G.R. No.

L-55397 February 29, 1988

TAI TONG CHUACHE & CO., petitioner,

vs.
THE INSURANCE COMMISSION and TRAVELLERS MULTI-INDEMNITY CORPORATION, respondents.

GANCAYCO, J.:

This petition for review on certiorari seeks the reversal of the decision of the Insurance Commission in IC Case #367 1 dismissing the complaint 2 for recovery of
the alleged unpaid balance of the proceeds of the Fire Insurance Policies issued by herein respondent insurance company in favor of petitioner-intervenor.

The facts of the case as found by respondent Insurance Commission are as follows:

Complainants acquired from a certain Rolando Gonzales a parcel of land and a building located at
San Rafael Village, Davao City. Complainants assumed the mortgage of the building in favor of
S.S.S., which building was insured with respondent S.S.S. Accredited Group of Insurers for
P25,000.00.

On April 19, 1975, Azucena Palomo obtained a loan from Tai Tong Chuache Inc. in the amount of
P100,000.00. To secure the payment of the loan, a mortgage was executed over the land and the
building in favor of Tai Tong Chuache & Co. (Exhibit "1" and "1-A"). On April 25, 1975, Arsenio
Chua, representative of Thai Tong Chuache & Co. insured the latter's interest with Travellers Multi-
Indemnity Corporation for P100,000.00 (P70,000.00 for the building and P30,000.00 for the contents
thereof) (Exhibit "A-a," contents thereof) (Exhibit "A-a").

On June 11, 1975, Pedro Palomo secured a Fire Insurance Policy No. F- 02500 (Exhibit "A"),
covering the building for P50,000.00 with respondent Zenith Insurance Corporation. On July 16,
1975, another Fire Insurance Policy No. 8459 (Exhibit "B") was procured from respondent Philippine
British Assurance Company, covering the same building for P50,000.00 and the contents thereof for
P70,000.00.

On July 31, 1975, the building and the contents were totally razed by fire.

Adjustment Standard Corporation submitted a report as follow

xxx xxx xxx

... Thus the apportioned share of each company is as follows:

Po Com Risk Insu Pays

lic
y pany res
No
..

M Zeni Build P50 P17,6

IR th ing ,000 10.93
O

F- Insu
0 ranc
2 e
5
0
0
 Corp
.

F- Phil. Hous 70,0 24,65

8 ehol 00 5.31
4 d
5
9
0

Briti
sh

Assc
o.
Co.

Inc. FFF 50,0 39,18

& F5 00 6.10

P Com Risk Insu Pays

oli pany res
cy
N
o.

FI SSS
C Accr
- e
1
5
3
8
1

dited
Gro
up

of Build P25 P8,80

Insu ing ,000 5.47
rers

Total P19 P90,2

s 5,00 57.81
0

We are showing hereunder another apportionment of the loss which includes the Travellers Multi-
Indemnity policy for reference purposes.

Po Com Risk Injur Pays

lic
y pany es
No
.
M Zenit
I h
R
O
/

F Insur
- ance
0
2
5
0
0

Corp Buildi P50 P11,8

. ng ,000 77.14

F Phil.
-
8
4
5
9
0

Britis
h

Assc I- 70,0 16,62

o. Buildi 00 8.00
Co. ng

II-
Buil
ding

FFF 50,0 24,91

& PE 00 8.79

P SSS Accre
V dited
C
-
1
5
1
8
1

Grou
p of

Insur Buildi 25,0 5,938

ers ng 00 .50
 F Insur I-Ref 30,0 14,46
- ers 00 7.31
5
9
9
D
V

Multi II- 70,0 16,62

Buildi 00 8.00
ng

Total P29 P90,2

s 5.00 57.81
0

Based on the computation of the loss, including the Travellers Multi- Indemnity, respondents, Zenith
Insurance, Phil. British Assurance and S.S.S. Accredited Group of Insurers, paid their corresponding
shares of the loss. Complainants were paid the following: P41,546.79 by Philippine British
Assurance Co., P11,877.14 by Zenith Insurance Corporation, and P5,936.57 by S.S.S. Group of
Accredited Insurers (Par. 6. Amended Complaint). Demand was made from respondent Travellers
Multi-Indemnity for its share in the loss but the same was refused. Hence, complainants demanded
from the other three (3) respondents the balance of each share in the loss based on the computation
of the Adjustment Standards Report excluding Travellers Multi-Indemnity in the amount of
P30,894.31 (P5,732.79-Zenith Insurance: P22,294.62, Phil. British: and P2,866.90, SSS Accredited)
but the same was refused, hence, this action.

In their answers, Philippine British Assurance and Zenith Insurance Corporation admitted the
material allegations in the complaint, but denied liability on the ground that the claim of the
complainants had already been waived, extinguished or paid. Both companies set up counterclaim in
the total amount of P 91,546.79.

Instead of filing an answer, SSS Accredited Group of Insurers informed the Commission in its letter
of July 22, 1977 that the herein claim of complainants for the balance had been paid in the amount
of P 5,938.57 in full, based on the Adjustment Standards Corporation Report of September 22,
1975.

Travellers Insurance, on its part, admitted the issuance of the Policy No. 599 DV and alleged as its
special and affirmative defenses the following, to wit: that Fire Policy No. 599 DV, covering the
furniture and building of complainants was secured by a certain Arsenio Chua, mortgage creditor, for
the purpose of protecting his mortgage credit against the complainants; that the said policy was
issued in the name of Azucena Palomo, only to indicate that she owns the insured premises; that the
policy contains an endorsement in favor of Arsenio Chua as his mortgage interest may appear to
indicate that insured was Arsenio Chua and the complainants; that the premium due on said fire
policy was paid by Arsenio Chua; that respondent Travellers is not liable to pay complainants.

On May 31, 1977, Tai Tong Chuache & Co. filed a complaint in intervention claiming the proceeds of
the fire Insurance Policy No. F-559 DV, issued by respondent Travellers Multi-Indemnity.

Travellers Insurance, in answer to the complaint in intervention, alleged that the Intervenor is not
entitled to indemnity under its Fire Insurance Policy for lack of insurable interest before the loss of
the insured premises and that the complainants, spouses Pedro and Azucena Palomo, had already
paid in full their mortgage indebtedness to the intervenor. 3

As adverted to above respondent Insurance Commission dismissed spouses Palomos' complaint on the ground that
the insurance policy subject of the complaint was taken out by Tai Tong Chuache & Company, petitioner herein, for
its own interest only as mortgagee of the insured property and thus complainant as mortgagors of the insured
property have no right of action against herein respondent. It likewise dismissed petitioner's complaint in intervention
in the following words:

We move on the issue of liability of respondent Travellers Multi-Indemnity to the Intervenor-

mortgagee. The complainant testified that she was still indebted to Intervenor in the amount of
P100,000.00. Such allegation has not however, been sufficiently proven by documentary evidence.
The certification (Exhibit 'E-e') issued by the Court of First Instance of Davao, Branch 11, indicate
that the complainant was Antonio Lopez Chua and not Tai Tong Chuache & Company. 4

From the above decision, only intervenor Tai Tong Chuache filed a motion for reconsideration but it was likewise
denied hence, the present petition.

It is the contention of the petitioner that respondent Insurance Commission decided an issue not raised in the
pleadings of the parties in that it ruled that a certain Arsenio Lopez Chua is the one entitled to the insurance
proceeds and not Tai Tong Chuache & Company.

This Court cannot fault petitioner for the above erroneous interpretation of the decision appealed from considering
the manner it was written. 5 As correctly pointed out by respondent insurance commission in their comment, the
decision did not pronounce that it was Arsenio Lopez Chua who has insurable interest over the insured property.
Perusal of the decision reveals however that it readily absolved respondent insurance company from liability on the
basis of the commissioner's conclusion that at the time of the occurrence of the peril insured against petitioner as
mortgagee had no more insurable interest over the insured property. It was based on the inference that the credit
secured by the mortgaged property was already paid by the Palomos before the said property was gutted down by
fire. The foregoing conclusion was arrived at on the basis of the certification issued by the then Court of First
Instance of Davao, Branch II that in a certain civil action against the Palomos, Antonio Lopez Chua stands as the
complainant and not petitioner Tai Tong Chuache & Company.

We find the petition to be impressed with merit. It is a well known postulate that the case of a party is constituted by
his own affirmative allegations. Under Section 1, Rule 1316 each party must prove his own affirmative allegations by
the amount of evidence required by law which in civil cases as in the present case is preponderance of evidence.
The party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of presenting at the
trial such amount of evidence as required by law to obtain favorable judgment.7 Thus, petitioner who is claiming a
right over the insurance must prove its case. Likewise, respondent insurance company to avoid liability under the
policy by setting up an affirmative defense of lack of insurable interest on the part of the petitioner must prove its
own affirmative allegations.

It will be recalled that respondent insurance company did not assail the validity of the insurance policy taken out by
petitioner over the mortgaged property. Neither did it deny that the said property was totally razed by fire within the
period covered by the insurance. Respondent, as mentioned earlier advanced an affirmative defense of lack of
insurable interest on the part of the petitioner that before the occurrence of the peril insured against the Palomos
had already paid their credit due the petitioner. Respondent having admitted the material allegations in the
complaint, has the burden of proof to show that petitioner has no insurable interest over the insured property at the
time the contingency took place. Upon that point, there is a failure of proof. Respondent, it will be noted, exerted no
effort to present any evidence to substantiate its claim, while petitioner did. For said respondent's failure, the
decision must be adverse to it.

However, as adverted to earlier, respondent Insurance Commission absolved respondent insurance company from
liability on the basis of the certification issued by the then Court of First Instance of Davao, Branch II, that in a
certain civil action against the Palomos, Arsenio Lopez Chua stands as the complainant and not Tai Tong Chuache.
From said evidence respondent commission inferred that the credit extended by herein petitioner to the Palomos
secured by the insured property must have been paid. Such is a glaring error which this Court cannot sanction.
Respondent Commission's findings are based upon a mere inference.

The record of the case shows that the petitioner to support its claim for the insurance proceeds offered as evidence
the contract of mortgage (Exh. 1) which has not been cancelled nor released. It has been held in a long line of cases
that when the creditor is in possession of the document of credit, he need not prove non-payment for it is
presumed. 8 The validity of the insurance policy taken b petitioner was not assailed by private respondent. Moreover,
petitioner's claim that the loan extended to the Palomos has not yet been paid was corroborated by Azucena
Palomo who testified that they are still indebted to herein petitioner. 9

Public respondent argues however, that if the civil case really stemmed from the loan granted to Azucena Palomo
by petitioner the same should have been brought by Tai Tong Chuache or by its representative in its own behalf.
From the above premise respondent concluded that the obligation secured by the insured property must have been
paid.

The premise is correct but the conclusion is wrong. Citing Rule 3, Sec. 2 10 respondent pointed out that the action
must be brought in the name of the real party in interest. We agree. However, it should be borne in mind that
petitioner being a partnership may sue and be sued in its name or by its duly authorized representative. The fact
that Arsenio Lopez Chua is the representative of petitioner is not questioned. Petitioner's declaration that Arsenio
Lopez Chua acts as the managing partner of the partnership was corroborated by respondent insurance
company. 11 Thus Chua as the managing partner of the partnership may execute all acts of administration 12 including
the right to sue debtors of the partnership in case of their failure to pay their obligations when it became due and
demandable. Or at the very least, Chua being a partner of petitioner Tai Tong Chuache & Company is an agent of
the partnership. Being an agent, it is understood that he acted for and in behalf of the firm.13 Public respondent's
allegation that the civil case flied by Arsenio Chua was in his capacity as personal creditor of spouses Palomo has
no basis.

The respondent insurance company having issued a policy in favor of herein petitioner which policy was of legal
force and effect at the time of the fire, it is bound by its terms and conditions. Upon its failure to prove the allegation
of lack of insurable interest on the part of the petitioner, respondent insurance company is and must be held liable.

IN VIEW OF THE FOREGOING, the decision appealed from is hereby SET ASIDE and ANOTHER judgment is
rendered order private respondent Travellers Multi-Indemnity Corporation to pay petitioner the face value of
Insurance Policy No. 599-DV in the amount of P100,000.00. Costs against said private respondent.

SO ORDERED.

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

COMMISSIONER OF INTERNAL REVENUE, petitioner,

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

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

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

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

In 1948, however, general partner Suter and limited partner Spirig got married and, thereafter, on 18 December
1948, limited partner Carlson sold his share in the partnership to Suter and his wife. The sale was duly recorded
with the Securities and Exchange Commission on 20 December 1948.
The limited partnership had been filing its income tax returns as a corporation, without objection by the herein
petitioner, Commissioner of Internal Revenue, until in 1959 when the latter, in an assessment, consolidated the
income of the firm and the individual incomes of the partners-spouses Suter and Spirig resulting in a determination
of a deficiency income tax against respondent Suter in the amount of P2,678.06 for 1954 and P4,567.00 for 1955.

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

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

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

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

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

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

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

We find the Commissioner's appeal unmeritorious.

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

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

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

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

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

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

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

The following shall be the exclusive property of each spouse:

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

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

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

The rulings cited by the petitioner (Collector of Internal Revenue vs. University of the Visayas, L-13554, Resolution
of 30 October 1964, and Koppel [Phil.], Inc. vs. Yatco, 77 Phil. 504) as authority for disregarding the fiction of legal
personality of the corporations involved therein are not applicable to the present case. In the cited cases, the
corporations were already subject to tax when the fiction of their corporate personality was pierced; in the present
case, to do so would exempt the limited partnership from income taxation but would throw the tax burden upon the
partners-spouses in their individual capacities. The corporations, in the cases cited, merely served as business
conduits or alter egos of the stockholders, a factor that justified a disregard of their corporate personalities for tax
purposes. This is not true in the present case. Here, the limited partnership is not a mere business conduit of the
partner-spouses; it was organized for legitimate business purposes; it conducted its own dealings with its customers
prior to appellee's marriage, and had been filing its own income tax returns as such independent entity. The change
in its membership, brought about by the marriage of the partners and their subsequent acquisition of all interest
therein, is no ground for withdrawing the partnership from the coverage of Section 24 of the tax code, requiring it to
pay income tax. As far as the records show, the partners did not enter into matrimony and thereafter buy the
interests of the remaining partner with the premeditated scheme or design to use the partnership as a business
conduit to dodge the tax laws. Regularity, not otherwise, is presumed.
As the limited partnership under consideration is taxable on its income, to require that income to be included in the
individual tax return of respondent Suter is to overstretch the letter and intent of the law. In fact, it would even
conflict with what it specifically provides in its Section 24: for the appellant Commissioner's stand results in equal
treatment, tax wise, of a general copartnership (compañia colectiva) and a limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the latter on its income, but not the former, because it is in the case
of compañias colectivas that the members, and not the firm, are taxable in their individual capacities for any
dividend or share of the profit derived from the duly registered general partnership (Section 26, N.I.R.C.; Arañas,
Anno. & Juris. on the N.I.R.C., As Amended, Vol. 1, pp. 88-89). lawphi1.nêt

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

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

FOR THE FOREGOING REASONS, the decision under review is hereby affirmed. No costs.

G.R. Nos. L-11483-11484 February 14, 1958

In the matter of the Testate Estate of the deceased Edward E. Christensen, ADOLFO CRUZ AZNAR,petitioner.
MARIA LUCY CHRISTENSEN DANEY and ADOLFO CRUZ AZNAR, petitioners-appellants,
vs.
MARIA HELEN CHRISTENSEN GARCIA and BERNARDA CAMPOREDONDO, oppositors-appellees.

BERNARDA CAMPOREDONDO, plaintiff-appellee,

vs.
ADOLFO CRUZ AZNAR, as Executor of the Deceased EDWARD E. CHRISTENSEN, defendant-appellant.

M. R. Sotelo for appellants.

Leopoldo M. abellera and Amado A. Munda for appellee Maria Heliuen Christensen Garcia.
Pedro P. Suarez and Oscar Breva for appellee Bernarda Camporedondo.

FELIX, J.:

From the records of the above-entitled cases, it appears that as of 1913,Edward E. Christensen, an American
citizen, was already residing in Davao and on the following year became the manager of Mindanao Estates located
in the municipality of Padada of the same province. At a certain time, which the lower court placed at 1917, a group
of laborers recruited from Argao, Cebu, arrived to work in the said plantation. Among the group was a young
girl,Bernarda Camporendondo, who became an assistant to the cook. Thereafter, thegirl and Edward E.
Christensen, who was also unmarried staring living together as husband and wife and although the records failed to
establishthe exact date when such relationship commenced, the lower court found the same to have been continous
for over 30 years until the death of Christensen occurecd on April 30, 1953. Out of said relations, 2 children, Lucy
and Helen Christensen, were allegedly born.

G. R. NO. L-11484.
Upon the demise of the American, who had left a considerable amount of properties his will naming Adolfo Cruz
Aznar as executor was duly presented for probate in court and became the subject of Special Proceedings No. 622
of the Court of First Instance of Davao. Said will contains, among others, the following provisions:

xxx xxx xxx.

3. I declare . . . that I have but one (1) child, named MARIA LUCY CHRISTENSEN (now Mrs. Bernard
Daney), who was born in the Philippines about twenty-eight years ago, and who is now residing at No. 665
Rodger Young Village, Los Angeles, California, U.S.A.

4. I further declare that I have no living ascendants, andno descendantsexcept my above named daughter,
MARIA LUCY CHRISTENSEN DANEY.

xxx xxx xxx.

7. I give, devise and bequeath unto MARIA LUCY CHRISTENSEN, now married toEduardo Garcia, about
eighteen years of age and who, notwithstanding the factthat she was baptized Christensen, is not in any way
related to me, nor hasshe been at any time adopted to me, and who, from all information I have now resides
in Egipt, Digos, Davao, Philippines, the sum of THREEE THOUSAND SIXHUNDRED PESOS (P3,600)
Philippine Currency, the same to be deposited in trustfor said Maria Lucy Christensen with the Davao
Branch of the PhilippineNational Bank, and paid to her at the rate of One Hundred Pesos (P100), Philippine
Currency per month until the the principal thereof as well as any interest which may have accrued thereon,
is exhausted.

8. I give devise and bequeath unto BERNARDA CAMPORENDONDO, now residing inPadada, Davao,
Philippines, the sum of One Thousand Pesos (P1,000), Philippine Currency.

xxx xxx xxx.

12. I hereby give, devise and bequeath, unto my well-beloved daughter, the said MARIA Lucy
CHRISTENSEN DANEY (Mrs. Bernard Daney), now residing as aforesaid at No. 665 Rodger Young Village
Los Angeles, California, U.S.A., all the income from the rest, remainder, and residue of my property and
estate, real, personal and/or mixed, of whatsoever kind or character, andwheresover situated; of which I
may be possessed at any death and which mayhave come to me from any source whatsoever, during her
lifetime,Provided, honvever, that should the said MARIA LUCY CHRISTENSEN DANEY at any time prior to
her decease having living issue, then, and in that event, the life interest herein given shall terminate, and if
so terminated, then I give, devise, and bequeath to my said daughter, the said MARIA LUCY
CHRISTENSEN DANEY, the rest remainder and residue of my property, with the same force and effectas if
I had originally so given, devised and bequeathedit to her; and provided, further, that should be said Maria
Lucy ChristensenDaney die without living issue then, and in that event, I give, devise and bequeath all the
rest, remainder and residue of my property, one-half (1/2) to my well-beloved sister, Mrs. CARRIE LOIUSE
C. BORTON, now residing at No. 2124 Twentieth Street, Bakersfield, California, U.S.A. and one-half (1/2) to
the children of my deceased brother, JOSEPH C. CRISTENSEN, . . .

13. I hereby nominate and appoint Mr Adolfo Cruz Aznar, of Davao City, Philippines, my executor, and the
executor of this, my last will and testament.

. . . (Exh. A).

Oppositions to the probate of this will were separately filed by Maria Helen Christensen Garcia and Bernarda
Camporendondo, the first contending that thewill lacked the formalities required by law; that granting that he had,
thedispositions made therein were illegal because although she and Lucy Christensen were both children had by the
deceased with Bernarda Camporendondo, yet she was given only a meager sum of P3,600 out of an estate valued
at $485,000 while Lucy would get the rest of the properties;and that the petitioner Adolfo Cruz Aznar was not
qualified to be appointed as administrator of the estate because he had an interest adverse to thatof the estate. It
was therefore prayed by his oppositor that the application for probate be denied and the will disallowed; that the
proceeding be declared intestate and that another disinterested person be appointed as administrator.

