eliezer L. Castillo, Norman C. Nora, Grace S.
Belvis, and Victor S. Sta. Ana, as Deputy Sheriff-In-Charge. In
Civil Case No. 60012, the complaint was filed by petitioner
Mendiola against private respondent PNB and Nilda P. Bongat
in substitution of Grace S. Belvis. It is to be noted that there is
no absolute identity of parties on the two cases. This is of no
consequence. We have established jurisprudence to the effect
that, in order for res judicata to apply, absolute identity of
parties is not required because substantial identity is
sufficient.
[11]
In any case, PNB is a defendant in both
cases. The subject matter involved in both cases, the real
properties of petitioner covered by TCT No. 27307, are also
identical.
The similarity between the two causes of action is only
too glaring. The test of identity of causes of action lies not in
the form of an action but on whether the same evidence would
support and establish the former and the present causes of
action. The difference of actions in the aforesaid cases is of
no moment.
[12]
In Civil Case No. 58173, the action is to enjoin
PNB from foreclosing petitioner's properties, while in Civil Case
No. 60012, the action is one to annul the auction sale over the
foreclosed properties of petitioner based on the same
grounds. Notwithstanding a difference in the forms of the two
actions, the doctrine of res judicata still applies considering
that the parties were litigating for the same thing, i.e. lands
covered by TCT No. 27307, and more importantly, the same
contentions and evidence as advanced by herein petitioner in
this case were in fact used to support the former cause of
action.
Petitioner, now argues on equitable grounds. He
maintains that, assuming for the sake of argument that res
judicata has set in, its application would involve the sacrifice of
justice for technicality.
We are not persuaded.
Equity, which has been aptly described "a justice outside
legality," is applied only in the absence of, and never against,
statutory law or judicial rules of procedure. The pertinent
positive rules being present here, they should pre-empt and
prevail over all abstract arguments based only on equity.
[13]

WHEREFORE, in view of the foregoing, the petition
should be, as it is, hereby DENIED.
SO ORDERED.
Padilla, Bellosillo, Vitug, and Kapunan, JJ., concur.

G.R. No. L-4935 May 28, 1954
J. M. TUASON & CO., INC., represented by it Managing
PARTNER, GREGORIA ARANETA, INC., plaintiff-appellee,
vs.
QUIRINO BOLAOS, defendant-appellant.
This is an action originally brought in the Court of First
Instance of Rizal, Quezon City Branch, to recover possesion of
registered land situated in barrio Tatalon, Quezon City.
Plaintiff's complaint was amended three times with respect to
the extent and description of the land sought to be recovered.
The original complaint described the land as a portion of a lot
registered in plaintiff's name under Transfer Certificate of Title
No. 37686 of the land record of Rizal Province and as
containing an area of 13 hectares more or less. But the
complaint was amended by reducing the area of 6 hectares,
more or less, after the defendant had indicated the plaintiff's
surveyors the portion of land claimed and occupied by him.
The second amendment became necessary and was allowed
following the testimony of plaintiff's surveyors that a portion of
the area was embraced in another certificate of title, which was
plaintiff's Transfer Certificate of Title No. 37677. And still later,
in the course of trial, after defendant's surveyor and witness,
Quirino Feria, had testified that the area occupied and claimed
by defendant was about 13 hectares, as shown in his Exhibit 1,
plaintiff again, with the leave of court, amended its complaint to
make its allegations conform to the evidence.
Defendant, in his answer, sets up prescription and title in
himself thru "open, continuous, exclusive and public and
notorious possession (of land in dispute) under claim of
ownership, adverse to the entire world by defendant and his
predecessor in interest" from "time in-memorial". The answer
further alleges that registration of the land in dispute was
obtained by plaintiff or its predecessors in interest thru "fraud
or error and without knowledge (of) or interest either personal
or thru publication to defendant and/or predecessors in
interest." The answer therefore prays that the complaint be
dismissed with costs and plaintiff required to reconvey the land
to defendant or pay its value.
After trial, the lower court rendered judgment for plaintiff,
declaring defendant to be without any right to the land in
question and ordering him to restore possession thereof to
plaintiff and to pay the latter a monthly rent of P132.62 from
January, 1940, until he vacates the land, and also to pay the
costs.