Bernarda Camporedondo, on the other hand, claimed ownership over one-halfof the entire estate in virtue of her
relationship with the deceased, it being alleged that she and the testator having lived together as husband andwife
continuously for a period of over 30 years, the properties acquired during such cohabitation should be governed by
the rules on co-ownership. This opposition was dismissed by the probate court on the ground that shehad no right to
intervene in said proceeding, for as such common-law wife she had no successional right that might be affected by
the probate of thewill, and likewise, she could not be allowed to establish her title and co-ownership over the
properties therein for such questions must be ventilated in a court of general jurisdiction. In view of this ruling of the
Court and in order to attain the purpose sought by her overruled opposition Bernarda Camporedondo had to
institute, as she did institute Civil Case No. 1076 of the Court of First Instance of Davao (G.R. No. L-11483) which
we will consider and discuss hereinafter.

In the meantime, Adolfo Cruz Aznar was appointed special adminsitrator of the estate after filing a bond for P5,000
pending the appointment of a regular one, and letters of special administrition were correspondingly issued to him
on May 21, 1953.

The records further show that subsequent to her original opposition. Helen Christensen Garcia filed a supplemental
opposition and motion to declare her an acknowledged natural child of Edward E. Christensen, alleging that shewas
conceived during the time when her mother Bernarda Camporendondo was living with the deceased as his
common-law wife; that she had been in continous possession of the status of a natural child of the deceased;
thatahe had in her favor evidence and/or proof that Edward Christensen was her father; and that she and Lucy had
the same civil status as children of the decedent and Bernarda Camporedondo. This motion was opposed jointly by
the executor and Maria Lucy Christensen Daney asserting that before, during and after the conception and birth of
Helen Christensen Garcia, her mother was generally known to be carrying relations with 3 different men; that during
the lifetime of the decedent and even years before his death, Edward Christensen verbally as well as in writing
disavowed relationship with said oppositor; that oppositor appropriated and used the surname Christensen illegally
and without permission from the deceased. Thus they prayed the Court that the will be allowed; that Maria Helen
Christensen Garcia be declared not in any way related to the deceased; and that the motion of said oppositor be
denied.

After due hearing, the lower court in a decision dated February 28, 1953, found that oppositor Maria Helen
Cristensen had been in continous possession of the status of a natural child of the deceased Edward Christensen
notwithstanding the fact that she was disowned by him in his will, for such action must have been brought about by
the latter's disaproval of said oppositor's marriage to a man he did not like. But taking into considerationthat such
possession of the status of a natural child did not itself constitute acknowledgment but may only be availed of to
compel acknowledgment, the lower Court directed Maria Lucy Christensen Daney toacknowledge the oppositor as a
natural child of Edward E. Christensen. Thewill was, however, allowed the letters testamentary consequently issued
toAdolfo Cruz Aznar, the executor named therein. From the portion of the decision requiring Lucy Christensen to
acknowledge Helen as a natural child of the testator, the former and the executor interposed an appeal to the Court
of Appeals (CA-G. R. No. 13421-R), but the appellate tribunal elevatedthe same to Us on the ground that the case
involves an estate the value of which far exceeds P50,000.00 and thus falls within the exclusive appellate
jurisdiction of this Court pursuant to Section 17 (5), Republic Act No. 296.

The principal issue in this litigation is whether the lower court erred in finding that the oppositor Maria Helen
Christensen Garcia had been in continous possession of the status of a natural child of the deceased EdwardE.
Christensen and in directing Maria Lucy Christensen Daney, recognizeddaughter and instituted heirs of the
decedent, to acknowledge the former assuch natural child.

Maria Lucy Christensen was born on April 25, 1922, and Maria Helen Christensen on July 2, 1934, of the same
mother, Bernarda Camporedondo, during the period when the latter was publicly known to have been living as
common-law wife of Edward E. Chrisiensen. From the facts of the case there can be no question as to Lucy's
parentage, but controversy arose when Edward Christensen, in making his last will and testament, disavowed such
paternity to Helen and gave her only a legacy of P3,600. ln the course of the proceeding for the probate of the will
(Exh, A), Helen introduced documentary and testimonial evidence to support her claim that she, Lucy,was a natural
child of the deceased and, therefore, entitled to the hereditaryshare corresponding to such descendant. Several
witness testified in herfavor, including the mother Bernarda Camporendondo, her former teachers andother
residents of the community, tending to prove that she was known in the locality as a child of the testator and was
introduced by the latter to the circle of his friends and acquaintances as his daughter. Family portraits, greeting
cards and letters were likewise presented to bolster herassertion that she had always been treated by the deceased
and by Lucy herself as a member of the family.

Lucy Christensen and Adolfo Cruz Aznar, as executor, tried to repudiate herclaim by introducing evidence to prove
that on or about the period when shewas conceived and born, her mother was carrying an affair with another
man,Zosimo Silva, a former laborer in her Paligue plantation. Silva executed an affidavit and even took the witness
stand to testify to this effect. Appellants also strived to show that the defendant's solicitations for Helen's welfare and
the help extended to her merely sprang out generosity and hammered on the fact that on several occasions, the
deceased disclaimed any relationship with her (Exh. O-Daney, Exh. Q-Daney, Exh. Z-Daney, Exh. 8-Helen).

Going over the evidence adduced during the trial, it appears indubitable that on or about the period when Helen was
born, Bernarda Camporendondo had established residence at her plantation at Paligue, Davao, and that although
Edward Christensen stayed in Davao City to manage his merchandising business, he spent the weekends with the
former and their child Lucy in the Christensenplantation. Even granting that Zosimo Silva at his stage fitted himself
intothe picture, it cannot be denied that Helen's mother and the deceased weregenerally and publicly known to be
living together as husband and wife. Thismust have been the reason why Christensen from Helen's birth in 1934
providedfor her maintenance; shouldered the expenses for her education to the extentthat she was even enrolled as
an intern in an exclusive college for girls inManila; tolerated or allowed her carrying the surname "Christensen", and
ineffect gaver her the attention and care that a father would only do to this offspring. We should take note that
nothing appears on record to show thatChristensen ever entertained any doubt or disputed Helen's paternity.
Hisrepudations of her relationship with him came about only after he andBernarda Comperodondo parted ways in
March, 1950, and apparently after Helentook sides with her mother. Furthermore, it seems that despite that
decedent's desire that she continue her studies, Helen ignored the same andgot married to a man for Christensen
held no high esteem. We may state at hisjuncture that while it is true that herein appellants introduced witnesses
todisprove oppositor'r claim, the lower Court that had the opportunity to observe the conduct of the witnesses while
testifying and could better gaugetheir credibility and impartiality in the case, arrived at the conclusion that Maria
Helen Christensen had established that she had been in continouspossessions of the status of a natural child of the
deceased. Considering the preponderant evidence on record, We see no reason to reverse said ruling.The testator'
lastacts cannot be made the criterion in determining whether oppositor was his child or not, for human frailty and
parental arrogance maydraw a person to adopt unnatural or harsh measures against an erring child orone who
displeases just so the weight of his authority could be felt. In theconsideration of a claim that one is a natural child,
the attitude or directacts of the person against whom such action is directed or that of his family before the
controversy arose or during his lifetime if he predeceases the claimant, and not a single opportunity or an isolated
occasions but as a whole, must be taken into account. The possession of such status is one of the cases that gives
rise to the right, in favor of the child, of coumpulsaryrecognition. (Art. 283, Civil Code).

The lower Court, however, after making its finding directed Maria Lucy Christensen Daney, an heir of the decedent,
to recognize oppositor as a natural child of the deceased. This seems improper. The Civil Code for 2 kinds of
acknowledgement of a natural child: voluntary and compulsory. In the first instance, which may be effected in the
record of birth, a will, a statement before a court of record or in an authentic writing (Art. 278,Civil Code), court
intervention is very nil and not altogether wanting, whereas in the second, judicial pronouncement is essential, and
while it is true that the effect of a voluntary and a compulsory acknowledgment onthe right of the child so recognized
is the same, to maintain the view of thelower Court would eliminate the distinction between voluntary acts and those
brought about by judicial dicta. And if We consider that in the case, where, the presumed parent dies ahead of the
child and action for compulsory recogniton is brought against the heirs of the deceased, as in the instant case, the
situation would take absurd turn, for the heirs would be compelled to recognize such child as a natural child of the
deceased without a properprovision of the law, for as it now stands, the Civil Code only requires a declaration by the
court of the child's status as a natural child of the parent who, if living, would be compelled to recognize his offspring
as such.Therefore, We hold that in cases of compulsory recognition, as in the case at bar, it would be sufficient that
a competent court, after taking into account all the evidence on record, would declare that under any of the
circumstances specified by Article 283 of the Civil Code, a child has acquired the status of a natural child of the
presumptive parent and as such is entitled to all rights granted it by law, for such declaration is by itself already a
judicial recognition of the paternity of the parent concerned which is her against whom the action is directed, are
bound to respect.

G.R. No. L-11483

Coming now to Civil Case No. 1076 of the Court of First Instance of Davao, Bernarda Camporendondo claimed in
her complaint 1/2 of the properties of thedeceased as co-owner thereof in virtue of her relations with the deceased.
She alleged as basis for action that she and the deceased Edward E. Christensen had lived and cohabitated as
husband and wife, continously and openly for a period for more than 30 years; that within said period, plaintiff and
the deceased acquired real and personal properties through their common effort and industry; and that in virtue of
such relationship, she was a co-owner of said properties. As the executor refused to account forand deliver the
share allegedly belonging to her despite her repeated demands, she prayed the court that said executor be ordered
to submit an inventory and render an accounting of the entire estate of the deceased;to divide the same into 2 equal
parts and declare that one of them lawfully belonged to plaintiff; and for such other reliefs as may be deemed just
and equitable in the premises. In his answer, the executor denied the avermentsof the complaint, contending that
the decedent was the sole owner of the properties left by him as they were acquired through his own efforts;
thatplaintiff had never been a co-owner of any property acquired or possessed by the late Edward christensen
during his lifetime; that the personal relationship between plaintiff and the deceased was purely clandestinebecause
the former habitually lived in her plantation at Paligue, Davao, from the time she acquired the same in 1928; that she
also maintained relations with 2 other men; and that the claim of plaintiff would violate the provisions of Article 2253
of the Civil Code as the vested rights of the compulsory heirs of the deceased would be impaired. Defendant thus
prayed for the dismissal of the complaint and as counterclaim demanded the sum ofP70.000.00 representing actual,
moral and exemplary damages.

Due hearing was conducted thereon and after the parties ad submitted theirrespective memoranda, the lower Court
on August 25, 1954, rendered judgmentfinding that the deceased Edward Christensen and Bernarda
Camporendondo,not otherwise suffering from any impediment to contract marriage, lived together as husband and
wife without marital ties continously for over 30years until the former's death in 1953; that out of such relations 2
childrenwere born; and that the properties in controversy were acquired by either orboth of them through their work
or industry. Relying on Section 144 of theCivil Code which said court considered to have created another mode
ofacquiring ownership, plaintiff was held to be entitled to one-half of saidproperties as co-owner thereof in view of
her relationship with the deceasedand ordered the executor to account for and deliver the same by her. Fromthis
decision, defendant Aznar, as Executor of the will, perfected an appealto the Court of Appeals, but as the property
involved in the litigation exceeds P50,000.00 said tribunal elevated the case to Us for consideration.

It is not controverted that at the time of his death, Edward Christensen was the owner of certain properties, including
shares of stock in the plantation bearing his name and a general merchandising store in Davao City. It is also
undeniable that the deceased and appellee, both capacitated to enter into the married state, maintained relations as
husband and wife, continuously and publicly for a considerable number of years which the lower Court declared to
be until the death of Christensen in 1953. While as a general rule appellate courts do not usually disturb the lower
court's findings of fact, unless said finding is not supported by or totally devoid of or inconsistent with the evidence
on record, such finding must ofnecessity be modified to confrom with the evidence if the reviewing tribunalwere to
arrive at the proper and just solution of the controversy. In theinstant case, the court a quo overlooked or failed to
consider the testimonies of both Lucy and Helen Christensen to the effect that the deceased and their mother
Bernarda Camporendondo had some sort of quarrel or misunderstanding and parted ways as of March, 1950, a fact
which appelleewas not able to overcome. Taking into account the circumstances of this caseas found by the trial
court, with the modification that the cohabitation should appear as continuous from the early 20's until March, 1950,
the question left for our determination is whether Bernarda Camporedondo, byreason of such relationship, may be
considered as a co-owner of the properties acquired by the deceased during said period and thus entitledto one-half
thereof after the latter's death.

Presumably taking judicial notice of the existence in our society of a certain kind of relationship brought about by
couples living together as husbands and wives without the benefit of marriage, acquiring and bringingproperties unto
said union, and probably realizing that while same may not beacceptable from the moral point of view they are as
much entitled to theprotection of the laws as any other property owners, the lawmakersincorporated Article 144 in
Republic Act No. 386 (Civil Code of the Philippines) to govern their property relations. Said article read as follows:

ART. 114. When a man and a woman live together as husband and wife, but they are not married, or their
marriage is void from the beginning, the property acquired by either or both of them through their work or
industry or their wages and salaries shall be governed by the rules of co-ownership.

It must be noted that such form of co-ownership requires that the man and the woman thus living together must not
in any way be incapacitated to contract marriage and that the properties realized during their cohabitation be
acquired through the work, industry, employment or occupation of both or either of them. And the same thing may
be said of whose marriages are by provision of law declared void ab intio. While it is true that these requisites are
fully met and satisfied in the case at bar, We must remember that the deceased and herein appellee were already
estranged as of March, 1950. There being no provision of law governing the cessation of such informal civil
partnership, if ever existed, same may be considered terminated upon their separation or desistance to continue
said relations.The Spanish Civil Code which was then enforce contains to counterpart of Article 144 and as the
records in the instant case failed to show show thata subsequent reconciliation ever took place and considering that
Republic ActNo. 386 which recognizeed such form of co-ownership went into operation onlyon August 30, 1950,
evidently, this later enactment cannot be invoked as basis for appellee's claim.

In determining the question poised by this action We may look upon the jurisprudence then obtaining on the matter.
As early as 1925, this Court already declared that where a man and a woman, not suffering from any impediment to
contract marriage, live together as husband and wife, an informal civil partnership exists and made the
pronouncement that each of them has an intereat in the properties acquired during said union and is entitled to
participate therein if said properties were the product oftheir JOINT efforts (Marata vs. Dionio G.R. No. 24449, Dec.
31, 1925). In another case, this Court similarly held that although there is no technical marital partnership between
person living maritally without being lawfully married, nevertheless there is between them an informalcivil
partnership, and the parties would be entitled to an equal interest where the property is acquired through their
JOINT efforts (Lesaca vs. FelixVda. de Lesaca, 91 Phil., 135).

Appellee, claiming that the properties in controversy were the product of their joint industry apparently in her desire
to tread on the doctrine laiddown in the aforementioned cases, would lead Us to believe that her help wassolicited or
she took a hand in the management of and/or acquisition of thesame. But such assertion appears incredible if We
consider that she wasobserved by the trial Court as an illiterate woman who cannot even remembersimple things as
the date when she arrived at the Mindanao Estate, when shecommenced relationship with the deceased, not even
her approximate age orthat of her children. And considering that aside from her own declaration, which We find to
be highly improbable, there appears no evidence to proveher alleged contribution or participation in the acquisition
of the properties involved therein, and that in view of the holding of this Courtthat for a claim to one-half of such
property to be allowed it must be provedthat the same was acquired through their joint efforts and labor (Flores
vs.Rehabilitation Finance Corporation, * 50 Off. Gaz. 1029), We have no recoursebut reverse the holding of the
lower Court and deny the claim of BernardaCampredondo. We may further state that even granting, for the sake
ofargument, that this case falls under the provisions of Article 144 of theCivil Code, same would be applicable only
as far as properties acquiredafter the effectivity of Republic Act 386 are concerned and to no other, forsuch law
cannot be given retroactive effect to govern those already possessedbefore August 30, 1950. It may be argued,
however, that being a newly created right, the provisions of Section 144 should be made to retroact if only toenforce
such right. Article 2252 of the same Code is explicit in thisrespect when it states:

SEC. 2252. Changes made and new provisions and rules laid down by this Code which may prejudice or
impair vested or acquired rights in accordance with the old legislation, shall have ro retroactive effect.

xxx xxx xxx.

As it cannot be denied that the rights and legitimes of the compulsory heirsof the deceased Edward Christensen
would be impaired or diminished if the claim of herein appellee would succeed, the answer to such argument
wouldbe simply obvious.

With regard to appellant Aznar's contention that the lower Court erred in admitting the testimony of appellee
Bernarda Camporedondo dealing with facts that transpired before the death of Edward Christensen on the ground
that it is prohibited by Section 26-(c), Rule 123 of the Rules of Court. We deem it unnecessary to delve on the same
because even admitting that the court a quo committed the error assigned, yet it will not affect anymore the outcome
of the case in view of the conclusion We have already arrived at on the main issue.

On the strength of the foregoing considerations, We affirm the decision of the lower Court in case G.R. No. L-11484,
with the modification that MariaLucy Christensen Daney need not be compelled to acknowledge her sister Maria
Helen Christensen Garcia as a natural child of her father Edward E. Christensen, the declaration of the Court in this
respect being sufficient to enable her to all the rights inherent to such status.
The decision appealed from in case G.R. No. L-11483 is hereby reversed and another one rendered, dismissing
plaintiff's complaint.

Costs are taxed against appellants in G.R. No. L-11484 and against appellee Bernarda Camporedondo in G.R. No.
L-11483. It is so ordered.

G.R. No. 31057 September 7, 1929

ADRIANO ARBES, ET AL., plaintiffs-appellees,

vs.
VICENTE POLISTICO, ET AL., defendants-appellants.

Marcelino Lontok and Manuel dela Rosa for appellants.

Sumulong & Lavides for appellees.

VILLAMOR, J.:

This is an action to bring about liquidation of the funds and property of the association called "Turnuhan Polistico &
Co." The plaintiffs were members or shareholders, and the defendants were designated as president-treasurer,
directors and secretary of said association.

It is well to remember that this case is now brought before the consideration of this court for the second time. The
first one was when the same plaintiffs appeared from the order of the court below sustaining the defendant's
demurrer, and requiring the former to amend their complaint within a period, so as to include all the members of
"Turnuhan Polistico & Co.," either as plaintiffs or as a defendants. This court held then that in an action against the
officers of a voluntary association to wind up its affairs and enforce an accounting for money and property in their
possessions, it is not necessary that all members of the association be made parties to the action. (Borlasa vs.
Polistico, 47 Phil., 345.) The case having been remanded to the court of origin, both parties amend, respectively,
their complaint and their answer, and by agreement of the parties, the court appointed Amadeo R. Quintos, of the
Insular Auditor's Office, commissioner to examine all the books, documents, and accounts of "Turnuhan Polistico &
Co.," and to receive whatever evidence the parties might desire to present.

The commissioner rendered his report, which is attached to the record, with the following resume:

Income:

Member's shares............................ 97,263.70

Credits paid................................ 6,196.55

Interest received........................... 4,569.45

Miscellaneous............................... 1,891.00

P109,620.70

Expenses:

Premiums to members....................... 68,146.25

Loans on real-estate....................... 9,827.00

Loans on promissory notes.............. 4,258.55

 Salaries.................................... 1,095.00

Miscellaneous............................... 1,686.10

85,012.90

Cash on hand........................................ 24,607.80

The defendants objected to the commissioner's report, but the trial court, having examined the reasons for the
objection, found the same sufficiently explained in the report and the evidence, and accepting it, rendered judgment,
holding that the association "Turnuhan Polistico & Co." is unlawful, and sentencing the defendants jointly and
severally to return the amount of P24,607.80, as well as the documents showing the uncollected credits of the
association, to the plaintiffs in this case, and to the rest of the members of the said association represented by said
plaintiffs, with costs against the defendants.

The defendants assigned several errors as grounds for their appeal, but we believe they can all be reduced to two
points, to wit: (1) That not all persons having an interest in this association are included as plaintiffs or defendants;
(2) that the objection to the commissioner's report should have been admitted by the court below.

As to the first point, the decision on the case of Borlasa vs. Polistico, supra, must be followed.

With regard to the second point, despite the praiseworthy efforts of the attorney of the defendants, we are of opinion
that, the trial court having examined all the evidence touching the grounds for the objection and having found that
they had been explained away in the commissioner's report, the conclusion reached by the court below, accepting
and adopting the findings of fact contained in said report, and especially those referring to the disposition of the
association's money, should not be disturbed.

In Tan Dianseng Tan Siu Pic vs. Echauz Tan Siuco (5 Phil., 516), it was held that the findings of facts made by a
referee appointed under the provisions of section 135 of the Code of Civil Procedure stand upon the same basis,
when approved by the Court, as findings made by the judge himself. And in Kriedt vs. E. C. McCullogh & Co.(37
Phil., 474), the court held: "Under section 140 of the Code of Civil Procedure it is made the duty of the court to
render judgment in accordance with the report of the referee unless the court shall unless for cause shown set aside
the report or recommit it to the referee. This provision places upon the litigant parties of the duty of discovering and
exhibiting to the court any error that may be contained therein." The appellants stated the grounds for their
objection. The trial examined the evidence and the commissioner's report, and accepted the findings of fact made in
the report. We find no convincing arguments on the appellant's brief to justify a reversal of the trial court's conclusion
admitting the commissioner's findings.

There is no question that "Turnuhan Polistico & Co." is an unlawful partnership (U.S. vs. Baguio, 39 Phil., 962), but
the appellants allege that because it is so, some charitable institution to whom the partnership funds may be ordered
to be turned over, should be included, as a party defendant. The appellants refer to article 1666 of the Civil Code,
which provides:

A partnership must have a lawful object, and must be established for the common benefit of the partners.

When the dissolution of an unlawful partnership is decreed, the profits shall be given to charitable institutions
of the domicile of the partnership, or, in default of such, to those of the province.

Appellant's contention on this point is untenable. According to said article, no charitable institution is a necessary
party in the present case of determination of the rights of the parties. The action which may arise from said article, in
the case of unlawful partnership, is that for the recovery of the amounts paid by the member from those in charge of
the administration of said partnership, and it is not necessary for the said parties to base their action to the existence
of the partnership, but on the fact that of having contributed some money to the partnership capital. And hence, the
charitable institution of the domicile of the partnership, and in the default thereof, those of the province are not
necessary parties in this case. The article cited above permits no action for the purpose of obtaining the earnings
made by the unlawful partnership, during its existence as result of the business in which it was engaged, because
for the purpose, as Manresa remarks, the partner will have to base his action upon the partnership contract, which is
to annul and without legal existence by reason of its unlawful object; and it is self evident that what does not exist
cannot be a cause of action. Hence, paragraph 2 of the same article provides that when the dissolution of the
unlawful partnership is decreed, the profits cannot inure to the benefit of the partners, but must be given to some
charitable institution.

We deem in pertinent to quote Manresa's commentaries on article 1666 at length, as a clear explanation of the
scope and spirit of the provision of the Civil Code which we are concerned. Commenting on said article Manresa,
among other things says:

When the subscriptions of the members have been paid to the management of the partnership, and
employed by the latter in transactions consistent with the purposes of the partnership may the former
demand the return of the reimbursement thereof from the manager or administrator withholding them?

Apropos of this, it is asserted: If the partnership has no valid existence, if it is considered juridically non-
existent, the contract entered into can have no legal effect; and in that case, how can it give rise to an action
in favor of the partners to judicially demand from the manager or the administrator of the partnership capital,
each one's contribution?

The authors discuss this point at great length, but Ricci decides the matter quite clearly, dispelling all doubts
thereon. He holds that the partner who limits himself to demanding only the amount contributed by him need
not resort to the partnership contract on which to base his action. And he adds in explanation that the
partner makes his contribution, which passes to the managing partner for the purpose of carrying on the
business or industry which is the object of the partnership; or in other words, to breathe the breath of life into
a partnership contract with an objection forbidden by law. And as said contrast does not exist in the eyes of
the law, the purpose from which the contribution was made has not come into existence, and the
administrator of the partnership holding said contribution retains what belongs to others, without any
consideration; for which reason he is not bound to return it and he who has paid in his share is entitled to
recover it.

But this is not the case with regard to profits earned in the course of the partnership, because they do not
constitute or represent the partner's contribution but are the result of the industry, business or speculation
which is the object of the partnership, and therefor, in order to demand the proportional part of the said
profits, the partner would have to base his action on the contract which is null and void, since this partition or
distribution of the profits is one of the juridical effects thereof. Wherefore considering this contract as non-
existent, by reason of its illicit object, it cannot give rise to the necessary action, which must be the basis of
the judicial complaint. Furthermore, it would be immoral and unjust for the law to permit a profit from an
industry prohibited by it.

Hence the distinction made in the second paragraph of this article of this Code, providing that the profits
obtained by unlawful means shall not enrich the partners, but shall upon the dissolution of the partnership,
be given to the charitable institutions of the domicile of the partnership, or, in default of such, to those of the
province.

This is a new rule, unprecedented by our law, introduced to supply an obvious deficiency of the former law,
which did not describe the purpose to which those profits denied the partners were to be applied, nor state
what to be done with them.

The profits are so applied, and not the contributions, because this would be an excessive and unjust
sanction for, as we have seen, there is no reason, in such a case, for depriving the partner of the portion of
the capital that he contributed, the circumstances of the two cases being entirely different.

Our Code does not state whether, upon the dissolution of the unlawful partnership, the amounts contributed
are to be returned by the partners, because it only deals with the disposition of the profits; but the fact that
said contributions are not included in the disposal prescribed profits, shows that in consequences of said
exclusion, the general law must be followed, and hence the partners should reimburse the amount of their
respective contributions. Any other solution is immoral, and the law will not consent to the latter remaining in
 the possession of the manager or administrator who has refused to return them, by denying to the partners
the action to demand them. (Manresa, Commentaries on the Spanish Civil Code, vol. XI, pp. 262-264)

The judgment appealed from, being in accordance with law, should be, as it is hereby, affirmed with costs against
the appellants; provided, however, the defendants shall pay the legal interest on the sum of P24,607.80 from the
date of the decision of the court, and provided, further, that the defendants shall deposit this sum of money and
other documents evidencing uncollected credits in the office of the clerk of the trial court, in order that said court
may distribute them among the members of said association, upon being duly identified in the manner that it may
deem proper. So ordered.

G.R. No. 21639 September 25, 1924

ALBERT F. KIEL, plaintiff-appellee,

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

J. F. Yeager for appellant.

J. S. Alano for appellee.

MALCOLM, J.:

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

A skeletonized statement of the case and the facts based on the complaint, the findings of the trial judge, and the
record, may be made in the following manner:

In 1907, Albert F. Kiel along with William Milfeil commenced to work on certain public lands situated in the
municipality of Parang, Province of Cotabato, known as Parang Plantation Company. Kiel subsequently took over
the interest of Milfeil. In 1910, Kiel and P. S. Sabert entered into an agreement to develop the Parang Plantation
Company. Sabert was to furnish the capital to run the plantation and Kiel was to manage it. They were to share and
share alike in the property. It seems that this partnership was formed so that the land could be acquired in the name
of Sabert, Kiel being a German citizen and not deemed eligible to acquire public lands in the Philippines.

By virtue of the agreement, from 1910 to 1917, Kiel worked upon and developed the plantation. During the World
War, he was deported from the Philippines.

On August 16, 1919, five persons, including P. S. Sabert, organized the Nituan Plantation Company, with a
subscribed capital of P40,000. On April 10, 1922, P. S. Sabert transferred all of his rights in two parcels of land
situated in the municipality of Parang, Province of Cotabato, embraced within his homestead application No. 21045
and his purchase application No. 1048, in consideration of the sum of P1, to the Nituan Plantation Company.

In this same period, Kiel appears to have tried to secure a settlement from Sabert. At least in a letter dated June 6,
1918, Sabert wrote Kiel that he had offered "to sell all property that I have for P40,000 or take in a partner who is
willing to develop the plantation, to take up the K. & S. debt no matter which way I will straiten out with you." But
Sabert's death came before any amicable arrangement could be reached and before an action by Kiel against
Sabert could be decided. So these proceedings against the estate of Sabert.

In this court, the defendant-appellant assigns the following errors:

The lower court erred —

(1) In finding this was an action to establish a resulting trust in land.

 (2) In finding a resulting trust in land could have been established in public lands in favor of plaintiff herein
who was an alien subject at the same time said alleged resulting trust was created.

(3) In finding a resulting trust in land had been established by the evidence in the case.

(4) In admitting the testimony of the plaintiff herein.

(5) In admitting the testimony of William Milfeil, John C. Beyersdorfer, Frank R. Lasage, Oscar C. Butler and
Stephen Jurika with reference to alleged statements and declarations of the deceased P. S. Sabert.

(6) In finding any copartnership existed between plaintiff and the deceased Sabert.

(7) In rendering judgment for the plaintiff herein.

Errors 1, 2, and 3, relating to resulting trusts. — These three errors discussing the same subject may be resolved
together. In effect, as will soon appear, we reach the conclusion that both parties were in error in devoting so much
time to the elaboration of these questions, and that a ruling on the same is not needed.

It is conceivable, that the facts in this case could have been so presented to the court by means of allegations in the
complaint, as to disclose characteristics of a resulting trust. But the complaint as framed asks for a straight money
judgment against an estate. In no part of the complaint did plaintiff allege any interest in land, claim any interest in
land, or pretend to establish a resulting trust in land. That the plaintiff did not care to press such an action is
demonstrated by the relation of the fact of alienage with the rule, that a trust will not be created when, for the
purpose of evading the law prohibiting one from taking or holding real property, he takes a conveyance thereof in
the name of a third person. (26 R. C. L., 1214-1222; Leggett vs. Dubois [1835], 5 Paige, N. Y., 114; 28 Am. Dec.,
413.)

The parties are wrong in assuming that the trial judge found that this was an action to establish a resulting trust in
land. In reality, all that the trial judge did was to ground one point of his decision on an authority coming from the
Supreme Court of California, which discussed the subject of resulting trusts.

Error 4, relating to the admission of testimony of the plaintiff herein. — Well taken.

The Code of Civil Procedure in section 383, No. 7, names as incompetent witnesses, parties to an action or
proceeding against an executor or administrator of a deceased person upon a claim or demand against the estate of
such deceased person, who "cannot testify as to any matter of fact occuring before the death of such deceased
person." But the trial judge, misled somewhat by the decision of the Supreme Court of California in the city of Myers
vs. Reinstein ([1885], 67 Cal., 89), permitted this testimony to go in, whereas if the decision had been read more
carefully, it would have been noted that "the action was not on a claim or demand against the estate of Reinstein."
Here this is exactly the situation which confronts us.

The case of Maxilom vs. Tabotabo ([1907], 9 Phil., 390), is squarely on all fours with the case at bar. It was there
held that "A party to an action against an executor or administrator of a deceased person, upon a claim against the
estate of the latter, is absolutely prohibited by law from giving testimony concerning such claim or demand as to
anything that occurred before the death of the person against whose estate the action is prosecuted."

Error 5, relating to the testimony of five witnesses with reference to alleged statements and declarations of the
deceased P. S. Sabert. — Not well taken.

By section 282 of the Code of Civil Procedure, the declaration, act, or omission of a deceased person having
sufficient knowledge of the subject, against his pecuniary interest, is admissible as evidence to that extent against
his successor in interest. By section 298, No. 4, of the same Code, evidence may be given up a trial of the following
facts: ". . . the act or declaration of a deceased person, done or made against his interest in respect to his real
property." (See Leonardo vs. Santiago [1907], 7 Phil., 401.) The testimony of these witnesses with reference to the
acts or declarations of Sabert was, therefore, properly received for whatever they might be worth.

Error 6, relating to the existence of a copartnership between Kiel and Sabert. — Not well taken.
No partnership agreement in writing was entered into by Kiel and Sabert. The question consequently is whether or
not the alleged verbal copartnership formed by Kiel and Sabert has been proved, if we eliminate the testimony of
Kiel and only consider the relevant testimony of other witnesses. In performing this task, we are not unaware of the
rule of partnership that the declarations of one partner, not made in the presence of his copartner, are not
competent to prove the existence of a partnership between them as against such other partner, and that the
existence of a partnership cannot be established by general reputation, rumor, or hearsay. (Mechem on Partnership,
sec. 65; 20 R. C. L., sec. 53; Owensboro Wagon Company vs. Bliss [1901], 132 Ala., 253.)

The testimony of the plaintiff's witnesses, together with the documentary evidence, leaves the firm impression with
us that Kiel and Sabert did enter into a partnership, and that they were to share equally. Applying the tests as to the
existence of partnership, we feel that competent evidence exists establishing the partnership. Even more primary
than any of the rules of partnership above announced, is the injunction to seek out the intention of the parties, as
gathered from the facts and as ascertained from their language and conduct, and then to give this intention effect.
(Giles vs. Vette [1924], 263 U. S., 553.)

Error 7, relating to the judgment rendered for the plaintiff. — Well taken in part.

The judgment handed down, it will be remembered, permitted the plaintiff to recover from the estate the full amount
claimed, presumably on the assumption that Sabert having sold by property to the Nituan Plantation Company for
P40,000, Kiel should have one-half of the same, or P20,000. There is, however, extant in the record absolutely no
evidence as to the precise amount received by Sabert from the sale of this particular land. If it is true that Sabert
sold all his land to the Nituan Plantation Company for P40,000, although this fact was not proven, what part of the
P40,000 would correspond to the property which belonged to Kiel and Sabert under their partnership agreement? It
impresses us further that Kiel under the facts had no standing in court to ask for any part of the land and in fact he
does not do so; his only legal right is to ask for what is in effect an accounting with reference to its improvements
and income as of 1917 when Sabert became the trustee of the estate on behalf of Kiel.

As we have already intimated, we do not think that Kiel is entitled to any share in the land itself, but we are of the
opinion that he has clearly shown his right to one-half of the value of the improvements and personal property on the
land as to the date upon which he left the plantation. Such improvements and personal property include buildings,
coconut palms, and other plantings, cattle and other animals, implements, fences, and other constructions, as well
as outstanding collectible credits, if any, belonging to the partnership. The value of these improvements and of the
personal property cannot be ascertained from the record and the case must therefore be remanded for further
proceedings.

In resume, we disregard errors 1, 2, and 3, we find well taken, errors 4 and 7, and we find not well taken, errors 5
and 6.

The judgment appealed from is set aside and the record is returned to the lower court where the plaintiff, if he so
desires, may proceed further to prove his claim against the estate of P. S. Sabert. Without costs. So ordered.

G.R. No. 134559 December 9, 1999

ANTONIA TORRES assisted by her husband, ANGELO TORRES; and EMETERIA BARING, petitioners,
vs.
COURT OF APPEALS and MANUEL TORRES, respondents.

PANGANIBAN, J.:

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

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

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

The Facts

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

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

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

On the other hand, respondent alleged that he used the loan to implement the Agreement. With the said amount, he
was able to effect the survey and the subdivision of the lots. He secured the Lapu Lapu City Council's approval of
the subdivision project which he advertised in a local newspaper. He also caused the construction of roads, curbs
and gutters. Likewise, he entered into a contract with an engineering firm for the building of sixty low-cost housing
units and actually even set up a model house on one of the subdivision lots. He did all of these for a total expense of
P85,000.

Respondent claimed that the subdivision project failed, however, because petitioners and their relatives had
separately caused the annotations of adverse claims on the title to the land, which eventually scared away
prospective buyers. Despite his requests, petitioners refused to cause the clearing of the claims, thereby forcing him
to give up on the project. 5

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

Hence, this Petition. 6

Ruling of the Court of Appeals

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

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

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

The Issue

Petitioners impute to the Court of Appeals the following error:

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

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

The Court's Ruling

The Petition is bereft of merit.

Main Issue:

Existence of a Partnership

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

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

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

KNOW ALL MEN BY THESE PRESENTS:

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

WITNESSETH:

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

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

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

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

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

THIRD: That the FIRST PARTY, will not collect from the SECOND PARTY, the interest and the
principal amount involving the amount of TWENTY THOUSAND (P20,000.00) Pesos, Philippine
Currency, until the sub-division project is terminated and ready for sale to any interested parties, and
the amount of TWENTY THOUSAND (P20,000.00) pesos, Philippine currency, will be deducted
accordingly.

FOURTH: That all general expense[s] and all cost[s] involved in the sub-division project should be
paid by the FIRST PARTY, exclusively and all the expenses will not be deducted from the sales after
the development of the sub-division project.

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

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

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

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

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

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

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

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

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

Terms of Contract

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

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

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

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

Alleged Nullity of the

Partnership Agreement

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

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

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

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

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

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

Partnership Agreement Not the Result

of an Earlier Illegal Contract

Petitioners also contend that the Joint Venture Agreement is void under Article 1422 14 of the Civil Code, because it
is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.
This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the
expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive
payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take
different forms, such as the prestation or promise of a thing or service by another. 15

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

Liability of the Parties

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

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

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

SO ORDERED

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

MAURICIO AGAD, plaintiff-appellant,

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

Angeles, Maskarino and Associates for plaintiff-appellant.

Victorio S. Advincula for defendants-appellees.

CONCEPCION, C.J.:

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

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

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

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

Articles 1771 and 1773 of said Code provide:

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

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

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

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

xxx xxx xxx

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

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

G.R. No. 75875 December 15, 1989

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

G.R. No. 75951 December 15, 1989

SANITARY WARES MANUFACTURING CORPORATION, ERNESTO R. LAGDAMEO, ENRIQUE B.

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

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

LUCIANO E. SALAZAR, petitioner,

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

Belo, Abiera & Associates for petitioners in 75875.

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

GUTIERREZ, JR., J.:

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

The antecedent facts can be summarized as follows:

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

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

3. Articles of Incorporation

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

(1) Cumulative voting for directors:

xxx xxx xxx

5. Management

(a) The management of the Corporation shall be vested in a Board of Directors, which shall consist
of nine individuals. As long as American-Standard shall own at least 30% of the outstanding stock of
the Corporation, three of the nine directors shall be designated by American-Standard, and the other
six shall be designated by the other stockholders of the Corporation. (pp. 51 & 53, Rollo of 75875)
At the request of ASI, the agreement contained provisions designed to protect it as a minority group, including the
grant of veto powers over a number of corporate acts and the right to designate certain officers, such as a member
of the Executive Committee whose vote was required for important corporate transactions.

Later, the 30% capital stock of ASI was increased to 40%. The corporation was also registered with the Board of
Investments for availment of incentives with the condition that at least 60% of the capital stock of the corporation
shall be owned by Philippine nationals.

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

... There were protests against the action of the Chairman and heated arguments ensued. An appeal
was made by the ASI representative to the body of stockholders present that a vote be taken on the
ruling of the Chairman. The Chairman, Baldwin Young, declared the appeal out of order and no vote
on the ruling was taken. The Chairman then instructed the Corporate Secretary to cast all the votes
present and represented by proxy equally for the 6 nominees of the Philippine Investors and the 3
nominees of ASI, thus effectively excluding the 2 additional persons nominated, namely, Luciano E.
Salazar and Charles Chamsay. The ASI representative, Mr. Jaqua protested the decision of the
Chairman and announced that all votes accruing to ASI shares, a total of 1,329,695 (p. 27, Rollo,
AC-G.R. SP No. 05617) were being cumulatively voted for the three ASI nominees and Charles
Chamsay, and instructed the Secretary to so vote. Luciano E. Salazar and other proxy holders
announced that all the votes owned by and or represented by them 467,197 shares (p. 27, Rollo,
AC-G.R. SP No. 05617) were being voted cumulatively in favor of Luciano E. Salazar. The
Chairman, Baldwin Young, nevertheless instructed the Secretary to cast all votes equally in favor of
the three ASI nominees, namely, Wolfgang Aurbach, John Griffin and David Whittingham and the six
originally nominated by Rogelio Vinluan, namely, Ernesto Lagdameo, Sr., Raul Boncan, Ernesto
Lagdameo, Jr., Enrique Lagdameo, George F. Lee, and Baldwin Young. The Secretary then certified
for the election of the following Wolfgang Aurbach, John Griffin, David Whittingham Ernesto
Lagdameo, Sr., Ernesto Lagdameo, Jr., Enrique Lagdameo, George F. Lee, Raul A. Boncan,
Baldwin Young. The representative of ASI then moved to recess the meeting which was duly
seconded. There was also a motion to adjourn (p. 28, Rollo, AC-G.R. SP No. 05617). This motion to
adjourn was accepted by the Chairman, Baldwin Young, who announced that the motion was carried
and declared the meeting adjourned. Protests against the adjournment were registered and having
been ignored, Mr. Jaqua the ASI representative, stated that the meeting was not adjourned but only
recessed and that the meeting would be reconvened in the next room. The Chairman then
threatened to have the stockholders who did not agree to the decision of the Chairman on the
casting of votes bodily thrown out. The ASI Group, Luciano E. Salazar and other stockholders,
allegedly representing 53 or 54% of the shares of Saniwares, decided to continue the meeting at the
elevator lobby of the American Standard Building. The continued meeting was presided by Luciano
E. Salazar, while Andres Gatmaitan acted as Secretary. On the basis of the cumulative votes cast
earlier in the meeting, the ASI Group nominated its four nominees; Wolfgang Aurbach, John Griffin,
David Whittingham and Charles Chamsay. Luciano E. Salazar voted for himself, thus the said five
directors were certified as elected directors by the Acting Secretary, Andres Gatmaitan, with the
explanation that there was a tie among the other six (6) nominees for the four (4) remaining positions
of directors and that the body decided not to break the tie. (pp. 37-39, Rollo of 75975-76)
These incidents triggered off the filing of separate petitions by the parties with the Securities and Exchange
Commission (SEC). The first petition filed was for preliminary injunction by Saniwares, Emesto V. Lagdameo,
Baldwin Young, Raul A. Bonean Ernesto R. Lagdameo, Jr., Enrique Lagdameo and George F. Lee against Luciano
Salazar and Charles Chamsay. The case was denominated as SEC Case No. 2417. The second petition was for
quo warranto and application for receivership by Wolfgang Aurbach, John Griffin, David Whittingham, Luciano E.
Salazar and Charles Chamsay against the group of Young and Lagdameo (petitioners in SEC Case No. 2417) and
Avelino F. Cruz. The case was docketed as SEC Case No. 2718. Both sets of parties except for Avelino Cruz
claimed to be the legitimate directors of the corporation.