Appealing directly to this court because of the value of the
property involved, defendant makes the following assignment
or errors:
I. The trial court erred in not dismissing the case on
the ground that the case was not brought by the real
property in interest.
II. The trial court erred in admitting the third
amended complaint.
III. The trial court erred in denying defendant's
motion to strike.
IV. The trial court erred in including in its decision
land not involved in the litigation.
V. The trial court erred in holding that the land in
dispute is covered by transfer certificates of Title
Nos. 37686 and 37677.
Vl. The trial court erred in not finding that the
defendant is the true and lawful owner of the land.
VII. The trial court erred in finding that the defendant
is liable to pay the plaintiff the amount of P132.62
monthly from January, 1940, until he vacates the
premises.
VIII. The trial court erred in not ordering the plaintiff
to reconvey the land in litigation to the defendant.
As to the first assigned error, there is nothing to the contention
that the present action is not brought by the real party in
interest, that is, by J. M. Tuason and Co., Inc. What the Rules
of Court require is that an action be broughtin the name of, but
not necessarily by, the real party in interest. (Section 2, Rule
2.) In fact the practice is for an attorney-at-law to bring the
action, that is to file the complaint, in the name of the plaintiff.
That practice appears to have been followed in this case, since
the complaint is signed by the law firm of Araneta and Araneta,
"counsel for plaintiff" and commences with the statement
"comes now plaintiff, through its undersigned counsel." It is
true that the complaint also states that the plaintiff is
"represented herein by its Managing Partner Gregorio Araneta,
Inc.", another corporation, but there is nothing against one
corporation being represented by another person, natural or
juridical, in a suit in court. The contention that Gregorio
Araneta, Inc. can not act as managing partner for plaintiff on
the theory that it is illegal for two corporations to enter into a
partnership is without merit, for the true rule is that "though a
corporation has no power to enter into a partnership, it may
nevertheless enter into a joint venture with another where the
nature of that venture is in line with the business authorized by
its charter." (Wyoming-Indiana Oil Gas Co. vs. Weston, 80 A.
L. R., 1043, citing 2 Fletcher Cyc. of Corp., 1082.) There is
nothing in the record to indicate that the venture in which
plaintiff is represented by Gregorio Araneta, Inc. as "its
managing partner" is not in line with the corporate business of
either of them.
Errors II, III, and IV, referring to the admission of the third
amended complaint, may be answered by mere reference to
section 4 of Rule 17, Rules of Court, which sanctions such
amendment. It reads:
Sec. 4. Amendment to conform to evidence.
When issues not raised by the pleadings are tried by
express or implied consent of the parties, they shall
be treated in all respects, as if they had been raised
in the pleadings. Such amendment of the pleadings
as may be necessary to cause them to conform to
the evidence and to raise these issues may be made
upon motion of any party at my time, even of the trial
of these issues. If evidence is objected to at the trial
on the ground that it is not within the issues made by
the pleadings, the court may allow the pleadings to
be amended and shall be so freely when the
presentation of the merits of the action will be
subserved thereby and the objecting party fails to
satisfy the court that the admission of such evidence
would prejudice him in maintaining his action or
defense upon the merits. The court may grant a
continuance to enable the objecting party to meet
such evidence.
Under this provision amendment is not even necessary for the
purpose of rendering judgment on issues proved though not
alleged. Thus, commenting on the provision, Chief Justice
Moran says in this Rules of Court:
Under this section, American courts have, under the
New Federal Rules of Civil Procedure, ruled that
where the facts shown entitled plaintiff to relief other
than that asked for, no amendment to the complaint
is necessary, especially where defendant has
himself raised the point on which recovery is based,
and that the appellate court treat the pleadings as
amended to conform to the evidence, although the
pleadings were not actually amended. (I Moran,
Rules of Court, 1952 ed., 389-390.)
Our conclusion therefore is that specification of error II, III, and
IV are without merit..