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

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

Upon a motion for reconsideration filed by the appellees Lagdameo Group) the appellate court (Court of Appeals)
rendered the questioned amended decision. Petitioners Wolfgang Aurbach, John Griffin, David P. Whittingham and
Charles Chamsay in G.R. No. 75875 assign the following errors:

I. THE COURT OF APPEALS, IN EFFECT, UPHELD THE ALLEGED ELECTION OF PRIVATE

RESPONDENTS AS MEMBERS OF THE BOARD OF DIRECTORS OF SANIWARES WHEN IN
FACT THERE WAS NO ELECTION AT ALL.

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

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

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

11.1. ThatAmendedDecisionwouldsanctiontheCA'sdisregard of binding contractual agreements

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

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

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

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

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

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

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

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

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

They specifically mention number 16 under Miscellaneous Provisions which states:

xxx xxx xxx

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

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

The parol evidence Rule under Rule 130 provides:

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

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

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

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

xxx xxx xxx

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

It has been ruled:

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

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

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

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

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

xxx xxx xxx

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

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

Section 5 (a) of the agreement uses the word "designated" and not "nominated" or "elected" in the selection of the
nine directors on a six to three ratio. Each group is assured of a fixed number of directors in the board.
Moreover, ASI in its communications referred to the enterprise as joint venture. Baldwin Young also testified that
Section 16(c) of the Agreement that "Nothing herein contained shall be construed to constitute any of the parties
hereto partners or joint venturers in respect of any transaction hereunder" was merely to obviate the possibility of
the enterprise being treated as partnership for tax purposes and liabilities to third parties.

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

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

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

Sec. 100. Agreements by stockholders.-

xxx xxx xxx

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

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

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

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

As correctly held by the SEC Hearing Officer:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Equally important as the consideration of the contractual intent of the parties is the consideration as regards the
possible domination by the foreign investors of the enterprise in violation of the nationalization requirements
enshrined in the Constitution and circumvention of the Anti-Dummy Act. In this regard, petitioner Salazar's position
is that the Anti-Dummy Act allows the ASI group to elect board directors in proportion to their share in the capital of
the entity. It is to be noted, however, that the same law also limits the election of aliens as members of the board of
directors in proportion to their allowance participation of said entity. In the instant case, the foreign Group ASI was
limited to designate three directors. This is the allowable participation of the ASI Group. Hence, in future dealings,
this limitation of six to three board seats should always be maintained as long as the joint venture agreement exists
considering that in limiting 3 board seats in the 9-man board of directors there are provisions already agreed upon
and embodied in the parties' Agreement to protect the interests arising from the minority status of the foreign
investors.

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

On the other hand, the Lagdameo and Young Group (petitioners in G.R. No. 75951) object to a cumulative voting
during the election of the board of directors of the enterprise as ruled by the appellate court and submits that the six
(6) directors allotted the Filipino stockholders should be selected by consensus pursuant to section 5 (a) of the
Agreement which uses the word "designate" meaning "nominate, delegate or appoint."
They also stress the possibility that the ASI Group might take control of the enterprise if the Filipino stockholders are
allowed to select their nominees separately and not as a common slot determined by the majority of their group.

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

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

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

SO ORDERED.

[G.R. No. 127405. October 4, 2000]

MARJORIE TOCAO and WILLIAM T. BELO, petitioners, vs. COURT OF APPEALS

and NENITA A. ANAY, respondents.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review of the Decision of the Court of Appeals in CA-G.R. CV No.
41616,[1] affirming the Decision of the Regional Trial Court of Makati, Branch 140, in Civil
Case No. 88-509.[2]
Fresh from her stint as marketing adviser of Technolux in Bangkok, Thailand, private
respondent Nenita A. Anay met petitioner William T. Belo, then the vice-president for
operations of Ultra Clean Water Purifier, through her former employer in Bangkok. Belo
introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to enter into a joint
venture with her for the importation and local distribution of kitchen cookwares. Belo
volunteered to finance the joint venture and assigned to Anay the job of marketing the
product considering her experience and established relationship with West Bend Company,
a manufacturer of kitchen wares in Wisconsin, U.S.A. Under the joint venture, Belo acted
as capitalist, Tocao as president and general manager, and Anay as head of the marketing
department and later, vice-president for sales. Anay organized the administrative staff and
sales force while Tocao hired and fired employees, determined commissions and/or salaries
of the employees, and assigned them to different branches. The parties agreed that Belos
name should not appear in any documents relating to their transactions with West Bend
Company.Instead, they agreed to use Anays name in securing distributorship of cookware
from that company. The parties agreed further that Anay would be entitled to: (1) ten percent
(10%) of the annual net profits of the business; (2) overriding commission of six percent
(6%) of the overall weekly production; (3) thirty percent (30%) of the sales she would make;
and (4) two percent (2%) for her demonstration services. The agreement was not reduced
to writing on the strength of Belos assurances that he was sincere, dependable and honest
when it came to financial commitments.
Anay having secured the distributorship of cookware products from the West Bend
Company and organized the administrative staff and the sales force, the cookware business
took off successfully. They operated under the name of Geminesse Enterprise, a sole
proprietorship registered in Marjorie Tocaos name, with office at 712 Rufino Building, Ayala
Avenue, Makati City. Belo made good his monetary commitments to Anay. Thereafter,
Roger Muencheberg of West Bend Company invited Anay to the distributor/dealer meeting
in West Bend, Wisconsin, U.S.A., from July 19 to 21, 1987 and to the southwestern regional
convention in Pismo Beach, California, U.S.A., from July 25-26, 1987. Anay accepted the
invitation with the consent of Marjorie Tocao who, as president and general manager of
Geminesse Enterprise, even wrote a letter to the Visa Section of the U.S. Embassy in Manila
on July 13, 1987. A portion of the letter reads:

Ms. Nenita D. Anay (sic), who has been patronizing and supporting West Bend Co. for twenty (20)
years now, acquired the distributorship of Royal Queen cookware for Geminesse Enterprise, is the
Vice President Sales Marketing and a business partner of our company, will attend in response to
the invitation. (Italics supplied.)
[3]

Anay arrived from the U.S.A. in mid-August 1987, and immediately undertook the task
of saving the business on account of the unsatisfactory sales record in the Makati and
Cubao offices. On August 31, 1987, she received a plaque of appreciation from the
administrative and sales people through Marjorie Tocao[4] for her excellent job performance.
On October 7, 1987, in the presence of Anay, Belo signed a memo[5] entitling her to a thirty-
seven percent (37%) commission for her personal sales "up Dec 31/87. Belo explained to
her that said commission was apart from her ten percent (10%) share in the profits. On
October 9, 1987, Anay learned that Marjorie Tocao had signed a letter[6]addressed to the
Cubao sales office to the effect that she was no longer the vice-president of Geminesse
Enterprise. The following day, October 10, she received a note from Lina T. Cruz, marketing
manager, that Marjorie Tocao had barred her from holding office and conducting
demonstrations in both Makati and Cubao offices.[7] Anay attempted to contact Belo. She
wrote him twice to demand her overriding commission for the period of January 8, 1988 to
February 5, 1988 and the audit of the company to determine her share in the net profits.
When her letters were not answered, Anay consulted her lawyer, who, in turn, wrote Belo a
letter. Still, that letter was not answered.
 Anay still received her five percent (5%) overriding commission up to December
1987. The following year, 1988, she did not receive the same commission although the
company netted a gross sales of P13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of
money with damages[8] against Marjorie D. Tocao and William Belo before the Regional Trial
Court of Makati, Branch 140.
In her complaint, Anay prayed that defendants be ordered to pay her, jointly and
severally, the following: (1) P32,00.00 as unpaid overriding commission from January 8,
1988 to February 5, 1988; (2) P100,000.00 as moral damages, and (3) P100,000.00 as
exemplary damages. The plaintiff also prayed for an audit of the finances of Geminesse
Enterprise from the inception of its business operation until she was illegally dismissed to
determine her ten percent (10%) share in the net profits. She further prayed that she be
paid the five percent (5%) overriding commission on the remaining 150 West Bend
cookware sets before her dismissal.
In their answer,[9] Marjorie Tocao and Belo asserted that the alleged agreement with
Anay that was neither reduced in writing, nor ratified, was either unenforceable or void or
inexistent. As far as Belo was concerned, his only role was to introduce Anay to Marjorie
Tocao. There could not have been a partnership because, as Anay herself admitted,
Geminesse Enterprise was the sole proprietorship of Marjorie Tocao. Because Anay merely
acted as marketing demonstrator of Geminesse Enterprise for an agreed remuneration, and
her complaint referred to either her compensation or dismissal, such complaint should have
been lodged with the Department of Labor and not with the regular court.
Petitioners (defendants therein) further alleged that Anay filed the complaint on account
of ill-will and resentment because Marjorie Tocao did not allow her to lord it over in the
Geminesse Enterprise. Anay had acted like she owned the enterprise because of her
experience and expertise. Hence, petitioners were the ones who suffered actual damages
including unreturned and unaccounted stocks of Geminesse Enterprise, and serious
anxiety, besmirched reputation in the business world, and various damages not less than
P500,000.00. They also alleged that, to vindicate their names, they had to hire counsel for
a fee of P23,000.00.
At the pre-trial conference, the issues were limited to: (a) whether or not the plaintiff was
an employee or partner of Marjorie Tocao and Belo, and (b) whether or not the parties are
entitled to damages.[10]
In their defense, Belo denied that Anay was supposed to receive a share in the profit of
the business. He, however, admitted that the two had agreed that Anay would receive a
three to four percent (3-4%) share in the gross sales of the cookware. He denied contributing
capital to the business or receiving a share in its profits as he merely served as a guarantor
of Marjorie Tocao, who was new in the business. He attended and/or presided over business
meetings of the venture in his capacity as a guarantor but he never participated in decision-
making. He claimed that he wrote the memo granting the plaintiff thirty-seven percent (37%)
commission upon her dismissal from the business venture at the request of Tocao, because
Anay had no other income.
 For her part, Marjorie Tocao denied having entered into an oral partnership agreement
with Anay. However, she admitted that Anay was an expert in the cookware business and
hence, they agreed to grant her the following commissions: thirty-seven percent (37%) on
personal sales; five percent (5%) on gross sales; two percent (2%) on product
demonstrations, and two percent (2%) for recruitment of personnel. Marjorie denied that
they agreed on a ten percent (10%) commission on the net profits. Marjorie claimed that
she got the capital for the business out of the sale of the sewing machines used in her
garments business and from Peter Lo, a Singaporean friend-financier who loaned her the
funds with interest. Because she treated Anay as her co-equal, Marjorie received the same
amounts of commissions as her. However, Anay failed to account for stocks valued at
P200,000.00.
On April 22, 1993, the trial court rendered a decision the dispositive part of which is as
follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering defendants to submit to the Court a formal account as to the partnership affairs for the years
1987 and 1988 pursuant to Art. 1809 of the Civil Code in order to determine the ten percent (10%)
share of plaintiff in the net profits of the cookware business;
2. Ordering defendants to pay five percent (5%) overriding commission for the one hundred and fifty
(150) cookware sets available for disposition when plaintiff was wrongfully excluded from the
partnership by defendants;
3. Ordering defendants to pay plaintiff overriding commission on the total production which for the period
covering January 8, 1988 to February 5, 1988 amounted to P32,000.00;
4. Ordering defendants to pay P100,000.00 as moral damages and P100,000.00 as exemplary
damages, and
5. Ordering defendants to pay P50,000.00 as attorneys fees and P20,000.00 as costs of suit.

SO ORDERED.

The trial court held that there was indeed an oral partnership agreement between the
plaintiff and the defendants, based on the following: (a) there was an intention to create a
partnership; (b) a common fund was established through contributions consisting of money
and industry, and (c) there was a joint interest in the profits. The testimony of Elizabeth
Bantilan, Anays cousin and the administrative officer of Geminesse Enterprise from August
21, 1986 until it was absorbed by Royal International, Inc., buttressed the fact that a
partnership existed between the parties. The letter of Roger Muencheberg of West Bend
Company stating that he awarded the distributorship to Anay and Marjorie Tocao because
he was convinced that with Marjories financial contribution and Anays experience, the
combination of the two would be invaluable to the partnership, also supported that
conclusion. Belos claim that he was merely a guarantor has no basis since there was no
written evidence thereof as required by Article 2055 of the Civil Code. Moreover, his acts of
attending and/or presiding over meetings of Geminesse Enterprise plus his issuance of a
memo giving Anay 37% commission on personal sales belied this. On the contrary, it
demonstrated his involvement as a partner in the business.
 The trial court further held that the payment of commissions did not preclude the
existence of the partnership inasmuch as such practice is often resorted to in business
circles as an impetus to bigger sales volume. It did not matter that the agreement was not
in writing because Article 1771 of the Civil Code provides that a partnership may be
constituted in any form. The fact that Geminesse Enterprise was registered in Marjorie
Tocaos name is not determinative of whether or not the business was managed and
operated by a sole proprietor or a partnership. What was registered with the Bureau of
Domestic Trade was merely the business name or style of Geminesse Enterprise.
The trial court finally held that a partner who is excluded wrongfully from a partnership
is an innocent partner. Hence, the guilty partner must give him his due upon the dissolution
of the partnership as well as damages or share in the profits realized from the appropriation
of the partnership business and goodwill. An innocent partner thus possesses pecuniary
interest in every existing contract that was incomplete and in the trade name of the co-
partnership and assets at the time he was wrongfully expelled.
Petitioners appeal to the Court of Appeals[11] was dismissed, but the amount of damages
awarded by the trial court were reduced to P50,000.00 for moral damages and P50,000.00
as exemplary damages. Their Motion for Reconsideration was denied by the Court of
Appeals for lack of merit.[12] Petitioners Belo and Marjorie Tocao are now before this Court
on a petition for review on certiorari, asserting that there was no business partnership between
them and herein private respondent Nenita A. Anay who is, therefore, not entitled to the
damages awarded to her by the Court of Appeals.
Petitioners Tocao and Belo contend that the Court of Appeals erroneously held that a
partnership existed between them and private respondent Anay because Geminesse
Enterprise came into being exactly a year before the alleged partnership was formed, and
that it was very unlikely that petitioner Belo would invest the sum of P2,500,000.00 with
petitioner Tocao contributing nothing, without any memorandum whatsoever regarding the
alleged partnership.[13]
The issue of whether or not a partnership exists is a factual matter which are within the
exclusive domain of both the trial and appellate courts. This Court cannot set aside factual
findings of such courts absent any showing that there is no evidence to support the
conclusion drawn by the court a quo.[14] In this case, both the trial court and the Court of
Appeals are one in ruling that petitioners and private respondent established a business
partnership. This Court finds no reason to rule otherwise.
To be considered a juridical personality, a partnership must fulfill these requisites: (1)
two or more persons bind themselves to contribute money, property or industry to a common
fund; and (2) intention on the part of the partners to divide the profits among themselves.[15] It
may be constituted in any form; a public instrument is necessary only where immovable
property or real rights are contributed thereto.[16] This implies that since a contract of
partnership is consensual, an oral contract of partnership is as good as a written one. Where
no immovable property or real rights are involved, what matters is that the parties have
complied with the requisites of a partnership. The fact that there appears to be no record in
the Securities and Exchange Commission of a public instrument embodying the partnership
agreement pursuant to Article 1772 of the Civil Code[17] did not cause the nullification of the
partnership. The pertinent provision of the Civil Code on the matter states:
Art. 1768. The partnership has a juridical personality separate and distinct from that of each of the
partners, even in case of failure to comply with the requirements of article 1772, first paragraph.

Petitioners admit that private respondent had the expertise to engage in the business of
distributorship of cookware. Private respondent contributed such expertise to the
partnership and hence, under the law, she was the industrial or managing partner. It was
through her reputation with the West Bend Company that the partnership was able to open
the business of distributorship of that companys cookware products; it was through the
same efforts that the business was propelled to financial success. Petitioner Tocao herself
admitted private respondents indispensable role in putting up the business when, upon
being asked if private respondent held the positions of marketing manager and vice-
president for sales, she testified thus:
A: No, sir at the start she was the marketing manager because there were no one to sell yet, its only
me there then her and then two (2) people, so about four (4). Now, after that when she recruited
already Oscar Abella and Lina Torda-Cruz these two (2) people were given the designation of
marketing managers of which definitely Nita as superior to them would be the Vice President.[18]

By the set-up of the business, third persons were made to believe that a partnership had
indeed been forged between petitioners and private respondents. Thus, the communication
dated June 4, 1986 of Missy Jagler of West Bend Company to Roger Muencheberg of the
same company states:

Marge Tocao is president of Geminesse Enterprises. Geminesse will finance the operations. Marge
does not have cookware experience. Nita Anay has started to gather former managers, Lina Torda
and Dory Vista. She has also gathered former demonstrators, Betty Bantilan, Eloisa Lamela,
Menchu Javier. They will continue to gather other key people and build up the organization. All
they need is the finance and the products to sell. [19]

On the other hand, petitioner Belos denial that he financed the partnership rings hollow
in the face of the established fact that he presided over meetings regarding matters affecting
the operation of the business. Moreover, his having authorized in writing on October 7, 1987,
on a stationery of his own business firm, Wilcon Builders Supply, that private respondent
should receive thirty-seven (37%) of the proceeds of her personal sales, could not be
interpreted otherwise than that he had a proprietary interest in the business. His claim that
he was merely a guarantor is belied by that personal act of proprietorship in the business.
Moreover, if he was indeed a guarantor of future debts of petitioner Tocao under Article
2053 of the Civil Code,[20] he should have presented documentary evidence therefor. While
Article 2055 of the Civil Code simply provides that guaranty must be express, Article 1403,
the Statute of Frauds, requires that a special promise to answer for the debt, default or
miscarriage of another be in writing.[21]
Petitioner Tocao, a former ramp model,[22] was also a capitalist in the partnership. She
claimed that she herself financed the business. Her and petitioner Belos roles as both
capitalists to the partnership with private respondent are buttressed by petitioner Tocaos
admissions that petitioner Belo was her boyfriend and that the partnership was not their only
business venture together. They also established a firm that they called Wiji, the
combination of petitioner Belos first name, William, and her nickname, Jiji.[23] The special
relationship between them dovetails with petitioner Belos claim that he was acting in behalf
of petitioner Tocao. Significantly, in the early stage of the business operation, petitioners
requested West Bend Company to allow them to utilize their banking and trading facilities
in Singapore in the matter of importation and payment of the cookware products.[24] The
inevitable conclusion, therefore, was that petitioners merged their respective capital and
infused the amount into the partnership of distributing cookware with private respondent as
the managing partner.
The business venture operated under Geminesse Enterprise did not result in an
employer-employee relationship between petitioners and private respondent. While it is true
that the receipt of a percentage of net profits constitutes only prima facie evidence that the
recipient is a partner in the business,[25] the evidence in the case at bar controverts an
employer-employee relationship between the parties. In the first place, private respondent
had a voice in the management of the affairs of the cookware distributorship,[26] including
selection of people who would constitute the administrative staff and the sales force.
Secondly, petitioner Tocaos admissions militate against an employer-employee
relationship. She admitted that, like her who owned Geminesse Enterprise,[27] private
respondent received only commissions and transportation and representation
allowances[28] and not a fixed salary.[29] Petitioner Tocao testified:
Q: Of course. Now, I am showing to you certain documents already marked as Exhs. X and Y. Please go over
this. Exh. Y is denominated `Cubao overrides 8-21-87 with ending August 21, 1987, will you please go
over this and tell the Honorable Court whether you ever came across this document and know of your
own knowledge the amount ---
A: Yes, sir this is what I am talking about earlier. Thats the one I am telling you earlier a certain percentage
for promotions, advertising, incentive.
Q: I see. Now, this promotion, advertising, incentive, there is a figure here and words which I quote: Overrides
Marjorie Ann Tocao P21,410.50 this means that you have received this amount?
A: Oh yes, sir.
Q: I see. And, by way of amplification this is what you are saying as one representing commission,
representation, advertising and promotion?
A: Yes, sir.
Q: I see. Below your name is the words and figure and I quote Nita D. Anay P21,410.50, what is this?
A: Thats her overriding commission.
Q: Overriding commission, I see. Of course, you are telling this Honorable Court that there being the same
P21,410.50 is merely by coincidence?
A: No, sir, I made it a point that we were equal because the way I look at her kasi, you know in a sense
because of her expertise in the business she is vital to my business. So, as part of the incentive I offer
her the same thing.
Q: So, in short you are saying that this you have shared together, I mean having gotten from the company
P21,140.50 is your way of indicating that you were treating her as an equal?
A: As an equal.
Q: As an equal, I see. You were treating her as an equal?
A: Yes, sir.
Q: I am calling again your attention to Exh. Y Overrides Makati the other one is ---
 A: That is the same thing, sir.
Q: With ending August 21, words and figure Overrides Marjorie Ann Tocao P15,314.25 the amount there you
will acknowledge you have received that?
A: Yes, sir.
Q: Again in concept of commission, representation, promotion, etc.?
A: Yes, sir.
Q: Okey. Below your name is the name of Nita Anay P15,314.25 that is also an indication that she received
the same amount?
A: Yes, sir.
Q: And, as in your previous statement it is not by coincidence that these two (2) are the same?
A: No, sir.
Q: It is again in concept of you treating Miss Anay as your equal?
A: Yes, sir. (Italics supplied.)[30]

If indeed petitioner Tocao was private respondents employer, it is difficult to believe that
they shall receive the same income in the business. In a partnership, each partner must
share in the profits and losses of the venture, except that the industrial partner shall not be
liable for the losses.[31] As an industrial partner, private respondent had the right to demand
for a formal accounting of the business and to receive her share in the net profit.[32]
The fact that the cookware distributorship was operated under the name of Geminesse
Enterprise, a sole proprietorship, is of no moment. What was registered with the Bureau of
Domestic Trade on August 19, 1987 was merely the name of that enterprise.[33] While it is
true that in her undated application for renewal of registration of that firm name, petitioner
Tocao indicated that it would be engaged in retail of kitchenwares, cookwares, utensils,
skillet,[34]she also admitted that the enterprise was only 60% to 70% for the cookware
business, while 20% to 30% of its business activity was devoted to the sale of water sterilizer
or purifier.[35] Indubitably then, the business name Geminesse Enterprise was used only for
practical reasons - it was utilized as the common name for petitioner Tocaos various
business activities, which included the distributorship of cookware.
Petitioners underscore the fact that the Court of Appeals did not return the unaccounted
and unremitted stocks of Geminesse Enterprise amounting to P208,250.00.[36] Obviously a
ploy to offset the damages awarded to private respondent, that claim, more than anything
else, proves the existence of a partnership between them. In Idos v. Court of Appeals, this
Court said:

The best evidence of the existence of the partnership, which was not yet terminated (though in the
winding up stage), were the unsold goods and uncollected receivables, which were presented to the
trial court. Since the partnership has not been terminated, the petitioner and private complainant
remained as co-partners. x x x. [37]

It is not surprising then that, even after private respondent had been unceremoniously
booted out of the partnership in October 1987, she still received her overriding commission
until December 1987.
 Undoubtedly, petitioner Tocao unilaterally excluded private respondent from the
partnership to reap for herself and/or for petitioner Belo financial gains resulting from private
respondents efforts to make the business venture a success. Thus, as petitioner Tocao
became adept in the business operation, she started to assert herself to the extent that she
would even shout at private respondent in front of other people.[38] Her instruction to Lina
Torda Cruz, marketing manager, not to allow private respondent to hold office in both the
Makati and Cubao sales offices concretely spoke of her perception that private respondent
was no longer necessary in the business operation,[39] and resulted in a falling out between
the two. However, a mere falling out or misunderstanding between partners does not
convert the partnership into a sham organization.[40] The partnership exists until dissolved
under the law. Since the partnership created by petitioners and private respondent has no
fixed term and is therefore a partnership at will predicated on their mutual desire and
consent, it may be dissolved by the will of a partner. Thus:

x x x. The right to choose with whom a person wishes to associate himself is the very foundation
and essence of that partnership. Its continued existence is, in turn, dependent on the constancy of
that mutual resolve, along with each partners capability to give it, and the absence of cause for
dissolution provided by the law itself. Verily, any one of the partners may, at his sole pleasure,
dictate a dissolution of the partnership at will. He must, however, act in good faith, not that the
attendance of bad faith can prevent the dissolution of the partnership but that it can result in a
liability for damages.
[41]

An unjustified dissolution by a partner can subject him to action for damages because by
the mutual agency that arises in a partnership, the doctrine of delectus personae allows the
partners to have the power, although not necessarily the right to dissolve the partnership.[42]
In this case, petitioner Tocaos unilateral exclusion of private respondent from the
partnership is shown by her memo to the Cubao office plainly stating that private respondent
was, as of October 9, 1987, no longer the vice-president for sales of Geminesse
Enterprise.[43] By that memo, petitioner Tocao effected her own withdrawal from the
partnership and considered herself as having ceased to be associated with the partnership
in the carrying on of the business. Nevertheless, the partnership was not terminated
thereby; it continues until the winding up of the business.[44]
The winding up of partnership affairs has not yet been undertaken by the
partnership. This is manifest in petitioners claim for stocks that had been entrusted to private
respondent in the pursuit of the partnership business.
The determination of the amount of damages commensurate with the factual findings
upon which it is based is primarily the task of the trial court.[45] The Court of Appeals may
modify that amount only when its factual findings are diametrically opposed to that of the
lower court,[46] or the award is palpably or scandalously and unreasonably
excessive.[47] However, exemplary damages that are awarded by way of example or
correction for the public good,[48]should be reduced to P50,000.00, the amount correctly
awarded by the Court of Appeals. Concomitantly, the award of moral damages of
P100,000.00 was excessive and should be likewise reduced to P50,000.00. Similarly,
attorneys fees that should be granted on account of the award of exemplary damages and
petitioners evident bad faith in refusing to satisfy private respondents plainly valid, just and
demandable claims,[49] appear to have been excessively granted by the trial court and should
therefore be reduced to P25,000.00.
WHEREFORE, the instant petition for review on certiorari is DENIED. The partnership
among petitioners and private respondent is ordered dissolved, and the parties are ordered
to effect the winding up and liquidation of the partnership pursuant to the pertinent provisions
of the Civil Code. This case is remanded to the Regional Trial Court for proper proceedings
relative to said dissolution. The appealed decisions of the Regional Trial Court and the Court
of Appeals are AFFIRMED with MODIFICATIONS, as follows ---

1. Petitioners are ordered to submit to the Regional Trial Court a formal account of the partnership
affairs for the years 1987 and 1988, pursuant to Article 1809 of the Civil Code, in order to
determine private respondents ten percent (10%) share in the net profits of the partnership;

2. Petitioners are ordered, jointly and severally, to pay private respondent five percent (5%)
overriding commission for the one hundred and fifty (150) cookware sets available for disposition
since the time private respondent was wrongfully excluded from the partnership by petitioners;

3. Petitioners are ordered, jointly and severally, to pay private respondent overriding commission
on the total production which, for the period covering January 8, 1988 to February 5, 1988,
amounted to P32,000.00;

4. Petitioners are ordered, jointly and severally, to pay private respondent moral damages in the
amount of P50,000.00, exemplary damages in the amount of P50,000.00 and attorneys fees in the
amount of P25,000.00.

SO ORDERED.

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 BOLAÑOS, defendant-appellant.

Araneta and Araneta for appellee.

Jose A. Buendia for appellant.

REYES, J.:

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 brought in
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
Bolaños," 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. (Soroñgon 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.

[G.R. No. 136448. November 3, 1999]

LIM TONG LIM, petitioner, vs. PHILIPPINE FISHING GEAR INDUSTRIES,

INC., respondent.

DECISION
PANGANIBAN, J.:

A partnership may be deemed to exist among parties who agree to borrow money to pursue a business and
to divide the profits or losses that may arise therefrom, even if it is shown that they have not contributed any
capital of their own to a "common fund." Their contribution may be in the form of credit or industry, not
necessarily cash or fixed assets. Being partners, 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 plaintiffs invoices and computed on their
respective amounts as follows:

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

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

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

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

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

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
of 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 respondent 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.[12]
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 x x x. Obviously, the ultimate undertaking
of the defendants was to divide the profits among themselves which is what a partnership essentially is x x
x. By a 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 LIMS GOODS.

In determining whether petitioner may be held liable for the fishing nets and floats purchased 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 Courts 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:

Article 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 Yaos 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, Chuas FB Lady Anne Mel and Yaos 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 petitioners 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 courts sole basis for assuming the existence of a partnership was the
Compromise Agreement. He also claims that the settlement was entered into only to end the dispute among them,
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 petitioners 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 petitioners 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.
Section 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 rapiers
thrust. Technicality, when it deserts its proper office as an aid to justice and becomes its great
hindrance and chief enemy, deserves scant consideration from courts.There should be no vested
rights in technicalities.

Third Issue: Validity of Attachment

Finally, petitioner claims that the Writ of Attachment was improperly issued against the nets. We agree with
the Court of Appeals that this issue is now moot and academic. As previously discussed, F/B Lourdes was an
asset of the partnership and that it was placed in the name of petitioner, only to assure payment of the debt he and
his partners owed. The nets and the floats were specifically manufactured and tailor-made according to their own
design, and were bought and used in the fishing venture they agreed upon. Hence, the issuance of the Writ to
assure the payment of the price stipulated in the invoices is proper. Besides, by specific agreement, ownership of
the nets remained with Respondent Philippine Fishing Gear, until full payment thereof.
WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED. Costs against petitioner.
SO ORDERED.
 [G.R. No. 126881. October 3, 2000]

HEIRS OF TAN ENG KEE, petitioners, vs. COURT OF APPEALS and BENGUET
LUMBER COMPANY, represented by its President TAN ENG
LAY, respondents.

DECISION
DE LEON, JR., J.:

In this petition for review on certiorari, petitioners pray for the reversal of the Decision[1] dated March
13, 1996 of the former Fifth Division[2] of the Court of Appeals in CA-G.R. CV No. 47937, the dispositive
portion of which states:

THE FOREGOING CONSIDERED, the appealed decision is hereby set aside, and the complaint
dismissed.

The facts are:

Following the death of Tan Eng Kee on September 13, 1984, Matilde Abubo, the common-law
spouse of the decedent, joined by their children Teresita, Nena, Clarita, Carlos, Corazon and Elpidio,
collectively known as herein petitioners HEIRS OF TAN ENG KEE, filed suit against the decedents
brother TAN ENG LAY on February 19, 1990.The complaint,[3] docketed as Civil Case No. 1983-R in
the Regional Trial Court of Baguio City was for accounting, liquidation and winding up of the alleged
partnership formed after World War II between Tan Eng Kee and Tan Eng Lay.On March 18, 1991, the
petitioners filed an amended complaint[4] impleading private respondent herein BENGUET LUMBER
COMPANY, as represented by Tan Eng Lay. The amended complaint was admitted by the trial court
in its Order dated May 3, 1991.[5]
The amended complaint principally alleged that after the second World War, Tan Eng Kee and Tan
Eng Lay, pooling their resources and industry together, entered into a partnership engaged in the
business of selling lumber and hardware and construction supplies. They named their enterprise
Benguet Lumber which they jointly managed until Tan Eng Kees death. Petitioners herein averred that
the business prospered due to the hard work and thrift of the alleged partners. However, they claimed
that in 1981, Tan Eng Lay and his children caused the conversion of the partnership Benguet Lumber
into a corporation called Benguet Lumber Company. The incorporation was purportedly a ruse to
deprive Tan Eng Kee and his heirs of their rightful participation in the profits of the business. Petitioners
prayed for accounting of the partnership assets, and the dissolution, winding up and liquidation thereof,
and the equal division of the net assets of Benguet Lumber.
After trial, Regional Trial Court of Baguio City, Branch 7 rendered judgment[6]on April 12, 1995, to
wit:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered:

a) Declaring that Benguet Lumber is a joint adventure which is akin to a particular partnership;

b) Declaring that the deceased Tan Eng Kee and Tan Eng Lay are joint adventurers and/or partners
in a business venture and/or particular partnership called Benguet Lumber and as such should share
in the profits and/or losses of the business venture or particular partnership;
c) Declaring that the assets of Benguet Lumber are the same assets turned over to Benguet Lumber
Co. Inc. and as such the heirs or legal representatives of the deceased Tan Eng Kee have a legal
right to share in said assets;

d) Declaring that all the rights and obligations of Tan Eng Kee as joint adventurer and/or as partner
in a particular partnership have descended to the plaintiffs who are his legal heirs.

e) Ordering the defendant Tan Eng Lay and/or the President and/or General Manager of Benguet
Lumber Company Inc. to render an accounting of all the assets of Benguet Lumber Company, Inc.
so the plaintiffs know their proper share in the business;

f) Ordering the appointment of a receiver to preserve and/or administer the assets of Benguet
Lumber Company, Inc. until such time that said corporation is finally liquidated are directed to
submit the name of any person they want to be appointed as receiver failing in which this Court
will appoint the Branch Clerk of Court or another one who is qualified to act as such.

g) Denying the award of damages to the plaintiffs for lack of proof except the expenses in filing the
instant case.

h) Dismissing the counter-claim of the defendant for lack of merit.

SO ORDERED.

Private respondent sought relief before the Court of Appeals which, on March 13, 1996, rendered
the assailed decision reversing the judgment of the trial court. Petitioners motion for
reconsideration[7] was denied by the Court of Appeals in a Resolution[8] dated October 11, 1996.
Hence, the present petition.
As a side-bar to the proceedings, petitioners filed Criminal Case No. 78856 against Tan Eng Lay
and Wilborn Tan for the use of allegedly falsified documents in a judicial proceeding. Petitioners
complained that Exhibits 4 to 4-U offered by the defendants before the trial court, consisting of payrolls
indicating that Tan Eng Kee was a mere employee of Benguet Lumber, were fake, based on the
discrepancy in the signatures of Tan Eng Kee. They also filed Criminal Cases Nos. 78857-78870
against Gloria, Julia, Juliano, Willie, Wilfredo, Jean, Mary and Willy, all surnamed Tan, for alleged
falsification of commercial documents by a private individual. On March 20, 1999, the Municipal Trial
Court of Baguio City, Branch 1, wherein the charges were filed, rendered judgment[9] dismissing the
cases for insufficiency of evidence.
In their assignment of errors, petitioners claim that:
I

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG
LAY BECAUSE: (A) THERE WAS NO FIRM ACCOUNT; (B) THERE WAS NO FIRM
LETTERHEADS SUBMITTED AS EVIDENCE; (C) THERE WAS NO CERTIFICATE OF
PARTNERSHIP; (D) THERE WAS NO AGREEMENT AS TO PROFITS AND LOSSES;
AND (E) THERE WAS NO TIME FIXED FOR THE DURATION OF THE PARTNERSHIP
(PAGE 13, DECISION).
 II

THE HONORABLE COURT OF APPEALS ERRED IN RELYING SOLELY ON THE

SELF-SERVING TESTIMONY OF RESPONDENT TAN ENG LAY THAT BENGUET
LUMBER WAS A SOLE PROPRIETORSHIP AND THAT TAN ENG KEE WAS ONLY AN
EMPLOYEE THEREOF.
III

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE

FOLLOWING FACTS WHICH WERE DULY SUPPORTED BY EVIDENCE OF BOTH
PARTIES DO NOT SUPPORT THE EXISTENCE OF A PARTNERSHIP JUST BECAUSE
THERE WAS NO ARTICLES OF PARTNERSHIP DULY RECORDED BEFORE THE
SECURITIES AND EXCHANGE COMMISSION:

a. THAT THE FAMILIES OF TAN ENG KEE AND TAN ENG LAY WERE ALL LIVING AT THE
BENGUET LUMBER COMPOUND;
b. THAT BOTH TAN ENG LAY AND TAN ENG KEE WERE COMMANDING THE EMPLOYEES OF
BENGUET LUMBER;
c. THAT BOTH TAN ENG KEE AND TAN ENG LAY WERE SUPERVISING THE EMPLOYEES
THEREIN;
d. THAT TAN ENG KEE AND TAN ENG LAY WERE THE ONES DETERMINING THE PRICES OF
STOCKS TO BE SOLD TO THE PUBLIC; AND
e. THAT TAN ENG LAY AND TAN ENG KEE WERE THE ONES MAKING ORDERS TO THE
SUPPLIERS (PAGE 18, DECISION).
IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP JUST BECAUSE THE CHILDREN OF THE LATE TAN ENG KEE:
ELPIDIO TAN AND VERONICA CHOI, TOGETHER WITH THEIR WITNESS BEATRIZ
TANDOC, ADMITTED THAT THEY DO NOT KNOW WHEN THE ESTABLISHMENT
KNOWN IN BAUGIO CITY AS BENGUET LUMBER WAS STARTED AS A
PARTNERSHIP (PAGE 16-17, DECISION).
V

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO

PARTNERSHIP BETWEEN THE LATE TAN ENG KEE AND HIS BROTHER TAN ENG
LAY BECAUSE THE PRESENT CAPITAL OR ASSETS OF BENGUET LUMBER IS
DEFINITELY MORE THAN P3,000.00 AND AS SUCH THE EXECUTION OF A PUBLIC
INSTRUMENT CREATING A PARTNERSHIP SHOULD HAVE BEEN MADE AND NO
SUCH PUBLIC INSTRUMENT ESTABLISHED BY THE APPELLEES (PAGE 17,
DECISION).

As a premise, we reiterate the oft-repeated rule that findings of facts of the Court of Appeals will
not be disturbed on appeal if such are supported by the evidence.[10] Our jurisdiction, it must be
emphasized, does not include review of factual issues. Thus:
Filing of petition with Supreme Court.-A party desiring to appeal by certiorari from a judgment or
final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial Court or
other courts whenever authorized by law, may file with the Supreme Court a verified petition for
review on certiorari. The petition shall raise only questions of law which must be distinctly set
forth. [italics supplied]
[11]

Admitted exceptions have been recognized, though, and when present, may compel us to analyze
the evidentiary basis on which the lower court rendered judgment. Review of factual issues is therefore
warranted:

(1) when the factual findings of the Court of Appeals and the trial court are contradictory;

(2) when the findings are grounded entirely on speculation, surmises, or conjectures;

(3) when the inference made by the Court of Appeals from its findings of fact is manifestly
mistaken, absurd, or impossible;

(4) when there is grave abuse of discretion in the appreciation of facts;

(5) when the appellate court, in making its findings, goes beyond the issues of the case, and such
findings are contrary to the admissions of both appellant and appellee;

(6) when the judgment of the Court of Appeals is premised on a misapprehension of facts;

(7) when the Court of Appeals fails to notice certain relevant facts which, if properly considered,
will justify a different conclusion;

(8) when the findings of fact are themselves conflicting;

(9) when the findings of fact are conclusions without citation of the specific evidence on which
they are based; and

(10) when the findings of fact of the Court of Appeals are premised on the absence of evidence but
such findings are contradicted by the evidence on record. [12]

In reversing the trial court, the Court of Appeals ruled, to wit:

We note that the Court a quo over extended the issue because while the plaintiffs mentioned only
the existence of a partnership, the Court in turn went beyond that by justifying the existence of a
joint adventure.

When mention is made of a joint adventure, it would presuppose parity of standing between the
parties, equal proprietary interest and the exercise by the parties equally of the conduct of the
business, thus:

xxx xxx xxx xxx

We have the admission that the father of the plaintiffs was not a partner of the Benguet Lumber
before the war. The appellees however argued that (Rollo, p. 104; Brief, p. 6) this is because during
the war, the entire stocks of the pre-war Benguet Lumber were confiscated if not burned by the
Japanese. After the war, because of the absence of capital to start a lumber and hardware business,
Lay and Kee pooled the proceeds of their individual businesses earned from buying and selling
military supplies, so that the common fund would be enough to form a partnership, both in the
lumber and hardware business. That Lay and Kee actually established the Benguet Lumber in
Baguio City, was even testified to by witnesses. Because of the pooling of resources, the post-war
Benguet Lumber was eventually established. That the father of the plaintiffs and Lay were partners,
is obvious from the fact that: (1) they conducted the affairs of the business during Kees lifetime,
jointly, (2) they were the ones giving orders to the employees, (3) they were the ones preparing
orders from the suppliers, (4) their families stayed together at the Benguet Lumber compound, and
(5) all their children were employed in the business in different capacities.

xxx xxx xxx xxx

It is obvious that there was no partnership whatsoever. Except for a firm name, there was no firm
account, no firm letterheads submitted as evidence, no certificate of partnership, no agreement as to
profits and losses, and no time fixed for the duration of the partnership. There was even no attempt
to submit an accounting corresponding to the period after the war until Kees death in 1984.It had no
business book, no written account nor any memorandum for that matter and no license mentioning
the existence of a partnership [citation omitted].