Let us now pass on the errors V and VI. Admitting, though his
attorney, at the early stage of the trial, that the land in dispute
"is that described or represented in Exhibit A and in Exhibit B
enclosed in red pencil with the name Quirino Bolaos,"
defendant later changed his lawyer and also his theory and
tried to prove that the land in dispute was not covered by
plaintiff's certificate of title. The evidence, however, is against
defendant, for it clearly establishes that plaintiff is the
registered owner of lot No. 4-B-3-C, situate in barrio Tatalon,
Quezon City, with an area of 5,297,429.3 square meters, more
or less, covered by transfer certificate of title No. 37686 of the
land records of Rizal province, and of lot No. 4-B-4, situated in
the same barrio, having an area of 74,789 square meters,
more or less, covered by transfer certificate of title No. 37677
of the land records of the same province, both lots having been
originally registered on July 8, 1914 under original certificate of
title No. 735. The identity of the lots was established by the
testimony of Antonio Manahan and Magno Faustino, witnesses
for plaintiff, and the identity of the portion thereof claimed by
defendant was established by the testimony of his own
witness, Quirico Feria. The combined testimony of these three
witnesses clearly shows that the portion claimed by defendant
is made up of a part of lot 4-B-3-C and major on portion of lot
4-B-4, and is well within the area covered by the two transfer
certificates of title already mentioned. This fact also appears
admitted in defendant's answer to the third amended
complaint.
As the land in dispute is covered by plaintiff's Torrens
certificate of title and was registered in 1914, the decree of
registration can no longer be impugned on the ground of fraud,
error or lack of notice to defendant, as more than one year has
already elapsed from the issuance and entry of the decree.
Neither court the decree be collaterally attacked by any person
claiming title to, or interest in, the land prior to the registration
proceedings. (Sorogon vs. Makalintal,
1
45 Off. Gaz., 3819.)
Nor could title to that land in derogation of that of plaintiff, the
registered owner, be acquired by prescription or adverse
possession. (Section 46, Act No. 496.) Adverse, notorious and
continuous possession under claim of ownership for the period
fixed by law is ineffective against a Torrens title. (Valiente vs.
Judge of CFI of Tarlac,
2
etc., 45 Off. Gaz., Supp. 9, p. 43.) And
it is likewise settled that the right to secure possession under a
decree of registration does not prescribed. (Francisco vs. Cruz,
43 Off. Gaz., 5105, 5109-5110.) A recent decision of this Court
on this point is that rendered in the case of Jose Alcantara et
al., vs. Mariano et al., 92 Phil., 796. This disposes of the
alleged errors V and VI.
As to error VII, it is claimed that `there was no evidence to
sustain the finding that defendant should be sentenced to pay
plaintiff P132.62 monthly from January, 1940, until he vacates
the premises.' But it appears from the record that that
reasonable compensation for the use and occupation of the
premises, as stipulated at the hearing was P10 a month for
each hectare and that the area occupied by defendant was
13.2619 hectares. The total rent to be paid for the area
occupied should therefore be P132.62 a month. It is appears
from the testimony of J. A. Araneta and witness Emigdio
Tanjuatco that as early as 1939 an action of ejectment had
already been filed against defendant. And it cannot be
supposed that defendant has been paying rents, for he has
been asserting all along that the premises in question 'have
always been since time immemorial in open, continuous,
exclusive and public and notorious possession and under
claim of ownership adverse to the entire world by defendant
and his predecessors in interest.' This assignment of error is
thus clearly without merit.
Error No. VIII is but a consequence of the other errors alleged
and needs for further consideration.
During the pendency of this case in this Court appellant, thru
other counsel, has filed a motion to dismiss alleging that there
is pending before the Court of First Instance of Rizal another
action between the same parties and for the same cause and
seeking to sustain that allegation with a copy of the complaint
filed in said action. But an examination of that complaint
reveals that appellant's allegation is not correct, for the
pretended identity of parties and cause of action in the two
suits does not appear. That other case is one for recovery of
ownership, while the present one is for recovery of possession.
And while appellant claims that he is also involved in that order
action because it is a class suit, the complaint does not show
that such is really the case. On the contrary, it appears that the
action seeks relief for each individual plaintiff and not relief for
and on behalf of others. The motion for dismissal is clearly
without merit.
Wherefore, the judgment appealed from is affirmed, with costs
against the plaintiff.