Also, the exhibits support the establishment of only a proprietorship. The certification dated March
4, 1971, Exhibit 2, mentioned co-defendant Lay as the only registered owner of the Benguet
Lumber and Hardware. His application for registration, effective 1954, in fact mentioned that his
business started in 1945 until 1985 (thereafter, the incorporation). The deceased, Kee, on the other
hand, was merely an employee of the Benguet Lumber Company, on the basis of his SSS coverage
effective 1958, Exhibit 3. In the Payrolls, Exhibits 4 to 4-U, inclusive, for the years 1982 to 1983,
Kee was similarly listed only as an employee; precisely, he was on the payroll listing. In the
Termination Notice, Exhibit 5, Lay was mentioned also as the proprietor.

xxx xxx xxx xxx

We would like to refer to Arts. 771 and 772, NCC, that a partner [sic] may be constituted in any
form, but when an immovable is constituted, the execution of a public instrument becomes
necessary. This is equally true if the capitalization exceeds P3,000.00, in which case a public
instrument is also necessary, and which is to be recorded with the Securities and Exchange
Commission. In this case at bar, we can easily assume that the business establishment, which from
the language of the appellees, prospered (pars. 5 & 9, Complaint), definitely exceeded P3,000.00,
in addition to the accumulation of real properties and to the fact that it is now a compound. The
execution of a public instrument, on the other hand, was never established by the appellees.

And then in 1981, the business was incorporated and the incorporators were only Lay and the
members of his family. There is no proof either that the capital assets of the partnership, assuming
them to be in existence, were maliciously assigned or transferred by Lay, supposedly to the
corporation and since then have been treated as a part of the latters capital assets, contrary to the
allegations in pars. 6, 7 and 8 of the complaint.

These are not evidences supporting the existence of a partnership:

1) That Kee was living in a bunk house just across the lumber store, and then in a room in the bunk
house in Trinidad, but within the compound of the lumber establishment, as testified to by Tandoc;
2) that both Lay and Kee were seated on a table and were commanding people as testified to by the
son, Elpidio Tan; 3) that both were supervising the laborers, as testified to by Victoria Choi; and 4)
that Dionisio Peralta was supposedly being told by Kee that the proceeds of the 80 pieces of the
G.I. sheets were added to the business.

Partnership presupposes the following elements [citation omitted]: 1) a contract, either oral or
written. However, if it involves real property or where the capital is P3,000.00 or more, the
execution of a contract is necessary; 2) the capacity of the parties to execute the contract; 3) money
property or industry contribution; 4) community of funds and interest, mentioning equality of the
partners or one having a proportionate share in the benefits; and 5) intention to divide the profits,
being the true test of the partnership. The intention to join in the business venture for the purpose of
obtaining profits thereafter to be divided, must be established. We cannot see these elements from
the testimonial evidence of the appellees.

As can be seen, the appellate court disputed and differed from the trial court which had adjudged
that TAN ENG KEE and TAN ENG LAY had allegedly entered into a joint adventure. In this connection,
we have held that whether a partnership exists is a factual matter; consequently, since the appeal is
brought to us under Rule 45, we cannot entertain inquiries relative to the correctness of the assessment
of the evidence by the court a quo.[13] Inasmuch as the Court of Appeals and the trial court had reached
conflicting conclusions, perforce we must examine the record to determine if the reversal was justified.
The primordial issue here is whether Tan Eng Kee and Tan Eng Lay were partners in Benguet
Lumber. A contract of partnership is defined by law as one where:

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

Two or more persons may also form a partnership for the exercise of a profession. [14]

Thus, in order to constitute a partnership, it must be established that (1) two or more persons bound
themselves to contribute money, property, or industry to a common fund, and (2) they intend to divide
the profits among themselves.[15] The agreement need not be formally reduced into writing, since statute
allows the oral constitution of a partnership, save in two instances: (1) when immovable property or real
rights are contributed,[16] and (2) when the partnership has a capital of three thousand pesos or
more.[17] In both cases, a public instrument is required.[18] An inventory to be signed by the parties and
attached to the public instrument is also indispensable to the validity of the partnership whenever
immovable property is contributed to the partnership.[19]
The trial court determined that Tan Eng Kee and Tan Eng Lay had entered into a joint adventure,
which it said is akin to a particular partnership.[20] A particular partnership is distinguished from a joint
adventure, to wit:
 (a) A joint adventure (an American concept similar to our joint accounts) is a sort of informal partnership,
with no firm name and no legal personality. In a joint account, the participating merchants can
transact business under their own name, and can be individually liable therefor.
(b) Usually, but not necessarily a joint adventure is limited to a SINGLE TRANSACTION, although the
business of pursuing to a successful termination may continue for a number of years; a partnership
generally relates to a continuing business of various transactions of a certain kind.[21]
A joint adventure presupposes generally a parity of standing between the joint co-ventures or
partners, in which each party has an equal proprietary interest in the capital or property contributed,
and where each party exercises equal rights in the conduct of the business.[22] Nonetheless, in Aurbach,
et. al. v. Sanitary Wares Manufacturing Corporation, et. al.,[23] we expressed the view that a joint
adventure may be likened to a particular partnership, thus:

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

Undoubtedly, the best evidence would have been the contract of partnership itself, or the articles
of partnership but there is none. The alleged partnership, though, was never formally organized. In
addition, petitioners point out that the New Civil Code was not yet in effect when the partnership was
allegedly formed sometime in 1945, although the contrary may well be argued that nothing prevented
the parties from complying with the provisions of the New Civil Code when it took effect on August 30,
1950. But all that is in the past. The net effect, however, is that we are asked to determine whether a
partnership existed based purely on circumstantial evidence. A review of the record persuades us that
the Court of Appeals correctly reversed the decision of the trial court. The evidence presented by
petitioners falls short of the quantum of proof required to establish a partnership.
Unfortunately for petitioners, Tan Eng Kee has passed away. Only he, aside from Tan Eng Lay,
could have expounded on the precise nature of the business relationship between them. In the absence
of evidence, we cannot accept as an established fact that Tan Eng Kee allegedly contributed his
resources to a common fund for the purpose of establishing a partnership. The testimonies to that effect
of petitioners witnesses is directly controverted by Tan Eng Lay. It should be noted that it is not with
the number of witnesses wherein preponderance lies;[24] the quality of their testimonies is to be
considered. None of petitioners witnesses could suitably account for the beginnings of Benguet Lumber
Company, except perhaps for Dionisio Peralta whose deceased wife was related to Matilde
Abubo.[25] He stated that when he met Tan Eng Kee after the liberation, the latter asked the former to
accompany him to get 80 pieces of G.I. sheets supposedly owned by both brothers.[26] Tan Eng Lay,
however, denied knowledge of this meeting or of the conversation between Peralta and his
brother.[27] Tan Eng Lay consistently testified that he had his business and his brother had his, that it
was only later on that his said brother, Tan Eng Kee, came to work for him. Be that as it may, co-
ownership or co-possession (specifically here, of the G.I. sheets) is not an indicium of the existence of
a partnership.[28]
Besides, it is indeed odd, if not unnatural, that despite the forty years the partnership was allegedly
in existence, Tan Eng Kee never asked for an accounting. The essence of a partnership is that the
partners share in the profits and losses.[29] Each has the right to demand an accounting as long as the
partnership exists.[30] We have allowed a scenario wherein [i]f excellent relations exist among the
partners at the start of the business and all the partners are more interested in seeing the firm grow
rather than get immediate returns, a deferment of sharing in the profits is perfectly plausible.[31] But in
the situation in the case at bar, the deferment, if any, had gone on too long to be plausible.A person is
presumed to take ordinary care of his concerns.[32] As we explained in another case:

In the first place, plaintiff did not furnish the supposed P20,000.00 capital. In the second place, she
did not furnish any help or intervention in the management of the theatre. In the third place, it does
not appear that she has even demanded from defendant any accounting of the expenses and
earnings of the business. Were she really a partner, her first concern should have been to find out
how the business was progressing, whether the expenses were legitimate, whether the earnings
were correct, etc. She was absolutely silent with respect to any of the acts that a partner should
have done; all that she did was to receive her share of P3,000.00 a month, which cannot be
interpreted in any manner than a payment for the use of the premises which she had leased from the
owners.Clearly, plaintiff had always acted in accordance with the original letter of defendant of
June 17, 1945 (Exh. A), which shows that both parties considered this offer as the real contract
between them. [italics supplied]
[33]

A demand for periodic accounting is evidence of a partnership.[34] During his lifetime, Tan Eng Kee
appeared never to have made any such demand for accounting from his brother, Tang Eng Lay.
This brings us to the matter of Exhibits 4 to 4-U for private respondents, consisting of payrolls
purporting to show that Tan Eng Kee was an ordinary employee of Benguet Lumber, as it was then
called. The authenticity of these documents was questioned by petitioners, to the extent that they filed
criminal charges against Tan Eng Lay and his wife and children. As aforesaid, the criminal cases were
dismissed for insufficiency of evidence. Exhibits 4 to 4-U in fact shows that Tan Eng Kee received sums
as wages of an employee. In connection therewith, Article 1769 of the Civil Code provides:

In determining whether a partnership exists, these rules shall apply:

(1) Except as provided by Article 1825, persons who are not partners as to each other are not
partners as to third persons;

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

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the persons
sharing them have a joint or common right or interest in any property which the returns are derived;
(4) The receipt by a person of a share of the profits of a business is prima facie evidence that he is a
partner in the business, but no such inference shall be drawn if such profits were received in
payment:

(a) As a debt by installment or otherwise;

(b) As wages of an employee or rent to a landlord;

(b) As an annuity to a widow or representative of a deceased partner;

(d) As interest on a loan, though the amount of payment vary with the profits of the
business;

(e) As the consideration for the sale of a goodwill of a business or other property by
installments or otherwise.

In the light of the aforequoted legal provision, we conclude that Tan Eng Kee was only an employee,
not a partner. Even if the payrolls as evidence were discarded, petitioners would still be back to square
one, so to speak, since they did not present and offer evidence that would show that Tan Eng Kee
received amounts of money allegedly representing his share in the profits of the enterprise. Petitioners
failed to show how much their father, Tan Eng Kee, received, if any, as his share in the profits of
Benguet Lumber Company for any particular period. Hence, they failed to prove that Tan Eng Kee and
Tan Eng Lay intended to divide the profits of the business between themselves, which is one of the
essential features of a partnership.
Nevertheless, petitioners would still want us to infer or believe the alleged existence of a partnership
from this set of circumstances: that Tan Eng Lay and Tan Eng Kee were commanding the employees;
that both were supervising the employees; that both were the ones who determined the price at which
the stocks were to be sold; and that both placed orders to the suppliers of the Benguet Lumber
Company. They also point out that the families of the brothers Tan Eng Kee and Tan Eng Lay lived at
the Benguet Lumber Company compound, a privilege not extended to its ordinary employees.
However, private respondent counters that:

Petitioners seem to have missed the point in asserting that the above enumerated powers and
privileges granted in favor of Tan Eng Kee, were indicative of his being a partner in Benguet
Lumber for the following reasons:

(i) even a mere supervisor in a company, factory or store gives orders and directions to his
subordinates. So long, therefore, that an employees position is higher in rank, it is not unusual that
he orders around those lower in rank.

(ii) even a messenger or other trusted employee, over whom confidence is reposed by the owner,
can order materials from suppliers for and in behalf of Benguet Lumber. Furthermore, even a
partner does not necessarily have to perform this particular task. It is, thus, not an indication that
Tan Eng Kee was a partner.

(iii) although Tan Eng Kee, together with his family, lived in the lumber compound and this
privilege was not accorded to other employees, the undisputed fact remains that Tan Eng Kee is the
brother of Tan Eng Lay. Naturally, close personal relations existed between them. Whatever
privileges Tan Eng Lay gave his brother, and which were not given the other employees, only
proves the kindness and generosity of Tan Eng Lay towards a blood relative.

(iv) and even if it is assumed that Tan Eng Kee was quarrelling with Tan Eng Lay in connection
with the pricing of stocks, this does not adequately prove the existence of a partnership relation
between them. Even highly confidential employees and the owners of a company sometimes argue
with respect to certain matters which, in no way indicates that they are partners as to each other. [35]

In the instant case, we find private respondents arguments to be well-taken. Where circumstances
taken singly may be inadequate to prove the intent to form a partnership, nevertheless, the collective
effect of these circumstances may be such as to support a finding of the existence of the parties
intent.[36] Yet, in the case at bench, even the aforesaid circumstances when taken together are not
persuasive indicia of a partnership. They only tend to show that Tan Eng Kee was involved in the
operations of Benguet Lumber, but in what capacity is unclear. We cannot discount the likelihood that
as a member of the family, he occupied a niche above the rank-and-file employees. He would have
enjoyed liberties otherwise unavailable were he not kin, such as his residence in the Benguet Lumber
Company compound. He would have moral, if not actual, superiority over his fellow employees, thereby
entitling him to exercise powers of supervision. It may even be that among his duties is to place orders
with suppliers. Again, the circumstances proffered by petitioners do not provide a logical nexus to the
conclusion desired; these are not inconsistent with the powers and duties of a manager, even in a
business organized and run as informally as Benguet Lumber Company.
There being no partnership, it follows that there is no dissolution, winding up or liquidation to speak
of. Hence, the petition must fail.
WHEREFORE, the petition is hereby denied, and the appealed decision of the Court of Appeals is
hereby AFFIRMED in toto. No pronouncement as to costs.
SO ORDERED.

G.R. No. 78133 October 18, 1988

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

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

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

The Solicitor General for respondents

GANCAYCO, J.:

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

On June 22, 1965, petitioners bought two (2) parcels of land from Santiago Bernardino, et al. and on May 28, 1966,
they bought another three (3) parcels of land from Juan Roque. The first two parcels of land were sold by petitioners
in 1968 toMarenir Development Corporation, while the three parcels of land were sold by petitioners to Erlinda
Reyes and Maria Samson on March 19,1970. Petitioners realized a net profit in the sale made in 1968 in the amount
of P165,224.70, while they realized a net profit of P60,000.00 in the sale made in 1970. The corresponding capital
gains taxes were paid by petitioners in 1973 and 1974 by availing of the tax amnesties granted in the said years.
However, in a letter dated March 31, 1979 of then Acting BIR Commissioner Efren I. Plana, petitioners were
assessed and required to pay a total amount of P107,101.70 as alleged deficiency corporate income taxes for the
years 1968 and 1970.

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

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

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

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

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

Hence, this petition wherein petitioners invoke as basis thereof the following alleged errors of the respondent court:

A. IN HOLDING AS PRESUMPTIVELY CORRECT THE DETERMINATION OF THE RESPONDENT

COMMISSIONER, TO THE EFFECT THAT PETITIONERS FORMED AN UNREGISTERED
PARTNERSHIP SUBJECT TO CORPORATE INCOME TAX, AND THAT THE BURDEN OF
OFFERING EVIDENCE IN OPPOSITION THERETO RESTS UPON THE PETITIONERS.

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

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

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

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

The petition is meritorious.

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

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

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

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

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

Article 1767 of the Civil Code of the Philippines provides:

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

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

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

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

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

4. Since August, 1945, the properties have been under the management of one person, namely,
Simeon Evangelists, with full power to lease, to collect rents, to issue receipts, to bring suits, to sign
letters and contracts, and to indorse and deposit notes and checks. Thus, the affairs relative to said
properties have been handled as if the same belonged to a corporation or business enterprise
operated for profit.
 5. The foregoing conditions have existed for more than ten (10) years, or, to be exact, over fifteen
(15) years, since the first property was acquired, and over twelve (12) years, since Simeon
Evangelists became the manager.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SO ORDERED.

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

LORENZO T. OÑA and HEIRS OF JULIA BUÑALES, namely: RODOLFO B. OÑA, MARIANO B. OÑA, LUZ B.
OÑA, VIRGINIA B. OÑA and LORENZO B. OÑA, JR., petitioners,
vs.
THE COMMISSIONER OF INTERNAL REVENUE, respondent.

Orlando Velasco for petitioners.

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

BARREDO, J.:p

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

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

Julia Buñales died on March 23, 1944, leaving as heirs her surviving spouse, Lorenzo T. Oña and
her five children. In 1948, Civil Case No. 4519 was instituted in the Court of First Instance of Manila
for the settlement of her estate. Later, Lorenzo T. Oña the surviving spouse was appointed
administrator of the estate of said deceased (Exhibit 3, pp. 34-41, BIR rec.). On April 14, 1949, the
administrator submitted the project of partition, which was approved by the Court on May 16, 1949
(See Exhibit K). Because three of the heirs, namely Luz, Virginia and Lorenzo, Jr., all surnamed
Oña, were still minors when the project of partition was approved, Lorenzo T. Oña, their father and
administrator of the estate, filed a petition in Civil Case No. 9637 of the Court of First Instance of
Manila for appointment as guardian of said minors. On November 14, 1949, the Court appointed him
guardian of the persons and property of the aforenamed minors (See p. 3, BIR rec.).

The project of partition (Exhibit K; see also pp. 77-70, BIR rec.) shows that the heirs have undivided
one-half (1/2) interest in ten parcels of land with a total assessed value of P87,860.00, six houses
with a total assessed value of P17,590.00 and an undetermined amount to be collected from the
War Damage Commission. Later, they received from said Commission the amount of P50,000.00,
more or less. This amount was not divided among them but was used in the rehabilitation of
properties owned by them in common (t.s.n., p. 46). Of the ten parcels of land aforementioned, two
were acquired after the death of the decedent with money borrowed from the Philippine Trust
Company in the amount of P72,173.00 (t.s.n., p. 24; Exhibit 3, pp. 31-34 BIR rec.).

The project of partition also shows that the estate shares equally with Lorenzo T. Oña, the
administrator thereof, in the obligation of P94,973.00, consisting of loans contracted by the latter with
the approval of the Court (see p. 3 of Exhibit K; or see p. 74, BIR rec.).

Although the project of partition was approved by the Court on May 16, 1949, no attempt was made
to divide the properties therein listed. Instead, the properties remained under the management of
Lorenzo T. Oña who used said properties in business by leasing or selling them and investing the
income derived therefrom and the proceeds from the sales thereof in real properties and securities.
As a result, petitioners' properties and investments gradually increased from P105,450.00 in 1949 to
P480,005.20 in 1956 as can be gleaned from the following year-end balances:

Year Investment Land Building

Account Account Account

1949 — P87,860.00 P17,590.00

1950 P24,657.65 128,566.72 96,076.26

1951 51,301.31 120,349.28 110,605.11

1952 67,927.52 87,065.28 152,674.39

1953 61,258.27 84,925.68 161,463.83

1954 63,623.37 99,001.20 167,962.04

1955 100,786.00 120,249.78 169,262.52

1956 175,028.68 135,714.68 169,262.52

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

From said investments and properties petitioners derived such incomes as profits from installment
sales of subdivided lots, profits from sales of stocks, dividends, rentals and interests (see p. 3 of
Exhibit 3; p. 32, BIR rec.; t.s.n., pp. 37-38). The said incomes are recorded in the books of account
kept by Lorenzo T. Oña where the corresponding shares of the petitioners in the net income for the
year are also known. Every year, petitioners returned for income tax purposes their shares in the net
income derived from said properties and securities and/or from transactions involving them (Exhibit
3, supra; t.s.n., pp. 25-26). However, petitioners did not actually receive their shares in the yearly
income. (t.s.n., pp. 25-26, 40, 98, 100). The income was always left in the hands of Lorenzo T. Oña
who, as heretofore pointed out, invested them in real properties and securities. (See Exhibit 3, t.s.n.,
pp. 50, 102-104).

On the basis of the foregoing facts, respondent (Commissioner of Internal Revenue) decided that
petitioners formed an unregistered partnership and therefore, subject to the corporate income tax,
pursuant to Section 24, in relation to Section 84(b), of the Tax Code. Accordingly, he assessed
against the petitioners the amounts of P8,092.00 and P13,899.00 as corporate income taxes for
1955 and 1956, respectively. (See Exhibit 5, amended by Exhibit 17, pp. 50 and 86, BIR rec.).
Petitioners protested against the assessment and asked for reconsideration of the ruling of
respondent that they have formed an unregistered partnership. Finding no merit in petitioners'
request, respondent denied it (See Exhibit 17, p. 86, BIR rec.). (See pp. 1-4, Memorandum for
Respondent, June 12, 1961).

The original assessment was as follows:

1955

Net income as per investigation ................ P40,209.89

Income tax due thereon ............................... 8,042.00

25% surcharge .............................................. 2,010.50
Compromise for non-filing .......................... 50.00
Total ............................................................... P10,102.50

1956

Net income as per investigation ................ P69,245.23

 Income tax due thereon ............................... 13,849.00
25% surcharge .............................................. 3,462.25
Compromise for non-filing .......................... 50.00
Total ............................................................... P17,361.25

(See Exhibit 13, page 50, BIR records)

Upon further consideration of the case, the 25% surcharge was eliminated in line with the ruling of
the Supreme Court in Collector v. Batangas Transportation Co., G.R. No. L-9692, Jan. 6, 1958, so
that the questioned assessment refers solely to the income tax proper for the years 1955 and 1956
and the "Compromise for non-filing," the latter item obviously referring to the compromise in lieu of
the criminal liability for failure of petitioners to file the corporate income tax returns for said years.
(See Exh. 17, page 86, BIR records). (Pp. 1-3, Annex C to Petition)

Petitioners have assigned the following as alleged errors of the Tax Court:

I.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT THE PETITIONERS FORMED AN
UNREGISTERED PARTNERSHIP;

II.

THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE PETITIONERS WERE CO-
OWNERS OF THE PROPERTIES INHERITED AND (THE) PROFITS DERIVED FROM
TRANSACTIONS THEREFROM (sic);

III.

THE COURT OF TAX APPEALS ERRED IN HOLDING THAT PETITIONERS WERE LIABLE FOR
CORPORATE INCOME TAXES FOR 1955 AND 1956 AS AN UNREGISTERED PARTNERSHIP;

IV.

ON THE ASSUMPTION THAT THE PETITIONERS CONSTITUTED AN UNREGISTERED

PARTNERSHIP, THE COURT OF TAX APPEALS ERRED IN NOT HOLDING THAT THE
PETITIONERS WERE AN UNREGISTERED PARTNERSHIP TO THE EXTENT ONLY THAT THEY
INVESTED THE PROFITS FROM THE PROPERTIES OWNED IN COMMON AND THE LOANS
RECEIVED USING THE INHERITED PROPERTIES AS COLLATERALS;

V.

ON THE ASSUMPTION THAT THERE WAS AN UNREGISTERED PARTNERSHIP, THE COURT

OF TAX APPEALS ERRED IN NOT DEDUCTING THE VARIOUS AMOUNTS PAID BY THE
PETITIONERS AS INDIVIDUAL INCOME TAX ON THEIR RESPECTIVE SHARES OF THE
PROFITS ACCRUING FROM THE PROPERTIES OWNED IN COMMON, FROM THE
DEFICIENCY TAX OF THE UNREGISTERED PARTNERSHIP.

In other words, petitioners pose for our resolution the following questions: (1) Under the facts found by the Court of
Tax Appeals, should petitioners be considered as co-owners of the properties inherited by them from the deceased
Julia Buñales and the profits derived from transactions involving the same, or, must they be deemed to have formed
an unregistered partnership subject to tax under Sections 24 and 84(b) of the National Internal Revenue Code? (2)
Assuming they have formed an unregistered partnership, should this not be only in the sense that they invested as a
common fund the profits earned by the properties owned by them in common and the loans granted to them upon
the security of the said properties, with the result that as far as their respective shares in the inheritance are
concerned, the total income thereof should be considered as that of co-owners and not of the unregistered
partnership? And (3) assuming again that they are taxable as an unregistered partnership, should not the various
amounts already paid by them for the same years 1955 and 1956 as individual income taxes on their respective
shares of the profits accruing from the properties they owned in common be deducted from the deficiency corporate
taxes, herein involved, assessed against such unregistered partnership by the respondent Commissioner?

Pondering on these questions, the first thing that has struck the Court is that whereas petitioners' predecessor in
interest died way back on March 23, 1944 and the project of partition of her estate was judicially approved as early
as May 16, 1949, and presumably petitioners have been holding their respective shares in their inheritance since
those dates admittedly under the administration or management of the head of the family, the widower and father
Lorenzo T. Oña, the assessment in question refers to the later years 1955 and 1956. We believe this point to be
important because, apparently, at the start, or in the years 1944 to 1954, the respondent Commissioner of Internal
Revenue did treat petitioners as co-owners, not liable to corporate tax, and it was only from 1955 that he considered
them as having formed an unregistered partnership. At least, there is nothing in the record indicating that an earlier
assessment had already been made. Such being the case, and We see no reason how it could be otherwise, it is
easily understandable why petitioners' position that they are co-owners and not unregistered co-partners, for the
purposes of the impugned assessment, cannot be upheld. Truth to tell, petitioners should find comfort in the fact that
they were not similarly assessed earlier by the Bureau of Internal Revenue.

The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to
the project of partition approved in 1949, "the properties remained under the management of Lorenzo T. Oña who
used said properties in business by leasing or selling them and investing the income derived therefrom and the
proceed from the sales thereof in real properties and securities," as a result of which said properties and
investments steadily increased yearly from P87,860.00 in "land account" and P17,590.00 in "building account" in
1949 to P175,028.68 in "investment account," P135.714.68 in "land account" and P169,262.52 in "building account"
in 1956. And all these became possible because, admittedly, petitioners never actually received any share of the
income or profits from Lorenzo T. Oña and instead, they allowed him to continue using said shares as part of the
common fund for their ventures, even as they paid the corresponding income taxes on the basis of their respective
shares of the profits of their common business as reported by the said Lorenzo T. Oña.

It is thus incontrovertible that petitioners did not, contrary to their contention, merely limit themselves to holding the
properties inherited by them. Indeed, it is admitted that during the material years herein involved, some of the said
properties were sold at considerable profit, and that with said profit, petitioners engaged, thru Lorenzo T. Oña, in the
purchase and sale of corporate securities. It is likewise admitted that all the profits from these ventures were divided
among petitioners proportionately in accordance with their respective shares in the inheritance. In these
circumstances, it is Our considered view that from the moment petitioners allowed not only the incomes from their
respective shares of the inheritance but even the inherited properties themselves to be used by Lorenzo T. Oña as a
common fund in undertaking several transactions or in business, with the intention of deriving profit to be shared by
them proportionally, such act was tantamonut to actually contributing such incomes to a common fund and, in effect,
they thereby formed an unregistered partnership within the purview of the above-mentioned provisions of the Tax
Code.

It is but logical that in cases of inheritance, there should be a period when the heirs can be considered as co-owners
rather than unregistered co-partners within the contemplation of our corporate tax laws aforementioned. Before the
partition and distribution of the estate of the deceased, all the income thereof does belong commonly to all the heirs,
obviously, without them becoming thereby unregistered co-partners, but it does not necessarily follow that such
status as co-owners continues until the inheritance is actually and physically distributed among the heirs, for it is
easily conceivable that after knowing their respective shares in the partition, they might decide to continue holding
said shares under the common management of the administrator or executor or of anyone chosen by them and
engage in business on that basis. Withal, if this were to be allowed, it would be the easiest thing for heirs in any
inheritance to circumvent and render meaningless Sections 24 and 84(b) of the National Internal Revenue Code.

It is true that in Evangelista vs. Collector, 102 Phil. 140, it was stated, among the reasons for holding the appellants
therein to be unregistered co-partners for tax purposes, that their common fund "was not something they found
already in existence" and that "it was not a property inherited by them pro indiviso," but it is certainly far fetched to
argue therefrom, as petitioners are doing here, that ergo, in all instances where an inheritance is not actually
divided, there can be no unregistered co-partnership. As already indicated, for tax purposes, the co-ownership of
inherited properties is automatically converted into an unregistered partnership the moment the said common
properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the
heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly
executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding.
The reason for this is simple. From the moment of such partition, the heirs are entitled already to their respective
definite shares of the estate and the incomes thereof, for each of them to manage and dispose of as exclusively his
own without the intervention of the other heirs, and, accordingly he becomes liable individually for all taxes in
connection therewith. If after such partition, he allows his share to be held in common with his co-heirs under a
single management to be used with the intent of making profit thereby in proportion to his share, there can be no
doubt that, even if no document or instrument were executed for the purpose, for tax purposes, at least, an
unregistered partnership is formed. This is exactly what happened to petitioners in this case.

In this connection, petitioners' reliance on Article 1769, paragraph (3), of the Civil Code, providing that: "The sharing
of gross returns does not of itself establish a partnership, whether or not the persons sharing them have a joint or
common right or interest in any property from which the returns are derived," and, for that matter, on any other
provision of said code on partnerships is unavailing. In Evangelista, supra, this Court clearly differentiated the
concept of partnerships under the Civil Code from that of unregistered partnerships which are considered as
"corporations" under Sections 24 and 84(b) of the National Internal Revenue Code. Mr. Justice Roberto
Concepcion, now Chief Justice, elucidated on this point thus:

To begin with, the tax in question is one imposed upon "corporations", which, strictly speaking, are
distinct and different from "partnerships". When our Internal Revenue Code includes "partnerships"
among the entities subject to the tax on "corporations", said Code must allude, therefore, to
organizations which are not necessarily "partnerships", in the technical sense of the term. Thus, for
instance, section 24 of said Code exempts from the aforementioned tax "duly registered general
partnerships," which constitute precisely one of the most typical forms of partnerships in this
jurisdiction. Likewise, as defined in section 84(b) of said Code, "the term corporation includes
partnerships, no matter how created or organized." This qualifying expression clearly indicates that a
joint venture need not be undertaken in any of the standard forms, or in confirmity with the usual
requirements of the law on partnerships, in order that one could be deemed constituted for purposes
of the tax on corporation. Again, pursuant to said section 84(b),the term "corporation" includes,
among others, "joint accounts,(cuentas en participacion)" and "associations", none of which has a
legal personality of its own, independent of that of its members. Accordingly, the lawmaker could not
have regarded that personality as a condition essential to the existence of the partnerships therein
referred to. In fact, as above stated, "duly registered general co-partnerships" — which are
possessed of the aforementioned personality — have been expressly excluded by law (sections 24
and 84[b]) from the connotation of the term "corporation." ....

xxx xxx xxx

Similarly, the American Law

... provides its own concept of a partnership. Under the term "partnership" it includes
not only a partnership as known in common law but, as well, a syndicate, group,
pool, joint venture, or other unincorporated organization which carries on any
business, financial operation, or venture, and which is not, within the meaning of the
Code, a trust, estate, or a corporation. ... . (7A Merten's Law of Federal Income
Taxation, p. 789; emphasis ours.)

The term "partnership" includes a syndicate, group, pool, joint venture or other
unincorporated organization, through or by means of which any business, financial
operation, or venture is carried on. ... . (8 Merten's Law of Federal Income Taxation,
p. 562 Note 63; emphasis ours.)

For purposes of the tax on corporations, our National Internal Revenue Code includes these
partnerships — with the exception only of duly registered general copartnerships — within the
purview of the term "corporation." It is, therefore, clear to our mind that petitioners herein constitute a
partnership, insofar as said Code is concerned, and are subject to the income tax for corporations.
We reiterated this view, thru Mr. Justice Fernando, in Reyes vs. Commissioner of Internal Revenue, G. R. Nos. L-
24020-21, July 29, 1968, 24 SCRA 198, wherein the Court ruled against a theory of co-ownership pursued by
appellants therein.

As regards the second question raised by petitioners about the segregation, for the purposes of the corporate taxes
in question, of their inherited properties from those acquired by them subsequently, We consider as justified the
following ratiocination of the Tax Court in denying their motion for reconsideration:

In connection with the second ground, it is alleged that, if there was an unregistered partnership, the
holding should be limited to the business engaged in apart from the properties inherited by
petitioners. In other words, the taxable income of the partnership should be limited to the income
derived from the acquisition and sale of real properties and corporate securities and should not
include the income derived from the inherited properties. It is admitted that the inherited properties
and the income derived therefrom were used in the business of buying and selling other real
properties and corporate securities. Accordingly, the partnership income must include not only the
income derived from the purchase and sale of other properties but also the income of the inherited
properties.

Besides, as already observed earlier, the income derived from inherited properties may be considered as individual
income of the respective heirs only so long as the inheritance or estate is not distributed or, at least, partitioned, but
the moment their respective known shares are used as part of the common assets of the heirs to be used in making
profits, it is but proper that the income of such shares should be considered as the part of the taxable income of an
unregistered partnership. This, We hold, is the clear intent of the law.

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

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

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

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

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

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

G.R. No. L-45425 April 29, 1939

JOSE GATCHALIAN, ET AL., plaintiffs-appellants,

vs.
THE COLLECTOR OF INTERNAL REVENUE, defendant-appellee.

Guillermo B. Reyes for appellants.

Office of the Solicitor-General Tuason for appellee.

IMPERIAL, J.:

The plaintiff brought this action to recover from the defendant Collector of Internal Revenue the sum of P1,863.44,
with legal interest thereon, which they paid under protest by way of income tax. They appealed from the decision
rendered in the case on October 23, 1936 by the Court of First Instance of the City of Manila, which dismissed the
action with the costs against them.

The case was submitted for decision upon the following stipulation of facts:

Come now the parties to the above-mentioned case, through their respective undersigned attorneys, and
hereby agree to respectfully submit to this Honorable Court the case upon the following statement of facts:

1. That plaintiff are all residents of the municipality of Pulilan, Bulacan, and that defendant is the Collector of
Internal Revenue of the Philippines;

2. That prior to December 15, 1934 plaintiffs, in order to enable them to purchase one sweepstakes ticket
valued at two pesos (P2), subscribed and paid therefor the amounts as follows:

1. Jose Gatchalian .................................................................................................... P0.18

2. Gregoria Cristobal ............................................................................................... .18

3. Saturnina Silva .................................................................................................... .08

4. Guillermo Tapia ................................................................................................... .13

5. Jesus Legaspi ...................................................................................................... .15

6. Jose Silva ............................................................................................................. .07

7. Tomasa Mercado ................................................................................................ .08

8. Julio Gatchalian ................................................................................................... .13

9. Emiliana Santiago ................................................................................................ .13

 10. Maria C. Legaspi ............................................................................................... .16

11. Francisco Cabral ............................................................................................... .13

12. Gonzalo Javier .................................................................................................... .14

13. Maria Santiago ................................................................................................... .17

14. Buenaventura Guzman ...................................................................................... .13

15. Mariano Santos ................................................................................................. .14

Total ........................................................................................................ 2.00

3. That immediately thereafter but prior to December 15, 1934, plaintiffs purchased, in the ordinary course of
business, from one of the duly authorized agents of the National Charity Sweepstakes Office one ticket
bearing No. 178637 for the sum of two pesos (P2) and that the said ticket was registered in the name of
Jose Gatchalian and Company;

4. That as a result of the drawing of the sweepstakes on December 15, 1934, the above-mentioned ticket
bearing No. 178637 won one of the third prizes in the amount of P50,000 and that the corresponding check
covering the above-mentioned prize of P50,000 was drawn by the National Charity Sweepstakes Office in
favor of Jose Gatchalian & Company against the Philippine National Bank, which check was cashed during
the latter part of December, 1934 by Jose Gatchalian & Company;

5. That on December 29, 1934, Jose Gatchalian was required by income tax examiner Alfredo David to file
the corresponding income tax return covering the prize won by Jose Gatchalian & Company and that on
December 29, 1934, the said return was signed by Jose Gatchalian, a copy of which return is enclosed as
Exhibit A and made a part hereof;

6. That on January 8, 1935, the defendant made an assessment against Jose Gatchalian & Company
requesting the payment of the sum of P1,499.94 to the deputy provincial treasurer of Pulilan, Bulacan, giving
to said Jose Gatchalian & Company until January 20, 1935 within which to pay the said amount of
P1,499.94, a copy of which letter marked Exhibit B is enclosed and made a part hereof;

7. That on January 20, 1935, the plaintiffs, through their attorney, sent to defendant a reply, a copy of which
marked Exhibit C is attached and made a part hereof, requesting exemption from payment of the income tax
to which reply there were enclosed fifteen (15) separate individual income tax returns filed separately by
each one of the plaintiffs, copies of which returns are attached and marked Exhibit D-1 to D-15, respectively,
in order of their names listed in the caption of this case and made parts hereof; a statement of sale signed
by Jose Gatchalian showing the amount put up by each of the plaintiffs to cover up the attached and marked
as Exhibit E and made a part hereof; and a copy of the affidavit signed by Jose Gatchalian dated December
29, 1934 is attached and marked Exhibit F and made part thereof;

8. That the defendant in his letter dated January 28, 1935, a copy of which marked Exhibit G is enclosed,
denied plaintiffs' request of January 20, 1935, for exemption from the payment of tax and reiterated his
demand for the payment of the sum of P1,499.94 as income tax and gave plaintiffs until February 10, 1935
within which to pay the said tax;

9. That in view of the failure of the plaintiffs to pay the amount of tax demanded by the defendant,
notwithstanding subsequent demand made by defendant upon the plaintiffs through their attorney on March
23, 1935, a copy of which marked Exhibit H is enclosed, defendant on May 13, 1935 issued a warrant of
distraint and levy against the property of the plaintiffs, a copy of which warrant marked Exhibit I is enclosed
and made a part hereof;
 10. That to avoid embarrassment arising from the embargo of the property of the plaintiffs, the said plaintiffs
on June 15, 1935, through Gregoria Cristobal, Maria C. Legaspi and Jesus Legaspi, paid under protest the
sum of P601.51 as part of the tax and penalties to the municipal treasurer of Pulilan, Bulacan, as evidenced
by official receipt No. 7454879 which is attached and marked Exhibit J and made a part hereof, and
requested defendant that plaintiffs be allowed to pay under protest the balance of the tax and penalties by
monthly installments;

11. That plaintiff's request to pay the balance of the tax and penalties was granted by defendant subject to
the condition that plaintiffs file the usual bond secured by two solvent persons to guarantee prompt payment
of each installments as it becomes due;

12. That on July 16, 1935, plaintiff filed a bond, a copy of which marked Exhibit K is enclosed and made a
part hereof, to guarantee the payment of the balance of the alleged tax liability by monthly installments at the
rate of P118.70 a month, the first payment under protest to be effected on or before July 31, 1935;

13. That on July 16, 1935 the said plaintiffs formally protested against the payment of the sum of P602.51, a
copy of which protest is attached and marked Exhibit L, but that defendant in his letter dated August 1, 1935
overruled the protest and denied the request for refund of the plaintiffs;

14. That, in view of the failure of the plaintiffs to pay the monthly installments in accordance with the terms
and conditions of bond filed by them, the defendant in his letter dated July 23, 1935, copy of which is
attached and marked Exhibit M, ordered the municipal treasurer of Pulilan, Bulacan to execute within five
days the warrant of distraint and levy issued against the plaintiffs on May 13, 1935;

15. That in order to avoid annoyance and embarrassment arising from the levy of their property, the plaintiffs
on August 28, 1936, through Jose Gatchalian, Guillermo Tapia, Maria Santiago and Emiliano Santiago, paid
under protest to the municipal treasurer of Pulilan, Bulacan the sum of P1,260.93 representing the unpaid
balance of the income tax and penalties demanded by defendant as evidenced by income tax receipt No.
35811 which is attached and marked Exhibit N and made a part hereof; and that on September 3, 1936, the
plaintiffs formally protested to the defendant against the payment of said amount and requested the refund
thereof, copy of which is attached and marked Exhibit O and made part hereof; but that on September 4,
1936, the defendant overruled the protest and denied the refund thereof; copy of which is attached and
marked Exhibit P and made a part hereof; and

16. That plaintiffs demanded upon defendant the refund of the total sum of one thousand eight hundred and
sixty three pesos and forty-four centavos (P1,863.44) paid under protest by them but that defendant refused
and still refuses to refund the said amount notwithstanding the plaintiffs' demands.

17. The parties hereto reserve the right to present other and additional evidence if necessary.

Exhibit E referred to in the stipulation is of the following tenor:

To whom it may concern:

I, Jose Gatchalian, a resident of Pulilan, Bulacan, married, of age, hereby certify, that on the 11th day of
August, 1934, I sold parts of my shares on ticket No. 178637 to the persons and for the amount indicated
below and the part of may share remaining is also shown to wit:

Purchaser Amount Address

1. Mariano Santos ........................................... P0.14 Pulilan, Bulacan.

2. Buenaventura Guzman ............................... .13 - Do -

3. Maria Santiago ............................................ .17 - Do -

4. Gonzalo Javier .............................................. .14 - Do -

 5. Francisco Cabral .......................................... .13 - Do -

6. Maria C. Legaspi .......................................... .16 - Do -

7. Emiliana Santiago ......................................... .13 - Do -

8. Julio Gatchalian ............................................ .13 - Do -

9. Jose Silva ...................................................... .07 - Do -

10. Tomasa Mercado ....................................... .08 - Do -

11. Jesus Legaspi ............................................. .15 - Do -

12. Guillermo Tapia ........................................... .13 - Do -

13. Saturnina Silva ............................................ .08 - Do -

14. Gregoria Cristobal ....................................... .18 - Do -

15. Jose Gatchalian ............................................ .18 - Do -

2.00 Total cost of said

ticket; and that, therefore, the persons named above are entitled to the parts of whatever prize that might be
won by said ticket.

Pulilan, Bulacan, P.I.

(Sgd.) JOSE GATCHALIAN

And a summary of Exhibits D-1 to D-15 is inserted in the bill of exceptions as follows:

RECAPITULATIONS OF 15 INDIVIDUAL INCOME TAX RETURNS FOR 1934 ALL DATED JANUARY 19,
1935 SUBMITTED TO THE COLLECTOR OF INTERNAL REVENUE.

Exhibit Purchase Price Net

Name Expenses
No. Price Won prize

1. Jose Gatchalian
D-1 P0.18 P4,425 P 480 3,945
..........................................

2. Gregoria Cristobal
D-2 .18 4,575 2,000 2,575
......................................

3. Saturnina Silva
D-3 .08 1,875 360 1,515
.............................................

4. Guillermo Tapia
D-4 .13 3,325 360 2,965
..........................................

5. Jesus Legaspi by Maria

D-5 .15 3,825 720 3,105
Cristobal .........

6. Jose Silva
D-6 .08 1,875 360 1,515
....................................................
 7. Tomasa Mercado
D-7 .07 1,875 360 1,515
.......................................

8. Julio Gatchalian by Beatriz

D-8 .13 3,150 240 2,910
Guzman .......

9. Emiliana Santiago
D-9 .13 3,325 360 2,965
......................................

10. Maria C. Legaspi

D-10 .16 4,100 960 3,140
......................................

11. Francisco Cabral

D-11 .13 3,325 360 2,965
......................................

12. Gonzalo Javier

D-12 .14 3,325 360 2,965
..........................................

13. Maria Santiago

D-13 .17 4,350 360 3,990
..........................................

14. Buenaventura Guzman

D-14 .13 3,325 360 2,965
...........................

15. Mariano Santos

D-15 .14 3,325 360 2,965
........................................

<="" td="" style="font-size:

14px; text-decoration: none;
2.00 50,000 color: rgb(0, 0, 128); font-family:
arial, verdana;">

The legal questions raised in plaintiffs-appellants' five assigned errors may properly be reduced to the two following:
(1) Whether the plaintiffs formed a partnership, or merely a community of property without a personality of its own; in
the first case it is admitted that the partnership thus formed is liable for the payment of income tax, whereas if there
was merely a community of property, they are exempt from such payment; and (2) whether they should pay the tax
collectively or whether the latter should be prorated among them and paid individually.

The Collector of Internal Revenue collected the tax under section 10 of Act No. 2833, as last amended by section 2
of Act No. 3761, reading as follows:

SEC. 10. (a) There shall be levied, assessed, collected, and paid annually upon the total net income
received in the preceding calendar year from all sources by every corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association or insurance company, organized in the
Philippine Islands, no matter how created or organized, but not including duly registered general
copartnership (compañias colectivas), a tax of three per centum upon such income; and a like tax shall be
levied, assessed, collected, and paid annually upon the total net income received in the preceding calendar
year from all sources within the Philippine Islands by every corporation, joint-stock company, partnership,
joint account (cuenta en participacion), association, or insurance company organized, authorized, or existing
under the laws of any foreign country, including interest on bonds, notes, or other interest-bearing
obligations of residents, corporate or otherwise: Provided, however, That nothing in this section shall be
construed as permitting the taxation of the income derived from dividends or net profits on which the normal
tax has been paid.

The gain derived or loss sustained from the sale or other disposition by a corporation, joint-stock company,
partnership, joint account (cuenta en participacion), association, or insurance company, or property, real,
personal, or mixed, shall be ascertained in accordance with subsections (c) and (d) of section two of Act
 Numbered Two thousand eight hundred and thirty-three, as amended by Act Numbered Twenty-nine
hundred and twenty-six.

The foregoing tax rate shall apply to the net income received by every taxable corporation, joint-stock
company, partnership, joint account (cuenta en participacion), association, or insurance company in the
calendar year nineteen hundred and twenty and in each year thereafter.

There is no doubt that if the plaintiffs merely formed a community of property the latter is exempt from the payment
of income tax under the law. But according to the stipulation facts the plaintiffs organized a partnership of a civil
nature because each of them put up money to buy a sweepstakes ticket for the sole purpose of dividing equally the
prize which they may win, as they did in fact in the amount of P50,000 (article 1665, Civil Code). The partnership
was not only formed, but upon the organization thereof and the winning of the prize, Jose Gatchalian personally
appeared in the office of the Philippines Charity Sweepstakes, in his capacity as co-partner, as such collection the
prize, the office issued the check for P50,000 in favor of Jose Gatchalian and company, and the said partner, in the
same capacity, collected the said check. All these circumstances repel the idea that the plaintiffs organized and
formed a community of property only.

Having organized and constituted a partnership of a civil nature, the said entity is the one bound to pay the income
tax which the defendant collected under the aforesaid section 10 (a) of Act No. 2833, as amended by section 2 of
Act No. 3761. There is no merit in plaintiff's contention that the tax should be prorated among them and paid
individually, resulting in their exemption from the tax.

In view of the foregoing, the appealed decision is affirmed, with the costs of this instance to the plaintiffs appellants.
So ordered.

G.R. No. L-68118 October 29, 1985

JOSE P. OBILLOS, JR., SARAH P. OBILLOS, ROMEO P. OBILLOS and REMEDIOS P. OBILLOS, brothers and
sisters, petitioners
vs.
COMMISSIONER OF INTERNAL REVENUE and COURT OF TAX APPEALS, respondents.

Demosthenes B. Gadioma for petitioners.

AQUINO, J.:

This case is about the income tax liability of four brothers and sisters who sold two parcels of land which they had
acquired from their father.

On March 2, 1973 Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two lots with areas of 1,124 and
963 square meters located at Greenhills, San Juan, Rizal. The next day he transferred his rights to his four children,
the petitioners, to enable them to build their residences. The company sold the two lots to petitioners for
P178,708.12 on March 13 (Exh. A and B, p. 44, Rollo). Presumably, the Torrens titles issued to them would show
that they were co-owners of the two lots.

In 1974, or after having held the two lots for more than a year, the petitioners resold them to the Walled City
Securities Corporation and Olga Cruz Canda for the total sum of P313,050 (Exh. C and D). They derived from the
sale a total profit of P134,341.88 or P33,584 for each of them. They treated the profit as a capital gain and paid an
income tax on one-half thereof or of P16,792.

In April, 1980, or one day before the expiration of the five-year prescriptive period, the Commissioner of Internal
Revenue required the four petitioners to pay corporate income tax on the total profit of P134,336 in addition to
individual income tax on their shares thereof He assessed P37,018 as corporate income tax, P18,509 as 50% fraud
surcharge and P15,547.56 as 42% accumulated interest, or a total of P71,074.56.

Not only that. He considered the share of the profits of each petitioner in the sum of P33,584 as a " taxable in full
(not a mere capital gain of which ½ is taxable) and required them to pay deficiency income taxes aggregating
P56,707.20 including the 50% fraud surcharge and the accumulated interest.

Thus, the petitioners are being held liable for deficiency income taxes and penalties totalling P127,781.76 on their
profit of P134,336, in addition to the tax on capital gains already paid by them.

The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint
venture within the meaning of sections 24(a) and 84(b) of the Tax Code (Collector of Internal Revenue vs. Batangas
Trans. Co., 102 Phil. 822).

The petitioners contested the assessments. Two Judges of the Tax Court sustained the same. Judge Roaquin
dissented. Hence, the instant appeal.

We hold that it is error to consider the petitioners as having formed a partnership under article 1767 of the Civil
Code simply because they allegedly contributed P178,708.12 to buy the two lots, resold the same and divided the
profit among themselves.

To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation
and confirm the dictum that the power to tax involves the power to destroy. That eventuality should be obviated.

As testified by Jose Obillos, Jr., they had no such intention. They were co-owners pure and simple. To consider
them as partners would obliterate the distinction between a co-ownership and a partnership. The petitioners were
not engaged in any joint venture by reason of that isolated transaction.

Their original purpose was to divide the lots for residential purposes. If later on they found it not feasible to build
their residences on the lots because of the high cost of construction, then they had no choice but to resell the same
to dissolve the co-ownership. The division of the profit was merely incidental to the dissolution of the co-ownership
which was in the nature of things a temporary state. It had to be terminated sooner or later. Castan Tobeñas says:

Como establecer el deslinde entre la comunidad ordinaria o copropiedad y la sociedad?

El criterio diferencial-segun la doctrina mas generalizada-esta: por razon del origen, en que la
sociedad presupone necesariamente la convencion, mentras que la comunidad puede existir y
existe ordinariamente sin ela; y por razon del fin objecto, en que el objeto de la sociedad es obtener
lucro, mientras que el de la indivision es solo mantener en su integridad la cosa comun y favorecer
su conservacion.

Reflejo de este criterio es la sentencia de 15 de Octubre de 1940, en la que se dice que si en

nuestro Derecho positive se ofrecen a veces dificultades al tratar de fijar la linea divisoria entre
comunidad de bienes y contrato de sociedad, la moderna orientacion de la doctrina cientifica señala
como nota fundamental de diferenciacion aparte del origen de fuente de que surgen, no siempre
uniforme, la finalidad perseguida por los interesados: lucro comun partible en la sociedad, y mera
conservacion y aprovechamiento en la comunidad. (Derecho Civil Espanol, Vol. 2, Part 1, 10 Ed.,
1971, 328- 329).

Article 1769(3) of the Civil Code provides that "the sharing of gross returns does not of itself establish a partnership,
whether or not the persons sharing them have a joint or common right or interest in any property from which the
returns are derived". There must be an unmistakable intention to form a partnership or joint venture.*

Such intent was present in Gatchalian vs. Collector of Internal Revenue, 67 Phil. 666, where 15 persons contributed small amounts to purchase a two-peso
sweepstakes ticket with the agreement that they would divide the prize The ticket won the third prize of P50,000. The 15 persons were held liable for income tax as
an unregistered partnership.
The instant case is distinguishable from the cases where the parties engaged in joint ventures for profit. Thus, in
Oña vs.

** This view is supported by the following rulings of respondent Commissioner:

Co-owership distinguished from partnership.—We find that the case at bar is fundamentally similar
to the De Leon case. Thus, like the De Leon heirs, the Longa heirs inherited the 'hacienda' in
question pro-indiviso from their deceased parents; they did not contribute or invest additional ' capital
to increase or expand the inherited properties; they merely continued dedicating the property to the
use to which it had been put by their forebears; they individually reported in their tax returns their
corresponding shares in the income and expenses of the 'hacienda', and they continued for many
years the status of co-ownership in order, as conceded by respondent, 'to preserve its (the
'hacienda') value and to continue the existing contractual relations with the Central Azucarera de
Bais for milling purposes. Longa vs. Aranas, CTA Case No. 653, July 31, 1963).

All co-ownerships are not deemed unregistered pratnership.—Co-Ownership who own properties
which produce income should not automatically be considered partners of an unregistered
partnership, or a corporation, within the purview of the income tax law. To hold otherwise, would be
to subject the income of all
co-ownerships of inherited properties to the tax on corporations, inasmuch as if a property does not
produce an income at all, it is not subject to any kind of income tax, whether the income tax on
individuals or the income tax on corporation. (De Leon vs. CI R, CTA Case No. 738, September 11,
1961, cited in Arañas, 1977 Tax Code Annotated, Vol. 1, 1979 Ed., pp. 77-78).

Commissioner of Internal Revenue, L-19342, May 25, 1972, 45 SCRA 74, where after an extrajudicial settlement the
co-heirs used the inheritance or the incomes derived therefrom as a common fund to produce profits for themselves,
it was held that they were taxable as an unregistered partnership.

It is likewise different from Reyes vs. Commissioner of Internal Revenue, 24 SCRA 198, where father and son
purchased a lot and building, entrusted the administration of the building to an administrator and divided equally the
net income, and from Evangelista vs. Collector of Internal Revenue, 102 Phil. 140, where the three Evangelista
sisters bought four pieces of real property which they leased to various tenants and derived rentals therefrom.
Clearly, the petitioners in these two cases had formed an unregistered partnership.

In the instant case, what the Commissioner should have investigated was whether the father donated the two lots to
the petitioners and whether he paid the donor's tax (See Art. 1448, Civil Code). We are not prejudging this matter. It
might have already prescribed.

WHEREFORE, the judgment of the Tax Court is reversed and set aside. The assessments are cancelled. No costs.

SO ORDERED.

G.R. Nos. L-24020-21 July 29, 1968

FLORENCIO REYES and ANGEL REYES, petitioners,

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

Jose W. Diokno and Domingo Sandoval for petitioners.

Office of the Solicitor General for respondents.

FERNANDO, J.:

Petitioners in this case were assessed by respondent Commissioner of Internal Revenue the sum of P46,647.00 as
income tax, surcharge and compromise for the years 1951 to 1954, an assessment subsequently reduced to
P37,528.00. This assessment sought to be reconsidered unsuccessfully was the subject of an appeal to respondent
Court of Tax Appeals. Thereafter, another assessment was made against petitioners, this time for back income
taxes plus surcharge and compromise in the total sum of P25,973.75, covering the years 1955 and 1956. There
being a failure on their part to have such assessments reconsidered, the matter was likewise taken to the
respondent Court of Tax Appeals. The two cases1 involving as they did identical issues and ultimately traceable to
facts similar in character were heard jointly with only one decision being rendered.

In that joint decision of respondent Court of Tax Appeals, the tax liability for the years 1951 to 1954 was reduced to
P37,128.00 and for the years 1955 and 1956, to P20,619.00 as income tax due "from the partnership formed" by
petitioners.2 The reduction was due to the elimination of surcharge, the failure to file the income tax return being
accepted as due to petitioners honest belief that no such liability was incurred as well as the compromise penalties
for such failure to file.3 A reconsideration of the aforesaid decision was sought and denied by respondent Court of
Tax Appeals. Hence this petition for review.

The facts as found by respondent Court of Tax Appeals, which being supported by substantial evidence, must be
respected4 follow: "On October 31, 1950, petitioners, father and son, purchased a lot and building, known as the
Gibbs Building, situated at 671 Dasmariñas Street, Manila, for P835,000.00, of which they paid the sum of
P375,000.00, leaving a balance of P460,000.00, representing the mortgage obligation of the vendors with the China
Banking Corporation, which mortgage obligations were assumed by the vendees. The initial payment of
P375,000.00 was shared equally by petitioners. At the time of the purchase, the building was leased to various
tenants, whose rights under the lease contracts with the original owners, the purchasers, petitioners herein, agreed
to respect. The administration of the building was entrusted to an administrator who collected the rents; kept its
books and records and rendered statements of accounts to the owners; negotiated leases; made necessary repairs
and disbursed payments, whenever necessary, after approval by the owners; and performed such other functions
necessary for the conservation and preservation of the building. Petitioners divided equally the income of operation
and maintenance. The gross income from rentals of the building amounted to about P90,000.00 annually."5

From the above facts, the respondent Court of Tax Appeals applying the appropriate provisions of the National
Internal Revenue Code, the first of which imposes an income tax on corporations "organized in, or existing under
the laws of the Philippines, no matter how created or organized but not including duly registered general co-
partnerships (companias colectivas), ...,"6 a term, which according to the second provision cited, includes
partnerships "no matter how created or organized, ...,"7 and applying the leading case of Evangelista v. Collector of
Internal Revenue,8 sustained the action of respondent Commissioner of Internal Revenue, but reduced the tax
liability of petitioners, as previously noted.

Petitioners maintain the view that the Evangelista ruling does not apply; for them, the situation is
dissimilar. Consequently they allege that the reliance by respondent Court of Tax Appeals was unwarranted and the
1äwphï1.ñët

decision should be set aside. If their interpretation of the authoritative doctrine therein set forth commands assent,
then clearly what respondent Court of Tax Appeals did fails to find shelter in the law. That is the crux of the matter. A
perusal of the Evangelista decision is therefore unavoidable.

As noted in the opinion of the Court, penned by the present Chief Justice, the issue was 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, ..."9 After referring to another section of the National Internal Revenue Code, which
explicitly provides that the term corporation "includes partnerships" and then to Article 1767 of the Civil Code of the
Philippines, defining what a contract of partnership is, the opinion goes on to state that "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, ..."10

In support of the above conclusion, reference was made to the following circumstances, namely, the common fund
being created purposely not something already found in existence, the investment of the same not merely in one
transaction but in a series of transactions; the lots thus acquired not being devoted to residential purposes or to
other personal uses of petitioners in that case; such properties having been under the management of one person
with full power to lease, to collect rents, to issue receipts, to bring suits, to sign letters and contracts and to endorse
notes and checks; the above conditions having existed for more than 10 years since the acquisition of the above
properties; and no testimony having been introduced as to the purpose "in creating the set up already adverted to,
or on the causes for its continued existence."11 The conclusion that emerged had all the imprint of inevitability. Thus:
"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."12

It may be said that there could be a differentiation made between the circumstances above detailed and those
existing in the present case. It does not suffice though to preclude the applicability of the Evangelista decision.
Petitioners could harp on these being only one transaction. They could stress that an affidavit of one of them found
in the Bureau of Internal Revenue records would indicate that their intention was to house in the building acquired
by them the respective enterprises, coupled with a plan of effecting a division in 10 years. It is a little surprising then
that while the purchase was made on October 31, 1950 and their brief as petitioners filed on October 20, 1965,
almost 15 years later, there was no allegation that such division as between them was in fact made. Moreover, the
facts as found and as submitted in the brief made clear that the building in question continued to be leased by other
parties with petitioners dividing "equally the income ... after deducting the expenses of operation and maintenance
..."13 Differences of such slight significance do not call for a different ruling.

It is obvious that petitioners' effort to avoid the controlling force of the Evangelista ruling cannot be deemed
successful. Respondent Court of Tax Appeals acted correctly. It yielded to the command of an authoritative
decision; it recognized its binding character. There is clearly no merit to the second error assigned by petitioners,
who would deny its applicability to their situation.

The first alleged error committed by respondent Court of Tax Appeals in holding that petitioners, in acquiring the
Gibbs Building, established a partnership subject to income tax as a corporation under the National Internal
Revenue Code is likewise untenable. In their discussion in their brief of this alleged error, stress is laid on their being
co-owners and not partners. Such an allegation was likewise made in the Evangelista case.

This is the way it was disposed of in the opinion of the present Chief Justice: "This pretense was correctly rejected
by the Court of Tax Appeals."14 Then came the explanation why: "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
others, "joint accounts, (cuentas en participacion)" and "associations", none of which has a legal personality of its
own, independent of that of its members. Accordingly, the lawmaker could not have regarded that personality as a
condition essential to the existence of the partnerships therein referred to. In fact, as above stated, "duly registered
general 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"."15 The opinion went on to summarize
the matter aptly: "For purposes of the tax on corporations, our National Internal Revenue Code, include these
partnerships — with the exception only of duly registered general co-partnerships 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."16

In the light of the above, it cannot be said that the respondent Court of Tax Appeals decided the matter incorrectly.
There is no warrant for the assertion that it failed to apply the settled law to uncontroverted facts. Its decision cannot
be successfully assailed. Moreover, an observation made in Alhambra Cigar & Cigarette Manufacturing Co. v.
Commissioner of Internal Revenue,17 is well-worth recalling. Thus: "Nor as a matter of principle is it advisable for this
Court to set aside the conclusion reached by an agency such as the Court of Tax Appeals which is, by the very
nature of its functions, dedicated exclusively to the study and consideration of tax problems and has necessarily
developed an expertise on the subject, unless, as did not happen here, there has been an abuse or improvident
exercise of its authority."
WHEREFORE, the decision of the respondent Court of Tax Appeals ordering petitioners "to pay the sums of
P37,128.00 as income tax due from the partnership formed by herein petitioners for the years 1951 to 1954 and
P20,619.00 for the years 1955 and 1956 within thirty days from the date this decision becomes final, plus the
corresponding surcharge and interest in case of delinquency," is affirmed. With costs against petitioners.

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.

Santiago F. Alidio and Angel S. Dakila, Jr., for petitioner.

Office of the Solicitor General Ambrosio Padilla, Assistant Solicitor General Esmeraldo Umali and Solicitor
Felicisimo R. Rosete for Respondents.

CONCEPCION, J.:

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 (compañias 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. (compañias 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.